Valuing Contaminated Property

Properties that suffer from environmental contamination present a special challenge to appraisers in an Assessor’s office when trying to establish a fair value for property tax purposes. The most common form of environmental contamination occurs from hazardous materials, such as petroleum products, chemicals or pesticides, which are manufactured, stored or applied on a site.  Less common is a contaminant that is deposited onto property from an offsite source such as occurred in a neighboring county when the plume from the tall smokestack of a smelter deposited measurable levels of lead on downwind pasture land affecting livestock and people.   In another case in an adjoining county, a developer built homes on top of an old landfill.  When black ooze and methane gas began seeping up in those backyards, the developer actually had to buy those homes back and remove them.

In determining the value of a contaminated site the appraiser must consider these issues: 1) can the problem be mitigated through removal or on-site decontamination;  2) if mitigation is possible,  how long will it take and how much will it cost; 3) does the contamination prevent the property from being used to its maximum potential or even not used at all.  Based on the outcome of this research, the appraiser then decides if the “contaminated” value is less than the current Proposition 13 base year value in which case a reduction is made until the property is cleaned up.  If property has been purchased in a contaminated state, the appraiser must decide if the purchase price needs to be adjusted to reflect the severity and duration of the contamination. 

A couple bought a single-family residence in the City of Napa for $150,000.  They discovered that the prior owner had been pouring waste oil down a shallow well in the backyard for many years.  The oil plume extended under the whole yard and was approaching other properties.  The cleanup cost was projected to be $350,000, would take several months and would be covered by the prior owner’s insurance company.    Since the current owners could continue to occupy the home during cleanup without any health risk, we lowered only their land value from $80,000 to $500 until cleanup was completed at which time the land value was restored since the property was again in a fully clean condition.

In an example with a different outcome, a large corporation bought several service stations in Napa County all of which had varying degrees of petroleum contamination from leaking tanks.  While the cleanup of each station would cost between $100,000 and $300,000, each station would only need to close for a 60-90 day period as new tanks were installed with ongoing monitoring costs after cleanup of several thousand dollars a year.  The buyer argued that the value of the stations was reduced by the contamination and that the value should be lowered.  However, pending cleanup, the stations continued to operate at their “highest and best use”, i.e. pumping gas and selling snacks; the revenue lost from being closed was not substantial and their income stream more than covered the amortized cost of the cleanup and monitoring over a reasonable period of time.  Our office felt that no reduction in value was warranted.

Should you have any questions please contact Napa County Assessor-Recorder-County Clerk John Tuteur at 707.253.4459 or by e-mail [email protected]  More articles can be found at https://www.countyofnapa.org/149/Assessor/