A stigma, as related to real estate, is simply the public’s perception of a particular condition and the reaction to that condition. Our “perception” is how we mentally comprehend what we know about something. A stigma is generally a negative perception about a particular condition such as an environmental impact on property caused by some form of contamination.

Different types of contamination may cause different reactions from the public based on their perception of the condition. The degree or amount of contamination may also be a factor influencing the public’s perception of a particular type of contamination. Some types of environmental contamination are perceived as being permanent and may pose continuing risks even after remediation. Therefore, a stigma is generally a negative factor and its impact on value typically reflects such. A stigma may not be related only to a property with a known contamination, but may also extend to properties in close proximity to known contamination.

So, how can a “stigma” be changed? Or, how can the impact of a stigma be changed? The answer is by changing the public’s perception of the cause of the stigma. How can the public’s perception of a particular condition be changed? Through education.

With regard to molds, the public needs to understand the health risks that may result from mold spores in the air, understand all that is involved in testing for type and quantity of molds, understand all that involved in remediation and then testing again for post remediation air quality, understand that moisture control is critical in any enclosed area and critical to the control of molds.

Once the public is adequately educated about molds, then whatever their conclusions may be will be reflected in the prices negotiated for real estate and any impact resulting from a stigma can be measured and will be reflective of the publics perception of the condition. As the general public becomes more educated about a particular topic, like mold contamination, their perception of the condition might change. Thus, the impact of the stigma related to that condition might change with time. It is the appraisers role to estimate the damages caused by the stigma. Since the stigma could change over time, it is necessary for the appraiser to develop new case studies and update older ones in order to keep current with prevailing trends.

Value Issues

If a property has had mold and has been properly remedied and a professional inspection is made and report written indicating that the property is free from mold as of a given date, how long and to what degree, if any, will the simple fact that a property has had mold in the past affect the public perception, or marketability of that property, and, thus, the price that a prospective purchaser will be willing to pay for a property that has had mold in the past?

And, for how long of a period of time is disclosure of a known mold case required? Will insurance companies write policies to cover a home after a report is made indicating that it is mold free, or will there be a specific period of time that it must remain mold free? Will lenders finance a home with a known mold case?

The local lenders that I have discussed this matter with indicate that their decisions to loan money on a home with a known history for mold will be handled on a case by case basis. They will likely require a recent inspection and written report documenting that the home is free from mold and moisture. Another major factor will be if the home is insurable, which takes us back to the insurance companies and the requirements that they will impose.

Most of the questions regarding stigma related to known mold cases and the affect on value of real estate remain questions. Not enough market data for known mold cases is available in my rural area to measure the public opinion of known mold cases. However, I am building a file of the known mold cases in my area that I am aware of and making notes as to the extent of the infestation and remediation involved in the hope that one day, one of those properties will sell, and I will recognize it and be able to pull my file and do some comparison analysis to measure the affect, if any, of the known mold case in an effort to build case studies in this local market area.

Income Approach vs. Sales Comparison Approach and Case Studies

Application of the Income Approach involves comparison of rental rates for contaminated properties with noncontaminated, or “clean”, properties. In theory, the capitalized rental rates should provide an estimate of loss resulting from the contamination.

Some arguments against this technique are that conclusions are not supported by market data and is based on theory. For example, an appraiser finds no measurable difference in rental rates of contaminated properties versus noncontaminated properties. The appraisers conclusion is that there is no loss in value. The argument is that not all tenants may be aware of contamination and, therefore, the rental rates may not meet the criteria for “market value”. If the tenants are not “well informed” then rental rates may not reflect any discount. In fact, an owner might be aware of an environmental risk but not inform the tenants, or the owner might not even be aware of an environmental risk. Another assumption might be that all people have a choice of where to live. Environmental contamination often occurs in poor areas where residences have few choices.

In applying the Sales Comparison Approach it is likely not uncommon to find no sales of contaminated properties in an area, particularly in small communities or rural areas, for utilization as comparables. If public knowledge of a contamination problem in an area is limited, then sales may not reflect any discount attributable to the problem. This would bring up the criteria for “market value” again. Are the buyers and sellers “well informed” and acting “prudently and knowledgeably”?

Case studies are derived from the Sales Comparison Approach. By analyzing sales, or cases, of contaminated versus noncontaminated properties in other areas, but similar to a subject, an appraiser may develop some basic opinions of how buyers and sellers have reacted to a similar condition. The appraiser should be well aware of the type and extent of the contamination in both the subject as well as the sales being analyzed. The research can be time consuming and expensive. Case studies can suggest discounts in property value in proportion to the nature and extent of a given condition, in this case, mold infestation. The comparability of the cases is then based on their similarities and differences in relation to the subject, regarding both the characteristics of the property as well as characteristics of the contamination. Cases with less contamination should indicate lesser loss percentages. Cases with more contamination should indicated greater loss percentages. These should indicate a range of loss for the subject. It is then the duty of the appraiser to determine how the subject compares to the data.

An argument against case studies is that market data is insufficient to support, or defend, a stigma related adjustment. Of course, the more data and information that is available and utilized in the analysis the better the support for conclusions drawn.

The very few case studies relating to mold in residences that I have seen summaries of indicate approximately 17 percent to 24 percent reduction in value in “premeditation” condition and up to approximately 3 percent reduction in “post-remediation” condition, with full disclosures. This information tends to suggest, if remediation is determined to be cost effective, little, if any, affect on value after remediation and a return to very near an “unaffected” market value. I have not personally seen information in these case study summaries regarding the degree of infestation or the time elapsed from remediation to sale date.

Although there are no “test” that proves a link between Stachybotrys chartarum and particular health symptoms, it is likely that it poses serious risks for infants or those with existing illnesses or allergies. Large quantities or concentrations of molds are likely to pose a greater risk than small quantities. Insurance may never be available specifically for mold but likely will be for “sudden and accidental events” as determined by the insurance companies and will likely be incremental coverage at additional costs and possibly with a coverage cap. The key to prevention of mold is prevention of moisture in the home or other buildings. Remediation can be very costly, particularly if the infestation is significant. Measuring the stigma related value loss, if any, is likely subjective, at best, and time consuming.

Available Articles and Websites for Mold and Other Topics Health Concerns: The Center for Disease Control and Prevention (CDC) answers questions about mold on its website at www.cdc.gov/nceh/asthma/factsheets/molds/default.htm or its home page at www.cdc.gov The Environmental Protection Agency may be found at www.epa.gov Mold Remediation: Just do a search on the web. You will find many of the larger companies there. But be cautious. General Information, Mold and Other: Toxic Mold and Tort News Online is a very informative site concerning mold at www.toxic-mold-tort-news-online.com Article entitled “Black Mold and Mildew and Spores, Oh My!” by Judon Fambrough in the October 2001 issue of Tierra Grande, the journal of the Texas A & M Real Estate Center. Find a copy of this same article at http://recenter.tamu.edu/TGrande/vol8-4/1531.html Article entitled “Prevention of House Mold” by Thomas A. Lee, Jr., Professor at Texas A & M University at Stephenville at http://recenter.tamu.edu/TGrande/vol8-4/1531.html A “Mold Mini-Course” by Texas Cooperative Extension, Texas A & M University System is available on-line at http://fcs.tamu.edu/housing/iaq/Mold/web/index.htm A discussion of mold and many other topics with knowledgeable professionals may be initiated at www.appraisersforum.com . You will have to create a “Log on name” and “Password” to enter the discussion, but not just to read current discussions. It is FREE and very informative.

Jack C. Schoppa, IFAS, is a Certified General Real Estate Appraiser and a licensed Real Estate Broker and owner of North Texas Properties, a full service real estate firm located in north Texas. Jack has developed a slide show presentation of the information in this article and has presented it to both local and national audiences. Jack maintains the IFAS (Senior Member) designation conferred by the National Association Of Independent Fee Appraisers to convey strong commitment to high professional standards and ethical conduct. He can be reached by e-mail at jack@northtexasproperties.com

Published: January 24, 2003

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