Home | Business News | Browse by Publication | A | Appraisal Journal

When good things happen to bad properties.

Article Excerpt
Most studies of the effects of environmental contamination on property values have focused on the adverse consequences of contamination on the market value of the impacted properties. (1) For example, a recent book, When Bad Things Happen to Good Property, presents a litany of adverse consequences associated with the effects of contamination on real property and discusses these issues in the context of litigation claims for damages. (2) Another recent book, Real Estate Damages: Applied Economics and Detrimental Conditions, presents a series of case studies that catalog adverse effects of contamination and other detrimental conditions on property values. (3) What is largely missing from published studies is discussion of the recovery of market value as contaminated properties move through the remediation process, and environmental risk and stigma are reduced or eliminated.

Environmental Stigma and the Remediation Lifecycle

The potential effects of contamination on property values are not constant over time, and may change as a contaminated property is remediated. This change in effects, as a property moves through remediation, is anticipated in the valuation framework set forth in Advisory Opinion 9: "The Appraisal of Real Property That May be Impacted by Environmental Contamination" (AO-9) and is discussed in The Appraisal of Real Estate, 13th edition. (4) AO-9 defines the remediation lifecycle as

A cycle consisting of three stages of cleanup of a contaminated site: before remediation or cleanup; during remediation; and after remediation. A contaminated property's remediation lifecycle stage is an important determinant of the risk associated with environmental contamination. Environmental risk can be expected to vary with the remediation lifecycle stage of the property. (5) (Emphasis added.)

Environmental risk is linked to the frequently misunderstood concept of environmental stigma, which is "an adverse effect on property value produced by the market's perception of increased environmental risk due to contamination." (6) The importance of these concepts for the recovery of market value in a contaminated or previously contaminated property is that the influence of risk and the stigma effect decline over the remediation lifecycle. As discussed next, studies have found diminishing stigma effects over time, especially as a source property is remediated.

Empirical Evidence of Recovering Property Values

Recovery of Value of Proximate Property

The issue of recovered or recovering property values has been addressed in several studies and articles on the effects of contamination on property values and prices. While this was not the primary focus of the studies, early literature on the effects of contamination found such diminishing effects. For example, in analyzing the effects of the Three Mile Island nuclear disaster, Gamble and Downing reported that local realtors perceived a "virtual collapse of the market" immediately following the accident, but after four to eight weeks they observed that sales volume had returned to nearly preaccident levels. (7) For...

View this article FREE - Now for a Limited Time, try Goliath Business News
Free for 3 Days!