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.