Sunday, April 22, 2018

Real Estate Damages / Detrimental Conditions

In April 2018, I attended the Appraisal Institute’s continuing education seminar in Fort Lauderdale, Florida regarding damaged property / detrimental conditions.  The presenter, Randall Bell, is an expert in real estate damage economics.

The issue of detrimental conditions comes up often in my practice, and the seminar provided me with a methodology for applying appraisal techniques to address these situations.  The complexity of this appraisal assignment occurs when trying to establish whether or not there is a diminution in value.   

Detrimental conditions can fall under the following categories: 
  • General
  • Transactional
  • Distress
  • Legal
  • External
  • Building
  • Site
  • Environmental
  • Conservation
  • Natural Conditions

Randall Bell, MAI & Britt J. Rosen, CCIM

These categories deal with such issues (including but not limited to): death (murders and mass shootings), disability, fire, illness, insurance, zoning, hazards, construction defects, drainage, soils, utilities, biological issues, wetlands, flood, and hurricane damage.

Bell developed a “Bell Chart” providing a framework for dealing with detrimental conditions in the appraisal process.  Additionally, there is a “matrix” taking into account aforementioned categories the appraiser must deal with when valuing a property affected by detrimental conditions. The matrix deals with cost, use, and risk.  

Seminar topics also covered included loss of use of the property while the repair is ongoing.  A “profit incentive” should also be calculated to completed repairs based on construction costs, similar to entrepreneurial profit.  The rate can be from a low of 15% to a high of 25%, according to Bell.