Environmental Stigma

Environmental Stigma: Case Study Approach

Environmental Stigma is easier to define than it is to quantify. The Appraisal Institute seminar, Environmental Risk and the Appraisal Process, defines Environmental Stigma as "an adverse effect on the market's perception of the value of property containing an environmental risk even after cleanup costs have been expended or considered in estimating value"1. However, accurately predicting how a given market will perceive these intangible costs is no easy task. An appraiser does not have access to a ready repository of comparable sales history to draw inference from. Given the paucity of comparable information, Case Study Analysis can be a helpful technique when estimating the effect of stigma on a contaminated property. Also, the Appraisal Institute recognizes "Case Study Analysis" as an appropriate valuation technique.

Case Study: Fuel Oil Contamination of a Residence

In the article Fuel-Oil Contamination of a Residence: A case study in stigma2, Bruce M Closser details his use of the Case Study technique in his valuation of the effect of stigma on a fully remediated home in Upper Peninsula Michigan that experienced contamination that resulted from a basement oil spill. In Closser's research, he found an instance of a nearby home that experienced a similar oil spill, resulting in what the Bell Chart designates a Class VIII detrimental condition (one involving soil or building contamination) 4. Closser used this previous case as a basis to estimate the effect of stigma on his base case.

Closser's reference case involved a Michigan home that was impacted by a flood that caused a fuel tank to spill oil throughout the case homeowner's (Baker) basement. Upon noticing the flood water, Baker began pumping from the basement into his yard, spreading the damage to his yard, resulting in a Class VIII detrimental condition. This case property changed ownership four times over a six-year history, leaving a rich history of clues for Closser to base his valuation. I have listed below a brief chronological breakdown of the circumstances surrounding the reference case that Closser used to base his estimation of value.

 Adams (Owner #1) sells home to Baker (Owner #2) on seller-financed land contract for $42,000

 Chocolay River floods Baker's basement

 Rising water causes basement fuel tank to spill oil

 Baker pumps contaminated water into yard, causing soil contamination.

 Contaminated soil is removed (cost: $1,200)

 Acrid smell remains

 Baker defaults on land contract

 Home reverts back to Adams (Owner #1)

 Adams defaults on mortgage

 Home reverts back to bank (Owner #3)

 Bank replaces furnace and hires professional maintenance company to clean basement.

 Bank rents remediated home to Carters

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