Decision Analysis for Utilizing Hazardous Waste Site Assessments in Real Estate Acquisition

When a buyer needs to purchase commercial or industrial property, the decision of what real estate to purchase should be based on an assessment of the total costs of acquisition. In addition to the direct purchase cost, other possible costs include hazardous waste site assessment studies and clean up costs if the purchased site proves to be contaminated. This paper presents a decision analysis model for determining when and which type of hazardous waste assessment tests should be conducted and how the test output affects the choice of site. The model assumes there are two types of hazardous waste assessment, an historical use review (phase 1 test)and soil and water sampling (phase 2 test). Model inputs include the cost, sensitivity and specificity for each type of test, a site's purchase price, and a priori probability of contamination, along with the clean-up cost for a contaminated site. The analysis uses the results of a data survey of 17 environmental engineering firms in setting values on the model input requirements. The paper also reports on sensitivity analysis with the model for the purpose of providing decision-makers with explicit protocols for test utilization.