Western Disaster: On the Fire Line

As firefighters battle blazes, real estate pros fight to keep deals alive.

August 1, 2002

As fire seasons go, the summer of 2002 has been a killer. Wildfires have ravaged more than 2.8 million acres so far this year, damaging or destroying more than a thousand homes and commercial buildings and leaving area practitioners scrambling to serve buyers and sellers, even as fire threatened their own homes and businesses.

When the 14 brokers and salespeople at Frank M. Smith & Associates Inc. in Pinetop, Ariz., were forced by wildfires to evacuate their town, they quickly regrouped at the Arizona School of Real Estate & Business in Scottsdale, five hours southwest of Pinetop.

Although their own homes were in jeopardy, the team stayed focused on how to deal with nervous customers, pending closings, and, prickliest of all, an insurance moratorium that was making it impossible for some buyers—those who hadn’t yet obtained insurance commitments—to close deals.

It was late June, Pinetop’s peak season, when many Phoenicians retreat to the White Mountains to escape the desert heat. But this year, it was residents of Pinetop and nearby towns that needed to escape—from the heat of the Rodeo-Chediski wildfires. The fires started June 18 and by July 7, when they were 95 percent contained, nearly 470,000 acres of pines and more than 400 homes had been destroyed. Pinetop was spared, but other towns, such as Heber and Overgaard, were devastated.

The fallout for real estate

The acreage consumed by wildfire so far this year—mainly in the West—is nearly triple the 10-year average, according to the National Interagency Fire Center in Boise, Idaho. And it’s not just the nation’s forests that are threatened.

As of July 1, more than 1,600 structures—residential and commercial buildings—had been destroyed by wildfires in 2002, a much higher number than in previous years, according to Anne Payne, fire information officer with the USDA Forest Service. A study by the Denver Post and the Environmental Systems Research Institute shows that in Colorado alone, 4.4 million people reside where wildfires pose a high risk. Colorado has had four major fires this season.

Even when homes aren’t directly endangered by fire, real estate sales suffer. Mike Aronson, broker-associate of Coldwell Banker Heritage House in Durango, Colo., says some buyers panic and back out of deals.

Buyers who want to go through with closings typically have to wait for homeowners insurance to come through. Insurance companies, some of which have sustained major financial losses in the past year, now issue temporary moratoriums when there’s high potential for a disaster, such as a wildfire or hurricane.

After a moratorium is lifted, buyers can generally get insurance—but at a much higher price, says Bob Lang, owner of Animas Valley Real Estate LLC in Durango. And the delay adds pressure. “Psychologically, any kind of delay is very tough on buyers,” says Susie Hopkins, managing broker of Animas.

Salespeople say it helps to keep in close touch with associates in the insurance business—so you know as soon as a moratorium has been lifted.

For areas directly affected by fire, however, panicked buyers and short-term delays are nothing compared with the long-term damage to property values.

Cliff Potts, broker-owner of Prudential Arrowhead Realty in Payson, Ariz., remembers the state’s last big blaze, the Dude Fire of 1990. “In the areas that burned, it was a 50 percent hit overnight on property values,” he says. “Twelve years later, there’s been an 80 percent recovery in areas with new trees. In areas where the trees are gone, it’s still 50 percent [of the pre-fire value].”

Ironically, markets near, but not directly impacted by, fire disasters can actually benefit. Jan and Rich Mullins, broker-owners of Spill Realty in Pinetop, say they expect to see business come their way from nearby Heber and Overgaard. “Our prices will go up because we still have pines, whereas theirs burned,” says Rich Mullins. “It’s an awful way to feel—as if you’re profiting from someone else’s loss. But that’s supply and demand.”

Whatever happens, ‘we’ll go on’

As they waited out the Rodeo-Chediski fires, the team at Frank M. Smith took a vote to decide what they’d do if they were to lose the town or business to a wildfire. “We decided no matter what happened, we were going to carry on,” says associate-broker Art Crozier, a past president of the Arizona Association of REALTORS®.

Crozier and others say they expect the summer of ’02 to be slow, but they’re confident buyers will return to the White Mountains.

“I’ve just celebrated my thirty-first year in real estate,” says Crozier. “I’ve found over the years that the real estate community has a role in the economic health of an area. What we say becomes reality in some respects. If we’re positive, the market will be just fine.”

Do you sell real estate in an area prone to wildfires? Visit www.firewise.org,an information site for people who live or vacation in fire-prone areas of North America.

Contract tips for any disaster

As of July 1, the Federal Emergency Management Agency had declared disaster areas in 19 states in 2002—the result of ice storms, flooding, snowstorms, tornados, earthquakes, and wildfires. Since then, the West continues to be on high alert for wildfires, and floods have ravaged parts of Texas.

Disasters, natural and man-made, can disrupt a real estate sale in progress. To prevent disputes, K. Michelle Lind, general counsel for the Arizona Association of REALTORS®, suggests you address these important issues in your contracts:

  • If the home is damaged or destroyed in a disaster, can the parties nullify the contract? The Arizona contract specifies that if the cost of repairing the loss or damage would exceed 10 percent of the purchase price, either the seller or buyer could cancel the contract with written notice delivered to the escrow company.
  • Who’s responsible for the cost of repairs? In Arizona, sellers warrant that, at closing, the premises will be in substantially the same condition as on the date the contract was accepted. If there’s loss or damage between the date of acceptance and the closing or possession date, whichever is earlier, by reason of fire, vandalism, flood, earthquake, or act of God, the risk of loss is on the sellers.
  • Does the loss of surrounding areas give buyers a right to cancel the contract? Particularly in resort areas, such as mountain and coastal towns, natural beauty is a big part of the attraction. But that doesn’t mean buyers can escape a contract just because they’ve lost their great view. The Arizona contract provides that, after the inspection period expires, if the property is undamaged by fire and is in substantially the same condition, the buyer is obligated to close, despite damage to the surrounding area. However, if damage to the surrounding area is so severe that the value of the property goes down, the buyer may not be able to obtain financing, which would result in a failed financing contingency.

REALTORS®mobilize help for firefighters, victims

When the Rodeo-Chediski wildfires struck in June, Kimberly Horn, first vice president of the Arizona Association of REALTORS®, sprang into action. Horn, of ERA National Realty of Arizona in Prescott, first concentrated on helping the Salvation Army provide money and materials to the firefighters. She negotiated with local Taco Bell mogul Mark Peterson to have food delivered to shelters, and she got surgical masks and cowhide gloves from local True Value hardware stores.

Meanwhile, the Arizona association donated $5,000 to the Salvation Army and then began ramping up a fundraising campaign.

Likewise, the Colorado Association of REALTORS® Housing Opportunity Fund has donated $50,000 to aid groups dealing with the impact of the fires in Colorado, says Tyrone Adams, CAR communications director.

Stacey Moncrieff

Stacey is executive editor of publications for the National Association of REALTORS® and editor-in-chief of REALTOR® Magazine.

Leslie Cummings is a former REALTOR® Magazine senior editor.

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