The Addition of Contingent Valuation and Conjoint Analysis to the Required Body of Knowledge for the Estimation of Environmental Damages to Real Property

Abstract

Executive Summary: A problem often exists when using traditional approaches to valuation in assessing damages to contaminated real property. Cost, income, and sales comparison approaches may understate the impact on value when historical and recent sales are limited or nonexistent, or when potential buyers are unaware of or not fully knowledgeable regarding the nature and extent of the contamination. When one or more of these conditions is present, reliance on traditional methods is limited in developing an opinion of damages for litigation. Three complementary survey-based techniques are presented as supplementary tools in estimating damages in impaired property situations: contingent valuation, conjoint analysis and perceived diminution. Due to the fact these approaches may be employed when conditions limit the use of other methods, the approaches presented are an important addition to the required body of knowledge for any analyst addressing impaired property value. This study briefly explores the theoretical foundations that underlie the use of these measures. It then addresses contingent valuation, conjoint analysis and perceived diminution methods applied to damage assessment of real property. Disguised examples of actual study materials and findings generated are employed.