Standard on the Valuation of Properties Affected by...

Standard onthe Valuation of Properties Affected by

Environmental Contamination

Approved July 2001

International Association of Assessing Officers

This standard revises and replaces the 1992 Standard on the Valuation of Properties Affected by EnvironmentalContamination.

The assessment standards set forth herein represent a consensus in the assessing profession and have been adoptedby the Executive Board of the International Association of Assessing Officers. The objective of these standards is toprovide a systematic means by which concerned assessing officers can improve and standardize the operation of theiroffices. The standards presented here are advisory in nature and the use of, or compliance with, such standards ispurely voluntary. If any portion of these standards is found to be in conflict with the Uniform Standards ofProfessional Appraisal Practice (USPAP) or state laws, USPAP and state laws shall govern.

Acknowledgments

Published byInternational Association of Assessing Officers130 East RandolphSuite 850Chicago, IL 60601-6217

312/819-6100Fax: 312/819-6149http://www.iaao.org

Library of Congress Catalog Card Number: ISBN 0�88329�170�3

Copyright © 2001 by the International Association of Assessing Officers

All rights reserved including rights of reproduction and use in any form or by any means, including the making ofcopies by any photo process or by any electronic or mechanical device (printed, written, or oral), or recording forsound or visual reproduction, or for use in any knowledge or retrieval system or device, unless permission in writingis obtained from the copyright proprietor.

Printed in the United States of America

At the time of the completion of this standard, the Technical Standards Subcommitteewas composed of Steve D. Pruitt, chair; James L. Pence; Nancy C. Tomberlin; JanVann; Randall C. Scott; and Edward Crane, associate member. Alan S. Dornfest, AAS,and Thomas A. Jaconetty made substantial contributions to this revision.

This standard also benefited from the recommendations and thorough reviews of manyIAAO members. In particular, the subcommittee would like to thank Jeni Coan; PeterL. Davis; Wayne D. Llewellyn, CAE; Kenneth C. Uhrich; Joan Young, RES; and PatrickT. Shields.

Contents1 Scope .................................................................................................................................52. Introduction ......................................................................................................................5

2.1 Changes in Lists and Definitions of Hazardous Substancesor Other Contaminants ..............................................................................................5

2.2 Technology and Public and Private Sector Money ..................................................52.3 Public Awareness and Perception .............................................................................62.4 Government Regulations ...........................................................................................6

3. Definitions ........................................................................................................................63.1 Contamination .............................................................................................................6

3.1.1 Physical Contaminants ...................................................................................73.1.2 Nonphysical Contaminants ............................................................................7

3.2 List of Contaminants ..................................................................................................73.3 Examples of Special Situations ..................................................................................7

3.3.1 Underground Storage Tanks (USTs) ..............................................................73.3.1.1 Change in Commercial Industrial Property Value ..............................83.3.1.2 Effect on Residential Property Value .................................................8

3.3.2 Asbestos and Other Insulating Materials .......................................................83.3.3 Lead Paint and Products ................................................................................83.3.4 Radon .............................................................................................................83.3.5 Nuclear Facilities ...........................................................................................83.3.6 Air Pollution ...................................................................................................93.3.7 Noise Pollution ...............................................................................................93.3.8 Toxic Substances in the Home .....................................................................93.3.9 Surface Water and Groundwater Quality Requirements ..............................93.3.10 Waste Disposal Facilities and Practices ......................................................103.3.11 Illegal Drug Manufacture�Effect on Property Value ................................10

3.4 Testing ......................................................................................................................104. Impact on Value�General Areas of Impact ..................................................................11

4.1 Concepts of Value ....................................................................................................114.2 Costs .......................................................................................................................11

4.2.1 Cost of Physical Cleanup.............................................................................124.2.2 Continued Costs of Monitoring ...................................................................124.2.3 Legal Costs ..................................................................................................124.2.4 Ongoing Costs .............................................................................................124.2.5 Indirect Costs ..............................................................................................12

4.3 Financing ..................................................................................................................124.4 Liability ....................................................................................................................12

4.4.1 Use of Property ...........................................................................................124.4.2 Selling Contaminated Property ....................................................................134.4.3 Who May Be Liable .....................................................................................134.4.4 Innocent Landowner ...................................................................................134.4.5 Indemnification Agreements ........................................................................13

4.5 Stigma ......................................................................................................................144.5.1 Reduced Market Value.................................................................................144.5.2 Stigma versus Cost to Cure .........................................................................14

5. Specific Factors Influencing Value ................................................................................145.1 Extent and Nature of Contamination ........................................................................145.2 Type and Location of Property ................................................................................145.3 Demand for Alternative Uses ...................................................................................155.4 Presence of Assumable Financing ...........................................................................155.5 Liquidity Problems Caused by Lack of Marketability ..............................................155.6 Availability of Bond to Pay Cleanup .........................................................................155.7 State and Regional Environmental Regulations ........................................................15

6. Approaches to Value ......................................................................................................156.1 Sales Comparison Approach ....................................................................................156.2 Cost Approach .........................................................................................................15

6.2.1 Cost to Cure as Functional or Economic Obsolescence ............................156.2.2 Specialized Costs .........................................................................................16

6.3 Income Approach ................................................................................................... 166.3.1 Capitalization Rates ........................................................................................ 166.3.2 Income Stream .............................................................................................. 16

6.4 Alternative Approaches to Value ............................................................................ 17 7. Other Considerations ..................................................................................................... 17

7.1 Proof of Contamination .......................................................................................... 177.1.1 Burden of Proof on Taxpayer ....................................................................... 177.1.2 Certification ................................................................................................... 177.1.3 Alternative Solutions ...................................................................................... 17

7.2 Assessment Practices versus Environmental Policy .............................................. 177.3 When Is Value Affected? ........................................................................................ 187.4 Intrinsic Value of Property ..................................................................................... 187.5 Failure to Pay Taxes ............................................................................................... 18

8. Summary of Considerations ......................................................................................... 188.1 Current Use............................................................................................................. 188.2 Future Value .......................................................................................................... 188.3 Adjustments to Value .............................................................................................. 18

9. Public Relations ............................................................................................................. 199.1 Assessment Process ............................................................................................... 199.2 Effect on Other Taxpayers in Jurisdiction ............................................................. 19

10. Example of Map of Contaminated Area ........................................................................ 1911. Glossary ........................................................................................................................ 20Appendix A United States Federal Environmental Regulatory Acts .................................... 22Appendix B Pertinent Court Cases ...................................................................................... 22

Standard on the Valuation of Properties Affected byEnvironmental Contamination

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1. ScopeThis standard provides information and guidance con-cerning the effect of environmental contamination on thevaluation of property for assessment purposes. Thestandard includes definitions of types of environmentalcontamination that may affect value, discusses types ofimpact on value, and lists numerous considerations ofwhich the assessor should be aware. The standard isdivided into several sections, including a glossary and abibliography. Unless otherwise indicated, statutes andregulations referred to in this standard are from theUnited States.

2. IntroductionEnvironmental factors are increasingly important inproperty valuation as the market has become more awareof the potentially detrimental effects of chemical, radia-tion, noise, and other contaminants on air, water (sur-face water and groundwater), soil, and overall environ-ment. In certain cases, especially when incompleteinformation is available on the effects of a contaminant,the market may overreact, and prices may be depressedmore than is rational. In other cases, knowledge abouta particular contaminant is so new or limited that there isa virtual absence of market data, and effects on value aredifficult to ascertain. The property owner (taxpayer)may tend to press for a lower assessment in many ofthese cases. However, the market often recognizes thatcontaminated properties can be redeemed and redevel-oped into valued assets. In fact, there is a growingnational, state, and local effort to revitalize urbanbrownfields.

To deal with all of these issues, to respond effectively toappeals and value property equitably, it is important forthe assessing officer to become knowledgeable aboutcontaminants and their effect on property values. Ascourts, for example, in California (Redevelopment Agencyof City of Pomona v. Thrifty Oil Co. [1992]) andGeorgia (Stafford v. Bryden County Board of Education[1995]), have noted, the general environmental conditionof a property requiring remediation is a relevant factor invaluation.

To understand the effect of environmental contaminantson property value, the assessor must have some back-ground knowledge on this subject. In addition to merelyrecognizing contaminating substances, the assessor mustunderstand the potential for changes in lists of sub-stances or conditions currently thought to producecontamination. The current state of detection, monitor-ing, and cleanup technology must be recognized. Publicawareness is a somewhat intangible factor that neverthe-less may affect value. Finally, the state of current andproposed federal, state, or local regulations and courtdecisions can greatly affect the marketability and valueof property. At least twenty-four states enacted volun-

tary cleanup legislation between 1988 and 1995, bring-ing the current total to more than thirty.

2.1 Changes in Lists and Definitions ofHazardous Substances or OtherContaminants

Lists and characteristics of substances that are hazard-ous, as well as amounts of substances consideredharmful, change frequently as new information be-comes available. Information on specific hazardouswaste is often available from state or local environmentalagencies. The International Association of AssessingOfficers (IAAO) maintains a searchable online bibliog-raphy that includes materials relating to pollution andproperty value. See also the bibliography at the end ofthis standard.

The assessor should also pay close attention to courtcases on environmental issues, many of which involvefederal courts and have the potential to affect value innew areas as new contaminants are implicated. A list ofmany pertinent federal regulatory acts and current courtcases is found in appendices A and B, respectively.Additional court cases are synopsized in the AssessmentJournal, and many are on file in the IAAO library.

2.2 Technology and Public and Private SectorMoney

Both currently available and new technologies have thepotential to influence the effect of contaminants on valuepositively or negatively. Technology that permits safe,efficient, and inexpensive cleanup of contaminants tendsto minimize any decrease in property value. Often,cleanup costs are prohibitively expensive, given currenttechnology, but new developments may dramaticallyimprove cleanup operations. However, new technologymay also make it possible to detect quantities or types ofcontamination that were previously undetectable. Inaddition, as more contaminants are identified, new,more restrictive regulations may be written. Thus, a�clean� property may suddenly have a major problemthat affects value. The assessor should keep abreast ofregulations and technological advances.

Because costs may change with technological advances,the assessor should follow developments and may wishto obtain estimates of cleanup costs independent fromthose provided by the property owner. This step is nodifferent from providing independent appraisals to de-fend values on appeal. In most circumstances, how-ever, cost information provided by the taxpayer can becorroborated through regulatory agencies; several courtsrequire further independent estimates. Enormous sums,well in excess of several billion, are now available forremediation and brownfield revitalization efforts. Pub-lic/private sector commitments may eliminate sites thathad been viewed as environmentally lost properties. As

STANDARD ON THE VALUATION OF PROPERTIES AFFECTED BY ENVIRONMENTAL CONTAMINATION �2001

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one Tennessee court has observed, the effect certainconditions have in the mind of the buying public may becritical (State of Tennessee v. Brandon [1994]).

2.3 Public Awareness and PerceptionThe public can be aware of certain contaminants butuninformed about others. Residential buyers wouldtypically give some consideration to asbestos in a house;they would also probably be concerned if the house werelocated near a nuclear power plant. They may not,however, be particularly aware of radon gas, especiallyif they are moving from an area where this substance israre. They may be aware of, but not concerned with, thepotential effects of electromagnetic radiation from prox-imity to overhead power distribution lines because theeffect of this contaminant is currently under debate inthe scientific community. The potential exists, how-ever, that electromagnetic radiation or some other, yetunknown, substance will be found harmful, and valuesof various properties could be affected suddenly.

Public overreaction may create a gap between cost tocure and decline in value. Even though it may cost$10,000 to cure a particular problem, the potential saleprice may decline initially by $20,000. The assessormight view this as a form of functional or economicobsolescence, or perhaps as a negative locational influ-ence. However, the initial overreaction may not properlyreflect value and usually does not reflect value afterresolution of environmental problems. The assessor,therefore, needs to compute the present value of residualfuture value after cleanup and must endeavor to explainthe valuation process and concepts to the taxpayer (seesection 8.2 and the definition of �residual value� in theglossary).

2.4 Government RegulationsFederal, state and provincial, and local agencies regulatehazardous substances and other contaminants and re-spond to violations. The principal organization in theUnited States is the Environmental Protection Agency(EPA), which administers the Comprehensive Environ-mental Response, Compensation, and Liability Act of1980 (CERCLA), as amended by the Superfund Amend-ment and Reauthorization Act of 1986 (SARA). Manystate or local agencies are also involved. Often, localrequirements are more stringent than federal require-ments. The assessor should maintain periodic contactwith these various agencies to stay current with allregulations and changes.

United States federal environmental regulatory acts aresubject to congressional review and amendment.Changes that are promulgated through this process mayaffect value, and the assessor should remain aware ofsuch changes.

In Canada, the Canadian Environmental Protection Act,the Fisheries Act, and the Waste Management Act arepertinent federal statutes. Provinces may enact addi-tional legislation. Appraisers are subject to a �positiveduty to investigate� responsibility.

Properties may be located within designated contami-nated areas, known as �Superfund� sites. Values ofsuch properties may be affected differently from valuesof equally contaminated properties outside a designatedsite. Within Superfund sites, there generally is greatercertainty about the extent of contamination. Dependingon severity and projected cleanup timetable and costs,the effect on value may be positive or negative. How-ever, as one New Jersey decision notes, such costs aresite specific and should not be presumed by consideringother, allegedly comparable properties (Badische Corp.v. Town of Kearny [1996]). Accurate mapping of areasof contamination is vital to understanding potentialeffects on value (see section 5.2).

The present and anticipated status of environmentaldischarge permits held by a taxpayer may also affectproperty value. A discharge permit has value to acompany and may offset the negative effects of environ-mental considerations, if permit requirements can beeasily met. A property with a discharge permit is usuallymore valuable than a similar property without such apermit because the permit may be necessary for thecompany to be able to operate as expected.

Rights to pollute are similar to permits and have value.For example, the Clean Air Act provides �tradableallowances,� which are exchangeable between facilitiesand permit one property to raise pollutant discharges ifanother reduces its pollutants. Property with such rightswill be more resistant to decline in market value causedby environmental contamination, provided such con-tamination is related to the specific rights. Rights topollute constitute salable, although intangible, assets thatmay contribute to the value of property (see section 7.4and �offsets� in the glossary).

It is important to realize that EPA regulations tend tofocus on significant problems. Virtually any propertycould be considered contaminated given sufficient in-vestigation. It is necessary to differentiate betweencontamination problems already discounted by the mar-ket and those from extraordinary influences that resultin additional loss of value.

Some naturally occurring contaminants may be presentin an area. Presence of contaminants at their natural�baseline� levels is generally not sufficient for the EPAto require cleanup. However, the presence of suchcontaminants may affect value; if so, the effect shouldbe considered as due to locational, not environmental,influences.

3. Definitions3.1 ContaminationIn assessment usage, contamination is any recognizedphysical or nonphysical environmental influence thatmust be considered to determine value. Contaminationmay take various forms including physical, aesthetic,and perceptual. Contamination is recognized throughfederal, state, or local agencies that regulate environ-

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mental contamination. Contaminants not recognized bythe various regulatory agencies (such as light pollution)may produce locational influences on value.

3.1.1 Physical ContaminantsPhysical contaminants are substances present in, on, ornear a subject property in measurable quantities andidentified as having a harmful environmental impact (seesection 3.2). Some substances are deemed hazardousbecause they are ignitable, corrosive, toxic, or reactive.

Substances not accepted by the regulatory communityas harmful should not be considered physical contami-nants. The market may still respond to these sub-stances, however, and value may change. However,because the change would result from only a perception,the contaminant would not be defined as physical.

3.1.2 Nonphysical ContaminantsContaminants, such as intrusive light, that have notangible, physical substance are considered nonphysi-cal. These take many forms and must be considered as�real� as physical contaminants because they may affectproperty value. For example, proximity to noise sourcesoften diminishes utility and therefore property value.Another example is electromagnetic radiation originatingfrom nearby power lines or radio wave transmissiondevices.

Also included would be prevailing market perceptions ofsubstances or situations. For example, toxic substancesmay have been completely cleansed from a property.However, the stigma attached to this property may notimmediately disappear, and value may be affected by thisnonphysical condition. The assessor should watch foradditional (post-cleanup) efforts (such as new wells) byproperty owners or public agencies because these oftenlessen the stigma and result in a more rapid recovery ofvalue.

3.2 List of ContaminantsThe substances listed in table 1 or associated perceptualissues may affect value and should be considered in thevaluation process. Many of these are specific to certaintypes of property and would not need to be looked forin every case. Each contaminant must be considered inits potential for physical, nonphysical, or perceptualeffect. Although the list of contaminants shown in tablel is not comprehensive, examples are given of suspectindustries and situations in addition to selected physicalsubstances.

3.3 Examples of Special SituationsSome environmental contamination situations that havebecome particularly important or widespread are dis-cussed in greater detail in this section. In evaluating theeffect of these conditions on market value, consider-ation should be given to public perception and fear,which may affect values in the marketplace. However,appraisers should not make assumptions about marketeffects without market data. Numerous studies have

been done on the market effects of asbestos, contami-nation, electromagnetic towers, radiation, landfills, noise,public fear, traffic, and other environmental factors.Appraisers should be aware of these studies.

3.3.1 Underground Storage Tanks (USTs)These are tanks typically used for storage of liquids,usually petroleum products. Although such tanks aretermed �underground,� the Resource Conservation andRecovery Act (RCRA) states that a tank will meet thisclassification if more than 10 percent of the volume ofthe tank and associated piping is underground. Contami-nation may occur from tank leaks or from spills duringthe filling of the tank. Depending on substances involvedas well as soil and bedrock characteristics, contamina-tion may spread to adjoining areas. Wells and otherwater resources may be contaminated. Secondary airpollution may result from fumes released by evaporationof leaking substances. Additional toxic substances mayresult from chemical reactions between leaking sub-stances or between these substances and the environ-ment contacted. In this situation, cleanup may be moredifficult and costly.

Table 1

Acid rainAir contaminantsAirborne substances, indoorsAirport noiseAsbestosCarbon blackChlorine and related compoundsDiminished quality of drinking waterDioxinDry-cleaning fluids and solventsEmpty containers that previously stored hazardous

materialsFertilizerFloodwaterFluorine and related compoundsFormaldehydeHeavy metals, including lead and mercuryIndustrial byproductsIntrusive lightLead paintMining byproductsNitratesNoise�airport, road trafficNoxious odorsNuclear material and industryOil refineryOrganic and inorganic compoundsPCBsPesticides, herbicides, and other agricultural chemicalsPipelinesPower lines and micowave sourcesRadonSuspect industriesUnderground storage tanks


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Maps are usually available to show areas where ground-water has been contaminated by the spread of sub-stances leaking from USTs (see sections 5.2 and 10).

Petroleum products are not regulated under �Superfund�authority; rather, liability is governed by separate, spe-cial statutes.

3.3.1.1 Change in Commercial IndustrialProperty Value

Property value may change for several reasons as aresult of contamination from leaks from USTs. Directloss of income may occur, for example, if oil is storedto be used or sold by a business as part of its operation.Property components may need to be dug up andreplaced, and contaminated soil removed. Propertyowners may be liable for fines or cleanup of adjacentproperty and affected groundwater and other waterresources. Even after cleanup is completed, ownersmay be liable for additional cleanup of contamination notdiscovered initially. Often costs exceed initial estimatesand affect marketability of property and income streamsfor a long time.

In some areas, governmental agencies have establishedinsurance funds to protect existing properties withUSTs from future liability. When these programs areavailable, certification of current tank conditions will beprovided to the owner. Such certification, as well asavailability of this type of insurance, may increase thevalue of properties with these tanks. Large insurancedeductibles may offset this gain.

3.3.1.2 Effect on Residential Property ValueThe EPA has not enforced environmental regulationswith respect to residential property. For this reasonthere has been little direct effect on residential propertyvalue from USTs (or other environmental contaminationproblems). However, residential property value may beaffected because of proximity to commercial or indus-trial properties. There is also a potential for significantfuture impact, which would occur if regulations wereextended to include residential property. The assessorshould be aware of developments in this area.

3.3.2Asbestos and Other Insulating MaterialsInsulating material containing asbestos or urea-formal-dehyde creates potential contamination problems thatoften affect value. Although asbestos has not been usedfor many years, older structures often contain thematerial. This substance is dangerous when deteriora-tion allows the asbestos to enter the living areas of astructure. It is particularly dangerous when it is in�friable� condition. It is far less of a threat when it hasbeen encapsulated.

Urea-formaldehyde foam insulation (UFFI) has not beenin general use for several years, so the formaldehydelevel is typically below hazardous thresholds, and theinsulation does not have to be removed. Energy-efficient homes may be suspect, however, even if

recently constructed. Formaldehyde byproducts canalso enter indoor air from glues used in wood particle andcarpeting products. Concentrations are usually mini-mal, and public response is usually relatively mild,indicating little effect on value.

3.3.3 Lead Paint and ProductsLead is a heavy metal that is found in paint, especially inolder structures, and in pipes and some solder used tojoin lead or copper pipes. Dust or chips of lead paint maycontaminate living areas. Where lead is in contact withdrinking water, contamination will result. Lead paintusually requires a replacement with less toxic paint;piping may also need replacement with polyvinyl chlo-ride (PVC) or copper with non-lead solder connections.

Because public awareness of lead contamination is high,property value is affected by cleanup costs and thestigma associated with lead. There is probably less of astigma associated with lead than with other, more exoticforms of contamination.

3.3.4 RadonRadon is a naturally occurring radioactive gas releasedduring decay of radioactive elements generally found ingranitic rock. In recent years, public awareness of thissubstance and associated risks has grown. Because thesubstance is denser than air, it may accumulate inbasements and lower portions of structures. Often,ventilation or air exchange systems can be constructedto remove the gas and cure the problem. Energy-efficient structures, especially underground homes, areparticularly susceptible because underground construc-tion often restricts exchange of indoor and outdoor air.In some localities, favorable radon test results mayincrease market value.

Radon is common in certain, typically mountainous,areas of the United States and uncommon in most otherareas. If detected in trivial concentrations, foundationsor crawl space sealants or improved ventilation willusually eliminate the problem, adding only minor costs.The effects of stigma are not usually present. At leasttwenty-one states require disclosure of radon to pro-spective purchasers.

3.3.5 Nuclear FacilitiesNuclear facilities use, store, or dispose of radioactivematerial. These facilities include power plants, privateand governmental research sites, hospitals, and disposalsites, as well as equipment used to transport radioactivematerial. Proximity of property to nuclear power plantsand other nuclear facilities is likely to produce negativevalue effects. Aside from the obvious risks of nuclearaccidents, additional risks are associated with decom-missioning, waste disposal, and contaminated areas. Tosome extent, the problems are no different from thoseassociated with proximity to conventional heavy indus-try. However, because radioactive waste often remainstoxic for a very long time and tends to be more difficultto dispose of, a greater stigma may result. Finally,

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current radioactivity research indicates more risk fromless exposure than was previously believed. Nuclearfacilities with little current effect on value may somedaybe considered heavily contaminated, and values maydecline.

Although proximity to a nuclear power plant may reducethe value of adjoining properties through the stigmaalone, this concern does not reduce the value of the plantitself. Most regulatory commissions require public utili-ties to provide buffer zones around nuclear powerplants. If the cost of the buffer zone property is includedin the rate base, the capitalized earnings indicator reflectsthe value of the buffer zone. No deduction or discountshould be made in the cost approach because of thebuffer zone requirement. If there is actual contamina-tion of the buffer zone, this would affect land valuesinside the zone. Also, because the total amount of landis fixed, less land will be available outside the zones forother purposes, which may raise land costs elsewhere.

Regulatory bodies generally require public utilities tomake annual payments into dedicated nuclear plantdecommissioning trust funds. When these paymentsare deducted as expenses, the capitalized earnings indi-cator reflects the impact of the present value of thedecommissioning costs on the unitary value (when theplant is part of the unit and a unit value is estimated). Nofurther adjustments are necessary. Whatever influencethe stigma may have on plant value is reflected in theunitary value of the operating utility.

Groundwater or surface water dispersal from seepageof radioactive material is common and may affect valuefar from the original contamination site.

Regardless of potential or actual contamination, anoperating nuclear power plant represents a valuableproperty, and future cleanup costs are mandated andshould be reflected in the income stream used to deter-mine value.

Enterprises not normally associated with the nuclearindustry may use radioactive materials in significantquantities. As awareness of this use increases, valuesmay be affected. For example, the most common userof radioactive (and other toxic) material close to residen-tial areas is often a hospital. Proximity may affect valuethrough the stigma or real contamination.

3.3.6 Air PollutionAir becomes polluted when contaminants are releasedinto the atmosphere or when nontoxic substances reactwith other substances or light to produce contaminants.The degree to which values are affected by air pollutiondepends on the economic cost to escape the pollution.For example, air pollution may occur equally throughouta major center. Because of distance to alternative worksites or other costs of doing business, it may benoncompetitive or undesirable to locate in less pollutedlocations. In this case, the effect of air pollution will be

constant and already accounted for in the market. Noadditional adjustment will be necessary, unless regula-tory agencies mandate reduction of pollution. Addedexpenses will then affect the income stream and reducemarket value in the short run. These same expensesmay, however, improve industry competitiveness in thelong run or have no effect if competition is among similarindustries all having to deal with the same level ofpollution and with the same regulations.

3.3.7 Noise PollutionNoise pollution includes unwanted sound generated byairport, road traffic, and heavy industry. Effects shouldbe considered similar to other locational and neighbor-hood desirability influences and may be incurable eco-nomic obsolescence. However, data on the marketeffects are essential before any conclusions can bedrawn.

3.3.8 Toxic Substances in the HomeMany toxic substances are used in the home, includinginsecticides, mothballs, motor oils, antifreeze, woodpreservatives, rust removers, polishes, batteries, de-odorizers, degreasers, weed killers, drain cleaners, dis-infectants, pool chemicals, paints, hobby products,bleaches, nail polish remover, and car wax. In addition,residential construction may involve lead and other toxicsubstances, or products that break down and releasesuch substances. Particleboard, carpet glue, and certaininsulation may release formaldehyde, for instance.

Fortunately, many of these toxic substances are notstructural, but transient, being removed from propertywhen transfer of ownership occurs. However, residu-als may be left behind along with toxic substancesrelated to construction materials. Ultimately, the marketwill determine how much these factors influence value,the presumption being that additional functional oreconomic obsolescence may be recognized if buyerspay less for properties with contamination. Aside fromconstruction-related materials and residual contamina-tion, however, the presence of transient materials shouldbe ignored. These could be viewed as managementfactors, with �good� home managers keeping fewertoxic materials. Assuming typical management, it wouldbe unnecessary to investigate the owner�s practices indetermining value.

3.3.9 Surface Water and Groundwater QualityRequirements

Most property uses require availability of adequate watersupplies. This is true for optimum use of residentialproperty, where tests showing contamination may be-come locational factors and may influence value. Waterquality is also important in agricultural uses, wherecrops or livestock cannot otherwise be maintained, andthe income-producing capability of the land can beaffected (Food Security Act of 1985).

Water quality can be affected by factors as diverse asindustrial point source contamination, faraway ground-


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water contamination, excessive rainfall resulting in flood-ing or siltation, runoff from land to which agriculturalchemicals and fertilizers have been applied, and infiltra-tion of salt water in coastal areas. The effect on presentand future productivity of the land must be determined.If problems can be cured, income-producing capacitymay be restored, and the present value of this futureworth can be computed. Water quality problems aresimilar to other problems related to agricultural land,such as slope, water availability, and erosion. Theseproblems may alter the income-producing capability ofthe land, thus changing its value. Environmental con-tamination problems must be differentiated from man-agement problems in determining value.

One of the problems associated with groundwatercontamination relates to the liability of commercialproperty located above spreading groundwater con-tamination. Provided the property in question did notcontribute to the contamination, current EPA rules donot hold this property liable for cleanup costs. Lendersmay still be reluctant, however, to provide financing,and unfavorable financing arrangements may affectvalue. In addition, there is some conflict between federalstatutes and EPA rules, and assessors should be alert fornew developments in this volatile area. Local regulationsor statutes may also lead to liability. Residential propertyis less subject to liability, but financing considerationsand stigma may still affect value.

If groundwater contamination does not directly influ-ence the water supply of the subject property, it is notappropriate to adjust value to reflect complete cleanup.The utility of the property should be the primary concernand will rarely be affected if adequate clean water can beassured.

3.3.10 Waste Disposal Facilities andPractices

Facilities for waste disposal include incinerators, land-fills, and associated transfer sites. Although intended toremediate pollution, these facilities are focal points forpollution and may become sites from which air orgroundwater contamination can spread. The assessormay be required to value the disposal facility itself or anysurrounding property. In either case, additional moni-toring costs and effects of the stigma may affect value.The disposal of medical waste and other highly publi-cized substances in such facilities can add to the stigma.However, studies have shown that, in many cases, thevalue of property near landfills is unaffected. Markettrends must be observed to determine if values areactually affected.

Waste disposal practices can contribute to the degree ofvalue loss. For example, establishments that have useddry-cleaning solvents and other chemicals are oftensuspect as potential sources of contamination becauseof former improper disposal practices. Although thesepractices may not have violated any laws or regulationsin force at the time of disposal, hazardous chemicals

may have entered the surrounding environment throughsoil contamination, leading to groundwater contamina-tion. Present levels of contamination may violate currentenvironmental statutes. Because sites may have beenabandoned or the contaminating business may no longerexist on the original site, accurate historical maps(Sanborn maps used for fire insurance purposes areoften available) and chain of ownership informationshould be referenced in determining areas of possiblecontamination. Values of nearby properties may beaffected; adverse financing effects are possible.

3.3.11 Illegal Drug Manufacture�Effect onProperty Value

Illegal drugs are often manufactured in small, mobileunits, often in remote areas. Typically, little effort ismade to dispose of toxic materials properly, which oftenare byproducts of illegal drug manufacture. Thesematerials may contaminate adjacent properties or bedisposed of indiscriminately and contaminate propertynever involved in the production of the drugs.

Although the chemicals used in illegal drug manufacturemay not be more toxic than those produced by manylegitimate industries, discovery is made more difficult bythe impracticality of tracking down anyone with specificknowledge about the contamination of a given site. Evenif the manufacturers could be found and were coopera-tive, they would have had no incentive to keep track ofor determine the exact nature of byproducts, so littleprecise information is likely to be forthcoming. Cleanupwill therefore be more costly and less successful.Because of added uncertainty, prospective buyers willbe more reluctant, and the value of the property maysuffer�possibly out of proportion to the actual cost ofcleanup.

Also, the remote nature of many manufacturing sitesmay make access difficult, further reducing the likeli-hood of adequate cleanup. Time lag between con-tamination and discovery is likely to be significant,leading to increased chances for dispersal of contami-nants from the original location and even less successfulcleanup.

3.4 TestingThe assessor should not rely solely on statements of theproperty owner estimating the loss in value due toenvironmental contamination problems. Results ofindependent (private or governmental) testing and gov-ernmental certification of a site as contaminated shouldbe reported as proof of contamination. To help deter-mine the actual effect on value, files of test results shouldbe maintained so that comparable levels of contamina-tion can be treated comparably. Test reports shouldinclude information on the extent of the problem regard-ing adjacent property, water contamination, and so on.Soil characteristics should also be included. The burdenof providing test results and proving contamination is onthe taxpayer attempting to demonstrate the effect onvalue.

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4. Impact on Value�General Areas of ImpactThe basic provisions of regulations requiring cleanup ofcontaminated properties assign the costs to responsibleparties. Where this cannot be done, the chain of title isfollowed to establish liability. CERCLA, as amended bySARA, allows certain exceptions. For example, thecurrent owner would not be held liable, provided that beforepurchasing the property this owner made all appropriateinquiries without discovering existing contamination.

Contamination can range from mild, requiring minimalcleanup costs and having little, if any, effect on value, tosevere, with virtually no use of the property possible forthe present or the foreseeable future and with prohibitivecosts to correct the problem. The degree to whichcontamination affects the present and future utility of theproperty must be established.

When regulations require the same improvement to bemade by all in an industry, the effect is uniform and costsbecome part of the typical expenses of the business.Often, extra costs for pollution are part of start-up ordevelopment costs associated with a new facility and, inthis case, will not reduce property value. In any othersituation requiring plant improvements, costs may beamortized over expected life and computed in terms ofpresent worth; in this way, high costs incurred in theyear of installation will not be weighted improperly.These principles would apply, for instance, if additionalair pollution control equipment were required to meetnew standards.

Many states offer partial or full property tax exemptions(and other cost-related tax credits or state-funded fi-nancing) to industry for equipment and improvementsused to control pollution. At least two states (Idaho andNew Jersey) provide an incentive for remediation byallowing remediated land to retain part of any lower valueit was assigned to reflect contamination. Exemptions ofthis type reduce the effective costs of dealing withcontamination and reduce the impact of cleanup on boththe income stream and property value. Sixteen states notonly have voluntary cleanup programs but also providefinancial assistance and tax credits to attract businessdevelopment. Eleven states have negotiated Superfundagreements with the EPA that permit site remediationplans, issue no further action letters, and the like. Severalstates have adopted a variety of flexible approaches torevitalizing blighted properties.

4.1 Concepts of ValueTwo concepts of value that must be considered inreference to environmentally distressed property are theunencumbered value and the value in use of the property.

The unencumbered value is the value that the propertywould have if no adjustment were made for any environ-mental encumbrance. This value can be obtained usingstandard appraisal methods. There is a tendency todiscount this value based on costs related to remediatingor isolating environmental contamination. Fully deduct-

ing the costs may overstate the decline in value becausethe value in use concept would then be ignored. Valuein use suggests that a property which is still in use, orwhich can be used in the near future, has a value to theowner. This would be true even if costs to cureenvironmental problems exceed the nominal, unencum-bered value. The value in use will most nearly reflect themarket value of the property (see discussion of costsversus value in section 4.2).

4.2 CostsThe first cost associated with environmental contamina-tion is the cost of discovering the presence or extent ofany problem. To enable the new owner to use the�innocent landowner� defense (see section 4.4.4), andas a preliminary step in establishing cleanup costs, anenvironmental assessment report must be obtained be-fore purchase.

The cost to cure a particular problem must be deter-mined, but may overstate or understate the effect onvalue. For example, property may be able to maintain anincome stream while costs are incurred, and costs maybe amortized over a longer period. This will increasedebt, but not affect present worth on a dollar-for-dollarbasis. Costs may often be amortized over expectedimprovement life, and the present worth of the costscomputed. Costs are often not fully recognized whencontamination is discovered. Difficulty in estimatingcosts is greater in certain types of environmental prob-lems, groundwater contamination being more difficultthan soil contamination. If initial estimates are low andadditional or ongoing expenses are involved, the effecton value may be greater. Alternatively, costs may resultin capital improvement; a more efficient, less pollutingsystem may be installed, and residual property value mayincrease. The potential for either decreasing or increas-ing value must be recognized (see �residual value� inglossary).

The cost to cure a contamination problem includes allcosts necessitated by and associated with the cleanup.These can include costs for physical cleanup, monitor-ing, legal fees, and ongoing costs. Complete cleanupmay be impossible; costs to control contamination maybe substituted for costs to cure the problem. Many states(including Illinois and Minnesota) permit remediation toa certain defined level of �clean� that depends upon thenew use intended for the property.

Whenever possible, costs should be determined from themarket. It is often possible to obtain comparable costsfor cleanup of similar situations. Files of cleanup costinformation should be developed and maintained. Often,information outside the particular jurisdiction or regionmay be necessary. In determining costs, it is importantto recognize that higher costs will be incurred if the EPAis involved because its overhead must be absorbed bythose liable for the cleanup. This factor can alter thebaseline costs determined from comparable cleanupsituations.


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4.2.1 Cost of Physical CleanupActual costs must be ascertained. Estimates providedby a property owner may be overstated. For example,regulatory agencies may grant permission to use lessexpensive alternatives, such as isolation rather thancleanup. Deferrals may be granted, and these allowmore time for cleanup and reduce current costs, al-though the present value of the property may also bereduced.

4.2.2 Continued Costs of MonitoringThe costs of testing and monitoring may be added to theexpenses; thus the costs are subtracted from the incomeof property subject to cleanup. These costs may besubstantial and should be established or predicted fromevidence provided by the property owner and regulatoryauthority.

4.2.3 Legal CostsThe contaminated property may incur legal costs indealings with regulatory agencies and other potentiallyresponsible parties. In addition, lawsuits may be filed byother affected property owners or by third partiesseeking to share their own liability.

Ordinary legal costs can be viewed as part of manage-ment and not as an influence on property value. Legalcosts associated with contamination may be consideredpart of the cost to cure the problem. However, to beconsidered, these costs must exceed costs of custom-ary legal advice. The potential for litigation or pendinglitigation may affect marketability and value by deterringprospective buyers.

4.2.4 Ongoing CostsFinal costs are often unknown before completion ofcleanup. These costs often exceed original estimates,especially when future, more stringent regulations areanticipated. In addition, perceived or actual risks re-maining after completion of cleanup may result in higherinsurance costs and reduced ability to use the propertyas security for loans. Certain types of costs may beamortized over a period corresponding to anticipatedimprovement life or the time to implement the cure.

4.2.5 Indirect CostsThese can include anything that affects the property�sincome-producing ability during or after the cleanup.For example, tenants may not be able to live in a rentalunit during lead paint removal. Another income restric-tion would occur if one portion of an industrial plantcould not be used because of toxic contamination, andan intermediate product manufactured in that area couldno longer be created on site. Additional expenses couldbe incurred, and the plant�s earnings could sufferaccordingly. Although this impact would be somewhattransient, it should be included in the same manner asother costs (see sections 4.2 and 7.4).

As the field of environmental law matures, cleanup costswill become easier to predict. Private insurance compa-

nies may become more willing to provide coverage.Insurance costs, which appear prohibitive today, maybecome more reasonable, and the cleanup could haveless effect on value.

4.3 FinancingFinancing is known to affect property value. The impactis particularly significant when favorable or unfavorablefinancing is obtained because the market has alreadyaccepted the influence of typical financing costs.

In the case of environmentally contaminated properties,two types of financing effects need to be considered: theability of a prospective buyer to finance the purchase ofthe property and the terms for financing the actual coststo cure contamination problems. If prospective buyerscannot obtain typical financing due to the problem, thecash equivalency value of the property will be dimin-ished. If terms for financing the costs to cure problemsare poor, additional liability or unfavorable debt willreduce buyer income anticipation and thereby reducemarket value (see section 5.4). (Additional informationon financing adjustments is found in IAAO 1990 andGloudemans 1999). Many lenders, particularly in Re-gion 5 EPA (which includes Illinois, Indiana, Michigan,Minnesota, and Wisconsin) are developing innovativeprograms to help finance blighted land revitalization.However, lender approaches may differ from region toregion.

4.4 LiabilityLiability for costs associated with environmental con-tamination often lies with property owners. Liabilitymay affect the use of the property and its future sale andmay contribute to any stigma (see section 4.5). The EPAwill assume liability only in the event that no otherpotentially responsible party can be discovered; eventhen the EPA will usually hold the property owner liablefor some portion of the cleanup cost (unless the ownerqualifies under the �innocent landowner� defense).

Alaska, Massachusetts, and Michigan provide for jointand several liability. However, Arkansas, California,Illinois, Maryland, and Ohio have recently adoptedproportionate liability. Colorado, Indiana, Michigan, Min-nesota, and Ohio have limited liability for nonresponsibleowners and prospective buyers. Illinois, Indiana, Min-nesota, and Ohio have extended that protection tocommercial lenders. Thus, the effect of liability on valuemay be more or less pronounced, depending on stateactions.

4.4.1 Use of PropertyThe highest and best use of property that has sufferedcontamination may be altered. Contamination of farm-land, for example, may make it impossible to grow ediblecrops. Industrial contamination may make productionas originally established impossible. When determiningthe highest and best use of the property, it is importantto recognize that current use may need to be modified orabandoned. However, seldom is property so contami-

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nated that the highest and best use indicates no value.Very rarely, where contamination is extreme, but propersoil conditions exist and regulatory permits can beobtained, the property may still be used as a toxic wastedisposal site. Even this represents use and value. Thisparticular use is limited, however, because the EPA isauthorized to require corrective action to remove orremediate contaminants that have leached into soil orgroundwater.

The use of property is further affected by environmentalpermits, which, in effect, grant property the �right topollute.� This right has value as an asset and cansometimes be traded between facilities. These rightscan increase property value and are further described inthe Clean Air Act and in many state and local laws.

4.4.2 Selling Contaminated PropertyBuyer reluctance often focuses as much on the potentialfor additional undisclosed problems as on contaminationalready known and discounted. To facilitate a sale, theseller may be required to include indemnity as a contin-gency for future liability. This provision often reestab-lishes a market�and a market value�where noneseemingly existed. However, in cases of severe con-tamination, with ongoing cleanup anticipated, the sellermay not be able to obtain a bond or provide indemnifi-cation for the full amount of the anticipated costs. Inthese cases, a sale may not be possible or the sale pricemay have to be reduced, although the property mayretain a value in use (see section 4.1 and 7.4). As theWashington Board of Tax Appeals held in Salmon BayTerminals v. Noble (1996), the sale of a contaminatedproperty should be given great weight because it indi-cates the risks associated with that property.

4.4.3 Who May Be Liable?Liability for cleanup of contamination nominally restswith current and past owners of the property, as well asthe generators or transporters of hazardous substances,or the party responsible for the contamination, typicallythe current user. However, if insolvency occurs,liability can be transferred to the entities listed below:

Current owner or operatorPrevious owners or operators at the time ofcontaminationForeclosing entity or a secured creditorLessors or lesseesTrusteesCorporate officers/stockholdersParent corporations

The �Superfund� becomes available as a source ofcleanup funds only if no other responsible party can befound or where immediate cleanup action must be takenby the EPA, as in an emergency situation. In this case, theEPA can seek to recover costs from the above parties.

EPA regulations exempt lending institutions and othercreditors from liability in most foreclosures, provided

that these lenders were not directly involved in themanagement of the contaminated property and do notactively manage the property or contribute to the con-tamination once they take ownership. Under these regu-lations, governmental jurisdictions that take involuntaryownership of property as a result of unpaid taxes areexempt from direct cleanup cost liability. However,these jurisdictions may still be named in third-partylawsuits and may be liable for cleanup of additionalcontamination occurring after acquisition of the prop-erty.

The courts are somewhat divided on the liability issue.One recent court decision found that, in most cases,parent companies may not be held responsible for theirsubsidiaries� hazardous waste cleanup liabilities (JoslynManufacturing Co. v. T. L. James & Co. [1990]). Otherdecisions, including State of Idaho v. Bunker Hill Co.and Gulf Resources (1986), have held that parent com-panies are liable for a subsidiary�s actions.

4.4.4 Innocent LandownerUnder CERCLA (see glossary), section 107(b)(3) and101(35)(B), it is established that current owners may beconsidered �innocent� and not responsible or liable forcontamination under certain circumstances. Such �in-nocence� would be established if, after making allappropriate inquires into the condition of the property(exercising due diligence), the current owner had noreason to know of the existence of contamination priorto purchase of the property and had not contributed tothe contamination. Presumably, regulatory agencieswould incur curative costs (this is the purpose of the�Superfund�) unless other responsible parties can befound. Value may still be affected because marketabilitycould be reduced until the problem is corrected.

This issue is far from certain, although the assessorshould be aware that CERCLA liability has been upheldby several courts (for example, United States v. OlinCorp. [1997], Continental Tile Co. v. Peoples Gas Lightand Coke Co. [1997], and Raytheron Co. v. McGrawEdison Co. [1997]) to apply retroactively to hazardousdisposals occurring before its enactment. To the con-trary, several courts have insulated current owners fromliability for mere passive migration of contaminants (forexample, ABB Industrial Systems, Inc. v. Prime Tech,Inc. [1997], United States v. CMDG Realty [1997],Joslyn Manufacturing Co. v. T. L. James & Co. [1990],and United States v. Cordova Chemical Co. [1997]).

4.4.5 Indemnification AgreementsIn an indemnification agreement, the seller agrees toretain responsibility for current and future costs relatedto environmental contamination. This is usually done inthe form of a bond or contractual agreement that wouldprovide for contamination-related costs. If agreementsof this type become typical in an area or for a particularclass of property, their effect will automatically becapitalized into the market value of the property, andfurther adjustment will be necessary only if terms vary


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from typical (similar to financing adjustments�seesection 4.3).

4.5 StigmaStigma is an intangible factor, which may not be measur-able in terms of cost to cure, but may affect marketvalue, at least as determined through the sales compari-son (market) approach. It may be seen as a blight orperceived blemish or stain on a property resulting fromreal or perceived risk associated with the property.Where contamination problems are not obvious, thestigma is likely to be overstated, and value effects maybe minimal.

4.5.1 Reduced Market ValueA stigma may make property less desirable, even thoughcomplete cleanup has been accomplished. This createsa situation similar to obsolescence because, if the marketwill pay less for a once contaminated, but now restoredproperty, the value of the property has been diminished.Effects of this nature may be transitory, declining overtime or perhaps after additional restorative efforts aredemonstrated. For example, even though the waterfrom a previously contaminated well now meets allenvironmental standards and passes all tests, propertyvalue may be reduced until the seller builds a new wellin a different location or establishes an independent,alternative water supply.

Stigma can also affect property neighboring previouslycontaminated areas, especially if regulatory agenciesdeclare the neighboring property to be in a �borderzone.� The stigma in these cases may, however, beoverstated because value is often not demonstrablyaffected despite the presence of nearby contaminatedsites.

Any adverse effect of stigma must be supported by themarketplace. Where sales data, expert testimony, ap-praisal analyses, and case studies have been acceptedinto evidence, stigma-related reductions were foundappropriate by courts in Michigan (Sweepster Inc. v. SecoTownship [1997]), Minnesota (Alomor Corp. v. Countyof Hennepin [1997]), and New Jersey (Custom Distribu-tion Services Inc. v. City of Perth Amboy [1997]).

4.5.2 Stigma versus Cost to CureBecause of the intangible nature of the stigma attachedto a contamination problem, the effect on value may beout of proportion to the cost to cure the problem. If theproperty owner makes no attempt to overcome thestigma, however, and thereby accepts a lower price forthe property, this price may not accurately reflectmarket value. Similar problems, in comparison withcurative costs, should be reviewed in determining effecton value. Appraised values should be adjusted to reflecttypical costs of overcoming the stigma. However, insome markets, time alone may reduce or eliminate thestigma. If this appears to be the case, the assessor maywish to treat stigma as a type of time adjustment andignore additional costs incurred.

5. Specific Factors Influencing ValueSpecific conditions or characteristics relating to con-tamination must be established for each property. Thesefactors and their impact on value are often quite differentfrom property to property. Courts in Florida (Finklesteinv. Dept. of Transportation [1995]), Georgia (Hammondv. City of Warner Robbins [1997]), Illinois (TechalloyCo., Inc. v. Property Tax Appeal Board [1997]), Iowa(Bockeloo v. Board of Review of City of Clinton[1995]), Massachusetts (Reliable Electric FinishingCo. v. Board of Assessors [1991]), and Ohio (Vopelgesangv. CECOS International, Inc. [1993]) have all held thatthe mere allegation of unmarketability is not enough.Loss or diminution of value must be proven by marketdata.

5.1 Extent and Nature of ContaminationThe property owner must provide clear documentationof the nature and extent of environmental contamination.Accurate and detailed maps must be included as part ofthis documentation. Without information, propertymust be valued as if uncontaminated. Some contamina-tion, such as air pollution, may be universal throughouta jurisdiction. In all other cases, contamination shouldbe viewed as a special circumstance, particular to aproperty. The contaminated property must be com-pared to typical, unencumbered property, and differ-ences established. To be granted special considerationaffecting value, the owner must substantiate the con-tamination through an independent party (typically, anengineering firm testing for contaminants or a regulatoryagency). Evidence is the key. Where it is particularlystrong, it has been possible (albeit rare) under extraor-dinary circumstances in Pennsylvania (Monroe CountyBoard of Assessors v. Miller [1990]), Michigan (ComericaBank Detroit v. Metamora Township [1987]), andMinnesota (Westling v. County of Mille Lacs [1998])even to find that a property has a zero or nominal value.

5.2 Type and Location of PropertyLocation of property can make a significant differencein the amount of utility lost due to environmental con-tamination. For example, the amount of contaminationthat may be tolerated in an industrial plant located fiftymiles from the nearest population center may be consid-erably greater than contamination from a source withinan urban center or in a largely residential suburban area.The remote plant would stand to lose little value. It is notenough, therefore, to establish the extent of contamina-tion; locational influences must also be determined andevaluated.

Accurate hazard maps are necessary to understand fullythe extent of environmental contamination (see examplein section 10). These are often available from regulatoryagencies. A valuable, and often overlooked, source ofmaps and other information is a local historical society.These organizations often maintain maps dating back tothe founding of a locality. Information about previousland use can be most informative during an attempt toascertain the extent of environmental contamination.

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Maps, such as Sanborn maps, created years ago for fireinsurance purposes, often contain this kind of informa-tion as well.

5.3 Demand for Alternative UsesOften industrial contamination results in closure of all orpart of a plant for cleanup. After cleanup the site mayno longer be amenable to the original use. Other usesmust then be considered. The demand for these uses ina particular area must be evaluated. If other uses areapparent and in demand, there will be less effect onmarketability and value.

5.4 Presence of Assumable FinancingThe loss in value is often less if assumable financing isavailable. For obvious reasons, lenders may not bewilling to offer financing at all or at acceptable termsonce contamination is disclosed. Assumable financingeliminates this problem.

5.5 Liquidity Problems Caused by Lack ofMarketability

Capital that cannot be liquidated quickly tends to be lessvaluable. The period during which curative efforts willbe made must be established. This will help define theextent of liquidity problems, which may also be affectedby associated stigma (see section 4.5).

5.6 Availability of Bond to Pay CleanupExistence of bonding improves marketability of prop-erty and diminishes the effect of environmental con-tamination on value. However, in cases of severecontamination, the seller may be unable to obtain sucha bond because it may be difficult to give necessaryassurances that solvency can be maintained and cleanupcosts provided.

5.7 State and Regional EnvironmentalRegulations

Zoning regulations have restricted property use formany years. Similarly, local or regional environmentalregulations may restrict use of property and therebyaffect value by reducing utility. Environmental assess-ments are often required by various agencies to evaluatepotential problems.

6. Approaches to ValueValuing contaminated properties is complex becausecircumstances are different for each affected propertyand because sufficient comparable sales may be unavail-able or difficult to obtain. Nevertheless, as in all othertypes of property valuation, three approaches to valueare recognized and should be used. Highest and best usemust be established so unencumbered value can befound. Adjustments can then be market-justified andmade.

6.1 Sales Comparison ApproachThe sales comparison approach to value requires prop-erty to be appraised via a comparison with similarly

affected properties recently sold. When adequate dataexist for similarly affected properties, this approach isconsidered the most objective and supportable. Courtdecisions in California (Firestone Tire and Rubber v.County of Monterey [1990]), New Hampshire (Appealof Great Lakes Container Corp. [1985]), and Minnesota(Westling v. County of Mille Lacs [1998]) have givenserious consideration to the sales comparison approach,and it is possible to find, as the Washington Tax Tribunaldid, that a particular property in its present condition isnot marketable (Bamford v. Brown [1992]).

The sales comparison approach requires sufficient salesof similar properties. As in the general sales comparisonapproach when data on comparable contaminated prop-erties are limited, the assessor should expand strata, theperiod from which sales are drawn, and geo-economi-cally defined areas. However, appropriate adjustmentsmust be made to ensure that proper comparability isachieved.

Rather than relying only on the limited data available forsimilarly contaminated property, sales of similar uncon-taminated property can also be used. In this way abenchmark, unencumbered value can be established forthe subject property, after which adjustments can bemade for the contamination. Such adjustments shouldbe based on the cost to cure (properly discounted oramortized), imposed limitations on use, increased insur-ance and financing costs, and potential liability.

6.2 Cost ApproachThe cost approach is based on the premise that themarket value of an improved parcel is equal to the marketvalue of the land plus the current construction costs ofthe improvement less accrued depreciation. The costapproach is often applicable in cases of environmentalcontamination, provided the present worth of direct andindirect costs is calculated and used and providedadjustments are made for overestimation or underesti-mation of costs and impact. The cost approach,however, may ignore the value-in-use concept andthereby overstate the impact of costs to cure contami-nation problems (see section 4.1). There have beendecisions in Florida (Roden v. Estech [1987]), Massa-chusetts (Reliable Electric Finishing Co. v. Board ofAssessors [1991]), Minnesota (Nicollet Restoration,Inc. v. County of Hennepin [1992]), and Pennsylvania(B. P. Oil, Inc. v. Board of Assessment Appeal ofJefferson County [1993]) that have focused on the costapproach.

6.2.1 Cost to Cure as Functional or EconomicObsolescence

The cost to cure a problem reduces the utility of propertyand should be considered a form of functional oreconomic obsolescence of improvements. This wouldthen be added to the accrued depreciation becausecurrent replacement cost new would be based on theassumption of a typical, presumably clean, environ-ment.


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Cost to cure includes all expenses associated with acleanup, including some that may not be mandated butthat reduce stigma (see section 4.5). Cost to cure mustbe recognized, but it is usually not appropriate tosubtract such costs on a dollar-for-dollar basis, as anowner�s expenditures are not conclusive of value (InmarAssociates v. Borough of Carlstadt [1988]; Alladin,Inc. v. Blackhawk County [1997]). However, there havebeen decisions in California (Mola Development Corp.v. Orange County Assessment Appeals Board No. 2[2000]), Illinois (Manufacturer�s Life Insurance Co. v.DuPage County Board of Review [1994]), New York(Commerce Holding Co. v. Board of Assessors [1996]),and New Jersey (University Plaza Realty Corp. v. Cityof Hackensack [1993]) that have employed a dollar-for-dollar offset. Great care should be taken in this regard togauge and interpret the marketplace adequately. In somecases it may be appropriate to treat these costs as capitalimprovements, to be depreciated over the useful life ofthe property or the improvements (if their life is shorter).

6.2.2 Specialized CostsContamination-related legal and insurance expenses,above those that would be typical for ordinary operation,must be considered. In addition, provision should bemade for the cost of discovery of contamination andfuture monitoring to watch for recurrence of contami-nation (see section 4.2.2).

6.3 Income ApproachThe income approach to value estimates property valueby determining the present value of the projected typicalincome stream for the type of property. Income-producing properties are the most common propertytype influenced by environmental regulations and sub-ject to contamination. Often, the greatest and mosteasily measured effect is on the ability of the property tocontinue to generate income. For this reason, theincome approach is often the most suitable approach forcontaminated properties.

The income approach is also effective in dealing with thesituation that occurs when even the present worth of thecost to cure a problem far exceeds the replacement costof the property. Courts have held that there is a �valuein use� to the owner even where no other market exists,�so long as the owner continued to operate the facility�(Inmar Associates v. Borough of Carlstadt [1988]). TheUtah Supreme Court has recently adopted a similar viewof value in use as establishing current value (Schmidt v.Utah State Tax Commission [1999]). Value in use,however, may be impaired by temporary closure or lossof customers. For this reason, some adjustment inincome stream and income-determined value is likely.

6.3.1 Capitalization RatesProperly developed income capitalization rates, derivedfrom the market and including both debt and equitycomponents, can be used to determine the value ofcontaminated properties. The capitalization rate is basedon the equity yield rate, mortgage terms, and anticipated

future appreciation or depreciation. Mortgages may beunobtainable and future appreciation not applicable insome cases. This leaves equity yield as the majorcapitalization rate component (Patchin 1988). In devel-oping this rate, the presumption must be that the prop-erty is still capable of producing income. Adjusted ratesmay be developed for property not currently producingincome, but expected to do so at a predictable level at apredictable time in the future. The capitalization ratemust reflect the difference between comparable con-taminated and uncontaminated properties. Increasingthe capitalization rate to reflect added risk has beenemployed by courts and tribunals in Massachusetts(Woburn Services Inc. v. Board of Assessors of City ofWoburn [1996]), North Carolina (Camel City LaundryCo. v. Forsyth County Board of Equalization andReview [1994]), and Washington (Northwest Cooper-age, Inc. v. Ridder [1990]).

6.3.2 Income StreamUse of market rental data assumes that the property isstill in use (or will be shortly) and is capable of com-manding rent. When these conditions are met, marketrental data should be obtained for establishing the basecapitalization rate. The income stream must be modifiedto account for the cost to cure the contaminationproblem and any loss of utility. Modification should bebased on the amortized present worth of actual costs,recognizing that permissible alternatives may limit coststo those necessary to satisfy the regulatory agency, notnecessarily the full cost to cure the problem. Furtherincome modification may be necessary to account formore expensive substitute processes or materials thatcan no longer be manufactured on site. Adjustments toreflect temporary closure or loss of customers must alsobe considered (see section 4.2.5).

Expenses must be taken into account, and income andrate adjustments made accordingly. Expenses must bethose typical to cure a particular problem and include theamortized present worth of the cost to cure the contami-nation, including discovery, legal expenses, monitoring,and the amortized present worth of any cost to eliminatestigma. Some expenses should be taken immediately;others, amortized over time.

Physical plant changes may ultimately improve opera-tion. For example, in the course of replacing or addingelectronic scrubbing devices to remove particulatesfrom discharged air, a more efficient incineration sys-tem might be installed. Future costs may be lower thanif the original system had been left intact. Costs involvedand subsequent adjustments to the income stream shouldbe considered (at least partially) as capital improve-ments, and both increases and reductions in these costsshould be factored into value. Economic incentives to reduceair pollution must also be considered (Clean Air Act).

Preliminary estimates may differ from the actual coststo cure problems. Additional, undisclosed problemsmay be found, especially as improved technology with

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increased detection sensitivity is developed. Somecontaminants, such as asbestos, however, are oftenmore easily treated than many initial estimates assume.However, unproven problems must be treated as un-known costs. Impact on value should not be anticipated.It must be proven by objective data collected from themarketplace.

Ongoing monitoring is often expensive. Inflation willincrease costs, which often are incurred over lengthyperiods. These factors should be included when modi-fied income streams are developed. It is important tonote, however, that all allowable costs should be consid-ered, while not ignoring the principle of future benefits,which may give the property present worth in anticipa-tion (Appeal of Great Lakes Container Corp. [1985]).

Expenses (costs) that are allowable should include thosethat can be documented as actual, current, or reliablyanticipated. Expenses to be used should be based oncurrent cleanup mandates, not ones that are invokedonly upon sale of property or change in use, as issometimes the case. Documentation provided by theproperty owner should be verified through environmen-tal regulatory agencies.

6.4 Alternative Approaches to ValueBecause of difficulties in establishing comparative mar-ket data and correctly adjusting a contaminated property�sincome stream, certain nontraditional valuation methodshave been examined as possible means of valuing con-taminated property. An example of an alternative proce-dure is use of �contingent valuation methods� (CVM), inwhich survey methods are employed to investigate anddetermine values. Although not specifically endorsed inthis standard, such alternative methods should be inves-tigated when absence of reliable information lessens theapplicability of more conventional techniques. Finally,one Minnesota decision (Hubbard Milling Co. v. Countyof Blue Earth [1994]) sanctioned a reduction of cost tocure from all three of the traditional approaches to value.

7. Other Considerations7.1 Proof of ContaminationProof of contamination and associated expenses shouldbe required before value is adjusted for such consider-ation.

7.1.1 Burden of Proof on TaxpayerOften, detailed technical information privately held bythe property owner is the only evidence of contamina-tion. If the owner wants contamination information tobe taken into account in developing an assessed value,the owner should provide the necessary financial infor-mation, including a balance sheet of costs. Proof thatless costly alternatives are not acceptable to the regula-tory agency should also be provided. The assessor isencouraged to approach the taxpayer cooperatively onthis subject to demonstrate that the goal is to achieve fairand equitable value, not to penalize for environmentalconsiderations (see section 7.2). The taxpayer always

will have been required to obtain an environmentalassessment report. Much useful information can bederived from this document.

7.1.2 CertificationCertification or verification of contamination should beavailable from involved federal, state or provincial, orlocal agencies. This should be required from theproperty owner before consideration for environmentalcontamination is given.

7.1.3 Alternative SolutionsLess costly solutions or partial solutions are oftenavailable and may be acceptable to regulators. Often,these involve isolating contamination with fencing orprotective covering. Management of the contamination,rather than complete remediation, may be permitted.Costs for a partial solution will be lower and should bereviewed to be sure that effect on value is not overstated.Partial solutions may have a negative effect if prospec-tive buyers perceive the problem as not yet solved or asinsolvable, with a potential impact on future income.

7.2 Assessment Practices versusEnvironmental Policy

Jurisdictions have sometimes argued that assessmentpractices which respond to contamination with lowervalue in effect reward environmental regulation viola-tors, shifting taxes to other, arguably more environmen-tally sound properties, which retain higher values. Theargument has been made that the effect of contaminantson value should be ignored to penalize the polluter.

Courts have generally disagreed with this reasoning,arguing instead that assessment of property is an inde-pendent function, which, to be uniform, must be under-taken without regard for public policy issues in otherareas, for example, the environment (see Inmar v.Carlstadt [1988]). The assessor should be concernedwith interpreting the market and establishing the mostaccurate market value for the property in question. Justas it is inappropriate to value the person (higher value forrich, lower for poor), so, too, it is inappropriate toconduct or support environmental policy with alteredassessments or by ignoring the effect of these policieson value. The expenses associated with environmentalpolicy should be viewed as part of the cost of doingbusiness (although these may exceed ordinary costs).These expenses affect the income stream and, there-fore, the value of the property. For assessment pur-poses, the issue becomes one of obsolescence ratherthan management.

One approach that attempts to balance all of these policy,valuation, and assessment issues is that employed inWashington as a result of the decision in Weyerhauser v.Easter [1995]. In Washington, the property owner mustprove the existence of contamination, a requirement forcleanup dictated by a government fiat or businessnecessity, a reasonably certain cost of remediation, anda formal cleanup plan and timetable.


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7.3 When Is Value Affected?The period during which value is affected must beestablished. This should be related to the time whenexpenses are clearly incurred or definitely to be incurred.The shorter the period, the less the probable effect onvalue because disruption to the income stream is lesspronounced, and perception of the property as �clean�will occur sooner. The period of impact can also beimportant because it may be inappropriate for the asses-sor to take into account costs that are incurred later thana certain date (perhaps January 1 or some other �assess-ment date�). In such a case, adjustment of value forcontamination may have to wait until the next assess-ment year.

7.4 Intrinsic Value of PropertyDoes a property have remaining value that exists evenwhen the cost to cure the problem exceeds apparentmarket value? If not, it would be appropriate to assignzero value to property in such a case. The question thatneeds to be answered to decide this issue is that of utility.If the property can be used, value must exist. With usecomes market demand, at least at some point in time.

To determine value in use, several factors should bereviewed, including current income stream, predictedfuture income stream, demand for alternative uses, andcost to modify operation for alternative uses. Theconcept of value in use appears to conflict with theconcept of value in exchange, which statutes in manyjurisdictions require be assessed. However, manyrecent court decisions have held that property that hasuse has value, even though a traditional market may notbe immediately apparent.

Property is often permitted to pollute to a certain extent.Acceptable amounts of pollution are defined in permitsgranted by regulatory agencies. These �rights� topollute enable a business to operate when no operationwould be possible if zero pollution were required. Thisthen contributes to the income-producing ability of thebusiness and enhances its value. Both the �rights� andthe business will therefore have value (see section 2.4and 4.4.1).

7.5 Failure to Pay TaxesAlthough not strictly an assessment issue, a related issueis the response of the assessing jurisdiction if taxesowing go unpaid. Usually, in property with value, all orpart of the delinquent taxes would be recouped uponconfiscation and sale by the jurisdiction. In the case ofseverely contaminated property, however, the ability tosell the property may be so limited that delinquent taxeswill not be recovered. In addition, the jurisdiction willnow own the property and may risk liability for costs tocure the contamination problem if the original owner orcontaminator (or any other potentially responsible party)is insolvent and if additional contamination or even activemanagement occurs while the jurisdiction is the owner.However, provided that the governmental entity has notcaused or contributed to the contamination, under

CERCLA (as amended by SARA in 1986), �the termowner or operator does not include a unit of state or localgovernment which acquired ownership or control invol-untarily through bankruptcy, tax delinquency, abandon-ment, or other circumstances in which the governmentinvoluntarily acquires title by virtue of its function as asovereign.�

The EPA has regulations restricting the degree of liabilityin cases of foreclosure by private or governmentalentities. However, these regulations do not protect if theentity is actively managing or contributing to the con-tamination. It is also permissible for states to havestricter laws than those established at the federal level.These would take precedence and must be understood todetermine potential liability fully.

Regardless of the liability issue, the jurisdiction may beunable to sell the property to satisfy the tax lien withoutremediation of contamination.

8. Summary of ConsiderationsThe valuation of contaminated properties requires theassessor to ascertain all of the components of value, asif the property were unencumbered, and then to deter-mine appropriate adjustments. Market reaction and highimmediate costs may overstate impact on value andreduce the usability of the comparable sales and costapproaches to value. Additional reliance should beplaced on the income approach, with costs discountedand treated as part of the income stream. Some costs willresult in improved operations, and these costs should betreated like any capital expenditures. The principles ofcurrent use and future value apply in these cases, as doesthe principle of value in use. However, some adjustmentto value is likely and should be considered.

8.1 Current UseIf some use exists, value must exist; property should bevalued as if uncontaminated, and the present worth ofamortized costs, which do not increase future efficiencyand value, should be deducted. Debt and equity compo-nents may be increased to account for increased risk.

8.2 Future ValueIf no present use exists, there may still be value, basedon expectations of future value after cleanup. Thepresent value of residual future value after cleanup mustbe determined.

8.3 Adjustments to ValueCourts have tended to reject arguments that cleanupcosts remain with people rather than property. Mostrulings find that the assessor must determine the mostaccurate value for the property. This would not allowvalue determinations that disregard the influence ofcontamination. The conclusion is that the assessor doesnot have a role to support environmental policy. Ininterpreting the market, the assessor must respond to allmeasurable influences on value; environmental contami-nation is one such influence.

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9. Public RelationsAs with all other aspects of assessment, effectivecommunication with all parties is critical. The effect ofenvironmental contamination on value must be dis-cussed knowledgeably with representatives from theaffected property, concerned regulatory agency offi-cials, other governmental officials, and the public. Skillsand methods are discussed in the Standard on PublicRelations (2001). Issues include discussion of theassessment process as it relates to the individual taxpayerand uncontaminated properties within the jurisdiction.

9.1 Assessment ProcessBoth political and legal ramifications must be understood.The assessor should be proactive in seeking meetingswith the owner of the contaminated property and withgovernmental officials involved with this property. Meet-ing with the owner makes cooperation in obtaining neededcost and other information more likely. An appeal may beless likely if the owner believes that pertinent facts havebeen carefully reviewed and taken into consideration. Theowner must be allowed to present all pertinent informa-tion. An appropriate explanation must be given for valuedecisions. If there is suspicion of contamination at thetime of assessment, a contract specifying all determinableinformation should be developed. This will help protectthe jurisdiction from future liability.

Various governmental officials within the jurisdictionmay wish preferential treatment to be given or withheld.A city manager may be concerned that a businessemploying many residents is about to be lost and mayhope to stave off this possibility with a lower assess-ment. Environmentally concerned citizenry may wish topenalize a polluter further by means of an unchanged orhigher assessment. Public hearings and explanations areimportant for all parties.

9.2 Effect on Other Taxpayers in JurisdictionTax shifts may result from lower assessments forproperties with newly discovered environmental con-tamination. If these are large industrial properties, thejurisdiction may lose much value, and this can result intax shifts to uncontaminated property or even loss ofrevenue to governmental units (such as schools andcities). The relationship between the assessment pro-cess and the generation of revenue and distribution oftaxes should be discussed with the public, as well as withrepresentatives from governmental units. The assessor�srole in providing fair market value for all property,regardless of other considerations, should be empha-sized, but the reality of tax effects should be analyzedand made public to avoid loss of credibility.

10. Example of Map of Contaminated Area


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11. Glossary

All terms are defined in accordance with usage in thisstandard.

CERCLAThe Comprehensive Environmental Response,Compensation, and Liability Act of 1980 as amendedby the Superfund Amendment and ReauthorizationAct (SARA) of 1986; known as the �Superfund� andadministered by the EPA.

Cost to cureCost or expense of cleaning up environmentalcontamination. Cleanup would result in levels ofcontamination that met standards of regulatoryagencies. Complete cleanup may not be required, ifcontamination can be isolated. Costs include futuremonitoring and costs to reduce stigma (see Stigma).In many cases complete cure is impossible, and costto cure is actually cost to control.

Electromagnetic radiationWaves emitted by various sources, including powerlines, radio transmitters, and microwave sources.Value of property may be affected by proximity tosources.

Environmental assessmentA report showing the results of investigation intoenvironmental contamination. This report is oftenrequired by the EPA and other regulatory agencies toestablish the extent of contamination suspected.�Phase I� or more extensive �Phase II� assessmentsmay be required (see Phase I and II reports).

Environmental contaminantAny tangible substance or intangible occurrence thatmay degrade property, resulting in decreased utilityor having an effect on value (see also Physicalcontaminant and Nonphysical contaminant).

EPAUnited States Environmental Protection Agency.

FormaldehydeChemical constituent of certain insulating materialsand glues. May enter air and become contaminant.

Hazardous substancesAny substance designated under various federal actsas toxic or hazardous, including hazardous solidwaste, toxic air pollutants, and imminently hazardouschemicals and mixtures. This term does not includepetroleum and natural gas products or synthetic fuelgas.

Hazardous wasteA solid waste that may pose a present or potentialhazard to health or to the environment. This includesany solid waste that is ignitable, corrosive, toxic,infectious, or reactive.

IndemnificationBonds established to provide security against futurecosts resulting from previously existing contamina-tion. This is usually provided by the seller to facilitatea sale of contaminated property.

Innocent landownerA landowner who purchased property subsequent tocontamination, but who had no knowledge of and didnot contribute to the contamination. The landownermust have made all �appropriate inquiries� into theproperty prior to purchase. If qualified, the �innocentlandowner� is not liable under CERCLA.

Intrinsic valueValue that remains when cost to cure a contaminationproblem exceeds original market value (see Value inuse).

LiabilityResponsibility for cleanup costs associated withenvironmental contamination. This usually rests withthe party originally responsible for the condemnation,but may transfer to the current owner.

NAPLNonaqueous�phase liquids�liquid contaminants oftentrapped in soil or bedrock.

National Priorities List (NPL)The list of sites determined to pose enough risk tobecome �Superfund� sites.

Nonphysical contaminantAny recognized contaminant that does not consist ofany tangible, physical substance.

OffsetsEnvironmental permits allow certain amounts of airpollutants to be released into the environment. If anindustry wishes to expand, it may first be required toreduce its current level of emissions, so that theexpanded plant will not emit more air pollution thandid the original plant. A company may also trade airpollution allowances with another company tofacilitate expansion of the first company.

Phase I and II reportsPhase I reports include historical information aboutthe subject property and the neighborhood, and areview of pertinent government records to determineany prior violation pertaining to hazardous wastes orsubstances. This report requires physical inspectionof the property. Phase II reports are required whenpotential problems are identified in the Phase I study.Phase II is an in-depth study of groundwater, air,soil, and improvements to determine existence of anyhazardous waste or substance, or other contaminants(see Environmental assessment).

Physical contaminantA substance recognized as hazardous by the EPA or

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BibliographyAmerican Bankers Association. 1990. ABA guide to theenvironmental liabilities of fiduciaries. Washington,DC: American Bankers Association.

Cameron, Trudy Ann. 1991. Interval estimates of non-market resources values from referendum contingentvaluation surveys. Land Economics 67(4):413�21.

Diskin, Barry A., Joel B. Haynes, and Michael A.McElveen. 1990. Lender perceptions of value influences

local or regional authorities (see Hazardous sub-stances).

RadonRadioactive gas, which may enter structures frombeneath the ground and contaminate air.

RemediationThe act or process of eliminating environmentalcontamination on, in, or under property to restore theproperty to an uncontaminated state.

Residual valueThe value of the property after cleanup of environ-mental contamination. This may be more or less thanthe original value depending on counterbalancingeffects of stigma and improvements to plant effi-ciency.

StigmaAn unfavorable perception, which may influencevalue, that continued contamination remains aftercleanup has been effectuated.

ToxicsRecognized hazardous substances in the environment.

Tradable allowancesSee Offsets

Treatment, storage, and disposal facility (TSDF)Business that treats, stores, and disposes of hazard-ous waste. Regulated by the Resource Conservationand Recovery Act (RCRA).

Underground storage tank (UST)Any tank and associated piping that has more than 10percent of its volume underground. If leaking, thesetanks are known as LUSTs.

Unencumbered valueThe value of property without consideration of anydetrimental environmental contamination.

Value in useThe ability of property to generate income or other-wise retain some value or use to the owner, regard-less of the presence of contamination and even withrelated expenses exceeding the apparent market valueof the property.

of asbestos contamination in income-producing build-ings. Assessment Digest 12(6):10�15.

Dybvig, Larry O. 1991. Legal liability and toxic realestate. Canadian Appraiser 35(2):25�31.

Ferruggia, Frank. 1991. Valuation of contaminatedproperty: New Jersey�s Inmar decision. AssessmentDigest 13(2):2�6.

Ferrugia, Frank. 1997. Stigma and market value: WoburnServices, Inc. v. Board of Assessors of the City ofWoburn, Massachusetts. Journal of Property Tax Man-agement 9(2):1�8.

Galvin, David, and Sally Toreff. 1986. Toxics on thehome front. Sierra 71(5):44�48.

Garippa, John E., and Seth Davenport. (January 13) 1992.Environmental contamination: A legal perspective on itseffects on property values. State Tax Notes: 13:50�57.

Gloudemans, Robert J. 1999. Mass appraisal of realproperty. Chicago: International Association of Assess-ing Officers.

Groves, Roger, 1990. Do America�s state cases answerthe question: How should you value contaminated prop-erties? From a paper presented at 10th Annual LegalSeminar. Grenelefe, FL: International Association ofAssessing Officers.

Guidotti, G.L., and Phillip Jacobs. 1993. AmericanJournal of Public Health 83(2):233�39.

Harrison, George. 1998. Environmental considerationsin mortgage lending. Appraisal Review and MortgageUnderwriting Journal 17(1):70�81.

International Association of Assessing Officers (IAAO).1990. Property appraisal and assessment administra-tion. Chicago: IAAO.

International Association of Assessing Officers (IAAO).2001. Standard on public relations. Chicago: IAAO.

Jaconetty, Thomas A. 1996. Stigma, phobia, and fear:Their effect on valuation. Assessment Journal 3(1):51�67.

Jaconetty, Thomas A. 1999. Revitalizing urbanbrownfields�A national, state, and local effort to reclaimblighted properties. Assessment Journal 6(4):56�67.

Kempner, Jonathan. (February 16) 1990. National MultiHousing Council, Environmental Update 1�4 + glos-sary. 202/659-3381.

Kinnard, William N., Jr., Phillip S. Mitchell, Gail L.Beron, and James R. Webb. 1993. Market reactions toan announced release of radioactive materials: The impacton assessable value. Assessment Journal 15(1):18�25.


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Appendix AUnited States Federal Environmental RegulatoryActs

Comprehensive Environmental Response,Compensation, and Liability Act (CERCLA)Creates liability for the cleanup of sites contaminatedwith hazardous substances. Provides �Superfund�for cleaning contaminated sites for which noresponsible party can be found. Also specifiesliability for potentially responsible parties.Clean Air Act (CAA)Provides national air quality standards and regulations.

Clean Water Act (CWA)Regulates quality of water and point source pollutionof waterways.

Food Security Act of 1985Regulates water quality and requires erosion control.

Fungicide and Rodenticide Act (FIFRA)Regulates fungicide and rodenticides.

Resource Conservation and Recover Act (RCRA)Regulates solid and hazardous waste management andunderground storage tanks containing petroleumproducts.

Superfund Amendments and Reauthorization Act(SARA)Strengthened authority to effect cleanup ofcontaminated sites. Created �innocent landowner�defense.

Toxic Substances Control Act (TSCA)Regulates toxic materials.

Kinnard, William N., Jr., Sue Ann Dickey, and MaryBeth Geckler. 1994. Fear and property value: Opinionsurvey results vs. market sales evidence. ConferenceProceedings, Sixtieth Annual Conference on Assess-ment Administration, Seattle, October 16�19, 1994,171�88. Chicago: International Association of Assess-ing Officers.

Lusvardi, Wayne C. 2000. The dose makes the poison:Environmental phobia or regulatory stigma? The Ap-praisal Journal 68(2):184�94.

Mitchell, Phillip S. 2000.Estimating economic damagesto real property due to loss of marketability, rentability,and stigma. The Appraisal Journal 68(2):162�70.

Mundy, Bill. 1992. The impact of hazardous and toxicmaterial on property value: Revisited. The AppraisalJournal 60(4):463�71.

Mundy, Bill, Dave McLean, and John A. Kilpatrick.1999. The brownfield challenge. Valuation Insights andPerspectives 4(1):14�16, 18, 45.

Patchin, Peter J. 1988. Valuation of contaminatedproperties. The Appraisal Journal 56(1):7�16.

Patchin, Peter J. 1994. Contaminated properties and thesales comparison approach. The Appraisal Journal62(3):402�9.

Peters, Bill Thomas. 1990. The cost of cleanup and itsimpact on property values. Assessment Digest 12(6):2�9.

Rinaldi, Anthony J. 1991. Contaminated properties�Valuation solutions. Appraisal Journal 59(3):377�81.

Simons, Robert. 1994. How clean is clean? The Ap-praisal Journal 62(3):424�38.

Smart, Miles M., and David L. Wynes. 1990. Theimpact of environmental conditions on real property.Assessment Digest 12(6):22�25.

Wilson, Albert. R. 1990. Environmental risk valuationand evaluation. Part IV�A valuation model for environ-mental risk. Focus 2(3):17�24.Wilson, Albert R. (1994) The environmental opinion:Basis for an impaired value opinion. The AppraisalJournal 62(3):410�23.1998).

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Appendix BPertinent Court CasesABB Industrial Systems, Inc. v. Prime Tech, Inc.,

120 F.3d 351 (2nd Cir. 1997).Alladin, Inc. v. Blackhawk County, 562 N.W.2d 608 (1997).Alomor Corp. v. County of Hennepin, 566 N.W.2d

696 (1997).Appeal of Camel City Laundry Co. II, 472 S.E.2d

402 (1994).Appeal of Great Lakes Container Corp., 126 N. H.

167 (1985).Badische Corp. v. Town of Kearny, 14 N.J.Tax 219

(1994), 672 A.2d 186 (1995), 288 N.J.Super.(App.Div. 1996).

Bamford v. Brown, Nos. 39962-39966 (Wash. Bd.Tax Appeals 1992).

Bielat v. Macomb Twp., Michigan Tax Tribunal,Docket No. 93707 (1987).

Bockeloo v. Board of Review of City of Clinton, 529N.W.2d 278 (1995).

B. P. Oil, Inc. v. Board of Assessment Appeal ofJefferson County, 159 Pa.Cmwlth. 414, 633 A.2d124 (1993).

Camel City Laundry Co. v. Forsyth County Board ofEqualization and Review, 115 N.C.App. 469,444 S.E.2d 689 (1994).

Comerica Bank�Detroit v. Metamora Twp.,Michigan Tax Tribunal, Docket No. 103325 (1987).

Commerce Holding Co. v. Board of Assessors, 216A.D. 466, 628 N.Y.S.2d 186 (1995) and 88N.Y.2d 724, 649 N.Y.S.2d 932, 673 N.E.2d 127(1996).

Community Consultants, Inc. v. Bedford Twp., 3MITTR 593 (1985).

Continental Tile Co. v. Peoples Gas Light and CokeCo., 959 F.Supp. 893 (N.D. Ill. 1997).

Custom Distribution Services, Inc. v. City of PerthAmboy, 1997 W. L. 795825 (Bankr. D. N.J. 1997).

Finklestein v. Dept. of Transportation, 656 So.2d921 (1995).

Firestone Tire & Rubber Company v. County ofMonterey, 223 Cal.App.3d 382, 272 Cal. Rptr.745 (6 Dist. 1990).

GAF Corp. .v. Borough of South Bound Brook, 112N. J. 593 (1988).

Hammond v. City of Warner Robbins, 224 Ga.App.684, 482 S.E.2d 422 (Ga.App. 1997).

Hubbard Milling Co. v. County of Blue Earth, Nos.C4�93�641�R, C6�93�642 (Minn. Tax Ct. 1994).

Inmar Associates v. Borough of Carlstadt, 112 N.J.593, 549 A.2d 38 (N.J. 1988).

Joslyn Manufacturing Co. v. T. L. James & Co., 893F.2d 80 (5th Cir. 1990).

Mola Development Corp. v. Orange CountyAssessment Appeals Board No. 2, 80 Cal.App.4th 309, 95 Cal. Rptr.2d 546 (2000).

Manufacturer�s Life Insurance Co. v. DuPageCounty Board of Review, Nos. 90�2290�C�3 and91�3218�C�3 (1994).

Monroe County Board of Assessors v. Miller, 131Pa.Cmwlth. 538, 570 A.2d 1386 (1990).

Murray Pacific Corp. v. Brown, No. 38037 (Wash.Bd. Tax Appeals 1990).

Nicollet Restoration, Inc. v. County of Hennepin, No.T. C. 12361 (4th Dist. 1992).

Northwest Cooperage Company, Inc., v. Ridder,Wash. Board of Tax Appeals, Docket Nos.36278-36280 (1990).

Peterson v. Amherst, N. H. Slip Opinion, Docket No.1239�81 (1982).

Raytheron Co. v. McGraw Edison Co., 979 F.Supp.858 (E.D.Wis. 1997).

Redevelopment Agency of City of Pomona v. ThriftyOil Co., 4 Cal.App. 4th 469, 5 Cal. Rptr.2d 687(1992)

Reliable Electric Finishing Co. v. Board ofAssessors, 410 Mass. 381, 573 N.E.2d 959(1991).

Roden v. Estech, 508 So.2d 728 (1987).Salmon Bay Terminals v. Noble, Nos. 45939-45940

(1996).Schmidt v. Utah State Tax Commission, 1999 Utah

48, 980 P.2d 690 (1999).Stafford v. Bryden County Board of Education, 219

Ga.App. 750, 466 S.E.2d 637 (1995).State of Idaho v. Bunker Hill Co. & Gulf Resources,

635 F. Supp. 655 (D. Idaho, 1986).State of Tennessee v. Brandon, 878 S.W.2d 224

(Tenn.App. 1994).Sweepster Inc. v. Seco Township, 225 Mich.App. 497,

571 N.W.2d 553 (1997).Techalloy Co., Inc. v. Property Tax Appeal Board,

291 Ill.App. 3d 86, 683 N.E.2d 206 (1997).United States v. CMDG Realty, 96 F.3d 706 (3rd Cir.

1997).United States v. Cordova Chemical Co., 113 F.3d

572 (6th Cir. 1997).United States v. Olin Corp., 107 F.3d 1506 (11th Cir.

1997).University Plaza Realty Corp. v. City of Hackensack,

12 N.J. Tax 354 (1992), aff�d 264 N.J. Super.353, 624 A.2d 1000 (1993), cert. den. 134 N.J.481, 634 A.2d 527 (1993).

Vopelgesang v. CECOS International, Inc., 85 OhioApp. 3d 339, 619 N.E.2d 1072 (1993).

Westling v. County of Mille Lacs, 543 N.W.2d 91(Minn. 1996).

Westling v. County of Mille Lacs, 588 N.W.2d 815(Minn. 1998).

West Orange v. Goldman�s Estate, 2 N. J. Tax 582(1981).

Weyerhauser v. Easter, 126 Wash.2d 370, 894 P.2d1290 (1995).

Woburn Services Inc. v. Board of Assessors of City ofWoburn, Nos. 212519, 212521, 212523�212531(Mass. App. Tax Board 1996).

Wyckoff Company v. Carol Belas, Kitsap CountyAssessor, Docket No. 39107 (1991).

Single copies of these standards can be obtained at a handling charge of$8.00 per standard from: IAAO, 135 South LaSalle Street, Department1861, Chicago, IL 60674-1861.

IAAO members can receive these standards at a charge of $5.00 perstandard or download them from www.iaao.org.

A complete set of standards is available for $50.00.

Assessment Standards of theInternational Association of Assessing Officers

Standard on Property Use Codes .........................................................................................................withdrawn

Standard on the Application of the Three Approaches to Value in Mass Appraisal ................... September 1983 (revised August 1985)

Standard on Mass Appraisal of Real Property .................................................................................. March 1984

Standard on Contracting for Assessment Services ..................................................................... September 1986

Standard on Urban Land Valuation ........................................................................................................ July 1987

Standard on Cadastral Maps and Parcel Identifiers ......................................................................... January 1988

Guide to Assessment Administration Standards ................................................................................ March 1990

Standard on Valuation of Personal Property ................................................................................. February 1996

Standard on Facilities, Computers, Equipment, and Supplies ................................................................ May 1996

Standard on Property Tax Policy ................................................................................................ ...... August 1997

Standard on Ratio Studies .............................................................................................................July 1999

Standard on Professional Development.................................................................................December 2000

Standard on Assessment Appeal ............................................................................................................July 2001

Standard on Public Relations .................................................................................................................. July 2001

Standard on the Valuation of Property Affected by Environmental Contamination ............................... July 2001

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