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Debundling Property Rights for Contaminated Properties: Valuing the Opportunity Cost of the Right to Sell, Using Cumulative Options

Author

Listed:
  • Robert A. Simons

    (Ph.D, Levin College of Urban Affairs, Cleveland State University, Cleveland, Ohio 44122, R.simons@csuhio.edu, Tel: (216) 687 5259, Fax: (216) 687 9342.)

  • Ron Throupe

    (Ph.D., MRICS, Franklin L. Burns School of Real Estate & Const. Mgmt, Daniels College of Business, University of Denver, Denver CO 80208, rthroupe@du.edu, Tel: (303) 871-4738, Fax (303) 871-2971.)

Abstract

This paper examines the loss of control of the ability to time the sale or develop property as an intrinsic benefit of the bundle of ownership rights. This right, proxied by the real option to control property, can be hindered by the existence of contamination. An empirical analysis of a contaminated site is used to illustrate the cumulative effect of this sell option and a measurement of financial loss. The results of a survey are used to determine the likely value of the real estate option and its effect on the subject property as part of the overall value. The results suggest a value for the sell (call) option which is dependent on the time before expiration. For the case study and ten year time period used in this research, 27% to 40% of the property value is estimated as the value of the loss in ability to sell.

Suggested Citation

  • Robert A. Simons & Ron Throupe, 2012. "Debundling Property Rights for Contaminated Properties: Valuing the Opportunity Cost of the Right to Sell, Using Cumulative Options," International Real Estate Review, Asian Real Estate Society, vol. 15(2), pages 231-252.
  • Handle: RePEc:ire:issued:v:15:n:02:2012:p:231-252
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    References listed on IDEAS

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    More about this item

    Keywords

    Bundle of Rights; Hazardous Materials; Option Pricing; Optimal Timing; Option to Sell; Trespass;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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