Shelterfield Valuation Services Pennsylvania/New Jersey/Delaware Stigma Survey – Results

02/23/2011 10:40

During 2010, Shelterfield Valuation Services conducted a wide-reaching survey of real estate professionals in the Greater Delaware Valley (i.e. Pennsylvania, New Jersey and Delaware). The survey asked recipients for their opinions regarding how certain negative events would affect residential and commercial property values (i.e. would the properties be stigmatized and if so, for how long would the stigma remain?). Most of the scenarios presented garnered approximately 85 to125 responses. Below are some of the highlights of the survey results. For complete results, please see the attached survey and responses. Several of the hypothetical scenarios resulted in high percentages of agreement from respondents that “yes,” the property in question would be stigmatized, as a result of the event described. These are as follows: • Scenario: Fuel Oil Spill A fuel oil spill from a neighboring property washes across a portion of land at the rear of adjoining Farm A. The initial spill damages trees and leaves a patch of dead vegetation approximately 50’ wide by 400’ long. The neighbor takes steps to clean up the spill and the Department of Environmental Protection (“DEP”) and Board of Health investigate. Some of Farm A's fencing and the grounds are further damaged in the cleanup effort. The spill becomes public knowledge, and an article on the spill is published in a local newspaper and online. More than a year later, the DEP has found that the spill did not initially contaminate the ground water, but has not issued a final report as to whether the spill has been fully and effectively cleaned up, and damage to the fencing, grounds and vegetation has not been repaired. The owner of Farm A wants to sell the property, but local brokers say that title cannot be insured until the DEP issues its final report. If Farm A was on the market when the spill first occurred, would the spill have caused its sale price to be reduced? Of the 127 respondents to this question, 125 of them (98.4 percent) answered “yes.” Only two (1.6 percent) answered “no.” • Scenario: Underground Contamination House A and House B are identical, detached homes located side-by-side. Both are for sale at the same time, for the same price. The home inspector for House B discovers a small underground plume of gasoline emanating from a neighboring property onto House B’s lot. The subdivision is on a public water system, but the DEP insists on the installation of an unobtrusive ground water monitoring system for House B. House A next door is not affected in any way. How much does the home inspector’s discovery diminish House B’s sale price as compared to House A next door? This question received 104 responses. Of these, 15 (14.4 percent) selected the response “Not at all,” indicating that House B’s sale price would not be affected by the negative event. Forty-three respondents (or 41.3 percent) selected “Up to 10%,” while 29 (27.9 percent) chose “10 to 20%.” Four respondents (or 3.8 percent) selected “20 to 30%,” with 13 respondents selecting “More than 30%.” • Scenario: Ground Water Contamination Property A and Property B are neighboring commercial properties. Property B’s well water has been contaminated with fecal coliform, E. coli and other bacteria coming from Property A. Property B’s owner installed a special water filtration system, but the contamination could not be fully removed. Some Property B employees have been hospitalized after drinking the water. The DEP and local authorities investigated Property A and uncovered a history of waste spills for which Property A was fined. Property A says it has taken steps to avoid further contamination, but ongoing monitoring shows monthly fluctuations in Property B’s water quality. Is Property B’s sale price diminished by these conditions? Of the 102 respondents to this question, 101 (99 percent) answered “yes.” One respondent (1 percent) answered “no.” • Scenario: Cell Tower View House A and House B are identical. House A overlooks a field with a 225-foot-tall cell tower. House B overlooks a similar field, but with no cell tower. Neither house is in the fall line of the tower. Is the presence of the cell tower likely to make House A sell for less than House B? Ninety-five real estate professionals answered this question. Of these, 84 (88.4 percent) selected “yes.” Eleven (11.6 percent) selected “no.” The next question accompanying this hypothetical scenario received a particularly even distribution of responses. If yes, by how much? Of the 86 respondents to this question, 27 (31.4 percent) chose the response “Up to 5%;” 29 (33.7 percent) chose “5 to 10%;” 24 (27.9 percent) chose “10 to 20%;” and 6 (7 percent) selected “More than 20%.” • Scenario: Sound Barrier Wall along a Property’s Frontage The Department of Transportation (“DOT”) installs a 14-foot-tall sound barrier wall along the frontage of a lot containing an existing single family home. The home is set back 50’ from the wall. The wall spans the entire front of the lot, with a break to provide driveway access. With the wall in place, the home is not visible from the roadway. The wall is easily visible from the home. The home is offered for sale immediately after the wall is installed. Does the wall reduce the property’s sale price? Of the 85 participants responding to this question, 76 of them (or 89.4 percent) answered “yes.” Nine respondents (10.6 percent) answered “no.” • Scenario: Sound Barrier Wall along a Rear Property Line The DOT installs a 14-foot-tall sound barrier wall along the entire rear property line of a lot containing an existing single family home. The home is set back 50’ from the wall. With the wall in place, the home is not visible from the roadway. The wall is easily visible from the home. The home is offered for sale immediately after the wall is installed. Does the wall reduce the property’s sale price? Seventy-eight participants responded to this question. Of these, 56 (71.8 percent) answered “yes,” while 22 (28.2 percent) answered “no.” For both sound barrier wall scenarios, respondents were also asked how the walls would affect the properties’ sale prices if the walls were 25 feet from the homes, or alternatively, 75 feet from the homes. Respondent Information • How long have you been working as a real estate professional? Of the 82 respondents who answered this question, 34 (or 41.5 percent) indicated that they had been working as real estate professionals for “More than 20 years.” Ten respondents (12.2 percent) selected “Less than 5 years;” 22 (26.8 percent) selected “5 to 10 years;” 10 (12.2 percent) chose “10 to 15 years;” and 6 (7.3 percent) chose “15 to 20 years.” • Have you ever been involved with marketing a property affected by conditions similar to any of the scenarios in this survey? This question received 81 responses. Fifty-four of the respondents (or 66.7 percent) answered “yes.” Twenty-seven (33.3 percent) answered “no.” • How would you characterize the location of these properties? Of the 56 participants who answered this question, 48 (85.7 percent) selected the response, “Mostly suburban.” Seven respondents (12.5 percent) chose “Mostly urban,” while one respondent (1.8 percent) selected “Mostly rural.” A real estate appraisal and consulting firm, Shelterfield Valuation Services conducted this survey in response to a lack of available research regarding how environmental stigma affects property values. We believe the survey provides valuable insight into what is quite difficult to prove empirically: how apparently negative conditions affect perception, and therefore, property values.    John J. Hosey MRICS IV MAI SRA The president of Shelterfield Valuation Services, a full-service real estate valuation firm offering commercial, industrial and residential real estate appraisal, appraisal review and consulting, and real estate brokerage and consulting, John J. Hosey IV, MRICS MAI SRA is an expert in the developing field of stigmatized property appraisal. With more than 35 years of experience, Mr. Hosey is licensed as a broker in Pennsylvania, and as a general appraiser in Pennsylvania, New Jersey and Delaware. He is a member of the Appraisal Institute and an Experience Review Screener for its National Review Committee. In addition to appraisal, consulting and brokerage services, Mr. Hosey’s capabilities include expert testimony and arbitration consulting. To learn more about Shelterfield Valuation Services, or to contact Mr. Hosey, please visit Shelterfield’s website at www.shelterfield.com