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Leaking Diesel tank....

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pkbarnhart

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A couple of years ago I had the opportunity to complete an appraisal on a 2000+/- sf home with full basement located next to the "service yard" for a large pud in the area. There was an underground diesel tank that had apparently leaked for several years and subsequently contaminated the soil under the home. I was asked to perform an appraisal as of the date that the contamination was discovered. My data file is extensive for the subdivision and I felt reasonably comfortable with the assignment. Apparently the Homeowner's Association has spend over $200,000 trying to remediate the contamination but has not been fully successful. For the sake of the current discussion I will assume that the property is still contaminated.

Today I received a call from the Attorney who represents the homeowner and was asked to write a letter which basically would state "if the subject property was advertised for sale with full disclosure of the contamination ... the property would not be marketable". The property is zoned for single family use only and could not be purchased for use as a storage building, etc. Please disregard the verbage as I will work on it with assistance from the Attorney. My first thoughts are that this is most probably true, as most lenders that I know would be very hesitant to loan on the property without a "clean bill of health letter" from some sort of environmental expert and I don't know of any purchaser that would be williing to purchase the property

My question, does anyone have any reference material that may be useful, know of any similar situations where the property was condemned or deemed worthless, ..... any thoughts or suggestions would be greatly appreciated.

(As a side note... I completed the appraisal report in March 2000, the homeowner has moved out and purchased another home, has kept up payments on this home so that it won't be foreclosed on- they have at least $100,000 in equity- and so far they haven't received a nickel from the Association, the Oil Company, etc. They have all spent time and lots of money trying to cover their own behinds.. blaming the other guy, etc. The poor homeowner has suffered a nervous breakdown, worried if the reason the kids have asthma is from the diesel, etc. Another case of "swift justice" for the little guy- NOT)
 

Doug Walters

Freshman Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Nebraska
The attorney for your client asserts the subject property has no value due to soil contamination and seems to have convinced you to be of the same thought. But futher along in your post you state that the homeowner has $100,000 in equity. Which is it? $0.00 and $100,000 are not remotely close. :twisted:
 
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Anonymous

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The one factor that you did not discuss is whether government regulators are involved. Some pollution regulations make it impossible to sell contaminated property until the government signs off. If this is the case you will have to determine the cost of cleanup and compare that to the market value of the property if it were clean. It may well be that the clean up cost exceeds the market value of the property.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
During the early 90's I found several sales of closed service stations where there was an agreement by the oil company to clean up the station with a limiting cost of $100,000. Also Texas has a fund to help clean up contaminated sites. Your state may have such a fund.
 
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Anonymous

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>>"if the subject property was advertised for sale with full disclosure of the contamination ... the property would not be marketable". <<

I come from the old school which says that nothing has zero value. The cost to clean up may exceed the calculated market value but there is always someone willing to buy very cheap under the illusion and/or knowledge that they can milk the government, an oil company, etc. or simply make the pollution go away. What they do may not be kosher or even legal, but they do it and get by with it.

Stigma associated with pollution tends to diminish with time. Only when an government agency has a lien against the property is it unsalable. And all such liens have a time limit and/or the government has to pay the clean up. Owner goes bankrupt - so what? If it was paid for and is the residence of the owner, he likely keeps the dwelling after bankruptcy and has no clean up liability.

I knew a fellow who owed the IRS thousands. He had a composting plant on 80 ac. w/ EPA permit. He paid the permit annually long after he closed the plant and the IRS refused to take the property in fear some hidden pollution might come back to haunt them. The fellow died, his brother inherited it and continued to pay the EPA permit. After 2 yr. the IRS wrote him informing the estate that they had no future action against the deceased. The bro. sold the property within days for $2,000/ac.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
You assume financing in a sale. A possible sale scenario is an all cash sale to an investor for rental purposes. There has to be income value there. Sure the appreciation may be nil but the value paid in such a transaction could be justified stickly bby the income stream from the rental.

I would not put myself out on a limb by saying that it couldn't be sold if fully disclosed. Walk the price down and you will eventually get to Market Value.
 
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pkbarnhart

Thread Starter
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Based upon the comments to my initial letter I called the attorney today and recommended that he contact a "reputable" local realtor for an "expert opinion". Realtors can make good witnesses, know how to sell a product, aren't bound by having to support an opinion with any facts, etc. I have been appraising for 17 years and have never come across this type of problem. I told him that I was probably not qualified and that there was just too little (like none) market data in the area to support any adjustment to value.

Thanks to all who commented.
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
pk:
Have just wrestled with a 'there is no statistically supportable evidence' similar problem which still remains intuitively and irrefutably THERE...

Attended USPAP CE this last week: opinions of board members came down heavily on citing sources for your analysis which can and should in thier opinion include exactly what you propose: Insuring, interviewing etc of those involved in sales.... as a last resort of course, but seeking credible sources for non-quantifiable belemishes is entirely accoding to the rules!
 
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