Methods and Techniques for Contaminated Property Valuation

As noted in the previous edition of “Environment and the Appraiser,” 1 assignments involving contaminated properties, or properties that may be impacted by environmental contamination, often require specialized valuation methods and techniques. The Appraisal Standards Board provides guidance on this issue in Advisory Opinion 9 (AO-9), “The Appraisal of Real Property That May Be Impacted by Environmental Contamination,” which states that [e]stimating the effects of environmental contamination on real property value usually involves the application of one or more specialized valuation methods (AO-9, Lines 182–184). Like all methods for valuing real property, these methods and techniques must be derived from or based upon one or more of the three approaches to value: sales comparison approach, income capitalization approach, and cost approach. Over time, appraisers who specialize in analyzing the impacts of environmental contamination on real property interests have developed specialized methods and techniques that adapt standard appraisal approaches to these assignments. These methods are discussed in the peer-reviewed literature in the field and elsewhere. Since many assignments involving contaminated properties are for litigation, it is important to utilize methods and techniques that have gained general acceptance in the appraisal profession, or at least in that segment of the profession that specializes in contaminated property valuation. The purpose of this article is to provide an overview of professionally accepted methods and techniques for valuing contaminated properties or estimating the effects of environmental contamination on the market value of real property. These methods and techniques can generally be described as follows: