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REAL ESTATE: DEALING WITH PROPERTY STIGMA

What is "stigma" relative to real estate and how can you deal with it? Stigma, usually expressed as an albatross on the property which lowers its value, is often the subject of a litigation matter.

Stigma can be real or imagined. Real stigma is occasioned by certain occurrences involving the property. The most well-known factors creating stigma are environmental causes – contaminated ground water or soil; soil movement such as mudslides; proximity to actual or potential contaminants; locations in fire and flood zones, as well as earthquakes, etc.

Stigma can also be related to prior events, even if the current property is totally free of the past occurrence. The most notable example is probably real estate where a murder happened. Since these are somewhat rare events, especially in non-residential real estate, our focus is how stigma affects value for commercial, retail, or industrial properties.

The appraisal of stigmatized facilities is a more exhaustive analysis of numerous factors not considered in a normal appraisal. Careful judgments must be applied to both the quantitative and qualitative aspects, such as:

  1. Is the real property contaminated or just assumed in that state? Are there any Phase I or II studies completed or underway; and what do they say conclusively?
  2. How did the contamination begin, how long ago and by whom?
  3. Is our subject property not currently subject to contaminate, but nearby real estate is conclusively impacted? How strong is the evidence?
  4. Is there now or soon to be a cleanup process? Is this mandated by the Federal government or part of a Super Fund?
  5. Is there a detailed analysis of the costs to cure the infliction? What is the realistic timeframe for curing?
  6. What is the current highest and best use? How is the property now being used? As a cleansed property, could it be rezoned to a more profitable asset?
  7. Are other nearby properties affected and how? Have askings and sale prices been adversely affected?
  8. For sizeable parcels or unique properties (e.g. steel mill) the market search for comparable sales may be expanded well-beyond the locale. Is there some clear evidence that these defective sites traded for less money, and was that related to the stigma?

In part, we are guided by the nationally recognized and published works of professionals who have thoroughly researched and opined on the somewhat exclusive concept of stigma.

In valuing numerous stigmatized real properties, we have answered or explored answers to the above queries. In addition, we are expert at correlating the numerous aspects of stigma, both real and subjective (quantitative and qualitative) into a value opinion.

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