PROPERTY CONDITION DISCLOSURE FORMS: HOW THE REAL ESTATE INDUSTRY EASED THE TRANSITION FROM CAVEAT EMPTOR TO "SELLER TELL ALL"

Real Property, Probate and Trust Journal, Summer 2004 by Lefcoe, George

By reducing property values in flood plains, some legislators hoped the law would marginally discourage flood plain development as developers factored lower sale prices into their pro formas for new development. The statute requires other important information to be brought to the attention of buyers in natural hazard areas, particularly the need for flood plain insurance, the added cost of brush clearance and vegetative maintenance in high fire-risk zones, and the possibility that local building codes might prohibit reconstruction in high hazard risk areas or impose costly new standards. Owners in California's high fire-risk areas are often able only to obtain insurance through a state-run program called the FAIR Plan (Fair Access to Insurance Requirements) through which all home insurers subsidize the premiums of residents in high fire-risk areas.200 Buyers are advised to talk with an insurance agent, starting with the seller's agent, as part of their due diligence effort.

So much for developing a case in favor of the statute. Much can be said against the statute as well.

Compliance with California's Natural Hazard Disclosure Law costs sellers money. Most sellers have no practical alternative other than to pay specialized firms $50 to $100 per transaction to provide the required information. Considering that the median California home sales price was $376,000 in June 2003,20' this may not seem like much money. But with estimated compliance rates of ninety percent or more and nearly 600,000 resales of existing homes (new home sales are exempt), California sellers are spending $27,000,000 to $54,000,000 a year for natural hazard disclosure reports.

Natural hazard disclosures lull some buyers into assuming that these reports can substitute for an on-site geology study, but nothing could be further from the truth. The consultants, who gather natural hazard data from public agencies and retail it through brokers to home sellers, do not visit the site and can offer none of the site-specific information a buyer would need to assess the site's suitability for the buyer's purposes.

The list of natural hazard items in the statute is incomplete and can mislead some sellers and brokers into believing they have fulfilled their legal disclosure obligation by divulging information about only the six listed items. In California, a property located outside any of the six areas mentioned in the statute could still be at great risk due to environmental hazards. The statute does not mention landslides, liquefaction, radon, local fault activity, proximity to a nuclear power plant, areas where dangerous chemicals are stored or processed, ultramafic rock (naturally occurring asbestos zones), toxic landfills, or airport noise corridors.

Even before the revisions in the Civil Code, the larger brokerage firms were contracting for natural hazard disclosure information,202 and the firms providing it included most of this information in their disclosures.

Since the enactment of the Natural Hazard Disclosure Law, twenty to thirty firms have gone into the business of gathering and retailing environmental hazard information, with varying degrees of accuracy. Most of the property disclosure firms formed after the enactment of the statute confine their reports to the six enumerated items in the statute. Some of the newly formed firms providing the natural hazard disclosure information rely on inappropriate mapping information, such as maps drawn at a scale far too large for accurate translation to the boundaries of individual parcels, maps that are out of date, and property address data showing each parcel as a dot instead of accurately depicting the boundaries of each property.203 These firms get away with sloppy mapping procedures and providing incomplete reports because the statute exonerates the expert from responsibility "for any items of information, or parts thereof, other than those expressly set forth in the statement."204 By statute, sellers and brokers also are immune from liability for errors and omissions in the reports they purchase.205