We believe it’s important for members of the lending community to understand the factors that impact the cost of a Phase 1 environmental site assessment. This way, you can keep your clients in the loop, satisfy your need to perform due diligence, and manage expectations for your client during commercial real estate transactions.
Why Do You Need a Phase 1 ESA?
Phase 1 ESAs should be performed for every commercial real estate transaction. A Phase 1 ESA must be performed on any improved land. You should also book a Phase 1 ESA when unimproved land is involved.
If a Phase 1 ESA is not completed, your client could inherit major environmental issues. They could also be stuck footing the bill for thousands of dollars in clean-up costs. If they default on their obligations, your organization may incur some of these liabilities.
The key purpose of a Phase 1 ESA is to check for recognized environmental concerns (RECs). They help protect your firm and your client when buying land. These Phase 1 ESAs include many stages. However, the length of each stage will vary from site to site.
This variability makes it difficult to give a general price for all Phase 1 ESAs. Instead, we have identified factors that can affect your costs. You can use this information to determine whether your Phase 1 ESA will be relatively affordable or a bit on the pricier side.
How Much Will the Environmental Site Assessment Cost?
There are three main factors that impact your Phase 1 ESA cost. Let’s review each factor.
Location plays a huge role in Phase 1 ESA costs. If your site is easy to access, location-related costs will be low. Hard-to-access properties will be more expensive to assess. The more rural the property, the more you will pay for travel costs.
Location-based costs will be even higher if you use an out-of-state firm. The assessors will need to fly or drive to the site and have to pay for room and board. These expenses will be passed on to you. You should use a firm in or near your state when possible.
Sticking with firms in your region is beneficial for other reasons as well. For starters, nearby firms will be familiar with your state’s environmental laws. This familiarity allows them to better protect you and your client.
Firms in your state should also have relationships with permitting boards and environmental organizations. These relationships can help them expedite the entire review process for your client.
2. Property Size
Property size is another cost factor that you must consider. Inspecting one acre is far cheaper than assessing ten acres because site assessors have far less land to cover. However, there are times when a smaller piece of land may cost more to inspect than a larger lot.
For example, let’s say that you are doing two real estate deals and need ESAs. The first lot is four acres of improved land with many buildings. The second is seven acres of unimproved land. You would expect to pay more for the Phase 1 ESA on the four acres because assessors will need to inspect all buildings and systems. On the second lot, they only need to assess vacant land.
3. Site History
Site history is another important cost factor, especially for an older property that requires a deep dive into property records to review the historical usage of the land.
Sites with complex usage histories will have lots of records. The Phase 1 ESA team must carefully review all of these records, and this review can be difficult if records go back many decades.
If records are incomplete, assessors will need to conduct additional research. They do this to determine what the land has been used for in the past. Certain land uses will increase the chances of finding RECs, which could result in the need for a Phase 2 ESA and possibly Phase 3 remediation.
Need for Additional Assessments
If a Phase 1 ESA reveals the presence of RECs, the firm has more work to do. The next step is to book a Phase 2 ESA. This assessment is more in-depth than a Phase 1 ESA. Phase 2 ESAs involve collecting soil and water samples. The samples from the site will then be sent to a lab for testing. If contaminants are found, remediation will be needed.
Remediation makes the land safe for use. It involves hauling in new soil and removing contaminated dirt. It might also include purifying water to remove contaminants.
Phase 1 ESAs are relatively affordable. On their own, Phase 2 ESAs are not extremely costly either. However, Phase 3 remediation can be quite expensive. That is why Phase 1 ESAs are so important to help you set expectations for your client.
Using Phase 1 ESAs helps your client decide whether a property price is fair. If it needs significant remediation, they can make a lower offer. They can also back out of the deal altogether. When armed with this information, they can make an informed decision about whether to continue with the deal.
Don’t Go Cheap on a Phase 1 ESA
We understand that loan officers are tasked with getting deals done for their clients. You’re expected to help your clients save money on administrative expenses whenever possible. Balancing these responsibilities can be challenging, especially when it comes to ESAs.
You may be tempted to book the cheapest ESA that you can find. Don’t do it.
Instead, find a reputable firm that is highly experienced. Such a firm can deliver great value and will be very thorough in its review.
Skimping on your Phase 1 ESA can expose your client to undue risk. This risk could cause them to overpay for land. Even worse, they might be held liable if there are any hazardous substances on the property.
How to Obtain a Phase 1 ESA Quote
Phase 1 environmental site assessment costs vary from property to property. This variability makes it difficult to provide a broad cost range. However, you can easily obtain a free quote on Phase 1 ESA services.
To do so, simply connect with RSB Environmental. We will provide a no-obligation consultation and Phase 1 ESA cost estimate. Schedule a consultation today to get started.