Megans Law - PDF by keara


									                           The Impact of Megan’s Law on Real Estate Values
                                                          By Randall Bell, MAI

A   A variety of tragedies and detrimental
conditions can impact real estate values,
ranging from environmental
contamination, geotechnical problems and
natural disasters, to construction defects
and neighborhood nuisances. While many
                                                 factors are like airport noise or a flood
                                                 zone designation? If properties near a
                                                 convicted child molester's residence can be
                                                 worth less, how should this be addressed
                                                 in the appraisal report? A review of how
                                                 Megan's Law came into existence is a
                                                                                                   The fury grew. The house where the
                                                                                               crime was committed was demolished, and
                                                                                               the city developed a park in its place.
                                                                                               However, the situation affected real estate
                                                                                               beyond the crime scene. New state and
                                                                                               federal laws were passed that
of these conditions can cause millions of        good place to find answers to these           fundamentally altered the issues
dollars in damages, injuries, or loss of life,   questions.                                    surrounding disclosure.
perhaps none is more disturbing than a
                                                                                                   Megan's Law started as a state of New
crime against a child.                           The Background of Megan's Law                 Jersey law and became the model for the
    Individuals in the appraisal industry            On June 30, 1994, seven-year-old          federal law, enacted in 1996. The law
might know about properties that have            Megan Kanka stopped to visit a man who        established that states were to inform the
become crime scenes and realize the                                                            community when an offender was located
                                                 lived diagonally from her family's home in
difficulties in selling these properties. Yet,   Hamilton Township, a suburb of Trenton,       in the area.
an issue that may more directly impact the       NJ. Nobody in the neighborhood was                Furthermore, states would lose certain
typical property owner is the potential of
                                                 aware that the man, Jesse Timmendequas,       federal funding if they did not adopt a
having a former convicted felon as a             was a twice-convicted child molester. Nor     version of Megan's Law. New Jersey,
neighbor. While the thought of living near       were they informed he had served just six     New York and Connecticut were the first
anyone with a criminal record may be
                                                 years of a ten-year sentence for his most     states to comply and adopt their own
unsettling, the reality of living near a         recent crime, and was living with two         federally mandated versions of the law.
convicted child molester is particularly         other convicted child molesters whom he       Criminal-rights activists have challenged
worrisome. Whether such individuals can
                                                 had met in prison.                            the federal and some state laws, however,
ever be rehabilitated is, at the very least,
                                                     Timmendequas talked to Megan in his       these laws have ultimately been declared
controversial. Because of the seemingly
                                                 driveway and then invited her into his        constitutional. There has been a clear
unacceptable rate of repeat offenses, there
                                                                                               trend favoring these types of laws
is a real risk to children living nearby a       house to see his new puppy dog. The
                                                 young girl accepted his invitation and went   throughout the United States and, most
convicted child molester. Houses and
                                                 into the house. Timmendequas                  recently, in England in August 1997.
other properties located near these
offenders' residences may be less                subsequently strangled and sexually
desirable, thereby possibly extending            assaulted the girl, leaving her body in a     Key Issues for Real Estate Appraisers
marketing times and diminishing values.          wooded area three miles from the house.       and Analysts
                                                 When he was eventually arrested,
    Considerable attention has been              Timmendequas confessed to the crime. I n          While Megan Kanka’s tragic death
focused on this subject, largely due to the      court, he was found guilty and sentenced      clearly prompted major new disclosure
relatively new legislation referred to as                                                      laws that impacted real estate, these types
                                                 to death for his crime.
"Megan's Law" This law encourages                                                              of laws actually began with the 1953 case
states to enact legislation requiring                There was considerable public outrage     Reed v. King. This case involved the sale
residential notification when a convicted        after the crime, focused on the fact that     of a house that had been involved in a
child molester lives nearby. Because these       three repeat offenders were allowed to live   1973 multiple murder. The buyer was told
issues can impact property values, it            in a family neighborhood, while the local     by both the selling and buying agent that
prompts many important questions for             residents were not informed of their          the house was ideal for her, and yet they
appraisers: What exactly is Megan's Law?         backgrounds. Megan's mother argued            failed to make any mention of the murders.
How can it impact real estate values?            convincingly to the public that she would     After moving in, the new owner learned
Should this issue be researched and              not have allowed her daughter to stroll       the history of the property from neighbors.
reported as other neighborhood                   through the neighborhood if she had           The buyer filed suit, alleging
                                                 known the criminal history of her three
                                                 neighbors.                                                       continued on page 41

                                                                                                       Third Quarter 1998         | 39
                                                                                                             LEGAL MATTERS

                                                                                                   The federal government has enacted
                                                                                                   legislation, referred to as "Megan's
                                                                                                   Law," that encourages states to dis-
                                                                                                   close to the public the whereabouts of
                                                                                                   convicted child molesters within the
                                                                                                   community. These individuals may be
                                                                                                   transient and therefore the situation
                                                                                                   may change periodically. While the
                                                                                                   appraiser has no knowledge of any
                                                                                                   offenders residing nearby the subject
                                                                                                   property, the scope of this assignment
                                                                                                   did not include any investigation into
                                                                                                   this matter. The client is advised to
                                                                                                   consult with local law enforcement
                                                                                                   officials about this issue. The
                                                                                                   appraiser assumes no responsibility
                                                                                                   for any issues related to Megan's Law.

                                                                                                    The following assumption could also
Megan's Law cont. from p. 39                                                                    be considered, which addresses the entire
that because of the undisclosed stigma, the    neighborhood; however, the enforcement           spectrum of detrimental conditions:
property was worth less than the price         of these laws and who is required to make
paid. The trial court dismissed the case,      such disclosures varies from state to state.        There are a wide variety of detrimen-
but an appeals court ruled that a seller has   Because these issues are still fairly new, it       tal conditions that can impact prop-
an obligation to dis close facts materially    is unclear exactly what all the ramifica-           erty values. These include, but are not
affecting the value of the property when       tions will be for appraisers. It is clear that      limited to: non-market motivations,
the facts are known only to the seller and     perceptions about certain homes and                 future temporary disruptions, stigmas,
not readily available to the buyer.            neighborhoods may be affected. At the               convicted criminals who reside in the
                                               very least, appraisers should be aware of           neighborhood,            neighborhood
    In the late 1980s, Helen Ackley wrote      these issues, and fully disclose in their           nuisances,     future     unannounced
an article published in Reader's Digest        reports specifically what they did and did          surrounding developments, structural
describing how three ghosts had been           not do during the course of their                   and engineering conditions, con-
haunting her home in Nyack, N.Y.               assignment.                                         struction conditions, soils and geot-
However, when Ackley sold the house, she                                                           echnical issues, environmental condi-
did not disclose the "hauntings" to either         As with other assumptions and limiting
                                                                                                   tions and natural conditions. The
her agent or the buyer. A New York             conditions, an appraiser should disclose
                                                                                                   appraiser has inspected the subject
appeals court ruled in 1991 that the buyers    that these laws might impact value and              property on a level that is consistent
had a right to seek repayment of their         indicate whether or not a Megan's Law-
                                                                                                   with the typical responsibilities of the
$32,000 down payment. The agent was            like issue was studied during the course of
                                                                                                   appraisal profession; however, the
not found liable.                              the assignment. If the scope of the                 appraiser does not have the expertise
                                               assignment did not include specific
    Like its precedent, the federal version                                                        of market analysts, soils, structural or
                                               research into the issue of Megan's Law, a
of Megan's Law, coupled with existing                                                              environmental engineers, scientists,
                                               disclaimer may be added to the report,
disclosure laws, may require that home         such as the following:
buyers be informed about the presence of a
sex offender in the
                                                                                                                  continued on page 42

                                                                                                        Third Quarter 1998         | 41
    Megan's Law cont. from p. 41                     diminution in value. If the assignment                price of similar homes not located near an
    specialists, urban planners and                  does include quantifying any diminution in            offender. Care should be taken to consider
    specialists in these various fields.             value, there are numerous factors that                both discounts and extended marketing
    Unless otherwise stated within the               should be considered.                                 periods. In addition, comparisons should
    report, the appraiser assumes no                                                                       only be made using market data from
    responsibilities for the impact that the             Quantifying the effects of stigma
                                                                                                           similar neighborhoods. If a diminution in
    variety of detrimental conditions may            caused by offenders living in an area is
                                                                                                           value actually does exist, it will become
                                                     difficult, particularly when no estimate can
    cause.                                                                                                 apparent and quantifiable in the process.
                                                     be made of the duration of their stay. It is
                                                                                                           As a practical matter, because this
                                                     conceivable that until a molester leaves a
Confronting the Megan's Law Issue                    family neighborhood, it could be very
                                                                                                           information and market data may not
                                                                                                           always be available, it could be derived or
    The practical influences of Megan's              difficult to sell the property. Of course,
                                                                                                           supplemented through carefully scripted
Law have spread throughout the nation.               this does not mean that the property has no
                                                                                                           interviews with brokers and agents who
Alaska now publishes a list of 1,600                 value, but rather that the extended sales
                                                                                                           are familiar with the neighborhood and
paroled sex offenders on the World Wide              time and uncertainties could cause losses
Web. In Connecticut, the police will                 in terms of discounts to entice a buyer, as
release the name, address and photos of              well as carrying and holding costs. Yet,                  Megan's Law encourages states to
paroled offenders to anyone who asks.                when the offender moves, the value could              make public disclosures about the
California provides information on about             immediately rebound back to its normal                identities and whereabouts of convicted
64,000 offenders on CD-ROM at sheriff                market value.                                         child molesters within communities where
and police stations.                                                                                       they live. This law has dramatically and
                                                                                                           universally amplified the significance of
                                                                                                           real estate disclosure issues. Because of
                                                                                                           society's growing awareness of the
   Megan’s Law has dramatically amplified the                                                              problem and the effects it can have on a
                                                                                                           property's desirability, it is clear that
   Significance of real estate disclosure issues                                                           appraisers should address these issues
                                                                                                           within their reports.

    The federal version of Megan's Law                   The ramifications to real estate have               Randall Bell, MAI, is a real estate
declares that states can inform citizens of          been documented throughout the country                  analyst and oversees the real
convicted offenders in one of three ways:            as Megan's Law has been implemented                     estate damages practice of Price
(1) release their name to newspapers, (2)            and some interesting dynamics have                      Waterhouse LLP. He is the
notify schools and child-care centers, or            become evident. When traditional family                 developer of an Appraisal
(3) allow access to lists by request.                                                                        Institute seminar on detrimental
                                                     communities have been notified of an
                                                                                                             conditions and is also the author
    If the appraiser is aware that an                offender living in area, the consequences               of a forthcoming book to be
offender does live nearby the subject                have been predictable. Simply stated,                   published by the Appraisal
property, it can be handled in one of two            local residents in family-oriented                      Institute on this subject. He
ways. First, the appraiser can disclose the          communities have inevitably wanted the                  holds an MBA degree from
issue, plainly alert the reader of the report        offenders to leave. In many cases when                  UCLA.
to the situation within the cover letter, and        the residents organize a protest, the
state that he or she did not measure the             offender does leave the neighborhood.
impact, if any, that the situation would                 To measure any impact of an offender
have on property values. This may be                 living nearby a specific property, a study
considered a limited appraisal and may               must be conducted that is based on market
require the use of the USPAP Departure               data and the attitudes with in the market,
Provision.                                           as of the date of value. Of course, the
    Second, the appraiser can make an                most useful market data would be derived
investigation of the situation, study the            from the actual sales of homes that were
effect that this has had on properties in the        located in proximity
neighborhood, and measure any

1. A more detailed discussion of the effects of detrimental conditions will appear in an article by Randall Bell to be published in the October
1998 issue of The Appraisal Journal.

42 | Valuation Insights & Perspectives

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