Homeowners across the nation face increasing climate risks, with 15 confirmed climate-related disasters resulting in losses exceeding $1 billion this year alone as of July 9.
A potential wave of wary homebuyers prompts the question: Should sellers disclose the climate risks for their home?
With buyers moving between markets and often not aware of what awaits them in their new location, disclosing climate risks might seem like the right thing to do. On the other hand, buyers are required to do their own due diligence on every purchase. The climate within the real estate market is one that’s also in flux, due to the real challenges climate change is creating.
[Related:What Homebuyers Need to Know About Climate Change]
Climate Risks and Real Estate Market Knock-On Effects
While a lot of attention is paid to climate-related disasters in coastal areas prone to hurricanes and forested areas prone to wildfires, the actual breadth of climate disasters facing the average homebuyer is significant. Increased risk exists in every corner of the country, causing a rise in claims, more costly insurance and sometimes difficulty insuring homes entirely.
“Right now, the largest climate risks to U.S. homes are severe storms, hurricanes and wildfires, though the risk of each disaster varies greatly by region,” says Chase Gardner, data insights manager at Insurify in Cambridge, Massachusetts. “Severe storms are a significant threat across the central U.S., the Midwest, the South and even parts of the Northeast. Hurricanes are typically the largest climate risk in the South Atlantic and Gulf Coast region. Wildfires threaten large pockets of the Western U.S., including California.”
All of these areas now have additional stumbling blocks for prospective homebuyers who discover too late that they’re unable to easily insure them prior to closing. If you’re looking for a home in an area with limited impact from climate risk, Gardner suggests the Pacific Northwest.
Real estate agents can attest to how difficult it has become for sellers dealing with buyers who are met with eyebrow-raising insurance quotes prior to closing. Depending on how the contract is written, being unable to secure affordable insurance can be a valid reason to cancel a real estate contract.
“I have had cases in which the insurance is so high that it killed the deal,” says Désirée Ávila, a real estate agent with Charles Rutenberg Realty in Fort Lauderdale, Florida. “For example, one house had a new roof but it was a flat, mansard roof, which apparently is more expensive to insure. The buyer almost died when he saw an $8,000 per year policy. It frightened him so much he canceled. Another buyer was considering buying a house near the water and his policy was around $14,000 a year. He also canceled as a result.”
[Related:Hurricane Roof Clips: Are They Worth It?]
Are You Required to Disclose Climate Risks?
What you are required to disclose as a seller varies from market to market, but for the most part, climate risks are not a mandatory disclosure unless there has been an event that causes a permanent financial cost.
“We are required to disclose anything that would be considered a material fact,” says Ellen Pitts, agent and team lead with Harmony Realty in Raleigh, North Carolina. “In most cases, these are things that can be measured in the present, usually with a financial cost. As it pertains to climate change, this would likely mean anything that has changed your cost of owning the home significantly, but not potential future changes.”
Since these risks aren’t required disclosures and have no standard way to be divulged to potential buyers who may come from different markets, buyers may need to rely more heavily on their own agents. Local agents are changing how they approach this subject as climate risks in their area evolve.
“Two changes I have implemented are use of climate risk tools with my buyers to aid their home search and discussions around property insurance,” says Christopher Matos-Rogers, associate broker with Coldwell Banker Realty in Atlanta. “These discussions around property insurance can look like reviewing disclosures or conditions seen on showings that may negatively impact insurance, and possibly providing referrals to insurance brokers. Prior to several years ago, buyers weren’t concerned with insurance and typically went with their go-to company.”
[Related:Is it a Buyer’s or a Seller’s Market?]
Should Sellers Disclose What They Know?
Every real estate listing has optional fields for notes that can be added to the listing. As climate change creates more woes for the market, real estate agents largely agree that you should tell potential buyers what you know about existing threats, even if you think it might scare a few away.
“In my experience, out-of-area buyers are particularly vulnerable to being caught off guard by climate risks they may not be familiar with,” says Crystal Olenbush, real estate agent at Austin Real Estate in Austin, Texas. “That’s why I always make a point to discuss these risks openly, even if the law doesn’t require me to. It’s just the right thing to do.”
When all else fails, tell buyers what you know without speculating. If you know that you now have to carry extra insurance for wind or that you upgraded your siding after the last wildfire, it’s better to tell the whole story than to wait for a lawsuit to come.
“Cover yourself legally — disclose, disclose, disclose,” says Ávila. “You can’t change the climate, but you can mitigate your risk of any legal action against you by truthfully disclosing everything you know about the property, including any climate-provoked risks of which you are aware.”
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Should You Disclose the Climate Risks to Your Home? originally appeared on usnews.com
