Environmental Due Diligence: a Necessary Edge in Today's Real Estate Market

As many have realized, today's real estate market is fiercely competitive. Every seller, whether it's a commercial or residential property, needs a little something extra to push the deal to its final conclusion. In today's world, it truly is a buyer's market, and anything that you can do to make your property more appealing to those buyers just might be the tipping point that you need.

One such advantage is sometimes overlooked by both real estate agencies and developers. It's a simple report, but it can become a very powerful tool. It' is commonly referred to a Phase I Environmental Site Assessment, or Phase I ESA. This article will provide a brief overview of what exactly a Phase I ESA entails, what it can be used for, and why it should be an integral part of any real estate transaction that you might be associated with it.

A Phase I ESA is essentially a background check on a certain piece of real estate. Just like a private investigator is sometimes hired by professional companies to research a potential new hire, an environmental professional investigates the history and uses of a potential real estate parcel. Each piece of land, whether it is commercial or residential, has a history. At one point it was divided from the surrounding neighbors into a plot of land. At a time further down the line, perhaps it had a house erected on it. Or perhaps a gas station occupied it during the early 1960's. Or yet again, perhaps it was a wheat field for a nearby farm. The job of the environmental professional is to find out what the property was used for, what occupied the land, and if there was any natural areas of interest such as wetlands or area prone to landslides.

Once this information is obtained, the real advantage of the Phase I ESA can be realized. By using his experience, an environmental professional can determine if there are any recognized environmental conditions associated with the property. A recognized environmental condition is essentially a condition of the property that could cause harm, or potential harm to the environment of the property or the potential occupants of the property in question. A more detailed definition of a recognized environmental condition is provided in the standard guidance document for Phase I ESA reports, commonly referred to as ASTM Standard E-1527-05, which was finalized in November of 2005. While technically not a legal standing, the recommendations within it carry a high amount of weight with the federal and state laws associated with real estate transactions.

So the question becomes, why should a seller invest in obtaining a Phase I ESA? Simply put, a Phase I ESA provides a level of assurances concerning the state of affairs on the property. By knowing its history, and whether or not there are any environmental concerns or potential concerns associated with the property, the buyer can truly see if investing in your property would be a fruitful one. Indeed, there are currently laws within the United States that indicate that a buyer can claim to have a "Innocent Land Owner" Defense if an undiscovered problem arises with the property, provided that they have a quality Phase I ESA report.

As you can see, having the ability to offer a Phase I ESA to a potential buyer of a property can indeed provide an advantage over your competition. So of course, the next question is how much does such a report cost? Phase I ESA reports can range in price, but ones of detail and quality usually cost between $1,500.00 and $4,000.00. Now, this price might seem a bit steep, especially in today's real estate market, but the cost can easily be offset through various closing costs, or changes in mortgage payments over time. Indeed, if the cost of having such knowledge of the property's conditions and history can be managed, why not have it at your disposal?