UFFI (Urea Formaldehyde Foam Insulation)

The key points for real estate valuation and the effects of UFFI are:

The insulation was banned by the Canadian government in April of 1981. This was following a 1980 lab study, linking UFFI to cancer. Since then, these results have been disputed, but they have become well entrenched in the public mind.

Approximately 80,000 to 100,000 houses in Canada contained UFFI. A large percentage of these homes were insulated as a direct result of government grants, which were paid to homeowner's who insulated or reinsulated their houses.

The ban led to major media coverage of the event, and UFFI became a major issue of government debate and virtually hundreds of newspaper and magazine articles were published, as well as continued coverage on radio and television. Scare headlines were the norm for the period.

Real estate boards across Canada held seminars. As a result, UFFI clauses became an integral part of agreements of purchase and sale.

At the peak of the scare, the Ontario Government, reduced by 35 per cent after an expansive market survey, the assessed values of UFFI houses. This was considered more of a "knee-jerk" reaction and subsequent studies conducted with less time restraints did not support this drastic reduction in taxes. In Ontario, commercial properties, with UFFI, did not have their assessments lowered.

During the boom years of real estate from 1987 until early 1989, the problems associated with UFFI were greatly diminished as buyers were in a frenzy to buy any property, before prices continued to escalate.

At the end of the boom market in 1989, Canada entered into a deep recession. Immediately after the boom ended, real estate started on a recessionary stage. By 1990, it was beyond the recessionary stage. UFFI infested houses were either ignored by the buyers or sold at greatly reduced prices.

When the real estate depression ended, around 1997, buyer activity increased with various Canadian real estate boards reporting record year over year increases. Although prices have continued to increase over the past years and UFFI problems have diminished, they have not disappeared.

Common sense must prevail in the analysis of a UFFI property. A UFFI property is either ignored by a buyer or attracts a bargain hunter. Save for the very rare buyer who does not care about the problem, there was a very restricted market for UFFI properties.

One has to use common sense to review the actions of buyers for a UFFI property. Why should they buy a problem, either real or perceived, when they have so much variety of other properties without major defects?

There are various options for the marketing of UFFI properties:

a) Find a buyer who just doesn't care;
b) lower the price to create a bargain price, where the UFFI factor is deemed a benefit to the purchaser;
c) remove the UFFI

The first issue is to find a buyer who lacks concern about the issue. When we speak of "buyers" within the definition of market value, we perceive a buyer to be well informed, knowledgeable, someone who acts prudently.

The next issue is to lower the price and this is one of the most favoured options. Buyers will act knowingly. They will buy UFFI properties, provided that the emission levels are within acceptable guidelines and if the price is reduced. They have the opportunity to buy the property they want, in the area they want, at a price that they can afford.

The last issue is removal. If UFFI were present in a few areas of a building, and if it would cost $50,000.00 to remove, then $50,000.00 would have been deducted from the estimated market value, plus the cost to carry the property during the removal and other related costs.

$50,000.00 easily becomes $75,000.00, or more. Even when removed, UFFI still must be stated as once having been present and the property still will have a stigma.

It appears that once UFFI has been removed, the stigma factor has diminished each year, since the market peak in 1989. Over the past few years, there appears to be only a minimal stigma factor, after a proper removal. Only a government licensed owner or tradesperson is authorized to remove UFFI.

Another and probably more correct method is to estimate the percentage loss.

Logical questions are,"how does one measure the loss of UFFI and are all UFFI effected properties measured in the same way, in relationship to this percentage loss in value?"

I have conducted extensive research into UFFI properties since 1981 and have been personally involved in more than 1,000 files. Recently a new UFFI issue arose in Ontario with the introduction of Retrofoam, now a class action (I have been retained as an expert) which impacts over 600 Ontario courts.

For residential properties, throughout Ontario, I continually find new data. Whereas Realtors are reluctant to state UFFI in a listing, it is a difficult process to find adequate data, but I am constantly in contact with Realtors to monitor sales activity of UFFI houses.

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