Inman

What real estate agents should know about pot legalization

By April 20, 2017 No Comments

An out-of-state client is seeking a home that’s already set up for growing marijuana so that all he has to do is move in and get started.

Meanwhile, a pregnant buyer is concerned about possible mold or contaminants resulting from growing pot indoors — so she also wants to know what houses have hosted a grow space, but for different reasons.

And it’s a real estate agent‘s job to know how to cater to both of them.

Legalizing pot for either medical or recreational use has implications far beyond getting high without fear of arrest by the local police.

From homeowners’ policies to rental agreements to how buyers shop and sellers price, there are consequences for the real estate industry, too. Once pot gets legalized, “people move in thinking they can do it wherever they want, however they want” — and that’s simply not true, notes Seattle attorney Hilary Bricken.

What a ‘good’ grow house looks like…

“Whether it’s for sale or for rent, properties that are ready to grow go so fast,” said Stacie Perrault Staub, broker at West and Main in Denver, where Colorado state residents can grow up to six plants per adult in their homes. “They get snapped up as soon as they hit the market.”

Yes, you read that right — some landlords are taking full advantage of the new economy and are writing cannabis consumption and growing parameters into their rental contracts.

“Most landlords will build into their lease agreements very specifically that the renter can’t alter the property because it’s already set up to grow,” Perrault Staub explained, “and they can command a premium for those rental properties.”

This would perhaps be a good time to remind readers that marijuana remains a Schedule 1 drug — so the local police won’t bug you, but the feds can still arrest and charge you for growing or use “under any circumstance, whether it’s for medical or personal recreational use,” as David Perry, an attorney practicing in Colorado, puts it.

Eight states allow recreational use of marijuana (Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, and Washington), while 30 states and Washington, D.C., allow medical use.

Perry doesn’t believe the current administration is gearing up to crack down on pot, but he does speculate that perhaps Attorney General Jeff Sessions might take a look at enforcing laws currently on the books. So he thinks it’s good advice to play it safe.

Still — not everyone wants to do that. So what does “ready to grow” mean to these renters (or buyers) willing to take that risk?

The grow space itself should ideally be dark — closets, windowless basements (or basement corners) or crawl spaces can be good options.

A basement or another room with windows can work, but the growers will need to put reflective material (usually mylar sheets) over the windows to block out the light — which is a pretty big clue visible from the outside of the home that someone’s growing something in that room. That’s legal in Colorado (though it remains federally illegal), but it’s certainly undesirable from a breaking-and-entering/theft standpoint (more on that later).

Medicial marijuana plants in grow room at "Oaksterdam," California. Photo by Ryan Van Lenning

Medicial marijuana plants in grow room at “Oaksterdam,” California. Photo by Ryan Van Lenning, courtesy of Flickr.

“People are looking for unfinished spaces,” adds Perrault Staub. Plants require water and sometimes drip systems, and leaks on a concrete floor are much easier to clean up than on carpet or another flooring type.

An aspiring grower will also want to ensure that the electrical system is up to par. The plants themselves can get pretty big, and if there are two or more adults in the house, you can see how growing pot in Colorado’s six-plant-per-adult environment quickly requires extra infrastructure to do it safely, noted Perrault Staub.

“Usually you need an additional panel for electrical,” she said, “and quite a bit of additional plumbing because most people want to use a drip system.” There should also be a ventilation system of some sort for proper air exchange, depending on the space.

Then there’s security. “Upgraded security is a must-have when growing for either personal use or distribution,” Perrault Staub explained. “Alarm systems, cameras, and very secure doors and windows are necessary for homeowners when in possession of productive plants.

“Private lots or additional outbuildings that are already plumbed and wired are also in super hot demand,” she added.

“Renters are definitely looking for something with a security system already in place because they don’t want to pay to install one,” she noted, “and buyers and homeowners are definitely looking for recommendations.”

She adds that potential growers are fans of “smart” homes equipped with thermostat or security platforms that growers can monitor from afar, so that’s one advantage that sellers may have in this environment.

…And the issues indoor growing can cause

This probably won’t shock too many real estate agents: Some people who want to grow pot plants inside a house — especially if it isn’t theirs — don’t bother to do things like address the plumbing or install an additional electrical panel.

And that can lead to trouble.

“It’s not necessarily a bad thing if the space was formerly used as a grow space,” noted Perrault Staub, “but it’s important to have an inspector who can spot all of the red flags.”

Those red flags can include things like DIY electrical setups, any signs of mold or water damage — and even checking behind drywall and above the lights inside of ceilings to ensure that there are no electrical issues or mold above drop tiles or elsewhere.

“You’ll often find signs of small fires inside electrical outlets,” Perrault Staub said. “It’s pretty obvious when that’s happened, and you want to make sure it’s been corrected.” Perry also suggests that inspectors keep an eye out for “frayed or burned-out wires, and open neutrals that might have been blown but have not actually caused a fire yet.”

Sometimes there will also be “ceilings and interior walls with unusual holes or showing recent patching or repair,” Perrault Staub said. Residents may put holes in walls for vents or electrical access.

Mold can be an especially troubling problem. “Most people are just growing these plants, and they’re not paying attention to what’s happening to the rafters in the basement, the venting — none of that,” said Perry.

So some insurance companies are wording contracts to exclude coverage for issues like mold, “or there’s a high deductible or a limited amount of coverage — ‘We only will cover mold to the extent of $5,000 or $10,000.’” (Commercial spaces intending to grow or distribute pot probably can’t get covered at all, he noted.)

If someone was growing hydroponically in the house or is using insecticides or fertilizers or other chemicals on the plants, there are also potential issues with hydroponic waste water or leftover traces of those chemicals.

And unlike meth houses, there is no solid data on how long those elements might linger after a grow is gone, how dangerous those elements are to people living in that house, or whether and how to “clean up” after one — so companies that offer “cleanup” services could be solid professionals using scientific cleanup methods, or they could merely shampoo the carpets and paint the walls and call it “done.” How would you know?

Buyers who find the perfect grow home might also not pay attention in their eagerness to any possible municipal moratoriums on growing pot (they do exist) — or CC&Rs (covenants, conditions and restrictions) or HOA (homeowers’ association) restrictions.

As Bricken noted, in many places — legal pot or not — it’s simply not true that you can just move in and start growing.

Technically, it is a shrub

Let’s say your new homeowners went against your advice and bought the house with windows in the basement and a subpar alarm system. That shiny silver was irresistible to a thief — and now their plants are gone (along with a few other household items).

Home insurance policies typically offer coverage for plants, shrubbery or landscaping — and out-of-luck growers who’ve been placing claims for pot plants have been paid back by their insurance carriers, for the most part, said Perry. They can claim the plant under either vandalism or shrubbery loss, and most carriers will pay those claims.

“Nowadays it’s very easy to determine value,” he noted. “You call a store and you say you had five pot plants and they were in various stages of development, and they’ll tell you how much those plants are worth.”

Perry adds that he thinks carriers will be likely to continue covering plant theft — “from their standpoint, continuing to cover it and staying under the radar on it will be a good thing,” he said.

“My impression is that most of these big carriers do not want to be the ones to buck the trend,” he continued. “A lot of the consumer advocacy for this is coming from younger generations, and they don’t want to lose business because ‘Mom and Dad don’t use pot — but their kids do.’ The kids who want to use pot in their house wouldn’t like it if the carriers were denying coverage for pot.”

So if it’s legal in the state, stolen plants can be claimed as shrubs. Now you know.

Burning down the house

It’s obvious how house fires can start as a result of an overloaded electrical system — but there’s another common way that fires have been starting in states where extracts are becoming popular.

One of the most popular type of extracts in Colorado is hash oil, and there have been numerous reports of explosions resulting in fires that happened because someone was trying to make it at home.

Perry said that according to state sheriff’s offices, there have been 86 house fires in Colorado that were a result of growing pot or making extracts at home since pot was legalized — and that prior to legalization, there were none. (This could be a reporting function, of course — it’s possible that sheriff’s offices were not accurately identifying or classifying cannabis-related fires before legalization.)

However, there’s no doubt that reports of hash oil-related house fires have mushroomed in the state.

Making hash oil requires highly flammable supplies — such as butane, probably the most popular. As most people know, butane is incredibly flammable, and it needs to be somehow removed from the final product after infusion.

Butane hash oil being made -- the butane is evaporating in this step. <a href="https://commons.wikimedia.org/wiki/File:Butane_honey_oil_being_evaporated.JPG" target="_blank">Credit Wikimedia Commons</a>.

Butane hash oil being made — the butane is evaporating in this step. Credit Wikimedia Commons.

This is usually accomplished by using very low heat to encourage the butane to evaporate from the hash oil — but set the heat too high or try to burn the butane away too fast, and you have a recipe for disaster.

“Then you get an explosion,” explained Perry, “and you’ve got this sticky substance that’s blown all over, so you may have 20 different fires that have started with this stuff that’s just burning and burning. It escalates very quickly.”

Will an insurance carrier cover that? Historically, yes, Perry says — but new laws may have changed things.

“What we like to say is that ‘carriers cover stupid,’” he explained.

If you pour gasoline along a wall and set it on fire so that you can enjoy some indoor flames — that’s a little too stupid, he said. But an accident — like, for example, leaving your clothes iron on at home all day, where it falls into a basket of laundry and starts a fire — is covered.

A hash oil fire “is kind of the same thing,” he said. “Who is going to be the carrier to stand up and fight it?”

That said, a new Colorado law passed in 2015 outlines felony charges that home hash-oil cooks will face if they get caught. Those laws should give insurance companies more protection if they decide to deny a hash-oil fire claim, Perry said.

He added that he thinks in the future, as legalization spreads, carriers will start presenting insurance riders that ask homeowners, “Do you have a pot operation? We do (or do not) cover those.”

Commercial break

“Landlords are assessing rent commensurate with the risk,” notes Bricken, which means many cannabis-related businesses “are paying two to three times market rent in order to lease because space is very limited.”

She says that states typically require, at minimum, a commercial liability policy, and “there are insurers that will underwrite that,” but covering fire, destruction of crops or property can get dicier.

And in Seattle, they’ve seen a “revival of dead spaces for sale that have been on the market forever,” Bricken said. “In Seattle and the state of Washington, we have buffer requirements” that dictate the proximity of any pot-related businesses to any areas that could contain children (schools and parks among them).

As a result, Bricken says, “there’s been some revival in some disenfranchised areas because they’re the only places you can go based on the 1,000-foot rule and based on local zoning.”

That’s not always welcome, she noted. One Seattle dispensary, Uncle Ike’s, has invited protests for settling itself next to a church in a community of color, even as it “basically singlehandedly gentrified an entire corner of the neighborhood that was very disenfranchised,” Bricken said. A yoga studio and gourmet slider shop have moved in next door.

The other thing that happens, noted Bricken, “is the NIMBY (not in my backyard) legislation.” In Washington, residential home farms are legal — you can grow cherries and apples and lavender in a residential home farm if you like.

However, “we have case law that says a lavender farm can be a nuisance depending on the time of year it’s harvested and the sensitivity of the patient,” Bricken noted. “That litigation has picked up, and we try to warn clients that neighbors will make arguments like, ‘Your pot harvest is giving me migraines.’”

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