Costly and Hazardous – Meth Labs
By Rick Stuart, CAE
For the last couple of decades, it was common to have a few residential property owners appeal their property value because the house next door is a “drug” or “crack” house. Now there seems to be another more hidden problem – meth labs.
“The clandestine production of methamphetamine is growing at an alarming rate across the country. Clandestine methamphetamine laboratories (meth labs) range from crude makeshift operations to highly sophisticated facilities. They can be set up almost anywhere and are often found in private residences, apartments, trailers, automobiles, campgrounds, and hotel and motel rooms. The rise in the number of meth labs stems from availability of precursor chemicals and the increasing popularity, ease of manufacture, low production cost, and high profits from the drugs.” (EPA 2003).
We only need to read our local papers to confirm that meth labs are indeed a fast growing problem. It would seem reasonable that before long, if not already, property owners will be appealing their values based upon the properties use as a meth lab. Property owners will be stating tenants cooking meth have made the house unusable and thus valueless. Unaware purchasers of property stating the cost to remediate greatly exceeding the value and apartment owners stating remediation and lost rent causes a severe reduction in property value. Sounds like discussions about contaminated properties.
The IAAO Standard on the Valuation of Properties Affected by Environmental Contamination was updated in July 2001. Although methamphetamine is not mentioned specially, it would fit under the following sections.
“Environmental factors are increasingly important in property valuation as the market has become more aware of the potentially detrimental effects of chemical, radiation, noise, and other contaminants on air, water (surface water and ground water), soil, and overall environment. Knowledge about a particular contaminant is so new or limited that there is a virtual absence of market data, and effects on value are difficult to ascertain.” (IAAO 2001). Meth labs fit well into this last sentence.
The IAAO Standard also discussed Physical Contaminants in section 3.1.1 and states they, “are substances present in, on, or near a subject property in measurable quantities and identified as having a harmful environmental impact,” In section 3.3.11, Illegal Drug Manufacture – Effect on Property Value, it states, “Illegal drugs are often manufactured in small, mobile units, often in remote areas. Typically, little effort is made to dispose of toxic materials properly, which often are byproducts of illegal drug manufacture.” Meth labs definitely fit in that section.
BUYER BEWARE
The old saying of “caveat emptor”, buyer beware is very appropriate in this discussion. When reviewing articles from the Internet, it appears that in most states, realtors, property owners or lending institutions are not required to disclose that a property was previously used as a meth lab. Some states do have legislation pending on this. Potential purchasers of property should now include that as a question before purchasing and would be wise to check with local law enforcement.
The question of disclosure was submitted to the Topeka, Kansas Board of Realtors. A friend is on the board and she called to say the question was a hot topic at the board meeting. It was about an equal split on whether disclosure was required. The answer received was to the effect that any contaminated property, such as a meth lab house, should have been cleaned-up by the appropriate health agency and no disclosure would be needed. The realtor stated this was one more reason not to deal with foreclosure properties.
Both the Health Departments in Jefferson County, Kansas and Shawnee County, Kansas (Topeka) were contacted about their role in dealing with meth labs. The Health Department Administrator in Jefferson County stated they have no role in the clean-up process. If the problem is found it is handled by the Kansas Bureau of Investigation. Shawnee County also stated they have no involvement in meth houses.
Clean-up procedures are readily available but clean-up enforcement is often limited. There appears to be gaps within laws and agency policies about who can require properties to be cleaned-up and if they can. Several stories were found on the Internet where people continued to live in meth-contaminated homes because no agency had enforcement authority.
Are meth labs really dangerous to your health? “Many of the contaminants present during meth’s cooking process can be harmful if someone is exposed to them. These contaminants can cause health problems including respiratory (breathing) problems, skin and eye irritation, headaches, nausea and dizziness. Exposure to meth residuals may cause similar symptoms.” (kci.org 2003).
Cleaning these properties can be costly and time consuming. A very large number of web pages discuss this and almost all recommend using professional cleaners with contamination experience. “Absorbent materials, such as carpeting, drapes, clothing, etc. can accumulate vapors that are dispersed through the air during the cooking process.” (kci.org 2003). All items such as this must be removed.
“Surfaces, such as walls, counters, floors, ceilings, etc. are porous and can hold contamination from the meth cooking process, especially in those areas where the cooking and preparation were performed.” (kci.org 2003). These surfaces must be cleaned and it is suggested that walls and ceilings be painted to seal them.
Ventilation systems must also be thoroughly cleaned and all air filters replaced. The house should be aired out thoroughly before the cleaning starts. It is also typical that some excess chemicals are poured down sinks and thus all plumbing should be replaced.
It seems obvious that cleaning costs can be excessive. Would a typical homeowners insurance policy cover this cost? One newspaper article on the Internet stated that most insurance companies would not pay for the clean up as it falls under the pollution and contamination exclusion in their policies. An insurance agent was contacted and his answer was very interesting. If you are a landlord and the tenant had a meth lab, it is considered outside the owners control and the insurance will pay for the remediation. If it is owner occupied, then the owner has committed a felony and there would be no insurance coverage.
About 20 years ago, underground storage tanks were a large problem. Sometimes cities and counties were owners of these contaminated properties for non-payment of taxes. This was corrected and is stated in section 7.5 of the IAAO Standard. “However, provided that the governmental entity has not caused or contributed to the contamination, under CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act of 1980), the term owner or operator does not include a unit of state or local government which acquired ownership or control involuntarily through bankruptcy, tax delinquency, abandonment, or other circumstances in which the government involuntarily acquires title by virtue of its function as a sovereign.” The question then looms, if the city or county gets a property for back taxes and it was a meth lab, could CERCLA funds be used for clean-up?
Alan Dornfest, AAS, has helped for years updating the IAAO Standards and recently updated the IAAO’s workshop 251/252 titled Valuing Property Affected by Environmental Contamination. Alan was asked that question and his response is given below.
“It’s a tough one, but here’s my best take on it. A governmental
entity can qualify as being non-liable under the conditions described. Whether you can get CERCLA funds is a different issue however, since it depends on the imminence of the clean up (Is it being demanded immediately?) and who else might be found to be liable for the clean up (prior owners and possibly others). If the situation is deemed an immediate threat to health and no prior owners or other responsible parties can be found, then the EPA can step in and fund the clean up. Sometimes state or regional health authorities have funding available that may not have as many qualifiers, so you might want to check with these entities as well. In Idaho, much of this is coordinated through a division of state government known as the Division of Environmental Quality (DEQ) and your state probably has something similar.”
THE AFFECT ON VALUE
Does the market reflect a different value for homes that were used as meth labs, remediated and then offered for sale? The perfect test of this would be a home recently purchased, then used as a meth lab, remediated and resold. Lacking this, paired sales can be considered.
Searching for a meth lab house proved to be way to easy! While discussing this project at the dinner table, our teenage daughter said she knew of one. One of her friend’s sister just purchased one.
The sold property is a 1978 Ranch style home with a full basement containing 1,248 square foot of ground floor area and 624 square foot of basement rec room area. Subject has three (3) bedrooms, two (2) bathrooms with central heat and air conditioning. The subject was purchased in May of 2003 for $96,900 after all remediation was completed.
According to the current owner, it really was not used as a meth lab. The seller of the property was allowing one of her sons to live in the house. The purchasers were told the tenant was not making meth in the house, but in his car and parking the car in the attached garage.
That may be the actual situation, but the seller made the following updates before selling: repainted interior, new carpet, new plumbing fixtures and countertops. Although these changes could be considered, as needed updating before placing on the market, all are recommended changes for remediation. Additionally, later data will show there was approximately a 15% discount when compared to comparable sales.
The purchasers of the property had the Shawnee County Health Department conduct an air quality test and found only trace amounts of chemicals that could be attributable to typical household chemicals.
STIGMA
“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. Where contamination problems are not obvious, the stigma is likely to be overstated, and value effects may be minimal.” (IAAO 2001).
Any adjustment for stigma should be recognized in the market place. Information about the subject property and comparable sales were provided by the Shawnee County Appraiser’s Office. Comparisons of the subject to four (4) comparable sales are shown below. Just a casual observation would indicate there is some discounting in the market for the house associated as a meth lab, remediated and then sold. Sales were adjusted for time to a valuation date of January 1, 2004.
Sub S#1 S#2 S#3 S#4
Base sq. ft. 1,248 1,351 1,248 1,024 1,024
Rec room sq. ft. 624 0 474 700 1,000
Total sq. ft. 1,872 1,351 1,722 1,724 2,024
Sale date 5/03 7/03 1/03 6/02 6/03
Sale price 96,900 118,500 110,000 107,500 113,000
Time ASP 99,290 120,700 114,070 113,500 115,540
There is a recognition that rec room value per square foot is not at the same rate as base living area. However, it appears that Sales 1,2 and 3 are equal to or inferior to the subject. Using all the sales to measure stigma, gives the following results.
Subject Comp Sale %Loss
$ 99,290 $ 120,700 18
$ 99,290 $ 114,070 13
$ 99,290 $ 113,500 13
$ 99,290 $ 115,540 14
The comparables would indicate a loss in value due to stigma of approximately 15% even though the house was repainted inside, new carpet, new plumbing fixtures and countertops.
SUMMARY AND CONCLUSIONS
The author is somewhat surprised by the small discounting in the market place. A previous article in the Assessment Journal indicated a mercury spill resulted in a 34% loss in value for stigma (Stuart 2001). An additional article in the Assessment Journal indicated there was a 53% reduction for mold prior to remediation (Johnson, Welcome, Frank 2001). The subject of that article was remediated and the sale indicated a stigma of 47% for the mold (Johnson, Welcome, Frank 2003).
Alan Dornfest, AAS, suggested that there may be less than expected stigma because the buyer felt that any necessary cleanup had been done and was just not sensitive to the intangible of unmeasurable potential risk – stigma. Other buyers may react differently but you can only analyze the behavior in the market.
Information about methamphetamine indicates that it is as dangerous to human health as mercury and mold. The author believes it has not yet been recognized by the public or has not received as much press in relationship to purchasing properties. Perhaps the biggest fear is the lack of disclosure about the previous use and thus the market is not allowed to react.
Any stigma adjustment must be recognized from the market. Based upon this limited data, there appears to be a 15% value loss for the stigma of a home associated as a meth lab, remediated and then offered for sale.
REFERENCES
Dornfest, Alan, AAS. 2003. IAAO Workshop 251/252 – Valuing Property Affected by Environmental Contamination.
Environmental Protection Agency. 2003. Training, 2003 National Site Assessment Symposium, Superfund, US EPA, www.epa.gov/superfund/programs/siteasmt/symp03/training.htm.
International Association of Assessing Officers.
2001. IAAO Standard on the Valuation of Properties Affected by Environmental
Contamination.
Koch Crime Institute. 2004. Cleaning up Former Methamphetamine Labs,
Johnson, Marion, CAE, Welcome, Paul, CAE, Frank, Darla, CAE. 2001.
Case Study: The House of Mold, IAAO Assessment
Journal.
Johnson, Marion, CAE, Welcome, Paul, CAE, Frank, Darla, CAE. 2003.
Case Study: The Mold House Revisited, IAAO
Assessment Journal.
Stuart, Rick, CAE. 2001. Case Study: Mercury
Contamination – Functional or Economic Obsolescence?, IAAO Assessment Journal.