As long as no environmental issues are identified for a given property, the issue of environmental liabilities becomes somewhat of a non-issue for most Buyers or Investors. However, from time-to-time, investments may be made on properties which have had problems in the past or may have current known or potential contamination issues. Aside from the landowner liability protections (LLP) which may be available to both Lenders and prospective Buyers, it may be important to understand how these issues could impact the value of the property. This is especially important information in comparing the purchase price to appraised property value. Most appraisals will not address the impacts of environmental issues on property value.
Often Buyers need to determine these values early in the evaluation process. It is also important to understand if these issues have been (or will be) incorporated into the negotiated purchase price for the property. Sometimes this requires a little “crystal ball” work –as the amount of information to work with at this phase of the assessment is fairly small.
Quantitative Environmental Liability Assessment (QELA) is one tool available to Investors and prospective Buyers to develop a better understanding of the potential financial implications of environmental issues at a property. This financial modeling process uses the available data to set some bounds on the costs that may be incurred over time. This technique is an iterative process –as new or better information becomes available, the cost projections are updated.