Office of Cerro Grande Fire Claims
CERRO GRANDE FIRE ASSISTANCE ACT
POLICY ON THE DECLINE OF RESIDENTIAL REAL PROPERTY VALUES
(April 2, 2001)
1. Final Rule
Section 295.21(e) of the Final Regulations implementing the Cerro
Grande Fire Assistance Act (CGFAA) provides that compensatory damages
may be awarded for reduction in the value of real property that
was owned prior to the Cerro Grande Fire (Fire) if:
(1) The claimant sells the real property in a good faith, arms
length, transaction that is closed no later than August 28, 2002
and realizes a loss relative to the value that would have been
obtained in the absence of the Fire (realized loss);
(2) The claimant can establish that the value of the real property
was permanently diminished as a result of the Fire despite the
fact that the real property was not sold
PricewaterhouseCoopers Analysis of the Los Alamos Post-Fire Residential
Real Estate Market The Office of Cerro Grande Fire Claims (OCGFC)
retained PricewaterhouseCoopers (PwC) to determine if the Fire had
reduced residential real estate market values in Los Alamos County.
PwC issued a preliminary report, which the OCGFC released to the
public on February 5, 2001.
Public comments were received through:
1) a public forum on February 7, 2001; and
2) electronic mail from February 5 - 15, 2001.
Based on this feedback, PwC revised its preliminary report, taking
into account additional data, and using additional statistical methodologies.
These methodologies included an analysis of pre-Fire and post-Fire
prices based on pre-Fire price trends in Los Alamos County and on
price trends in comparable communities.
PwCs findings were issued in its March 28, 2001 final report.
In computing changes in housing prices in Los Alamos County, PwC
used data for residential sales occurring from January 1, 1996 to
January 31, 2001. Based on those computations, PwC found:
· There was a post-Fire decline in the average value of
single-family houses in Los Alamos County between 3% and 11% (average
decline). While the average decline in value for all single-family
houses sold in Los Alamos County between May 2000 and January
31, 2001 is in this range, specific houses might have experienced
higher or lower rates of diminution
outside of this range.
· Except for the Eastern area, diminution in property values
did not appear to be statistically significant for duplexes, quads,
or other non-single-family units. However, as in the case of single-family
homes, particular units could have experienced diminution.
The March 28, 2001 Final Report is available in the Los Alamos and
White Rock Cerro Grande Customer Service Centers and is available
on the internet at www.fema.gov/cerrogrande.
The OCGFC will handle diminution claims caused by the Cerro Grande
Fire in Los Alamos County for both realized and unrealized losses
on a case-by-case basis as follows:
1. Realized Losses
Compensatory damages will be awarded to a Claimant for diminution
in the value of real property, if:
1. the decline in property value is due to the Cerro Grande Fire,
2. the Claimant owned the property prior to the Fire,
3. the property was sold in a good faith, arms length transaction
that was entered into after May 3, 2000 and is closed no later
than August 28, 2002. In adhering to this rule while attempting
to exert the least amount of influence on the real estate market,
the OCGFC will determine the diminution value through a two-part
equation which calculates first a but-for-Fire value
and then subtracts the actual sales price to arrive at the diminution
amount. The equation is:
a) (pre-Fire value) x (growth index) = but-for-Fire value
b) (but-for-Fire value) (sales price) = realized diminution
In order to arrive at a pre-Fire value of the property (the value
of the property as of May 3, 2000), the OCGFC will request and
compensate claimants for the reasonable cost to obtain a pre-Fire
appraisal of the property in question. In order to ensure consistency,
accuracy, and fairness to all claimants, the OCGFC will develop
guidelines as to what additional information is required in the
pre-Fire appraisal. These guidelines will be provided to each
claimant by the claims reviewer prior to requesting the appraisal.
In order to calculate the diminution value of the property, the
Claims Reviewer will need to adjust the pre-Fire value to the
calculated value that the property would have been at the time
of the sale, if the Fire had not occurred (this is the but-for-Fire
value). This will be
accomplished by using a model specifically developed to reflect
price trends as analyzed by PwC.
The diminution value will be determined by subtracting the sales
price from the but-for-Fire value. If the diminution value is
outside of the average decline as identified in the PwC analysis,
the Claims Reviewer may use other resources to confirm, substantiate,
and/or determine the diminution value.
NOTE: Because diminution claims have only been received from Los
Alamos County, the OCGFC believes that only the Los Alamos County
real estate market suffered a diminution in property values. However,
any claimant who feels that he/she has a diminution claim as a
result of the Cerro Grande Fire may file a Notice of Loss and
substantiate the claim. The OCGFC will decide the claim and fix
compensation, if any, based upon supporting documentation provided
by the Claimant.
The OCGFC intends to
request subsequent analyses of the Los Alamos County residential
real estate market until the real estate market returns to price
levels that would have prevailed in the absence of the Fire, or
up through the second quarter of 2002, whichever is sooner. This
will assure that future developments in the local real estate market
are understood and properly incorporated in the OCGFC policy.
2. Unrealized Losses
In order to determine if a claimants residential real property
suffered a permanent decline in property values, even though the
claimant does not plan to sell his or her property in the near future
(unrealized loss), the OCGFC plans to conduct another follow-up
analysis of the residential real estate market in Los Alamos County,
which will be released in the second quarter of 2002. The OCGFC
will entertain such claims at that time.
If the findings of this follow-up analysis indicate that properties
continue to reflect a decline in the market value due to the Fire,
the OCGFC will compensate those claimants for whom an ongoing, permanent
but unrealized loss in residential real estates values, can be substantiated
at that time. Those claimants will be allowed to either file a first
time Notice of Loss, or reopen a Notice of Loss as set forth in
Section 295.34(d) of the Final Rule to claim such damages. However,
nothing in the policy should be construed as prejudging whether
any specific claim for unrealized loss in real property value (diminution)
will be paid. Claims are decided on a case-by-case basis by authorized
officials who determine and fix compensation, if any.
Special note to claimants whose properties were physically
damaged by the Cerro
To safeguard against double recovery, claims reviewers will take
into account compensation claimants may have received or will receive
under the CGFAA and/or from insurance recoveries to repair/replace
structures and restore land damaged by the Fire. Claims reviewers
will review with claimants how these values will be factored into
diminution claims for both realized and unrealized losses.