Evaluating Environmental Stigma with Multiple Regression Analysis (Environment and the Appraiser‪)‬

This edition of "Environment and the Appraiser" continues our series on generally accepted methods and techniques for evaluating the effects of environmental contamination on the value of real property. The series began with an overview of these techniques and methods and an introduction to paired sales analysis, environmental case studies, multiple regression analysis, market interviews, and income capitalization analysis. (1) Subsequently, environmental case studies and market interviews were addressed in more detail. (2) In each of these articles, specific examples of the application of the techniques were provided. In keeping with this approach, this column will discuss the technique of multiple regression analysis generally and then present an example of its use in analyzing potential proximity stigma effects. As with the other techniques that have been discussed, the primary focus will be on analysis of the effects of increased environmental risk or stigma. As previously explained, the market value of real property can be affected by three potential effects: cost effects, or deductions for costs to remediate a contaminated property to appropriate regulatory standards; use effects, or limitations on the highest and best use of the subject property due to environmental contamination and its remediation; and risk effects, or the effects on value due to the market's perception of increased environmental risk and uncertainty. (3) The effect of increased environmental risk on property value is referred to as environmental stigma. (4) Further, and as noted in Advisory Opinion 9, the "analysis of the increased environmental risk and uncertainty on property value (environmental stigma must be based on market data, rather than unsupported opinion or judgment." (5) The 'market data" referred to in the advisory opinion is sales data. Thus, multiple regression analysis in this context analyzes sales data to estimate the risk-related effects on property value known as environmental stigma.