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

By
Real Estate Appraiser with Accurate Appraisals & Consulting of AZ

Recently I was contacted by an Underwriter about a comment made on a report I did.  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 a subject property's market area.  More specifically, a southwestern phenomenon known as Fissures.  They can start as a small little ripple in the desert crust and with a little bit of rain can trigger an earth fissure to tear open a crack large enough to swallow a car or part of a house, and can damage foundations, driveways, and other structures.

Fissures are cracks in the ground that develop when groundwater is pumped 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 desert and there's no one living on it, it's not a problem.  It's when you build roads, homes, electrical lines and pipelines near them where you have the risk of them opening to 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.

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, is also home to three-fourths of the state's known fissures. 

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 fissures.  Also, my research of the comparables 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.                                                      

Just another reason why appraisers need a copy of the complete sales contract for the report and why realtors need to include necessary information in their listings.

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 also, but perhaps not for the same reasons.

The Arizona Geological Survey is undertaking a task to map all known fissures and fissure areas in the State of Arizona.  According to  Michael Conway, Ph.D., Section Chief, Arizona Geological Survey, Tucson,  mapping of 22 priority areas throughout Cochise, Maricopa, Pima, and Pinal Counties in Arizona will take about 3 to 5 years. 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).

Mortgage Brokers, Lenders, 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 is 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, but I have lived in Arizona all my life (over 50 years) 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.  Another recent article about the building of a "World Class Water Theme Park" in the central/east valley, which will require a tremendous amout of water, will definitely have an impact on the ground water, and increase the presence of fissures and environmental concerns which will  effect real estate values.

 

Show All Comments Sort:
David Hintz
Accurate Appraisals & Consulting of AZ - Maricopa, AZ
AZAppraiser

Hi Sara

I don't think it will be required, but if a realtor has a listing in an area known to have fissurers, I would think a comment about the potential in the area would be prudent.  It is required to be disclosed in the sales contract and the realtor should research the area if the seller doesn't know.  The preliminary maps are helpful and when the final maps are available, they should be very helpful.  Whether they are used or not is yet to be seen.

The link in the post refers to an incident in 2005 where rain reactivated a known fissure in the Queen Creek area, and within a few days grew to over a mile long, 15 to 25 feet across, and up to 25 feet deep.  A property owner effected, sued the previous owner and the realtor for non-disclosure of information.  I don't know the outcome.

The Queen Creek area was one of the hottest markets in 2005 and 2006, and was one of the first areas to have a major increase in foreclosures after the frenzy.  I think it would be a safe bet to say, if one pulled all the listings (and appraisals) of properties sold within two miles of that particular fissure, between a time frame of Jan 2005 and Dec 2006, no comments about the area regarding fissures will be found.  In fact, outside of myself and a handful of close associates, very few appraisers, or realtors, actually drive the subject's market area for information, except to get comp photos, and the one's that use stock inventory comps don't even do that.

It is my opinion, in Arizona,  "Tunnel Vision towards Green Backs, prevails over Peripheral Vision of Potential Concerns".    

Your mention of confidentiality laws that realtors must abide by is a reality.  Appraisers and Mortgage Professionals have confidentiality laws to abide by also.  In one of your previous posts you mentioned that in your area, realtors were ordered not to disclose any information, or something to that effect.  I take that to include everything, confidential or not.  However, providing information of what might be considered confidential to others within the industry, so they may complete their documents in accordance to the rules and regulations of their profession, should be allowed.  Verification of the validity of the person requesting information is very simple and easy to do. 

 

 

Jun 13, 2007 11:07 AM
Cindy Saling
Award Realty - Surprise, AZ
Smooth Saling with Cindy Saling

 

Thanks David,  this is great information.  We all need to be aware & disclose

Oct 22, 2007 04:27 PM
Gary Miljour
American Financial Network, Inc. NMLS#207208 - Southern Pines, NC
Mortgage Originator NMLS Licensed in AZ and NC

David,

I guess you learn something new everyday.  I have never came accross this.  Great Information

Oct 24, 2007 12:26 AM
David Hintz
Accurate Appraisals & Consulting of AZ - Maricopa, AZ
AZAppraiser
Gary  -  Thanks for your comment.  It is true, you do learn something new everyday.  I originally posted this in June and Cindy Saling suggested a reposting.  Thanks should go out to her for reviewing past forgotten information.
Oct 24, 2007 02:18 AM