The hidden costs of buying a home with heating oil versus natural gas can run into thousands if not hundreds of thousands of dollars. Heating oil is not just expensive to operate, but conversion and removal of heating oil tank is expensive.
Oftentimes in my role as a real estate agent, I see homes heated with heating oil priced lower than those that use natural gas. It makes sense, since the cost of running a home on heating oil versus natural gas has become so much more expensive. But that is not all: my real estate attorney and home inspector had explained to me that potential costs and liability associated with underground heating oil tanks could be calamitous. However, the major costs with an above ground oil tank (which I had in my first home) are the heating and conversion costs. Now, when working as a real estate agent helping prospective buyers, I always explain to buyers all the possible costs of buying a home heated with oil, so buyers can make a more informed decision.
Substantially higher heating bills
When I owned my single family home in the mid-2000s, heating oil and natural gas were roughly priced the same. Based on the EPA's Heating Fuel Comparison calculator, assuming average efficiencies for both types of furnaces, the cost of heating with #2 heating oil is currently 350% that of natural gas. A typical fuel tank contains over $1000 worth of heating oil. In contrast, my gas bill, which powers my furnace and hot water tank in my current home, cost $25-50 each month over the past year (my utility smoothes out natural gas prices lagged over the past two years).
Natural gas conversion costs
Without any incentives, based on anecdotes, the conversion from heating oil to natural gas, including above-ground oil tank removal, permits, plumbing, electrical, chimney work and ducting typically runs $6,000-8,000. In ground costs, discussed below, are higher. In addition, a new hot water tank starts at $1000 and goes up to $3000 for some tankless models. Many states offer subsidies and tax incentives for conversion, and some natural gas manufacturers offer financing as well, but it takes several years to financially break even when converting from heating oil to natural gas.
Removing or abandoning underground oil tank costs
In New Jersey, the Department of Environmental Protection (NJDEP) offers an underground storage tank (UST) remediation, upgrade and closure fund. Several contractors advertise that homeowners can get state funds for removing their underground oil tanks. In reality, the NJ UST Fund has stopped making grants for over two years due to insufficient funds. However, similar programs in other states may still be funded. According to Bergen.com, removing or cleaning and filling (with foam or sand) an underground heating oil tank costs about $1500-2000 out of pocket and must be performed by a licensed site remediation professional (LSRP). following detailed protocol. In addition, there are permit costs for removal or abandonment in place, $400-500 fee for site testing for soil contamination and oversight costs (typically $500) payable to the DEP. If no leaks are found in the unregulated heating oil tank (UHOT), the DEP issues a No Further Action (NFA) letter, which homeowners should safeguard and prospective buyers should review.
Cost of leak remediation and clean-up
This is the big unknown that often breaks up real estate deals. By several anecdotes, hazardous heating out leak remediation can run upwards of $50,000 to over $100,000. Many cases also take more than one year to complete the testing and clean-up, and for the DEP to issue a NFA letter. Oftentimes, the homeowners' insurance excludes this peril (for example insurance might pay if a neighbor's property is affected through liability coverage but exclude the primary homeowners), although heating oil companies offer insurance to cover underground oil tanks. Although the NJ state fund for tank removal has been depleted, the state is taking applications for possible reimbursement in 2015. Loans may also be available from the NJ Economic Development Authority, or an equivalent agency in another state.
How buyers can protect themselves
Removing or abandoning underground oil tank costs
In New Jersey, the Department of Environmental Protection (NJDEP) offers an underground storage tank (UST) remediation, upgrade and closure fund. Several contractors advertise that homeowners can get state funds for removing their underground oil tanks. In reality, the NJ UST Fund has stopped making grants for over two years due to insufficient funds. However, similar programs in other states may still be funded. According to Bergen.com, removing or cleaning and filling (with foam or sand) an underground heating oil tank costs about $1500-2000 out of pocket and must be performed by a licensed site remediation professional (LSRP). following detailed protocol. In addition, there are permit costs for removal or abandonment in place, $400-500 fee for site testing for soil contamination and oversight costs (typically $500) payable to the DEP. If no leaks are found in the unregulated heating oil tank (UHOT), the DEP issues a No Further Action (NFA) letter, which homeowners should safeguard and prospective buyers should review.
Cost of leak remediation and clean-up
This is the big unknown that often breaks up real estate deals. By several anecdotes, hazardous heating out leak remediation can run upwards of $50,000 to over $100,000. Many cases also take more than one year to complete the testing and clean-up, and for the DEP to issue a NFA letter. Oftentimes, the homeowners' insurance excludes this peril (for example insurance might pay if a neighbor's property is affected through liability coverage but exclude the primary homeowners), although heating oil companies offer insurance to cover underground oil tanks. Although the NJ state fund for tank removal has been depleted, the state is taking applications for possible reimbursement in 2015. Loans may also be available from the NJ Economic Development Authority, or an equivalent agency in another state.
How buyers can protect themselves
As a real estate salesperson, I usually encourage sellers to have the NFA letter handy before listing a home for sale, and for buyers to consult with their attorneys on how to minimize their exposure to the liability, as clean-up is the responsibility of the current homeowner, no matter when the underground storage tank may have leaked. Under NJ's Open Public Records Act (OPRA), buyers can research whether there ever was an underground oil tank, whether boring studies were undertaken to see if there was contamination, how the remediation was done and if a NSF was issed, and what the results of the post-cleanup tests were. In fact, for single and multi family homes in close proximity, it is a good idea to check the records for the neighbors, as the slope of the ground can affect the area of impact.
Around town, I have seen multi-family homes and condominium buildings with underground oil storage tanks (whether active or decommissioned) priced lower. With good reason, since the hidden costs of buying such a home can run into thousands if not hundreds of thousands of dollars, something that buyers, their real estate attorneys and their real estate agents must weigh before making a bid.
Around town, I have seen multi-family homes and condominium buildings with underground oil storage tanks (whether active or decommissioned) priced lower. With good reason, since the hidden costs of buying such a home can run into thousands if not hundreds of thousands of dollars, something that buyers, their real estate attorneys and their real estate agents must weigh before making a bid.
