It may seem obvious to you that homes near polluted properties or Superfund sites will be less valuable than homes that aren’t, but you may not yet understand just how damaging a property’s surroundings can be.
When it comes to real estate, location is king: a property’s surroundings determine its ultimate value. If, for instance, a home is adjacent to an environmentally blighted site, buyers may balk at paying the full asking price. It should be obvious, then, that any will be worth less to a buyer than a property in unblemished surroundings.
Notably, ATTOM Data Solutions’ Environmental Hazards Housing Risk Index determined that 17.3 million single-family homes and condominiums are currently located in in high-risk areas for environmental damage (as a result of proximity to Superfund sites, brownfields, or polluted properties).
To reach that conclusion, the ATTOM index analyzed homes in 8,642 U.S. zip codes and ranked their status across site categories with a grade of very low, low, moderate, high, or very high. The study’s findings are significant for two reasons: first, these 17.3 million properties represent an estimated market value of $4.9 trillion, and second, high-risk properties represent nearly 25% of the 68.1 million indexed single-family residences.
High Risk, Low Appreciation
The study corroborates an unsurprising fact — homes located in environmentally compromised areas show lower appreciation than those built in cleaner areas. For example, low-risk homes in the Superfund site category posted a 24.4% gain in home value since purchase, whereas high-risk homes saw a 19.6% increase. Researchers found similar results for homes surrounded by polluted sites and poor air quality.
Beyond damaging a home’s appreciated value, environmental threats can push a home “underwater,” or into a scenario where its mortgage loan balance has risen above its current market price. This phenomenon is particularly common for houses located in brownfields: 17.2% of brownfield properties were “seriously” underwater, the highest among all risk categories. Conversely, just 8.9% of homes that were at very low risk for brownfield intrusion went underwater.
“Home values are higher and long-term home price appreciation is stronger in zip codes without a high risk for any of the four environmental hazards analyzed,” said SVP at ATTOM Data Solutions Daren Blomquist. “Corresponding to that is a higher share of homes still seriously underwater in the zip codes with a high risk of at least one environmental hazard, indicating those areas have not regained as much of the home value lost during the downturn.”
Interestingly, Blomquist also said that the recent housing recovery has lured investors into the housing market — and they appear more willing to purchase homes in dodgy locations. “Environmental hazards likely impact owner-occupants more directly than investors,” he said “The higher share of cash sales we’re seeing in high-risk zip codes also suggests that this is the case.”
When clients come to you seeking advice on homeowners insurance for a new house, remind them to thoroughly inspect the property before a purchase. Fortunately, federal and state regulations require the seller to disclose any known environmental hazards — but while most buyers canvass the area for brownfields and other environmental risks, they may overlook other factors that could otherwise reduce safety of the home.
“The most common environmental hazards buyers inspect for are lead based paint, radon and mold,” explained Senior Regional VP at HER Relators Matthew L. Watercutter. “There are many other environmental issues buyers should consider, such as inspecting and testing for past meth labs in the property, the presence of asbestos and buried fuel tanks. Best practice as a buyer is to do your due diligence during the contract period, and know what you are buying.”
Once you have discussed potential environmental dangers with your client, you can craft a purchase contract and homeowner’s policy that protects them from any liability — or specify that another party is liable to pay for any cleanup. The same holds true for your commercial clients who may need property insurance for potentially compromised sites.
Ultimately, your job as an insurance agent is to ensure that your clients have all the facts about their home or business property. Be sure that you come prepared to help your clients make the best possible financial decisions.