Calculating Diminution of a Contaminated Property

If you are appraising an environmentally contaminated property, you may need to consider more than just the cost of remediation (cost to cure). The property may suffer from stigma associated with the contamination. Stigmatized properties can take months and even years to recover from a blighted image.

The Uniform Standards of Professional Appraisal (USPAP) describe stigma in the A09 provision (2012-2013)… “Environmental Stigma: An adverse effect on property value produced by the market’s perception of increased environmental risk due to contamination…When the appraiser addresses the diminution in value of a contaminated property and/or its impaired value, the appraiser must recognize that the value of impacted or contaminated real estate may not be measurable simply by deducting the remediation or compliance cost estimate from the opinion of the value as if unaffected (unimpaired value).”

At first glance most real estate appraisers don’t appear to be prepared for the type of assignment contaminated properties present. Every appraiser utilizes the same methodologies when they are developing an opinion of value. The most common and usually the most reliable method for appraising contaminated residential properties is the market approach but we may also need to consider the cost and income approaches in developing an opinion of value. All three may come into play when calculating diminution caused by stigma.

Assignments of this nature require considerably more research. To effectively complete an assignment of this sort may cost thousands of dollars. They typically cannot be priced as a flat fee but should be charged based on an hourly rate with a cost range indicated.

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