Understanding the Cost of a Phase 1 Environmental Site Assessment
Whether you’re developing a new building or buying an existing one, you may be tasked with performing a Phase 1 environmental site assessment (ESA). The purpose of a Phase 1 ESA is to research the historical and current uses of a property to prepare for a commercial real estate transaction.
The information in the report can help you determine if the historical and current property uses have adversely impacted the groundwater or soil below the property. If the quality of the groundwater or soil is a threat to human health or the environment, the issues will be detailed in the ESA.
When issues are uncovered during this assessment, they might become liabilities for the owner or lender. It’s possible that the value of the property will drop if the problems are difficult to resolve.
The ESA process involves three stages, which include historical research, a records review, and an on-site inspection. While an onsite inspection will take place during a Phase 1 ESA, this is a non-invasive process, which means that onsite sampling doesn’t occur.
A Phase 1 ESA is necessary because it prevents buyers from purchasing properties that contain hazards and might not be suitable for additional development. Whether the land is vacant or several buildings have already been constructed on it, this process allows you to identify present-day or historical concerns about the site.
Property owners, developers, and investors can be protected from liability or hidden costs if contamination is detected. This guide delves into the Phase 1 environmental site assessment cost and how it can vary.
Typical Costs of a Phase 1 ESA
A Phase 1 ESA investigates the historical and current use of a property to determine if any hazardous environmental conditions could be present on the site. The onsite inspection that takes place during an ESA is handled by an experienced environmental firm that knows what to look for and understands how to take high-quality photographs.
In most cases, a Phase 1 ESA will cost between $1,400 to $4,600. The complexity of the assessment and the size of the property can determine how much you pay. Keep in mind, however, that some companies will reduce the total price if you require multiple reports.
Factors Influencing the Cost of a Phase 1 ESA
When you’re looking to obtain a Phase 1 ESA, there isn’t an industry-standard price that you should expect to pay. There are numerous factors that can impact the total costs associated with this process. For example, the complexity of the assessment might increase the amount you need to pay. If it takes a long time for the environmental firm to perform the onsite inspection, your costs will likely rise.
Property Size
Larger properties usually require more time for inspection. The firm that performs the inspection will need to cover more ground. This process involves walking around the entire property as well as any structures that are on site.
The level of development on the property will also determine the number of areas that need to be inspected. If you have a large undeveloped site that requires an inspection, the cost might be lower than it would be if the site was small but located in a busy urban location.
Location
The location of the site also influences the cost of the assessment. Driving time is part of the cost of an ESA. If the environmental firm spends more time on the road when traveling to your site, you’ll likely end up paying more for the ESA.
Property History
Consider the history of the property as well. If the property has a more extensive history as well as more comprehensive records, the firm must spend additional time on research. Sorting through historical records can take a long time.
The quality of the records also factors into the price. If the records are in perfect condition, you can effectively minimize costs. Missing, damaged, or partial records take more work to properly analyze, which might influence the price associated with the assessment.
Complexity of the Site
The complexity of the site warrants higher costs as well. If you request a Phase 1 ESA for an industrial site or a property that’s heavily contaminated, the team must have the expertise necessary to evaluate the site and take the complexities into account. The investigation will need to be more comprehensive.
How to Get an Accurate Quote for a Phase 1 ESA
Before you schedule a Phase 1 ESA, it’s highly recommended that you obtain quotes from multiple environmental firms. Keep in mind, however, that the initial quote you receive may not be accurate if you don’t provide the firm with detailed property information. If the company receives the amount of information they need to consider every factor of the assessment, you should get a tailored quote that reflects the final price.
It’s also important that you work with reputable environmental consultants who can provide clarity on pricing. Environmental firms regularly use Phase 1 assessments to train new hires, which improves profits. While the quote you receive might seem reasonable, the person who performs the work may not have the expertise necessary to give you the level of insight you need.
For example, an inexperienced professional could misinterpret some of the historical information or overlook an environmental hazard. Some of the red flags that you can miss during the selection process include the following:
- Underground storage tanks that have been abandoned
- The discharge of hazardous chemicals
- The fill material has a poor quality
Once you purchase and acquire the property, it will be your responsibility to rectify these problems. You can avoid this issue by working with reputable firms that only hire qualified, experienced, and knowledgeable professionals. The environmental assessment should adhere to ASTM standards.
What Additional Costs Might Arise (Phase 2 ESA)?
While a Phase 1 ESA is often sufficient, you may need to request a Phase 2 assessment, which will add significantly to your costs. These assessments are much more comprehensive and can identify problems that need to be mitigated immediately to ensure the property owner can lessen their liability.
If you need to schedule a Phase 2 ESA, there are many different costs that you might be required to pay because of more in-depth testing and analysis. You should also expect development or construction to be delayed for weeks or months. If the problem is severe and can’t be easily remedied, your project could be delayed by years. A Phase 1 ESA will allow you to determine if a Phase 2 assessment is required.
Phase 2 assessments are often obtained if the initial ESA finds recognized environmental conditions (RECs) on the property. An REC can involve a potential contamination from an off-property source. While you may not be liable for this contamination, there’s still a risk that people on the property can be exposed to contaminated water. A Phase 2 ESA is considerably more invasive. It might involve geophysical testing, subsurface borings, and groundwater sampling.
If the Phase 2 ESA identifies contamination above the allowable parameters, you may need to perform an additional assessment. The main advantage of conducting this type of ESA is that it can give you certainty about the source and nature of the contamination. With this information, you can create a more accurate estimate of the property’s fair market value. You can also determine if additional property insurance is required.
While the results of a Phase 2 ESA can be helpful, your costs will increase. You may also be tasked with getting in touch with regulatory agencies. A Phase 2 assessment can cost anywhere from $5,000-$25,000 depending on the size of your property and the nature of the hazard that you need to investigate.
The True Value of Investing in a Phase 1 ESA
A Phase 1 ESA can help you save money in the long run by preventing expensive environmental liabilities. It will allow you to determine if the property contains a hazard that’s a threat to the environment and the health and safety of anyone who works or lives there. You can use the data from the assessment to determine if you should purchase the property or complete the development.
An ESA should also protect you from future remediation, reclamation, or litigation costs if the land contains an environmental concern. If the ESA doesn’t find any concerns, developers, investors, and property owners will have peace of mind that the property is safe to develop.
Conclusion
When investing in a commercial or residential property, it’s important that you conduct a Phase 1 ESA regardless of the cost. For the price of around $1,400-$4,600, you can determine if there’s a possibility that hazardous conditions are present on the property. A thorough environmental assessment will give you long-term financial and legal protection by significantly reducing your potential liability.
Jason Somers, President & Founder of Crest Real Estate
With over 15 years of professional experience in the Los Angeles luxury real estate market, Jason Somers has the background, judgement and track record to provide an unparalleled level of real estate services. His widespread knowledge helps clients identify and acquire income producing properties and value-ad development opportunities.
Learn more about Jason Somers or contact us.
