Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
One new development that will help the environment but cause headaches in the real estate world is the banning of R22 by the Environmental Protection Agency.
R22, also known as Freon, has been found harmful to the ozone layer and can no longer be produced or imported into the United States after 2020.
In 2010, the EPA implemented a ban on the import or production of R22 except for use in servicing existing air conditioning systems. With the new 2020 ban in effect, the product cannot be purchased at all.
This will prove problematic because most air conditioning systems purchased in the last 10 years use R22.
What property inspectors are saying
Inspectors are required to cite the new regulation when they encounter a HVAC system that uses the R22 refrigerant.
Inspectors are likely to report that this means equipment using R22 may not be serviceable (or very expensive to service) and may need to be replaced in the event of a refrigerant leak or other refrigerant failures. And that repair/replacement costs are likely to be significant.
What HVAC contractors are saying
HVAC contractors, however, scoff at the idea. They say that they have anticipated the ban and they have stockpiled enough of the R22 to last a lifetime.
HVAC contractors will also mention that there is a synthetic R22 and that refrigerant is free of HCFC…the substance in R22 that actually harms the ozone.
It would seem likely that, as inventory of R22 in exhausted, its price would increase.
Most importantly, if a buyer is paying a fair price for a property…and the property has an air conditioning system that an inspector has said uses refrigerant that is obsolete and that its repair will be expensive…the buyer may demand a new system.
I think replacing a system because of the R22 ban is drastic…again citing the availability of inventoried freon and the production of synthetic freon. A HVAC unit really shouldn’t be replaced until it fails.
The way that inspectors document the issue will become a bigger problem for many sellers. After receipt of the inspection report, some buyers will ask for HVAC units to be replaced or to receive a credit at closing. Most sellers will not respond well to the request. A battle will ensue. But that’s one reason we have brokers…we’ll figure it out.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@BeachwoodSells.com