Wildfires and subsequent winter rains have affected thousands of Northern California homes since October. If you are considering purchasing a property affected by the fires, be sure you know how to protect yourself from unanticipated costs related to the clean-up or rebuilding process.
Recently, the North Bay Association of Realtors released a fire disclosure form to assist Realtors in their work with clients, and it brought up some interesting issues.
In a regular real estate transaction, it is common for buyers to sign a purchase agreement with certain contingencies. That is to say, buyers typically agree to purchase a property once various inspections confirm that the property is in good condition and the title is clear. Inspections often include pest and fungus, well or septic, roof, HVAC, and others.
In a real estate transaction involving a property affected by the fires, a whole new set of contingencies should be considered. Soil and water may be contaminated from the fire debris or clean-up efforts and the earth under the building site may no longer be stable (especially if the trees that used to secure things are no longer standing). Even if the property in question was not burned, if it is in the same neighborhood as those that did, it may be contaminated or affected by other issues.
Buyers should hire an environmental consultant and/or engineer to test the soil and water—both drinking water and water for agricultural use—and to determine whether the land is safe to rebuild on. They should also review the pamphlet on environmental hazards published by the state of California, which goes into detail about the dangers of hazardous waste.
Hazardous waste is anything left over from a manufacturing process, chemical laboratory, or a commercial product that is dangerous and could hurt people, animals, or the environment. Sellers are required to disclose whether they are aware of any environmental hazards such as asbestos, formaldehyde, radon, lead-based paint, fuel or chemical storage tanks, or contaminated soil or water on their property. The thing is, they obligated only tell you what they know (or should reasonably know).
Even if the property has been cleaned and appears ready for a new home to be built, buyers should check with a lawyer to make sure they can use the seller’s architectural plans and that there are no debris removal liens.
Debris removal liens can come in the form of a mechanic’s lien. If work is done on a property without a lien-free endorsement and a contractor or subcontractor isn’t paid, that contractor can file a mechanic’s lien. When a buyer purchases the property without confirming that the title is clean (has no liens), the buyer can end up being responsible for paying those unpaid contractors.
Once the buyer confirms the property is safe and lien-free, he or she should check with an insurance agent to see if homeowner’s insurance is available in the area. Insurance companies are becoming more restrictive about which properties they’ll insure. The replacement cost of October’s wildfires in Mendocino, Lake, Napa, and Sonoma Counties was upwards of $9 billion, so it’s understandable that insurance companies are feeling a little nervous about fire-prone areas.
Finally, because the fires made our housing shortage worse, buyers should get pre-approved for a loan before they start shopping for a new home. When sellers have to choose among multiple offers, they often choose the safe bet—the buyer with pre-approval. To learn more about getting pre-approved (first choice) or pre-qualified (second choice) for a loan, visit my blog on the subject at richardselzer.com/2013/04/15/qualifying-for-a-loan.
If you have questions about getting into real estate, please contact me at firstname.lastname@example.org or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.