Buying or Selling a Home With an Underground Oil Tank
So you find a house you want to live in, but it has an underground oil tank, and the seller is adamant about removing it because they heard of the horror stories and have this fear. Most buyers walk away from the house with an underground oil tank since they are afraid of the liability. Underground oil tanks are hidden hazards that could end up costing a homeowner big time.
When searching for a new home, prospective buyers often focus on various aspects like location, size, and amenities. However, there’s one critical factor that sometimes goes unnoticed – the presence of an underground oil tank. While it might seem like a minor concern, purchasing a property with an underground oil tank can lead to significant problems and potential hazards. Let’s delve into the reasons why you should think twice before buying a house with an underground oil tank.
1. Environmental Concerns
One of the most significant reasons to avoid a property with an underground oil tank is the potential for environmental contamination. Over time, these tanks can corrode and develop leaks, releasing oil into the soil. This oil can seep into groundwater and nearby bodies of water, causing long-lasting damage to the environment. The cost of cleaning up such contamination can be exorbitant and may not be covered by homeowner’s insurance.
2. Health Risks
Oil tank leaks not only harm the environment but can also pose health risks to residents. Exposure to oil and its fumes can lead to a range of health problems, including respiratory issues, skin irritation, and more serious conditions over time. The consequences of these health risks can be devastating for you and your family.
3. Regulatory Hassles
Underground oil tanks are subject to stringent regulations in many areas. Government agencies and local authorities require property owners to adhere to specific guidelines, including regular inspections, maintenance, and compliance with environmental regulations. Owning a property with an underground oil tank means you’ll need to stay vigilant to meet these requirements. Non-compliance can result in hefty fines and legal complications.
4. Financial Burden
Maintaining and removing underground oil tanks can be a costly affair. Even if the tank is not leaking, there are expenses associated with routine inspections, soil testing, and insurance. When the time comes to remove the tank, it can be a major financial burden, as it often involves excavation, soil remediation, and disposal costs, which can amount to tens of thousands of dollars.
5. Decreased Property Value
The presence of an underground oil tank can significantly decrease the resale value of your property. Many potential buyers are wary of the associated risks and costs, and some may be reluctant to invest in a home with this potential liability. As a result, your property may spend more time on the market and sell for less than a similar property without an oil tank.
How Can Buyers Leverage Underground Oil Tanks in Real Estate Transactions for Their Advantage in NJ?
Real estate transactions can be complex and challenging, especially when they involve properties with underground oil tanks. In New Jersey, many older homes and commercial properties still have these tanks buried beneath the ground. If you’re a prospective buyer, you can use the presence of an underground oil tank as a negotiating tool to your advantage. Let’s explore how to do just that while emphasizing the importance of using certified environmental contractors to address environmental concerns.
1. Understanding Underground Oil Tanks
Before delving into negotiations, it’s crucial to understand the implications of underground oil tanks. These tanks were once common for heating and fuel storage but can pose environmental risks. Leaks, corrosion, and improper abandonment can lead to soil and groundwater contamination, which can result in significant cleanup costs.
How Do I Know if The Underground Oil Tank Is Leaking?
You can have the soil tested around the tank to see if there is an issue or not. If there is some oil in the soil – you might look at this as a negotiation tool to get your price point or walk away.
Should You Remove an Underground Oil Tank?
When and if you purchase the house, and not before you own it and get your lower price, have the underground tank removed (should cost about $1500) and have an above-ground tank installed (about $1000). Now you have a house at a lower price and a new oil tank. It gets better: if the tank is deemed to have leaked, guess what? You can apply to the state for a reimbursement of your cost (contact us for details). Conditions apply like income level less than $250,000 taxable and net worth $500,000. You can convert to a natural gas system or keep oil. Oil allows you to select your supplier and purchase when the price is low; gas does not. Both have their advantages and disadvantages.
Some Underground Tanks May Not Need to Be Removed Right Away!
Another option is to have the tank insured by ProGuard and remove the tank after a year. ProGuard has such a program as long as the tank is not leaking.
This same program has been effective in negotiations with a bank-owned property if you are going to use the house as your primary residence.
2. Preliminary Site Assessment
As a buyer, your first step is to perform a preliminary site assessment, which may involve ordering a tank sweep or a phase I environmental site assessment (ESA). This will help you identify the presence and condition of any underground tanks and assess potential environmental risks.
3. Using Environmental Contractors
Certified environmental contractors in New Jersey are vital for these assessments. They have the expertise and equipment necessary to detect and evaluate underground oil tanks accurately. Working with reputable professionals ensures accurate information and compliance with New Jersey’s environmental regulations.
4. Negotiation Strategy
Once you’ve identified an underground oil tank on the property, it’s time to develop a negotiation strategy. Here are some key points to consider:
a. Evaluate Cleanup Costs: Environmental contractors can provide estimates for tank removal, soil testing, and remediation. Use these figures to gauge the potential financial impact on the property.
b. Leverage Information: Share the assessment results with the seller to illustrate the cost and risks associated with the tank. This information can be a compelling negotiating point.
c. Adjust Purchase Price: You can negotiate for a lower purchase price based on the estimated cleanup costs. Sellers may be willing to accommodate a lower price to facilitate the sale.
d. Contingencies: Include contingencies in the purchase contract that protect your interests, such as the right to terminate the contract if unexpected contamination is discovered during further testing.
e. Seller Responsibility: Negotiate for the seller to take on the responsibility of removing the tank and completing any necessary cleanup before the closing.
5. Regulatory Compliance
New Jersey has strict regulations governing underground tanks. Ensure that the seller complies with these regulations and obtains any required permits for tank removal and soil remediation. Certified environmental contractors will be well-versed in these requirements.
6. Finalizing the Deal
Once the negotiation is successful and the seller has fulfilled their obligations, proceed with the closing. Ensure that all necessary paperwork and documentation, including environmental clearances, are in order before finalizing the transaction.
Frequently Asked Questions
We have compiled questions from both realtors as well as buyers and sellers alike, they all have very similar questions – we have put together some of the more commonly asked questions which may be helpful to you.
I understand that you cannot sell a home in NJ with an underground oil tank, is that true?
There is currently no regulation prohibiting anyone from selling or buying a home with an underground oil tank in NJ. The fact of the matter is homes with underground oil tanks are less likely to sell as quickly as those with above-ground tanks or gas. Your time is your money – are you going to show a home with an underground tank or gas! The other thing is that when the attorney does his review, he tends to talk about an unknown liability with the underground tank.
My client wants to buy a house with an underground tank. What do you think?
You are buying an unknown liability – also, everything you are going through now to buy that house, you will revisit when you are ready to sell – if the regulations remain the same. Insurance is higher, and a mortgage may be more difficult to acquire.
I have a client who had the underground tank foam-filled some time ago. They have the permit, the inspection ticket, and the C.A. from the town. The buyer is asking them to remove the tank if they want to sell it to them. What should we do?
While it is within the regulations to abandon an underground tank in place, it is also undesirable to purchase a house with that tank in the ground. The real solution would be to remove the tank – short of that soil sampling below and around the tank would yield some important information. Once again, remember what you are going through now will come around again when the house is ready for sale.
I have a client who has an underground tank, and needs to sell but cannot afford the removal cost – is there some program available? And what if the tank is a leaker?
Depending on the situation, we have done the work for both non-leaking and leaking tanks and had our invoice paid at closing on the HUD. We can apply to the leaking tank fund for reimbursement for a leaker. The process is out five years at the present time, but they will pay.
My client has no money and must sell the house, they need the underground oil tank removed — Can my client pay for your services at closing?
We have made arrangements like that depending on the circumstances. We want to be on the HUD statement, BUT what happens if the house does not close?
What is going on with the NJDEP funds for leaking tanks?
The last election had a vote to fund open space and take some of the money for the underground tank fund for open space – the vote was for open space, and it then caused the underground tank fund to lose some funding, therefore there is not as much money available.
What can we do if the seller refuses to remove the underground tank and my clients are really interested in the house?
You can suggest that you share the cost of the tank removal ($1,400) or pay for it yourself – another option would be to sample around the tank to find any impacted soil – sampling is about 90% accurate, but it may be the best alternative. Also, if the seller is refusing to remove the tank, there must be a reason!!
What percentage of the tanks you remove are leakers?
After removing hundreds of underground tanks, it has been our experience that about 20% of all the tanks we remove are leakers. – of that 20 percent number less than 2% have been really expensive projects like over $100k
How much does a leaking tank cost to cure?
The average leaking tank costs about $6,500 with no groundwater impact – With groundwater impacted, the cost gets around $22,000, assuming that the impact did not advance below the footprint of the house.
My client has ProGuard and they want to transfer the warranty with the house – is that a good idea?
Yes, if they are staying with oil heat – if they are planning to switch to gas, you should look at the ProGuard charges so you understand. There is a $500 service fee to remove the tank and a $2500 deductible fee. Also, you must use oil for 12 more months after the underground tank is removed.
What is the process to get a No Further Action Letter?
When a tank has leaked, it must be called into the NJDEP Hotline – Now, the DEP wants to know that there is nothing remaining in the soil and or water above the state criteria (state criteria are published) – So samples are collected and analyzed at a certified laboratory – The result is compiled into a report and that is sent to NJDEP asking for the No Further Action Letter – This entire process starting from tank removal to getting the No Further Action Letter will require about 2-3 months.
The buyer’s lawyer wants to have an electronic scan of the property to look for any underground tanks – Is that something you can do?
Yes, we like to go inside the house if possible to see the basement first, then we electronically scan the exterior of the house with a specialized metal detector. We then provide a written report of findings.
My client needs the tank tested – is that something you can do, and what is the difference between a pressure test and soil sampling?
We do soil sampling – soil sampling looks at the soil below the tank sides. The soil is collected and then delivered to an NJDEP-certified laboratory for analysis – we then provide a written report of findings — since the Vacuum testing is normally done when the tanks are going to be left in service, this is not the most advisable method to determine the impact to the soil and is generally used at gasoline stations.
We can take either side of the tank removal argument:
Buyer: My lawyer tells me not to buy a house with an underground tank
Seller: We did everything correctly – we got a licensed contractor, the tank is decommissioned in place, got the permit, had the inspection, and had the C.A – we are done!
Buyer: We’ll pay for the cost of the tank removal – we just don’t want to buy an unknown liability – we want to remove the tank before we purchase – the current owner has been in the house for a while; they may have some third party insurance which we cannot access once we own the house.
Seller: Remove it when you own the house – if it leaks, apply to the fund — you’ll get your money back in 5 years.
Seller: I have Proguard warranty on the tank, and its transferable use that
Buyer: Not interested in ProGuard warranty – costs $500 service and $2500 deductible if it leaked – who pays that expense? We are just purchasing the house and do not really need any extra expenses.
Conclusion
Dealing with properties that have underground oil tanks in New Jersey can be a double-edged sword. On one hand, it presents potential environmental risks and cleanup costs. On the other, it can be a powerful negotiating tool for buyers. By understanding the issues, using certified environmental contractors, and developing a strategic negotiation approach, you can leverage the presence of underground oil tanks to secure the best possible advantage in your real estate transaction. A well-executed strategy can turn a potentially risky situation into a win-win for both the buyer and seller.
Are You A Realtor Having an Issue Convincing Your Clients to Remove the Underground Tank?
Trying to sell a property with an underground tank is difficult and time-consuming. The best move is to get the tank removed sooner rather than later.
Got More Questions About Underground Tanks?
Contact us for all the information you need to make an informed decision. Our NJDEP-licensed professionals are knowledgeable and experienced in underground oil tank work. Certified Environmental is available to discuss your needs, so please reach out to us online or call us at 732-538-8407.
First published: March 23, 2022
Updated: November 14, 2023
