December 15, 2014 Articles

Dodging Daubert: Expert Opinions in Property Value Diminution

In recent cases, real estate damages experts’ PVD opinions have failed to pass muster.

By Paul Smith and Trevor Phillips

Introduction
Over the past 20 years, the real property valuation profession has reached a consensus regarding the appropriate framework and analytical methodologies for evaluating the potential effect of environmental contamination on the market value of real property (The Appraisal Standards Board's Advisory Opinion 9, The Appraisal of Real Property That May Be Impacted by Environmental Contamination; the Appraisal Institute's Guide Note 6, Consideration of Hazardous Substances in the Appraisal Process; the Appraisal Institute's The Appraisal of Real Estate (14th Edition); the Appraisal Institute's The Dictionary of Real Estate Appraisal (Fifth Edition); the Appraisal Institute's Seminar, Analyzing the Effects of Environmental Contamination on Real Property (2010); and, since the early 1990s, numerous articles in the professional literature (e.g., The Appraisal Journal) with more recent articles referencing Advisory Opinion 9).

Coincidentally, also during the last 20 years, through Daubert, et al. v. Merrell Dow Pharmaceuticals, Inc. (1993), the courts have established a more robust gatekeeping process to shield triers of fact and litigants from unreliable expert opinions and testimony. As a measure of damage, property value diminution (PVD) is a market value question and, as such, credible expert opinions and testimony should follow generally accepted methodologies. Expert witnesses who fail to follow, or who misuse professionally accepted methodologies, may have their testimony rejected by the courts. Should the trial court's application of Daubert or state court equivalents fail to provide a sufficiently fine screening mechanism, then the higher courts must be relied on for their further review and, if necessary, to institute any remedial measures they deem necessary. In several recent cases, real estate damages experts' PVD opinions have failed to pass muster with trial courts, courts of appeals, and at least one state supreme court.

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