Sellers must disclose any material defects, problems, or issues with a property that may influence a property’s price or the buyer’s decision to purchase. The actual detail of what those disclosures must cover varies from state to state. In terms of natural hazards, California is currently the only state where Natural Hazard Disclosure (NHD) reports are mandatory for residential property transactions. However, they are a useful tool for real estate licensees, buyers and sellers in other states too. And, here’s why…
There are hazards outside of California!
Hazards do exist outside of California — it’s not an isolated issue. Many properties across America are located in zones prone to fires, potential flooding, earthquakes or other hazards. NHD Reports deep dive into the public records to provide a comprehensive list of all hazards relating to the property. To check out the depth of content provided, view the sample report available from MyNHD. It covers flood, fire, and earthquake zones, landslide hazards, military ordinance areas, abandoned water, oil or gas wells, naturally occurring asbestos/radon gas advisory, and a range of other hazards. MyNHD reports are available for 48 states (reports are not currently available for Alaska and Hawaii).
An informed decision now minimizes the chance of a lawsuit later
As a real estate licensee or seller, you may be thinking that handing over a report about hazards is counterproductive to talking up a property’s features. The fact is that a ‘failure to disclose’ continues to be one of the main reasons buyers sue a seller or real estate professional. Lawsuits based on misrepresentation claims, allegations of fraud, or negligence are common: Unhappy buyers who discover issues post-purchase that they believe should have been disclosed will want compensation for those issues. For example:
- If, three months after they move in, a buyer finds out their insurance cost is through the roof due to an undisclosed hazard nearby, they are going to be upset.
- If a buyer loses their home to flooding, and they didn’t know that was even a risk, they are going to want someone to pay for that.
- If a family member, friend or pet is injured in an abandoned mine on the property, and buyers weren’t told about the hazard, they will want someone to be accountable for that.
A buyer needs to have all the facts to truly make an informed decision about a property. Having all the information upfront can avoid issues later.
Buyers do still buy properties that have nearby hazards. Major natural disasters don’t happen every day. So, sometimes it’s a case of ‘out of sight, out of mind’. Astute buyers might just try to negotiate on price to get a better deal.
Lawsuits can be costly to defend, even if you’ve done nothing wrong or you weren’t aware of a hazard. It’s a stressful and costly process that can damage your reputation (and your finances) as a real estate licensee. Defending lawsuits will also consume your valuable time when you just want to be out selling more properties. Doing everything within your power to avoid a lawsuit is the best strategy.
NHD Reports are better than hearsay
Some locations across America have a reputation for hazards — California wildfires and earthquakes, flood risk in Florida, or hurricanes in New Orleans. But for many locations, the hazards are not as well known. NHD Reports provide hard data which is far better than hearsay about the hazards in a community. They provide the buyer, seller, and real estate professionals involved in the sale with an improved level of confidence and certainty going into the transaction.
Seller’s Protection Plan
Real estate licensees who have a CRES Errors and Omissions insurance policy have special access to our Seller’s Protection Plan. When you purchase a NHD Report for your client, sellers will get an automatic $25,000 Seller’s Protection Plan. This provides coverage for 180 days after their property closes (with an option to extend for an additional 180 days). Should the buyer make a claim against your seller within that period because they believe a hazard wasn’t disclosed, the Seller’s Protection Plan will help to:
- Pay for legal costs to defend the claim*; and/or
- Settle out of court*
*(up to plan limits)
Real estate licensees can use CRES Seller’s Protection Plans to drive new listings. It provides significant benefits to sellers. Being able to offer these to prospective sellers can help you to stand out among your competitors. (https://www.cresinsurance.com/insurance/real-estate-errors-omissions/sellers-protection-plan/is also available with CRES E&O plans.)
Want to know more about Natural Hazard Disclosure (NHD) Reports?
You can find out more about NHD Reports on the CRES website. You can even download sample reports for free to see exactly what’s included. No matter where you’re located, if you have any questions about NHD Reports, contact CRES today at 800-880-2747. Our team are real estate insurance specialists and we’re here to support you in your real estate business.