Don't Trust The Typical Due Diligence Process to Protect You From Buying an Asset with Hidden Mold Problems
The real estate transaction process has moved to the lowest common denominator when it comes to an understanding if there is a risk of mold problems, especially hidden ones. For example, the Property Condition Assessment (PCA) tool used during due diligence has been stripped of any real revelatory value because it avoids any exploratory investigation that might find hidden mold damage. Further, it does not conduct testing of the HVAC or building envelope to see if conditions exist that typically result in mold problems.
The PCA scope has become a checklist approach to assessing the building and is not performance-based. Therefore, buyers should consider supplementing the PCA process with consultants who can evaluate the HVAC and building envelope systems to identify if conditions conducive to mold problems exist. This approach will reduce the risk of this kind of exposure which could undermine the economics of the purchase.
Hidden Mold Nightmare: How Could This Have Happened?
Imagine the surprise to discover that your planned room rehab in your recent purchase has just grown 5x in its costs because of hidden mold damage. We can all relate to the owner’s shock in this situation. Even the project manager, the designer, contractor, contractors subs, and the hotel management firm would all have concerns in this situation. The questions begin, like, “How could this have happened? After all, we did our due diligence when purchasing the property.” “This issue was never brought to our attention.”
When you look at the magnitude of this widespread mold problem, it seems incomprehensible to the new owners that someone would not have known about it. Had the hidden mold been brought to the prospective owner’s attention, the cost to handle it could have been included in the calculus of the purchase. More often than not, this kind of problem remains hidden until it’s too late because a prospective buyer relies on the PCA as an accurate view of the building’s condition.
Out-of-Scope Considerations in PCA Assessments
In recent years, the scope of a PCA has become more defined and, more importantly, substantially limited. The national standard that PCAs are based on has constrained the scope of work that one would expect a PCA to cover. In other words, the standard of care for a PCA is now defined and limited by ASTM E2018-15, Standard Guide for Property Condition Assessments. Because of the limitations in ASTM E2018-15, consultants who provide PCA services can now send individuals that are generalists in their field of experience to perform these assessments because they have become a checklist completion exercise.
Further, there is a long list of out-of-scope items explicitly listed in ASTM E2018-15. For example, section 11 in ASTM E2018-15, titled Out of Scope Considerations, lists out-of-scope items, including “11.1.17 Providing an environmental assessment or opinion on the presence of … mold, fungus, IAQ, etc.” Further, the reports produced by the PCA consultant incorporate this list of Out of Scope Considerations usually as an appendix.
Enhanced Due Diligence: Hire Consultants for Expert Review
To fill the gap in the PCA process and increase the likelihood that hidden mold problems are identified during the due diligence phase, supplemental consultants should be included in the process to conduct an independent review of the building envelope and HVAC systems. This independent review aims to increase the opportunity to identify past or present building envelope and HVAC performance issues that point to the potential for hidden mold problems. An inspection conducted by the supplemental consultants may include invasive openings to see if those hidden mold problems are present. Without including this procedure, purchasers may face multi-million dollar exposures for hidden mold damage or for buildings that do not perform as expected.