Appraisal approach Clandestine Labratories/Meth Lab Properties

[daven]

I have just accepted and order to appraise a property which was used as a "medium grade" clandestine labratory. I am curious to others' approach in the valuation process. Just a few bits of info for sake of argument, numbers are just that and do not reflect the actual numbers. There is signed purchase agreement for $100,000. The house sold for $132K 5 years ago. The house was appraised 2 years ago for $142k. The sheriff's sale and sheriff's deed was transfered at $112k. Seizure date was just over 1 year ago. Without looking into this too far, I am interested how others would approach this situation. Consider the property is in a market were clandestine labratories are not common place, the entire state has 7 known properties on the DEA's list of known labratories. Obviously it is impossible to derive any markets/value trends from a matched pair analysis. So ultimately your are adjusting for a Stigma, and my question is how do you put a value on that. And where in the report to you adjust. I am currently considering two different approaches... The first one would be to extend my radius of properties to one mile so I can "bracket" my comps as close to the subject as possible. If... if the final numbers are 30k higher than the purchase price then I could adjust 20k-30k for the stigma. This is an arms length transaction, all parties involved are aware of the properties history/stigma (including the secondary market lender). There would be full disclosure in the appraisal regarding the clandestine lab including a certification of professional cleaning of the entire property.
The second one would be to list the property as Fair-average and adjust there for the stigma. And of course full disclosure.

I've read other threads regarding "Meth Labs" and everyone seems to get sidetracked with opinions so it is hard to get anything out of those. All your input is greatly appreciated.

An interesting note: the subject is located Literally 1/2 a block from a Middle School and 1 1/2 blocks from an elementary school. Crazy Huh!

 

[BRCJR]

Yhis tiptoes toward complex in my opinion. If you have never appraised a property with the character and issues such as this one, I think you should re-think doing this assignment.

And of course, where is your mentor, as it appears you are a trainee?

Do not get in a bind before you get started. Find someone local to help you and/or your mentor.

 

[Smokey Bear]

First, has the house been "cleaned"? Meaning the HAZMAT team has been in there in certified it fit for habitation? Usually the best thing to do with a former meth lab is to burn it down.

Second, get Randall Bell's book on Detrimental Conditions - it is the textbook on houses with stigma. I think stigma would be very real for a former meth house - you have to trust that the cleanup team did their job properly, and people are going to live in the house. If it's going to be a rental, there's massive possible liability if it wasn't cleaned up properly.

Has your supervisor worked on this type of property before? If not, the job should be turned down. Or see if you can team up with a local appraiser who does have this experience, give them the whole fee in exchange for them letting you participate and learn.

 

[Peacemaker]

Be careful making assumptions about how accurate the DEA list is. Maricopa County Environmental Services publishes a list of meth labs that has hundreds of addresses on it that don't show up on the DEA list. Many of them however, are listed/were listed in the MLS and say something like "owner never occupied property no spds available." I'd see if local law enforcement keeps their own list.

 

[Mike Boyd]

I would require an environmental clearence. Stigma? Not in my market area unless the entire neighborhood is composed of similar situations or is in a high crime area.

 

[daven]

To bear what I thought was a obvious point, this post is an attempt to find someone with experience, if not in my geographical area at least someone who has experienced this before. I have searched around for others in our market experienced in this particular area with no luck... and remember, this is not common place around here. South Dakota is not California or Nevada! Finding an appraiser who is experienced in appraising clandestine properties is like finding a needle in a haystack. If I do find one, you bet, I would forfiet the fee to learn.
As far as my mentor is concerned, he has been beside me the whole way, he is a very reputable appraiser in the area and is held in high regards by most everyone. These approaches are the conclusion of alot of discussion and research, from & between the both of us.
Apparently I did not make myself clear when I stated the the property has been "cleaned" and "apporved" for habitation. I have a copy of the certification.


None of my comments are intended in an offensive manner, so please don't take them as such. Again your perspectives are appreciated.

 

[Lobo Fan]

I have only run into it once and the hazmat clean up stripped the house pretty bare. Much of the drywall was gone, and all the floor coverings were stripped out. I appraised it pretty much straight up then started with the costs to cure. I did find a comp that was in a similar condition, a former meth lab now certified by the city to be clean. That comp indicated a 25-30% hit compared to more usual sales.

That is how I handled it. Value as if whole and clean less cost to cure less the stigma based on the comp. Mine was for REO puposes and not for a purchase so it was easier. Not sure if this is the text book method but it made sense to me.

 

[PropertyEconomics]

If there are seven in the State, I would expand my search to those seven properties and see what happened with each of them on a percentage basis. It sounds to me like you have comps to measure the "effects" attached to the property. Im not sure I would call it a stigma as that tends to have other connotations.
Simply find other homes that have been used for similar purposes within the state, match those homes with others from their neighborhoods and come up with a percentage of adjustment.
Apply that to the comparable sales of your neighborhood that are not affected by the condition and you have market measurement of the effects.

 

[Walter Kirk]

First be sure that the improvements (and the land) are "Clean". You must then determine the extent of knowledge that this property was a meth lab, was it on TV? did the newspaper publish pictures? If the fact that it was a meth lab is not widely known then you must consider sales of other damaged and then cleaned up properties.

 

[daven]

This particular "Meth House" was all over the news because it was located 1/2 a block from 2 schools (and elementary school and a middle school). I spoke with several Realtors and did extensive research including public records and past news articles in an attempt to get any inforamtion/addresses on other "like" properties. I found six other properties in the community. Unfortunately detailed research concluded five of the six properties were either not sold after the seizure date or if they were transferred/sold it was within families via quit claim deeds. Each scenerio in itself cannot be considered an "arms length" transaction, thus insufficient for comparable analysis. The sixth house was sold post seizure date via "contract for deed". It is not much to work with, but upon review of the contract for deed (which is filed with the county register of deeds, and I will review in the morning) I may be able to derive a detriment value (%) based on similiar comparables at the time of sale.

I like the cost of cure suggestion.

I have a hard time understanding some of your suggestions in which a stigma is not appropriate. I see little indifference than that of murder or suicide in a residence, if anything it would be worse due to the legal disclosure's required to be attached to the property for the remaining economic life of the property. At least with a murder or suicide the turnover of population would commonly relieve that stigma long before the economic life of the property is up.

Mike Boyd: I apologize for not understanding your statement regarding the stigma. I have read several of your posts throughout the forum and you are very knowledgeable. Maybee I do not understand a stigma the way I am supposed to. Feel free to elaborate if you will.

I also wonder if there is any liablility for me if a future homeowner decides to refinance and another appraiser values the property at nearly twice the value it was purchased for. Any thoughts? I included a disclosure statement stating the legal requirements of disclosure pertaining to the meth lab once located in this property, and any future valuations are required to consider the aforementioned circumstances