Selling or purchasing properties in fire-prone regions, such as Pacific Palisades and Altadena in Southern California that were damaged by fire, comes with unique challenges. Wildfire risks and/or damage caused by wildfire not only affect property value and buyer interest but also involve legal, insurance, and regulatory considerations. Here are some of the primary concerns sellers, buyers and real estate professionals should keep in mind:
1. California Disclosure Requirements
California law mandates full disclosure of natural hazards, including wildfire risks. Sellers and their agents must provide buyers with a Natural Hazard Disclosure (NHD) report, which outlines if a property is in a designated Fire Hazard Severity Zone. If a property has been damaged by wildfire, sellers should disclose the extent of damage to the best of their knowledge.
2. Insurance Challenges
Securing homeowners’ insurance in fire-prone areas has become increasingly difficult and expensive. Many traditional insurers have pulled back from offering coverage, forcing buyers to rely on California’s FAIR Plan, which can be costly and provide limited protection. Real estate licensees should advise buyers to research insurance options early in the process.
3.Building and Zoning Restrictions
Many fire-impacted areas have strict building codes aimed at reducing wildfire risks. These may include requirements for fire-resistant materials, defensible space, and emergency access routes. Wildlife Corridors and Special Ecological Areas have been created since the time most houses in fire-prone areas were initially built. Potential buyers looking at a fire damaged property should research whether the restrictions on building in those areas will prevent them from re-constructing structures on the property.
4. Environmental and Safety Concerns
Previous wildfires may have left hazardous debris, contaminated soil, or weakened tree structures on a lot. Federal and State agencies have completed Phase One clean up testing on damaged properties from the Southern California fires, removing all hazardous materials and moving them to a Federal disposal site. Upon completion of the Phase One clean up, properties were given clearances to allow owners to obtain building permits. Phase Two clean up is underway. In Phase Two, owners may opt-in to the program where Federal and State crews will remove all remaining debris, including foundations, at no cost. Real estate agents should encourage owners and potential buyers to conduct due diligence regarding the clean up programs available under these governmental programs.
5. Infrastructure and Utility Issues
Some fire-affected lots may have limited access to essential utilities such as water, electricity, and sewage systems. In some cases, utility companies may require additional fire prevention measures before restoring services. Agents should advise a client that wants to sell or buy a property in a fire-affected area to verify the status of infrastructure availability before listing a property for sale or making an offer.
6. Buyer Financing and Property Value Volatility
Lenders may be hesitant to finance lots in high-risk fire zones, leading to more stringent loan requirements or higher interest rates. Additionally, property values in these areas can fluctuate depending on recent fire activity and ongoing mitigation efforts. There are State and Local regulations and programs to provide property tax relief to owners of fire-damaged properties. Real estate licensees should advise clients to research what property tax relief might be available with respect to a particular property.
7. Community and Local Government Regulations
Emergency Orders have been issued to accelerate the building permit approval process. Owners may rebuild their homes increasing the size by 10-20% or change the floor plan and still be eligible under these expedited permit issuance programs. However, some municipalities may impose additional fire-prevention measures, such as brush clearance zones and fire-safe landscaping. Buyers should retain an architect or contractor to assist in investigating the permitting process and developing plans for reconstruction.
8. Mortgage Assistance
Some federally-insured lenders have programs to forebear mortgage payments while a property is being reconstructed/repaired from wildfire damage. Owners should inquire of their mortgage holders to determine if such a program is available to them. Depending on the amount of the mortgage payment, a forbearance agreement might free up extra cash flow to put toward construction costs or alternate living expenses.
Best Practices for Selling Fire-Impacted Lots
- Work with fire mitigation experts to help buyers assess risks and necessary precautions.
- Encourage early engagement with insurance providers to prevent last-minute surprises.
- Direct buyers to local planning departments to understand permitting programs and rebuilding requirements.
- Highlight fire-resistant property features to showcase safety measures that may be in place.
- Be thorough in all disclosures to avoid future legal disputes. Utilize California Association of Realtors® Wildfire Disaster Advisory form where appropriate. The form contains a lot of information and resources that may be useful to a prospective seller or buyer.
Selling real estate in fire-prone areas requires additional diligence and expertise. By staying informed and recommending investigations by appropriate experts, real estate licensees can help buyers make confident decisions while mitigating risks associated with these properties.
Be sure you and your business are protected by Real Estate Errors and Omissions insurance. See California individual E&O plans or California real estate company E&O plans.
Contributing Attorney
Mark Carlson
Carlson Law Group
Mr. Carlson formed Carlson Law Group, Inc. in January 2005. He currently represents scores of real estate professionals in a wide range of matters. Mr. Carlson also represents individuals in the purchase, sale and lease of residential, commercial and industrial properties. Additionally, he has assisted several clients in building permit, zoning and other land use matters. Mr. Carlson’s practice focuses mainly on litigated matters, and he has handled over a dozen jury trials to verdict as well as several court trials. His trial experience includes two trials that each lasted over five weeks. Throughout his career, Mr. Carlson has strived to provide superior legal services while at the same time containing costs for his clients.
