Water Quality And Marketability

[Andy27]

So five days ago the Water Authority for a market area I cover issued an advisory that residents should not drink or cook with the public water supplied to their homes. I am being asked (by USDA RD) to put a statement in an appraisal which has an effective date one month before the recent news release stating this water hazard has no effect on marketability. Well, first of all, according to new stories I've been reading about this, the water has been contaminated for years per the EPA, it's just now that the Water Authority is telling us (during an election year, surprise, surprise). Second, everyone was beginning to be told the water was unsafe to drink and cook with only five days ago, so how could I know that potential buyers are turning down properties just because of this issue. These are advisories also, the governor has not issued a state of emergency but we do have facilities like Kroger and the local Food banks starting to deliver donated bottled water to local fire departments for residents. So that being said, the general attitude I've been able to get (so far) from the locals is that it's not a big deal, just a political issue since it's been a problem for years but no one has admitted it until now. Also, the Water Authority has issued statements saying that a temporary solution is being put into place and that they are hoping the water will be safe to drink again soon. I haven't seen any unusually high numbers of dead animals/livestock or abnormal sicknesses in this area.

So are there any suggestions as to word this from any appraisers who have had real drinking water quality issues maybe due to lead poisoning or fracking issues? Were you able to extrapolate an adjustment from the market due to the water quality concerns alone? We have never had a major environmental catastrophe in this area of the country while I've been appraising property. Personally, I never drink or cook with unfiltered tap water. My office is on the same water system and my attempts to light the water on fire were uneventful!

Let me know if it's OK to post a link to the news story. I'm leaning towards saying this has not affected marketability because we all just found out about this but I am expecting more clients may want clarification in the future, especially if this becomes worse. Any suggestions or stories of experience in this matter are appreciated. Thank you!

 

[Terrel L. Shields]

So are there any suggestions as to word this from any appraisers who have had real drinking water quality issues maybe due to lead poisoning or fracking issues?

FRACKING has never been an issue...period. Over 900 studies that the EPA compiled indicated nothing. Lead isn't a source water issue. If you have lead pipes like Flint - then you have a real problem but Flint is impacted by externalities that would make extracting an adjustment difficult. So what is the issue there? Is it the arsenic found naturally in Alabama groundwater in many places? It can be treated. But generally, you test the water and see. The only adjustment would be the cost to cure, that is to either install some treatment system like Culligan or find a new source.

https://nicholas.duke.edu/about/new...ter-contamination-shale-gas-drilling-Arkansas

"boil orders" are common and usually the result of bacteria. The lack of evidence would suggest that it is not a factor except during the actual time the folks are boiling their water. Again, a good water treatment device would filter most such issues away so at most the "cost to cure" would be such a system installed. And the evidence that there is any impact from these occasional boil orders is so ephemeral it is very likely impossible to extract from the market.

 

[Andy27]

The issue is this Water Authority gets water from the Tennessee river which also has numerous industrial facilities along the bank. The Water Authority is suing a few of these companies in order to pay for cleanup due to the chemicals showing up in the water so it's created a big stink in the local media. All I'm reading concerning this lately is that the Water Authority has a solution and "are working on it". There's even an article from the Governor of Alabama stating there is no health-related crisis based on water quality. As far as "boil orders" go, the Water Authority is saying boiling will make the contamination worse. Cost to cure installing a filter is a good recourse. Could putting a statement "recommending but not requiring" a water test at the subject property by a licensed professional be a good CYA, or would you think that is outside of scope of work?

 

[Deleted member 130081]

We have this. We have a county here that has government issued warnings. Ironically, the area was settled due to its "healing" spring water and is nicknamed "Spring City". The poison is due to farming. I would say that your situation may be too new to analyze the effect, if any. Our situation has been known for some time and as it has turned out, which we just had to wait and see, is that people are still purchasing and paying the same way as ever. I am fuzzy on your client request. Do they want an effective date of valuation to be a month earlier? Or a statement that the water was considered fine a month ago? If you are going to change the effective date, then I think your done - there was no knowledge of this at that time; however a comment in the appraisal disclosing the current situation might be prudent anyways. If you are going to say the value is fine post news, then I would question that direction. I don't think it would be wrong to use an extraordinary assumption, but maybe wrong to conclude there is in fact no effect. I don't think enough time has passed to really know one way or the other. That is what it is - its your clients problem, not yours.

 

[Mr Rex]

Beyond the SOW of an appraisal. Tell the lender to have the water certified by the same folks that certified the Flint MI water if they have a legitimate concern and to leave you out of it, you were not engaged to judge the water quality and/or its effect on marketability and that you left your water test kit at home that day etc.

 

[Andy27]

Thanks for the replies. Just got word from our VA appraiser that VA is putting all appraisals in this Water Authority area on hold indefinitely. Rural Development may very well do the same.

 

[Terrel L. Shields]

the water quality and/or its effect on marketability

Actually we should address such issues but probably best handled by disclaimer and extraord. assume a water test woul pass.

 

[Denita Neuenhaus]

Thanks for the replies. Just got word from our VA appraiser that VA is putting all appraisals in this Water Authority area on hold indefinitely. Rural Development may very well do the same.

^^^We had a similar, but not the same, issue several years ago when the mortgage meltdown occurred (2008 era). There "appeared" to be a contamination of the water table in a rural/suburban area where the water source is well water. The issue was this: the well water might be contaminated and cause cancer in that particular area of western Palm Beach County so that there was a purported 'cancer cluster' in the area.

The lenders did exactly what your statement above states - they stopped making mortgages in the area until all the tests and re-tests were completed. In our case it was about a 2 year period where the only sales where cash sales and disclosures about potential contamination had to be added to every contract.

It is back to normal lending procedures now that the tests determined that there was no cancer cluster and no contamination but it wreaked havoc for the entire two year period for that particular area.

 

[Terrel L. Shields]

there was a purported 'cancer cluster' in the area.

Unfortunately, "cancer clusters" are generally a statistical aberration not a "real" cancer event. And often, even if it was real, it is impossible to pinpoint. So did it impact property values during that two years? And by how much?

Here a few years ago, two high school students got testicular cancer at the same school. Doubly rare but as far as I know no other cases have occurred there in the past 10 years. That didn't keep a gaggle of lawyers from descending upon the place and suing some poultry companies claiming that an additive made in Alabama contained minute amounts of arsenic which in turn was passed thru the chickens and end up in litter that was scattered over pastures in the region. After months of trials it was dismissed as nonsense. No traces of arsenic beyond that normally found in the human bodies were noted and as I said, no cases have occurred since as far as I know.

Statistically, there is something called a Gaussian curve and that is a uniform bell curve. Great. But in real life, "these clusters" (two cases) are typical of statistical studies. If you roll dice the Gaussian curve suggests you would never roll the same number twice, but in fact, sooner or later you would. It just happened that two unfortunate young men had contracted the same awful disease over a short interval. It happens.

I know at the time the property values in that town did not vary as best I can tell. But no one withdrew financing either.

 

[Denita Neuenhaus]

Our cancer cluster event was exacerbated by the economy at large at the time so it is difficult to parse out when the market reacted to the 'cancer cluster' (that did not exist in real life). It did affect property values for two reasons: lots of press and lenders stopped lending in the area.

When you have lenders excluding a geographical area on the basis of rumor and not fact it does create a negative market event. When the lenders came back to the area, sales picked up and the disclosure was no longer required because the cancer cluster was found to be non-existent after many environmental investigations. It was truly a rough two years for sellers in that area.