I think at this point it is common knowledge that an oil tank in the ground on your property can be a really big deal. In all honesty, it can be – IF not handled correctly. Whether you are planning on buying or selling your home there is some very important information that you need to know before you tackle buying or selling a property with an oil tank.

Selling A Property with an Oil Tank in the Ground

Often it’s the sellers that have owned a property for 30 to 40 years that will have an oil tank in the ground. A family member might have recently passed away and their property is no longer needed for your family and you would much rather sell. Before you go on the market there are some steps you need to take in order to maximize your property/market value. Most often the oil tank is no longer in service. When they decommission the oil tank they will usually pump the remaining oil out of the tank, possibly spray a neutralizing agent into the tank and then fill it with Foam OR Sand. They will cut the top of the tank off and cap it. However, not ALL tanks are decommissioned in this fashion. I’ve heard from some tank companies that sometimes the oil company workers would just cut the fill pipe and cap the tank and tell the homeowner that the tank was “taken care of”. This is why even if there is a permit on file with the town you want to investigate the oil tank.

1. Order a Tank sweep of your property.
   • If you have some knowledge of the property and know that it once was heated with oil heat there is a good chance that there is an oil tank on the property. This is not something you want to discover after you have accepted an over-asking price or a really nice offer that you are excited about. One of the truest principles of real estate is that the “The Truth will always be set free” – meaning – At some point in the transaction the reality of the property will come to light and will reflect in the value of the property before closing. Before you go to market and you have people inspecting your property you have an opportunity to make improvements to help you maximize your property value.
2. Get Tank Insurance
   • Tank Insurance is something that most people don’t know about, but it can make your life and your potential buyer’s life much easier! For about $500 per year, you can be covered for up to $200,000 in work/remediation! Talk about saving a deal!
   • In order to get Tank Insurance the insurance company will have to come out to your property and conduct soil sample testing around your tank to determine if the tank is leaking or if the soil is contaminated. If the soil receives a clean bill of health then the insurance company will cover your tank.
   • **Caution** If the soil is tested and it is found that the tank is leaking they can’t ignore this information or keep it private. Your property will need to be remediated and the tank will need to be removed. This can be an expensive endeavor that can cost on average $10,000 to $15,000 to remediate. If you have a high water table or underground stream this could get expensive and cost $70,000 to $100,000 to remediate. In order to cover yourself and your property I recommend talking with your homeowner’s insurance company to see if you can get a policy with Pollution Coverage.
3. Get Home Owners Insurance with Pollution Coverage
   • Most homeowners insurance policies will have an exclusion clause of NOT covering pollution. As you could imagine this could open up the insurance company to more risk that could be VERY expensive for them. For this reason, they explicitly write out that their standard homeowner’s insurance policy DOESNT cover pollution on the property. However, You can get this coverage if you ask for it. You might have to pay more, but it will certainly be worth it. (Source: ATS Environmental)
   • As a general rule of thumb for all things financial and real estate most of the professionals I talk with recommend a 3 to 6-month period of time for each phase. Meaning that if you just inherited a property or are ready to sell your property the first call should be to Homeowners insurance about the pollution coverage, then 3 to 6 months later get the soil test and tank insurance, then list the property. Talk with your trusted financial professionals to make a plan!
   • During this waiting or seasoning period, you should be talking with your accountant and real estate attorney to assess any other financial or legal risks that could be coming down the road. If you are going to be using the proceeds of the sale of the property to buy another asset such as doing a 1031 Exchange (Link to 1031 Exchange Article) you can start to plan out your next steps.

Buying a Property with an Oil Tank

You might have just come across a house you really love and then you find out that it has an oil tank….before you let that sinking feeling of dread fully set in here are some steps to take to maybe save the deal, look like a hero to the seller and win your dream house!

1. Does the seller have tank insurance?
   • For buyers and sellers tank insurance can make or break a deal. For the seller it’s a no-brainer to have tank insurance because it helps to maximize the value of their property and make the sale of their property much easier. For the buyer, tank insurance brings peace of mind to the transaction because it creates a backstop for the seller and tells the buyer that in the event of an issue, they can feel safe knowing that the property they would like to buy will be taken care of.
2. Is the seller willing to provide a seller credit to cover the potential remediation of the site?
   • In the event that the seller doesn’t have tank insurance, this is when the deal can get a bit more sticky. Today homeowners are sitting on record-high home equity. This can result in sellers being able to net a higher value for their home. Sometimes sellers that have excess equity in their home and that don’t have tank insurance may be willing to offer a seller credit to help cover the remediation costs or the removal of the oil tank.
   • **NOTE** From a lending perspective, the seller credits can’t be higher than the closing costs for the loan. In the lending world, this is what is called an “Inducement to Purchase”. This means that the seller could be incentivizing the buyer to come in at a certain price in exchange for the buyer receiving lender funds at closing. Lenders only want to lend on the true value of the property and not a penny more. If the lender lends over the value of the home this could put them at risk of not getting their money back. Talk with your lender to learn more!
3. How high is the water table in this area?
   • Tank removal can get expensive if the oil gets into the water table. This can lead to the oil spreading through a much larger area or even into a larger body of water. If you are considering buying a home in an area with a high water table this is definitely a factor to consider. One quick way to determine if the property has a high water table is if the property has a sump pump. A crawl space or basement with a sump pump is very common and mostly a non issue in terms of water intrusion. However, when considering whether to tackle a tank removal this can be a very telling sign.
4. When was the tank decommissioned?
   • You can find this information by calling the town zoning or code enforcement office. They will have a record on file of all permits that were applied for on any property. If a permit was applied for to cap a tank the town will have a record of it. IF the seller of a property discloses that the property has an oil tank on the property that isn’t in service anymore and has been cut and capped, BUT the town doesn’t have a permit for it this would give me a reason to be concerned and I would want to know more before proceeding.
   • The year that the tank was decomissioned is very important because it can give you an idea of how long it has been sitting in the ground. One of the causes of a leaking or “Bad Tank” is that the tank itself may be rusting and breaking down which can make it difficult to remove the tank.
   • An oil tank can be removed in 2 ways – By Backhoe OR By Hand. Backhoe removal typically costs about $2,000 in one day. By hand takes a few guys and two days and will cost about $6,000 to $7,000. (Source: ATS Environmental)
5. Can you cancel the contract if the tank is found to be leaking?
   • You might not discover that the property has an oil tank till after you are out of attorney review OR you might have decided that the risks of having a bad tank are worth taking on. For this reason, I would push your attorney to include a clause in your contract that “Buyer has the right to cancel in the event of find an oil tank” OR “In the event that the oil tank is found to be leaking or the soil is contaminated”. For the most part, real estate attorneys know the horrors of conducting inspections on a property. If you feel that the contract that your attorney is writing doesn’t cover you enough in the event of things going wrong I encourage you to question them and ask for further protective language to be added to the contract. **Note** This further protective language may be discouraging to the seller, but if the seller agrees to it you can rest a lot easier at night.

Real Estate is a slow game, but it can be worth all the time it takes to be successful. Proper planning is the greatest key coupled with connecting with the right and experienced professionals to achieve your end goal. I like to believe there is always a solution and it’s often the buyer or the seller that can solve problems that will reap the rewards of their efforts. If you are thinking about buying or selling your property that has some questionable issues with it I encourage you to give me a call, text, or email and we can problem solve a solution together and I will connect you with local professionals to help you be successful!

Talk soon – R Phil Lewis 732-567-1441 / RPhilLewis.Realtor@gmail.com