Disclosures

Disclosures May Hurt a Deal – Non-Disclosures Will Get You Sued!

Lsst year I was contacted by an Underwriter about a comment I made on an appraisal report that I prepared. It's unusual for an Underwriter to contact an appraiser directly, but, hey I don't mind. What I am referring to is a comment about an Environmental Concern within the subject property's market area. More specifically, a southwestern phenomenon known as Earth Fissures.

Fissures are cracks in the ground that develop when groundwater is pumped out faster than it can be replenished. A rapid drop in the water table dries out surrounding land, causing tension cracks that rise to the surface. If a fissure occurs in the open desert and there's no one living on or near it, it's not a problem. It's when growth and development starts building roads, homes, businesses, electrical lines and pipelines near them when you have the risk of them opening up after a rainstorm and causing damage to the infrastructure. The county requires all structures to be built at least 50 feet away from fissures. Fissures can be filled in but will never go away.

The additional comment I included in the report did not specify any fissures on or near the subject property, but did specify the subject's market area was known to have fissures present. Although no adjustments were made for the final value (since no fissures or evidence of fissures were noted at the time of inspection of the subject property and no disclosures were made by the seller or realtor in the sales contract) it still was a shock to the Underwriter that I would include a comment about earth fissures. Also, my research of the comparables in the market area that were used in the report, did not reveal any information or disclosures about fissures on or near them, which I found quite disturbing. The deal did go through and closed.

Buyers, Sellers, and Realtors repesenting buyers or sellers, should be aware and disclose any information about fissures. The seller is required by Arizona law to disclose such information. If the seller is unaware of any fissure problems, do your research and check the Arizona Geological Survey maps or hire a geotechnical engineer to survey the land before buying or selling. There have been several news articles over the past few of years of homeowners sueing sellers and realtors for non-disclosure of information in Arizona. I'm pretty sure it happens in other parts of the Country, but perhaps not for the same reasons. Just another reason why AACAZ and other appraisers need a complete copy of the sales contract for the appraisal report, and why realtors need to include and disclose necessary information in their listings.

The Arizona Geological Survey is undertaking a task to map all known fissures and fissure areas in the State of Arizona (Chochise, Maricopa, Pima, and Pinal Counties). According to Mike Conway, Ph.D., Section Chief, Arizona Geological Survey in Tucson, it will take about 3 to 5 years to complete the mapping. At that time the data is handed off at 1:24,000 scale to Arizona State Lands Dept., which they in turn have 90 days to make the data available to the public. Their web site is www.azgs.az.gov . They currently have preliminary fissure maps for Maricopa and Pinal Counties showing fissures in the areas of: North Valley (Phoenix & Scottsdale), West Valley (Goodyear & Litchfield Park), East and SouthEast Valley (Apache Junction, Queen Creek, Chandler Heights, Santan Heights), North/NorthEast Pinal County (Queen Creek, Santan & Chandler Heights). Fissures are found mostly in the central and southern part of Arizona (Maricopa, Pinal, Pima Counties). Pinal County, one of the nation's fastest growing counties in 2005 and 2006, is also home to three-fourths of the state's known fissures.

Lenders, Brokers, and Loan Officers should be concerned that the appraisal reports they order are being done completely, with research and information necessary and required, to arrive at an accurate value of the subject property and are providing a clear understanding of why and how the final value, is what it is. Perhaps fissures don't seem to be much of a concern to many, but I have lived in Arizona all my life and I know with the growth increase in population, development and city sprawl, the demand for water (especially ground water) is always on the increase. This demand will definitely have an impact and increase the presence of fissures and environmental concerns which will effect real estate values in certain areas.