Environmental Site Assessment: Phase 1 ESA And Phase 2 ESA

There are many questions that a prospective buyer or person who is refinancing a piece of property may have. Most people don’t consider the environmental due diligence until later in the buying or the refi process, even if they’ve heard of it, they often forget. Phase 1 is actually a very valuable step as it offers a variety of protections that may otherwise be overlooked in the process. It can be a huge step in preventing a bad investment.

What Is The Difference Between Phase 1 And Phase 2 Costs?

This is a common question and most people don’t even begin to fathom the breakdown of the costs. The actual cost of the Phase 1 Environmental Site Assessment (ESA) is fairly cut and dried, it may vary on some specifics, however, we’re not talking about thousands here.

It’s also important to know that the Phase 2 ESA may also vary as there are a variety of different testing factors that may impact the overall cost of the assessment.

Phase I ESA Cost Variables

The location of the property in the United States will have a huge impact on the time that is required for reviewing the records. It may also have a huge impact on the travel requirements and costs. Each property will have specific types of buildings on it and each building may have specific features. All of these are factored in on the assessment.

  • The next thing to consider, is what is the facility currently being used as?
  • What was it used as previously?
  • Has any of it ever required an environmental audit?
  • Has it been tested for lead paint?
  • How soon is the report going to need to be completed?

Depending on the above particulars, you could be looking at anywhere from $1800 to $6500.

The consulting assessment will be done in the order of research, review, and report. Each step will take some time and some may take longer than others. Again, depending on what has already been accomplished, it may be very time-consuming.

The environmental company that does the research will visit the site and do a complete visual inspection. They may have to do testing to see if there are lead paint, asbestos, and other environmental factors. They will review all of the histories of the site and check historical records and all of the governmental documentation. The information collected will then be compiled into the report.

What If There Is An Issue?

If there is an issue, they would determine if it is a recognized environmental condition. This doesn’t necessarily mean that it will be a negative mark on the report from the environmental service you hired.

Some recognized environmental conditions could be minor. Some are historical and many are of little concern, as long as they are documented in full.

A good example of a REC would be a piece of property that used to be a gas station. In such cases, the underground storage tanks are usually removed, however, on a piece of property with no documentation other than the previous owner stating that it was removed would have a REC.

Depending on the intended use of the property, this may mean that it now requires a secondary environmental site assessment. This is where a Phase 2 ESA would come in.

Phase 2 ESA Cost Variables

Before you begin to panic, there is good news. If you’re buying your property with cash, and you’re not concerned that there may be a storage tank underground, you may continue with the purchase. However, this is your call. If you’re using a bank for financing, you’ll have to continue on with a Phase 2 ESA.

If you don’t continue with a Phase 2, the bank will freeze the sale and you’ll be stuck until you have the Phase 2 ESA completed.

Your Phase 2 costs for your environmental site assessment will range from $1000 to over $100,000 depending on the variables. The bottom line is that there is something that showed up in the first assessment and it must be explored and researched in order to complete the sale.

One variable would be the type of potential contamination. Depending on what the property was used for, this may be an easy answer. However, if the property has changed hands many times, it may be a bit more challenging to research.

If illegal dumping occurred on the property, it’s unknown if there is anything that may be radioactive or corrosive in the area. This would have a huge impact on the research and investigation. It may require soil testing, water, and air tested and building materials.

You’ll also have to factor in the size of the property. If it’s only an acre, you have less soil to test, but, if you’re talking about a 10-acre site or larger, you’re going to have to expend more energy testing the soil and looking for potential hazards including the underground storage tank if that were the case.

That’s a lot of ground to cover and you’ll have to pay for this service.

Different tests are different prices. Groundwater tests are a must have as well as soil and air, but each test will have different steps and phases to the process.

  1. Will the contaminants be hazardous to humans or pets?
  2. What sort of impact will these contaminants have on the property?

Obviously, there are many questions that can only be answered with test results and these will also take some time to analyze.

There may be legal fees to pay as well. Legal counsel may require these tests to be completed and then there is the government that may also require the EPA and more.

Clearly, there is no cut and dried answer to the question of the fees and processes. It’s going to be dependent on all of the contributing factors and the length of time that it takes to produce the reports. The best case scenario is that the property has clearly defined information from the previous owners and that it’s all documented and legal.