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by Stuart Lieberman
Let's say that you live in a beautiful brand-new colonial located in a new subdivision. The home was perfectly constructed and sits on two acres of impeccably landscaped property. Your home is nice, your neighbors are nice, the community is nice, and you have finally arrived!
Before you made the purchase, you did your home work. You drove around the community to make sure it was safe and clean. You made sure the homes held their value and the schools were good. You did what everyone does to protect himself.
But a year after you and all of your neighbors move into this new subdivision, you read in the local paper that a huge toxic waste site exists one-quarter of a mile away from your home. This is news to you. You also learn that this site has been in the process of being cleaned for the past eight years, and that it has caused substantial amounts of soil and groundwater contamination. This was never in the newspapers before (that you know of, anyway) and obviously, the developer never told you about this before you made your purchase.
The homes in your neighborhood are all on well water and members of the community are concerned about the possible consequences that this toxic site might have on the drinking water supply. While there is no measurable amount of contamination in the drinking water, or on the grounds of the house, there are no assurances to be found that either the water was not contaminated in the recent past, or that it will not be contaminated in the future as a result of this looming environmental problem.
One by one, neighbors start looking for other places to live and begin the process of trying to sell their properties. The real estate market is generally favorable, and this subdivision has historically been regarded as one of the nicest subdivisions in the county. All other things being equal, these homes should command top dollar.
But something funny happens. Instead of receiving offers that seem reasonable and appropriate, offers start coming in that are roughly 30 percent below fair market value. It is not just one house in the subdivision, but most of the homes appear to be selling for less than they should. And when buyers are asked why they are offering less, they all point to the recent influx of newspaper articles and local news reports that relate to the nearby toxic site and the multi-year cleanup. What will you do?
Welcome to the world of stigma damages. While there are many definitions of stigma damages used by lawyers and appraisers, I believe that it is best described as the reduction in property value caused by public perceptions relating to onsite or offsite property contamination or other environmental events of similar magnitude. Appraisers have very intricate ways of evaluating stigma. But in my view, if two houses are perfectly equal in every regard, except that one is associated with an environmental release and the other has no such association, stigma represents the amount less that someone will pay for the house associated with the stigma than they will pay for the house perceived to be perfectly problem-free.
So to answer the question, the affected homeowner may have no choice but to file a lawsuit to recover the reduction in property value caused by stigma. This might very well be in the form of a lawsuit alleging that this critical information relating to the toxic facility undergoing a massive, multi-year cleanup was not disclosed to the buyers before the purchase took place. In other words, this might be a fraud or failure to disclose lawsuit.
There are many factors that determine the extent of stigma associated with a particular toxic site. Perhaps the most important factor relates to the fear that buyers have relating to exposure from contaminants and carcinogens. How much information is known once the information becomes public? If there are more questions than there are answers relating to the toxicity of the site, it is reasonable to assume that the stigma might be greater. How well publicized has the information been?
Has the media recently been all over this story for one reason or another? For example, it would be hard to sell new homes with the names Three Mile Island, Love Canal, or Chernobyl included in the subdivision. The greater the notoriety the more likely one might expect stigma to be found.
Other than the extent of popular knowledge, experts consider a variety of factors in determining whether stigma exists and in placing a dollar amount on the stigma. They will look at the ability to obtain conventional financing for a particular piece of property, knowledge as to the extent of necessary remediation and a plan for addressing the remediation, and the level of government involvement in assuring that a cleanup is taking place.
The extent of stigma damages is often determined through the use of experts. Experts may consider comparable sales, replacement costs, as well as a reduction in income streams (when the property is used for commercial purposes) in determining the extent of stigma. In addition, experts very often knock on doors and take surveys of prospective purchasers, as well as real estate agents in the area, in an attempt to establish the level of stigma that has occurred with regard to a particular site.
Stigma is not just environmental in nature. Homes in which there have been notorious murders have been determined to suffer from stigma. And there have been cases involving claims of stigma relating to electromagnetic field lines.
You need to understand that stigma damages are not just awarded when the victim's own property is or has been contaminated. In addition, the contamination does not necessarily still have to be present in order for stigma to exist. Stigma may still exist even after a piece of property has been cleaned. Again, think about what you would be willing to pay for a piece of property that is located next to a very well known, formerly contaminated piece of property. In some instances, you might be willing to pay the same amount that you would if the adjoining property was never contaminated. But in other instances, perhaps where the nature of contamination was potentially more lethal, or where there is a belief that all of the contamination was not removed, you might be insist on paying less.
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