How to Calculate Stigma Damages That Survive Daubert in Ohio

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Action Item: If you're facing a Daubert motion on stigma damages, this post explains why standard appraisals fail and how a capital markets methodology survives judicial scrutiny.

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Your appraiser handed you a report. It says the property lost $1.2 million in value due to "stigma" from the construction defect. Opposing counsel just filed a Daubert motion arguing the number is based on "professional judgment" rather than replicable methodology.

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You have 21 days to respond. And you're starting to realize your expert brought a butter knife to a gunfight.

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This scenario plays out across Ohio courtrooms constantly. Attorneys retain standard appraisers to calculate stigma damages, then watch those opinions get excluded because the methodology can't survive scrutiny. The problem isn't the appraiser's credentials. The problem is the approach.

Why Standard Appraisals Fail on Stigma

Traditional appraisers calculate stigma using "Paired Sales Analysis."¹ They find two comparable properties (one with stigma, one without), compare the sale prices, and attribute the difference to the defect history.

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The theory is sound. The execution is nearly impossible.

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Here's the reality: finding a statistically valid "paired sale" in litigation is like finding a unicorn. You need two properties that are identical in location, size, condition, and market timing, where the only variable is the stigma factor. That property rarely exists.

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So the appraiser makes "adjustments" based on experience. And that's where the methodology falls apart. When opposing counsel asks, "How did you derive a 15% stigma discount rather than 12% or 18%?" the answer is almost always some version of "professional judgment." In Ohio, that answer is a death sentence.

Ohio's Stigma Guardrails: The Cases You Need to Know

Ohio courts have drawn clear lines around stigma damages. If your expert doesn't understand these guardrails, you're walking into a trap.

1. The "Fear" Barrier (Chance v. BP Chemicals)

In Chance v. BP Chemicals, the Ohio Supreme Court established that the state generally doesn't allow recovery for "fear" of contamination without actual physical damage. You cannot claim damages simply because buyers "might worry" about future problems. The court distinguished between speculative anxiety and quantifiable market impact.

• The Implication: Any stigma methodology that relies on subjective buyer hesitation will get crushed on summary judgment. You need an expert who models market behavior, not emotional response.

2. The Strict Gatekeeper (Miller v. Bike Athletic Co.)

Miller v. Bike Athletic Co. confirmed Ohio as a strict Daubert state. Judges actively gatekeep expert testimony. If your methodology relies on "experience" without replicable data and peer-reviewed sources, it gets excluded.

• The Standard: It is not whether your expert is credentialed. The standard is whether another qualified professional could apply the same methodology and reach the same result.

3. The Coverage Gap (ONU v. Charles Construction)

The Ohio Supreme Court recently ruled in Ohio N. Univ. v. Charles Constr. Servs., Inc. that faulty workmanship isn't an "occurrence" under standard CGL policies. This means insurance money often isn't available for the repairs themselves.

• The Strategy: Attorneys are scrambling to prove consequential damages (like diminution of value) to trigger other coverage or force settlement. You need a stigma number that's big enough to matter and defensible enough to survive.

The Methodology That Survives: Quantifying the Financing Penalty

Here's what I've learned from 20 years of underwriting distressed assets: stigma isn't about feelings. It's about the cost of capital.

When a property has a defect history (repaired contamination, remediated water intrusion, structural repairs), the capital markets don't care whether buyers "feel nervous." They care about risk. And they price that risk with mathematical precision through three mechanisms.

1. The Cap Rate Expansion (The Buyer's Penalty)

Commercial real estate values are driven by a simple formula: Net Operating Income ÷ Cap Rate = Value.

When a property carries residual risk, buyers demand a higher return to compensate. That higher required return means a higher cap rate. And a higher cap rate means a lower value.

• The Methodology: I pull risk premium data from published sources like the PwC Real Estate Investor Survey or RERC Real Estate Report that track required yields for stabilized versus distressed assets. These surveys show the spread typically runs 150 to 400 basis points depending on the risk profile.
• The Math: On a property generating $500,000 in NOI:
  • Value at 6.0% Cap (Clean): $8.3 million
  • Value at 7.5% Cap (Stigmatized): $6.7 million
  • Diminution: $1.6 million

That $1.6 million isn't speculation. It's the market's pricing of risk, derived from published data that any qualified analyst can verify.

2. The Liquidity Penalty (The Time Penalty)

Stigmatized properties don't just sell for less. They take longer to sell. Standard appraisals almost always miss this.

• The Methodology: I analyze absorption data for distressed sales. If a clean property sells in 6 months but a property with defect history takes 18 months, I model the holding costs (taxes, insurance, utilities, maintenance) and the time value of money for that extended period.
• The Math: 12 additional months of holding costs on a $5 million property can easily exceed **$150,000**. Add the present value discount for delayed receipt of sale proceeds, and the liquidity penalty becomes a material component of total damages.

3. The LTV Squeeze (The Lender's Penalty)

Banks hate uncertainty. For a property with a defect history, lenders typically reduce the Loan-to-Value ratio (e.g., from 75% to 60%) or require higher debt service coverage. This forces buyers to bring more equity to the closing table.

• The Methodology: I model the financing constraints that actually exist in the market for the subject property type. If a buyer must contribute 40% equity instead of 25%, their cash-on-cash return drops. To restore their required return, they must pay less for the building.
• The Math: I back-solve the purchase price required to achieve market returns given the constrained financing. The difference between the "full leverage" price and the "constrained leverage" price is the financing penalty.

Why This Methodology Survives Daubert

Three elements make this approach defensible under Ohio's strict evidentiary standards:

1. Replicability: Every adjustment is tied to a published data source. Another expert can pull the same PwC survey, apply the same risk premium, and reach the same result. There's no "black box" of professional judgment.
2. Sensitivity Analysis: I don't produce a single "perfect" number. I provide a range (e.g., "If the risk premium is 100bps, damage is $X. If 200bps, damage is $Y"). This demonstrates analytical rigor rather than advocacy.
3. Causal Mechanism: I explain why the value dropped in terms the court understands. The property isn't worth less because people "dislike" it. It's worth less because the risk profile disqualified it from standard CMBS financing. That's not speculation. That's market mechanics.

The Methodology Check: Appraiser vs. Developer

FeatureStandard AppraiserCapital Markets Analyst (Developer)MethodologyPaired Sales AnalysisYield Capitalization & Risk PremiumsData Source"Adjustments" / ExperiencePublished Data (PwC, RERC, RealtyRates)Key MetricSale Price ComparisonCost of Capital / Return on EquityDaubert RiskHigh (Subjective)Low (Replicable)

Four Questions to Expose a Weak Stigma Opinion

If you're facing an opposing expert's stigma calculation, these questions expose the methodology gaps.

1. The Adjustment Trap

"You applied a 15% discount for stigma. Can you show me the specific mathematical formula or published data source you used to derive 15% versus 12% or 18%? Or is that number based on your professional judgment?"

2. The Liquidity Gap

"Your report assumes a standard 6-month marketing period. Did you model the holding costs and time value of money if this asset takes 18 to 24 months to sell, as distressed assets typically do?"

3. The Lending Reality Check

"Did you interview commercial lenders to determine if this property remains eligible for standard non-recourse financing? If a buyer must contribute 50% equity instead of 25%, doesn't that mathematically lower the price they can pay?"

4. The Blind Spot

"You used 123 Main Street as a stigma comparable. Did you interview the buyer and seller to confirm you have intimate knowledge of every defect or quiet settlement that impacted that price? Or are you relying on public data?"

The "Experience" Paradox: Why Methodology Beats a CV

You might note that my CV highlights development experience over decades of courtroom testimony. This is a feature, not a bug.

Under Daubert, the court does not ask, "How many times have you said this before?" It asks, "Is your methodology reliable and replicable?"

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A capital markets approach backed by published data sources survives that test. An appraiser with 50 trials who relies on "professional judgment" remains vulnerable to exclusion on methodology grounds every single time. Furthermore, experienced litigators understand the tactical advantage of a fresh expert:

• No Impeachment Traps: Opposing counsel cannot pull transcripts from a case five years ago to manufacture inconsistencies.
• Real-World Rigor: While I haven't been cross-examined by opposing counsel, I have been pressure-tested by institutional lenders and equity partners with millions at stake. These counterparties are far more financially motivated to find flaws in my analysis than any attorney.

What Happens Next

If you're evaluating whether this methodology fits your case, here's what to expect.

• Free Case Evaluation: I offer a free call, typically scheduled within the same week. We'll discuss the facts, the damages range, and whether a capital markets approach adds value. Schedule a consultation here.
• Plaintiff & Defense: On the plaintiff side, I provide the math that turns "it feels tainted" into a defensible number. On the defense side, I deconstruct opposing stigma claims, effectively writing your cross-examination questions.

The best time to call is before your current expert gets Dauberted. The second-best time is the day after.

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