Modern Real Estate Practice in Pennsylvania 12th Edition Chapter 3: Environmental Issues in Real Estate

2 ©2012 Kaplan, Inc. 3Environmental Issues in Real Estate Learning objectives –Identify the basic environmental hazards an agent should be aware of in order to protect the client’s interests –Describe the warning signs, characteristics, causes, and solutions for the various environmental hazards most commonly found in real estate transactions –Explain the fundamental liability issues arising under environmental protection laws –Distinguish lead-based paint issues from other environmental issues

Disclosure Provide consumers with information needed to make accurate decisions Physical conditions –Issues can be negotiated –Full knowledge is goal Environmental conditions –Hazardous and toxic substances –Legal and practical disclosure 3 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Material fact: if a reasonable purchaser would consider it in making a decision as to whether to purchase or how much to pay Defect: a problem with any portion of a property that would have a significant adverse impact on the value or that involves unreasonable risk. –The fact that an element or system is near, at, or beyond the end of the normal useful life is not by itself a material defect. (From Pennsylvania Association of REALTORS ® (PAR) “Agreement of Sale”) ©2012 Kaplan, Inc. 4

5 3Environmental Issues in Real Estate Hazardous substances –Asbestos –Lead-based paint and other lead hazards –Radon –Formaldehyde –Carbon monoxide –Polychlorinated biphenyls (PCBs) –Chlorofluorocarbons (CFCs) –Mold –Electromagnetic fields

6 ©2012 Kaplan, Inc. 3Environmental Issues in Real Estate

Asbestos –Fire-resistant mineral –Used as insulation and to strengthen other materials –Highly friable (breaks down) –Removal expensive and difficult –Encapsulation (seals off disintegrating asbestos) ©2012 Kaplan, Inc. 7

3Environmental Issues in Real Estate Carbon monoxide –Colorless, odorless, deadly gas –By-product of incomplete combustion –Use carbon monoxide detectors ©2012 Kaplan, Inc. 8

3Environmental Issues in Real Estate Mold –Requirements to thrive Moisture Oxygen Organic food source No light –No public health standards –Many lawsuits –Ask questions From EPA Mold Handbook (Web site) ©2012 Kaplan, Inc. 9

3Environmental Issues in Real Estate Lead-based paint and other lead hazards –Pigment and drying agent in alkyd oil-based paints –Interior and exterior surfaces –Children younger than six most vulnerable –Effects not reversible Learning disabilities Developmental delays Reduced height Poor hearing ©2012 Kaplan, Inc. 10

3Environmental Issues in Real Estate Lead-Based Paint Hazard Reduction Act –Selling/leasing residential, pre-1978 house: Disclose known lead paint hazards. Provide purchaser with known records –Disclosure attached to sales contracts –Pamphlet given to buyers/tenants –10 day period to test (Not tenants) –No one has to test or mitigate Licensees must ensure that all parties comply with law ©2012 Kaplan, Inc. 11

3Environmental Issues in Real Estate Lead-Based Paint Hazard Reduction Act –Renovator requirements Provide pamphlet before starting work Workers must be certified by Environmental Protection Agency (EPA) –Discovery Paint inspection Risk assessment EPA guidance pamphlets ©2012 Kaplan, Inc. 12

3Environmental Issues in Real Estate Radon –Naturally occurring, colorless, odorless, tasteless, radioactive gas –Picocuries contained in liter of air (pCi/L –EPA’s “action level” is 4 pCi/L –Home testing in 48 hours for real estate transaction No one has to test or mitigate ©2012 Kaplan, Inc. 13

3Environmental Issues in Real Estate Formaldehyde –Colorless chemical with strong odor –Used in many household products –Formaldehyde is common allergen Urea formaldehyde foam insulation (UFFI) –Legal, rarely used –Problems develop shortly after use –Must disclose known presence 14 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Electromagnetic fields (EMFs) –Generated by movement of electrical currents High-voltage lines Many household electrical appliances Considerable controversy –Conflicting evidence Licensees should remain neutral 15 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Polychlorinated biphenyls –Fire-resistant chemical compounds Transformers, electrical motors Caulking compounds, and more –Banned in 1979 –Concern for commercial and industrial licensees Cleanup expensive Severe fines and penalties 16 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Chlorofluorocarbons (CFCs) –Nontoxic, nonflammable chemicals Used as refrigerants Aerosol sprays Paint solvents, and more –Deplete the ozone layer –Reduced use by global treaties –Use only EPA-certified technicians 17 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Groundwater protection –Groundwater exists under earth’s surface –Water table: natural level at which ground is saturated Contamination may occur far from source –Run-off from waste disposal sites –Leaking underground storage tanks (USTs) –Pesticides and herbicides ©2012 Kaplan, Inc. 18

3Environmental Issues in Real Estate Safe Drinking Water Act (SDWA) –Protect public health by regulating public drinking water supply –EPA can set national health-based standards for drinking water –Water suppliers must report problems within 24 hours Pennsylvania disclosure statement requires identification of source of drinking water 19 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Underground storage tanks (USTs) –3 million to 5 million underground storage tanks exist Gas stations, auto repair shops Printing and chemical plants Wood treatment and paper mills Dry cleaners and process waste plants –Many forgotten –Often leak petroleum-based contaminants –Contaminate water supplies 20 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Registration of USTs –Regulated by federal EPA –At least 10 percent is underground –Petroleum and hazardous substances Installation and maintenance Corrosion prevention and overspill prevention Monitoring and record keeping From EPA Web site ©2012 Kaplan, Inc. 21

3Environmental Issues in Real Estate Exempt USTs –Less than 110 gallons –Less than 1,100 gallons farm and residential noncommercial motor fuel –Heating oil burned on premise –On or above floor of basements or tunnels –Septic tanks and collecting storm water From EPA Web site ©2012 Kaplan, Inc. 22

3Environmental Issues in Real Estate Waste disposal sites –State and federal laws impose strict requirements –EPA regulates federal UST program –Tanks containing hazardous substances or petroleum products Landfills –Underground drainage pipes –Capping 23 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Brownfields –Defunct, derelict, or abandoned commercial or industrial sites –May contain toxic wastes –Contributes to decline of urban property values Small Business Liability Relief and Brownfields Revitalization Act –Provides funds to assess and clean up –Shields innocent developers from liability –Encourages developing abandoned properties 24 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate In Pennsylvania –Uniform Environmental Covenants Act Promotes rehab or recycling of brownfields Requires environmental covenant when property cleaned up –Implemented by Department of Environmental Protection (DEP) –Registry lists all properties with attached covenants 25 ©2012 Kaplan, Inc.

Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Superfund Law –Since 1980, clean up hazardous waste sites and respond to spills –Identify potential responsible parties (PRPs) and order them to clean up –Administered and enforced by EPA –Established $9 billion fund (Superfund) 26 ©2012 Kaplan, Inc. From EPA Web site

3Environmental Issues in Real Estate Superfund liability –Strict liability –Joint liability –Several liability –Retroactive 27 ©2012 Kaplan, Inc.

Superfund Amendments and Reauthorization Act (SARA) Created innocent landowner immunity clause –Bought subsequent to polluting act –Actual or constructive knowledge involved –Reasonable precautions taken prior to, and after, purchase Impact on value of landfill and hazardous waste sites –Vary in size and direction –Both declines and increases of property values –Differences vary significantly –Remedial action can reverse decline –Clean up delays result in more permanent declines 28 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Water acts –Clean Water Act — governs discharge of oil and hazardous substances –Rivers and Harbors Act (1899) — permits for building wharf, pier, or other structure in water outside established harbor lines –Coastal Zone Management Act — addresses coastal environmental problems 29 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Pennsylvania Department of Environmental Protection –Federal laws regulate (EPA) –State has DEP to oversee state laws –Must keep abreast of current regulations because they change 30 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate In Pennsylvania: Sewage Facilities Act –Notification to prospective buyers If property is not serviced by public sewage system and no community sewage system is available Permit for individual system must be obtained Extensive notices in the Agreement of Sale 31 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Discovery of environmental hazards –Licensees expected to know about real estate –Refer questions to environmental assessors –Encourage testing as contingency Environmental site assessments (ESA) to show due care Environmental Impact Statements (EIS) for federally funded projects 32 ©2012 Kaplan, Inc.

3Environmental Issues in Real Estate Steps to minimize legal liability –Discover –Disclose –Document 33 ©2012 Kaplan, Inc.