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Mold prevention best option to fight industry's new woe.

Sixty percent of real estate executives have heard of a party backing out of a transaction because of the fear that mold problems exist on the property, according to an annual poll conducted by the Environmental Assurance Group.

Seventy six percent of executives acknowledge that they are concerned about mold liability on properties in which they have invested. In addition, respondents familiar with a specific mold-related incident in a real estate transaction said it would have taken an average of more than $300,000 to fix the problem.

The survey of 75 real estate building and banking executives was undertaken by my consulting firm EAG to assess mold's financial impact on the real estate market. We found that real estate executives, architects, builders and mortgage lenders are taking precautions to protect themselves because of the mold exclusions recently written by the insurance industry on property and business policies.

Our latest survey shows that mold fear is growing exponentially among the major stakeholders in the real estate business. It's clear that without the emergence of a new risk mitigation method, doing a deal nowadays is just a roll of the dice, which is why the insurance industry bowed out. Mold is now excluded across the country on property-casualty coverage, business risk insurance and directors and officers policies. Who is going to pay for mold-related clean-up and rebuilding on a contaminated hotel, condo, affordable housing complex or hospital? If property owners decide to default, how much is the mold-ridden loan collateral worth? From a financial standpoint, we're in new and terrifying territory.

When asked if they believe mold can revalue a real estate transaction, 99% of respondents said yes. Sixty percent of builders and lenders said they were aware of a real estate deal where a mold problem had a negative effect.

It's been three years since most insurers cut the cord on traditional mold coverage, yet the real estate industry cannot seem to find a consensus on dealing with mold risk mitigation. Unlike the decisive action taken by insurers, many real estate executives are still lurching around in the dark hoping someone will hand them a flashlight. Some still hold out hope that a "cure'" will be found. Unfortunately, mold cannot be scraped away like asbestos or lead paint. As more stakeholders acknowledge the scientific fact of mold's resilience, I believe we will see a groundswell begin to form for a new mold prevention protocol, which focuses on removing the possibility of mold entering a structure.

Ninety six percent of those surveyed would favor a new mold prevention program for new construction. Such programs include a new construction protocol, the use of mold-resistant building materials and inspection regimes with sign-offs and/or certifications. Forty eight percent of builders and lenders said they are aware of new construction projects where mold-resistant building products have been used.

When asked what would influence their decision to approve a mold prevention protocol, 59% mentioned a preferred mortgage rate. Having mold re-included in their insurance coverage, getting a positive impact on resale ability and seeing a reduction in insurance premium also rated highly as influential factors for supporting a prevention protocol.

The conditions required for mold to grow include: the existence of mold spores, moisture in the air, a normal temperature range and the presence of a food source. Since temperatures, airborne spores and moisture are facts of life, the only controllable variable is the food source--cellulose or paper, primarily in the form of paper-faced wallboard, paper-faced insulation, roofing and ceiling products and any other organic building material.


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Author:Perry, Charles L., Jr.
Publication:Real Estate Weekly
Date:Feb 22, 2006
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