Despite the relative sophistication of both Buyers and Sellers in environmentally impaired real estate transactions, there is almost always a gap in awareness of how the other side approaches valuing the liability in the transaction. Respectively, each party perceives the other as seeking unreasonable economic terms when, in fact, there are legitimate reasons for differing valuations. Three common reasons for this are briefly described below:
Buyers usually will attribute a "fair market value" for the cost of the environmental liability while sellers often use values based on how they were accounted for on their financial statements.
Buyers must place a "risk premium" on top of the cost of environmental liability assumed in a transaction which can be substantial based on the complexity and uncertainty of addressing these liabilities.
Buyers commonly estimate liabilities using actual/present dollar estimates where sellers are prone to calculating the net present value (NPV) over a longer period of time.
