Climate risk data has quietly moved from the background of real estate underwriting into the center of many residential transactions. What was once the domain of insurers, lenders, and regulators is now directly influencing buyer behavior, pricing negotiations, and time on market.
Recent national coverage has highlighted disputes between homeowners, listing platforms, and climate data providers over how properties are scored for flood, wildfire, wind, and other natural hazards. From a legal and transactional standpoint, these disputes signal a broader shift. Climate risk scores are no longer abstract analytics. They are a real factor affecting deal certainty, disclosure expectations, and, in some cases, post-sale conflict.
Why This Matters for Transactions Today
Climate risk scoring tools attempt to predict a property’s exposure to natural disasters over a long-term horizon, often 15 to 30 years. These projections are increasingly visible to buyers through online listings, sometimes before a seller or broker is even aware they exist.
From a legal perspective, the issue is not whether climate risk should be evaluated. That has long been part of insurance underwriting and lender diligence. The issue is how third-party scores, built on complex and sometimes opaque modeling assumptions, are being used in negotiations and relied upon by parties who may not fully understand their limitations.
High-risk scores can affect transactions in several ways:
- Buyers may withdraw from a deal or demand price reductions based on the score alone.
- Sellers may face longer marketing periods or diminished value without a clear mechanism to challenge the data.
- Brokers and developers may be asked to explain or defend scores they did not generate and cannot control.
Accuracy, Assumptions, and Legal Risk
A recurring concern is that different climate data providers can produce materially different scores for the same property. Each model relies on distinct assumptions regarding rainfall intensity, fire spread, topography, and climate projections. As a result, there is no single, authoritative answer to a property’s future risk profile.
This variability creates legal and practical challenges. Sellers may believe a score is inaccurate or misleading, yet have limited ability to compel a correction. Buyers may treat the score as definitive rather than probabilistic. In some cases, disputes have escalated into litigation, with homeowners alleging that high-risk scores caused financial harm during resale.
From a legal standpoint, these cases raise unresolved questions about reliance, disclosure, and whether predictive risk scores constitute factual representations or protected forecasts.
Disclosure and Due Diligence Considerations
Climate risk scores do not replace traditional due diligence. They sit alongside, not above, existing tools such as surveys, environmental assessments, insurance evaluations, and government flood or hazard maps.
For sellers, it is increasingly important to understand what climate data is associated with a property before listing. That includes reviewing publicly available scores, identifying discrepancies, and assembling documentation that addresses potential buyer concerns, such as elevation data, mitigation improvements, and insurance history.
For buyers, climate scores should be treated as one input among many. They may highlight areas for further inquiry, but they should not be the sole basis for decision making without additional investigation and professional guidance.
Implications for Developers and Investors
Developers and investors face heightened exposure as climate risk data becomes more embedded in resale markets. Scores can affect financing, insurance availability, and exit assumptions, particularly in residential and mixed-use projects.
Early-stage evaluation of climate risk modeling, coupled with thoughtful design and mitigation strategies, can help reduce future friction. Clear documentation of resilience measures may also play a role in addressing buyer concerns down the line.
What Comes Next
Climate risk scoring is likely to remain part of the real estate landscape. As models evolve and climate impacts continue to shift, disputes over accuracy and use will persist. The legal framework governing these tools, however, is still developing.
For now, parties involved in real estate transactions should approach climate risk scores with informed caution. Understanding how the data is generated, how it may influence counterparties, and how it fits within existing disclosure and diligence obligations is essential to managing risk and protecting value.
For questions about how climate risk scores may impact real estate transactions, contact Matt Viola, Chair of KJK’s Real Estate & Environmental Practice Group (MTV@kjk.com; 216.736.7253.).