The Epa's Proposed All Appropriate Inquiries Rule and the Appraisal of Contaminated Properties (Environment and the Appraiser‪)‬

In previous editions of "Environment and the Appraiser," standards and methods for appraising contaminated properties were reviewed (1) and illustrated with case study examples. (2) In this edition of the column, we break from standards and methodology and discuss an issue that is important to the appraisal profession in general and in particular to those who focus some or most of their practice on the valuation of contaminated properties. This issue involves the proposed administrative rule of the U.S. Environmental Protection Agency (EPA) referred to as the "all appropriate inquiries" (AAI) rule and its relationship to existing guidance and practice in valuing contaminated properties. In general, the AAI rule, as proposed, misses an opportunity to take advantage of the considerable progress that the appraisal profession has made in establishing acceptable methods and standards for valuing contaminated properties. This is reflected by the decision of the Negotiated Rulemaking Committee, of which EPA was one of the 24 members, not to require appraisals for purposes of estimating the fair market value of properties that may be the subject of AAI inquiries. As existing guidance in Advisory Opinion 9 discusses, in situations where property values are adversely impacted by contamination, there are actually two values that may be determined--the hypothetical unimpaired value and the value in an "as is" or potentially impaired condition--in order to find the extent of any reduction in value as a result of contamination. The proposed AAI rule seemingly equates the property's fair market value with its unimpaired value, and its sale price with its actual "as is" impaired value, by requiring the purchaser to "make a general determination of whether the price paid for a property reflects its market value." (3) Thus, the proposed rule omits the apprasier's role in estimating two values. These and other shortcomings will be discussed in detail herein.