The Gulf Oil Spill and Its Impact on Coastal Property Value Using the Before-and-After Procedure

Abstract The before-and-after procedure is applied to Coastal Alabama property to estimate the economic loss in property value caused by the 2010 Gulf of Mexico Oil Spill. The project is unique in that it relies on market trends shown in the total population of deed recordings allowing the total impact to be estimated with the dynamic nature of a potential stigma. The results indicate that the oil spill has minimal influence on property value for waterfront condos and single-family residential, and approximately -16% in value on waterfront vacant residential land. (ProQuest: ... denotes formulae omitted.) Sudden events that are external to the property, like the Gulf of Mexico Oil Spill in 2010, can have a detrimental impact on the sales price of real property and eventual value. The nature of the event causing the potential stigma, such as a fire, hurricane, or environmental activity, will determine whether the change in market price is temporary or permanent. Further, the location of the property and distance from the event is critical as the alleged impact is believed to be larger for properties located near the event, and less as the distance from the event grows larger. The commonly-used approach to estimate the dollar amount of a potential decline in value on ''stigmatized'' property is the before-and-after procedure.1 The unaffected value prior to the spill must be determined first. Second, the subsequent impacted value is determined at some point in time following the event. The difference between the two normally is labeled as the potential loss due to the event. This procedure is recommended by one federal agency (Internal Revenue Service, 2009) and appears frequently in the professional literature (Reed, 2000: Bell, 2008; Kilpatrick and Mundy, 2003). This before-and-after procedure (hereafter BAAP) requires sufficient market price data to demonstrate accurately that a detrimental impact remains, grows larger, declines, or remains nonexistent.2 An investigation into the magnitude of an alleged impact must begin with the meaning of ''stigma.'' Although the application of the BAAP is self-contained and does not require a definition, it is useful to help explain any resulting damages. A stigma is a perceived loss in value that must be re-verified whenever its impact on value is needed. A significant change in value is a change in demand and supply conditions that include more market factors than the special case of stigma. One of the best definitions of stigma is found in the International Association of Assessing Officers' Standards covering environmental contamination (IAAO, p. 14), which reads: ''Stigma is an intangible factor, which may not be measurable in terms of cost to cure, but may affect market value, at least as determined through the sales comparison (market) approach. It may be seen as a blight or perceived blemish or stain on a property resulting from real or perceived risk associated with the property.... Any adverse effect of stigma must be supported by the marketplace.'' This explanation contains two types of measurement, and both emphasize the BAAP. The first is the sales comparison approach and relevant market data to prove a loss. The second is an explanation of the direct capitalization approach used to estimate value prior to the event and after the event. Any difference is attributed to the stigma. No illustration is given. Another explanation is Advisory Opinion 09 issued by the Appraisal Standards Board (Appraisal Foundation, 2002), which contains a number of definitions, as well as a number of property characteristics an appraiser should consider in an assignment involving environmental conditions. An environment stigma is an adverse effect on property value produced by the market's perception of increased environmental risk due to contamination. The diminution in value is the difference between the unimpaired and impaired value of the property. …