Properties suffering from construction defects exhibit a diminution in value resulting from both the actual cost to cure as well as the residual stigma losses. In the unremediated state, the sum of these should equal the diminution in market value, while post-remediation there is significant evidence of continued stigma. Proper estimation of these losses is complicated by two factors. First, direct estimation of remediation costs is often problematic and common appraisal methodology does not provide for simple direct estimation of stigma losses, particularly for residences. Secondly, indirect methods (i.e., sales comparison) typically fail due to disequilibrium problems or lack of data. This study illustrates the problem and suggests methods which have been used in recent cases that transcend both the legal and appraisal problems to result in a more compelling solution for valuation.
Author: John A. Kilpatrick
Originally published in Mealey’s Litigation Report: Construction Defects (July 2003)