Natural Hazard Disclosures (NHD’s)
Real Estate Sellers and Brokers are legally required to disclose if the property being sold lies within a natural hazards area (for some fun reading, see section 1103 of the California Civil Code).
FYP (For Your Pitch)
The law specifies six natural hazard types be disclosed on a form called the Natural Hazard Disclosure
Statement (NHDS). The six required hazard types are:
1) FEMA Special Flood Hazard Area
2) Dam Inundation Area
3) Very High Fire Hazard Severity Zone
4) Wild Land Area that may contain substantial forest fire risks and hazards
5) Earthquake Fault Zone
6) Seismic Hazard Zone
Some NHDS provide additional disclosures, notices and advisories (extra credit), such as:
1) Radon Gas exposure
2) Airport influence area
3) Megan’s Law notice
4) Military ordnance
This stuff is important
One may view these types of Disclosures as “boilerplate” or just part of the mountain of documents that need to be signed off on to get to the end of their real estate transaction. However, having supported thousands of Agents in their disclosure process, we are here to tell you that:
1) NHD’s are a valuable tool as you serve as a trusted advisor to your clients.
2) Not all NHDs are created equal. There are specific features and provisions (which we’ll point out) that you should be on the look out for.
3) If buyers find out about these disclosures after an offer has been accepted, they’re likely to pull out of the deal or engage in heavy renegotiation, yikes!
Please take a minute to settle into your favorite reading chair as we delve into the sexiest and our favorite part of Real Estate, disclosures!
NHD’s can be leveraged to get to Offer Accepted, faster - here’s how:
This winter has been cold and wet, which is incredible if you like skiing; however, it’s less remarkable if you are in a flood zone. Just last month thousands of Sonoma County residents were evacuated due to rising flood levels. Moreover, floods aren’t the only thing on the minds of buyers and sellers today. Last year almost 20,000 structures were lost to fires throughout California. As an agent, it’s your duty to protect your client’s best interest throughout the home sale process. Which means knowing the ins and outs of the NHD report (including the fine print). In fact, agents share equal liability in disclosing Natural Hazards. Even if you are representing the buyer, you need to be confident in the NHD report selected by the Listing Agent…
The silver lining here is that you can take this added responsibility and turn it into a competitive advantage. Helping your client to understand the risks associated with the homes that they are interested in, puts you into the position of a Trusted Advisor, which is something that your competition wishes they had (we’re looking at you iBuyers).
NHD Providers - whom to trust?
Thankfully a handful of companies have taken it upon themselves to synthesize the natural hazards maps and designations within California into a handy report. These reports serve as an easy button for your NHD disclosure compliance. Simply call up your trusty NHD provider, let them know a bit of information about the listing and they’ll provide you with a fully featured NHD report tailored to your listing; saving you hours of time researching California hazard maps and typing up a report on your own.
Having an easy button is great; however, if it becomes too much of an afterthought, you may miss some of the critical details. Here are the top two things to look out for when selecting your NHD provider.
1) Written by an expert - As you are relying on a third party for your NHD report, you want to make sure that the company that you select employs subject matter experts, behind the scenes, to ensure the data is accurate, precise and up to date. Again, the California Civil Code (see section 1103.4) requires that the report is prepared by a “licensed engineer, land surveyor, geologist, or expert in natural hazard discovery”. Make sure you are confident in the credibility of your NHD provider.
2) Equal liability - Agents share equal liability in the disclosure of natural hazards. Even if you didn’t select the NHD provider, make sure you are confident in the content of the report. If you aren’t confident in the NHD provider that was selected, it’s worth procuring a report from a provider that you trust. Saving a few bucks on a low-quality NHD report is a bad look if you wind up in court.
Read the fine print
No one likes to read the fine print, but unfortunately, that’s where some NHD providers sneak in unsavory terms that could adversely affect you. Make sure to search for the following terms in your NHD Report. If you see these terms, make sure that you are ok waiving some of your rights:
Common Terms + Definitions
“No duty to defend”, “No obligation to indemnify”, or “Not responsible or liable for errors”- The reason you’re using an NHD provider is for liability protection. These statements make it clear that in the event of an error, you’re on your own!
“The recipients and each of them, expressly waive the benefit of California Civil Code 2778.” - California Civil Code 2778 confirms the NHD Company’s obligation to reimburse the agent’s and seller’s legal expenses and establishes the NHD company’s obligation to defend you and the seller. By waiving this benefit, you’re surrendering the benefit of a defense.
“Limited liability to only $100,000” - Legal fees can get expensive quickly. It’s best to have no limit.
“Should it become necessary for the Company to give testimony in court or any hearing or consult with Client... a separate arrangement and additional fee agreement will apply. Client shall be responsible for fees and charges to the Company...” - This statement verifies seller and agent (referred to as Client) can expect to spend additional money if the NHD provider has to defend its reports, and you will be billed if they represent you in court.
You’re An NHD Expert now!
Knowledge is power and now that you know what to look for, choosing the right NHD provider becomes a lot more straight forward. Talk to your Rep, read the fine print, when in doubt disclose, advise when you can. These are the steps to meet your legal duty as a Realtor and continue to be the trusted advisor that your clients hired, with good reason.
Disclosures.iO - We build tools that help you do your job more efficiently. With Disclosures.io, agents get to the signing table faster. If you want to bring the efficiency of Disclosures.io to your brokerage, contact us at firstname.lastname@example.org.