In the world of commercial real estate, the effects of environmental contamination on real estate transactions can be severe. If contamination is present, it could ruin the deal altogether, and if contamination goes undetected, your client could incur major expenses. The land may even become unsuitable for its client-intended purpose.
When environmental contamination is present, the stakes are high for commercial real estate brokers and your clients, so you must understand the effects contamination can have on deals. More importantly, you need to have a plan in place to be able to respond when contamination is present.
How Contamination Impacts Commercial Real Estate Deals
Severe contamination can cause your real estate deal to be materially altered or canceled. After finding out about contamination, the buyer may decide they don’t want to move forward with the property, which is understandable because of the risk involved.
To make the deal go through, you may have to negotiate with the seller to bring the price down to the buyer’s satisfaction, but this can cause friction during the deal. If negotiations break down, everyone’s time will be wasted.
Contamination can also have a long-term impact on your professional reputation. For instance, say that the contamination goes undetected until after the transaction is closed, but your buyer later finds out that the land does not meet their needs due to pre-existing contamination.
Your buyer will be frustrated with your firm, as you were supposed to look out for their best interests. The client will be unlikely to work with your firm again in the future and might also share their bad experiences with others, further damaging your reputation.
Responding appropriately to contamination will not just help your clients. It will also enable you to protect your firm’s image. The question is, how should you respond if you think a property is contaminated?
What You Should Do if a Property Is Contaminated
If you think a piece of land might be contaminated, you must get a team involved immediately. We recommend working with our team of experts at RSB Environmental.
- Our experts will assess the site.
- We will determine whether contamination is present.
- If there is contamination, we will determine the scope of the contamination.
After performing the assessment, we can provide cleanup cost estimates to help you and your client determine how to move forward.
If cleanup costs are very high, your client might cancel the deal, but if the costs are manageable, they might decide to move forward after all, especially if you use our findings as a negotiating tool.
For example, let’s say that your client wants to buy a piece of property listed for $2M, but contamination is present. Based on our report, you’d know that cleanup will cost about $150,000. You could then use this information to negotiate with the seller to bring the price down to $1.85M (or lower). You could also ask the seller to incur the cost of fixing the property.
Our services help protect your client from buying contaminated land. It will also enable them to get a fair purchase price for the property.
How You Can Save Deals with RSB Environmental
RSB Environmental offers several services that can help you save your real estate deals. Our most basic is known as a Phase 1 environmental site assessment (ESA).
– Phase 1 ESAs identify if there are any potential hazards present. Phase 1 ESAs are cost-effective. As such, you should book one during any commercial deal.
If a Phase 1 ESA reveals any potential hazards, you will need a Phase 2 ESA, during which we will obtain soil and groundwater samples. We will then check for contamination. If contamination is present, we will provide a cleanup cost estimate.
– Phase 3 ESA/remediation is the final type of site assessment we provide. This type of assessment involves cleaning up a property and removing contamination to make a property safe for commercial use.
Bottom Line: Find Support Protecting Against the Effects of Environmental Contamination on Real Estate Deals
As you can see, the effects of environmental contamination on real estate deals can be severe. That is why you must perform your due diligence.
Scheduling a Phase 1 ESA takes the mystery out of commercial real estate deals. You can find out whether contamination is present. You can use these findings to negotiate a fair price for your clients. Phase 1 ESA data will also reveal if the land will require additional environmental services.
As you know, you only have a limited time to perform due diligence. That is why finding a Phase 1 ESA partner to provide fast turnarounds is essential. The quicker you get your report back, the more time your client has to weigh their options.
When time is of the essence, RSB Environmental is your ideal partner. We can offer fast turnarounds of 7-10 business days. We can provide Texas clients with even faster turnarounds of about 5 business days. If your deal requires a Phase 2 ESA, we can also provide those services.
Want to learn more about our scope of services? If so, then contact us for a free consultation.
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