Welcome to the
International Right of Way
Association’s
Course 401
Appraisal of Partial
Acquisitions
1
401-PT – Revision 3 – 12.21.07.USA
Introductions
Who we are…
What we do…
Where we do it…
How long we’ve been doing it…
Our goals for the course...
2
Objectives (1)
At the end of the course,
you will have ...
Reviewed the basic principles
and the valuation process
3
Objectives (2)
At the end of the course,
you will be able to ...
Utilize both the Federal
(Before and After) Rule and the
State (Summation) Method
in the valuation of partial
acquisitions.
4
Objectives (3)
At the end of the course,
you will be able to ...
Understand and allocate the partial
acquisition compensation among its
components (i.e., value of the part
taken, damages to the remainder,
benefits to the remainder, cost to cure).
5
Objectives (4)
At the end of the course,
you will be able to ...
Employ various methods to analyze
and quantify the impacts of partial
acquisitions on remainder properties.
Analyze easement acquisitions
and understand better easement
valuation methods.
6
Objectives (5)
At the end of the course,
you will be able to ...
Be better expert witnesses.
7
Controlling Documents
• USPAP
• UASFLA (“The Yellow Book”)
• The Uniform Act
• States
• Professional Organizations
8
Housekeeping
9
Schedule (1)
(Day One)
Review of Principles,
Valuation Process
and Terms
Larger Parcel
10
Introduction to the State Method
and Federal Rule
Schedule (2)
(Day Two)
More on State Method and Federal Rule
Affects on the Remainder Property
Income Capitalization Approach
11
Schedule (3)
(Day Three)
Cost Approach and Cost to Cures
Compensable and Non compensable
Damages
Benefits
12
Schedule (4)
(Day Four)
Easements
(Day Five)
Litigation
Open Forum
13
Value Principles
• Substitution
• Supply and Demand
• Anticipation
• Consistent Use
• Contribution
14
Valuation Process
Appraisal Problem Definition
Scope of Work
Data Collection and Analysis
Land Value Opinion
Three Approaches to Value
Reconciliation and
Final Value Opinion
Defined Value Opinion Report
15
Valuation Process
Appraisal Problem Definition
• Identification of the client, intended use, and users
• Value to be developed
• Date of the value opinion
• Identity and location of the subject property
• Property rights to be valued
• Limiting conditions
16
Valuation Process
Scope of Work
• Degree to which the property is inspected or
identified
• Extent of research into physical and economic
factors
• Extent of data research
• Type and extent of analysis applied to arrive
at opinions or conclusions
17
Valuation Process
Data Collection and Selection
• Market area data
• Comparable property data
• Subject property data
18
Valuation Process
Highest and Best Use
The reasonably probable and legal use that is
physically possible, appropriately supported,
and financially feasible, and that results
in the highest value.
• Physically possible?
• Legally permissible?
• Financially feasible?
• Maximally productive?
19
Valuation Process
Cost Approach
• Develop a value opinion for the land
• Estimate the cost new of the improvement
• Deduct depreciation
• Add land value opinion to the depreciated
improvement value
20
Valuation Process
Sales Comparison Approach
• Research the market for comparable data
• Develop relevant units of comparison
• Compare the sales to the subject and
adjust for dissimilarities
• Reconcile the value indications into
a final value opinion
21
Valuation Process
Income Capitalization Approach
• Estimate the subject’s annual potential gross income
• Determine a vacancy and collection loss
• Subtract the vacancy and collection loss from the
potential gross income
• Estimate annual property expenses and subtract the
expenses from the effective gross income to arrive
at the net operating income
• Develop a capitalization rate
• Convert the net operating income into value
22
Valuation Process
Defined Value Opinion Report
• Self-contained
• Summary
• Restricted-use
23
Valuation Process
Appraisal Problem Definition
Scope of Work
Data Collection and Analysis
Land Value Opinion
Three Approaches to Value
Reconciliation and
Final Value Opinion
Defined Value Opinion Report
24
Terms (1)
• Larger parcel
• Federal (Before and After) Rule
• State (Summation) Method
• Before value
• After value
• Value of the part taken
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Terms (2)
• Value of the part taken,
as part of the whole
• Value of the remainder,
as part of the whole
• Value of the remainder after the
acquisition, disregarding benefits
• Damages
26
Terms (3)
• Benefits
• Cost to cure
• Easement
• Just compensation
27
Larger Parcel
… the tract or tracts of land,
which possess a unity of
ownership and have the same,
or an integrated, highest and best use.
28
Larger Parcel “Tests”
• Unity of title
• Unity of use
• Contiguity or proximity
29
Two Methods
• Federal (Before and After) Rule
• State (Summation) Method
30
State (Summation) Method
Payment is made for the value of
the part taken plus (damages to the
remainder property minus benefits
to the remainder property).
The amount of damages minus
the amount of benefits cannot
be less than zero dollars.
31
Federal (Before and After) Rule
Payment is the difference between
the value before the acquisition
and the value after the acquisition.
Under the Federal Rule, benefits can
offset both the value of the part taken
and the damages to the remainder.
32
33
State (Summation) Method (1)
• Value of the whole, before acquisition
• Value of the part taken, as part of
the whole
• Value of the remainder, as part of
the whole
• Value of the remainder after the
acquisition, disregarding benefits
34
State (Summation) Method (2)
• Damages to remainder
• Value of the remainder after the
acquisition, considering benefits
• Benefits to remainder
• Net damages or net benefits
• Total appraised value
35
Federal (Before and After) Rule
Before value
(minus) After value
(equals) Total appraised value
36
Recap Day One
37
Recap Yesterday
and Look at Today
38
Out of Whack? (1)
39
“…$75,000 home
… and a mere
slice of land
around the corner
…just sold for
$100,000.”
“It causes
consternation…
(w)e got one
appraisal at
$48,000 and one
at $135,000…”
40
Features Affecting Land
• Accessibility
• Access
• Landlocking
• Size and Shape
• Frontage
• Topography
41
Features Affecting
Site Improvements
• Landscaping
• Private utilities
• Utilities
• Municipal services
42
Features Affecting
Building Improvements
• Functional utility
• External obsolescence
43
44
Income Capitalization Approach
• Estimate the subject’s annual potential gross income
• Determine a vacancy and collection loss
• Subtract the vacancy and collection loss from the
potential gross income
• Estimate annual property expenses and subtract the
expenses from the effective gross income to arrive
at the net operating income
• Develop a capitalization rate
• Convert the net operating income into value
45
Reconstructed
Operating Statement
(minus)
(equals)
(minus)
(equals)
46
Potential Gross Income
Vacancy and Collection Loss
Effective Gross Income
Operating Expenses
Net Operating Income
Rates
Ro
Yo
47
48
49
Recap Day Two
50
Recap Yesterday
and Look at Today
51
Cost Approach
• Develop a value opinion for the land
• Estimate the cost new of the improvement
• Deduct depreciation
• Add land value opinion to the depreciated
improvement value
52
Depreciation
A loss in value from any cause.
• Physical deterioration
• Functional obsolescence
• External obsolescence
53
Cost to Cure
…the cost to restore an item
to its pre acquisition state.
54
55
56
Damages
… a loss in value to the remainder
property as a result of a
partial acquisition.
57
Benefits
… an increase in value to the
remainder property as a result
of a partial acquisition.
58
Recap Day Three
59
Recap Yesterday
and Look at Today
60
Easement
… a non possessory interest one
has in the property of another for
a specific purpose.
61
Dominant and Servient Estates
62
Valuation Concepts
• What the owner has lost, not
what the condemnor has gained
• Unit Rule
• Remainders (The 3 “Rs”)
63
Remainders (The “3Rs”) (1)
• Remnant
• Residual
• Remainder
64
Remainders (The “3 Rs”) (2)
1
2
3
65
Remainders (The “3 Rs”) (3)
Remnant
Residual
1
2
3
Remainder
66
Easement
Information Sources
• Easement document
• Statutes and Case law
• Custom and Usage
• Market perceptions
67
Market Perceptions
“Property owners…are
due compensation, even if
the ‘cancerphobia’ driving
down the worth of their
land is unjustified or
irrational…”
68
Valuation Considerations
• Nature of the easement
• Rights taken
• Applicable laws
• Characteristics affecting value
• Easement effects
69
Estates
Dominant estate is the property
benefited by the easement.
Servient estate is the property
burdened by the easement.
70
Easement Categories
• Sub surface easement
• Surface easement
• Overhead easement
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1
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2
73
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4
75
5
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6
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7
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8
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10
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411
82
Temporary Easement
… an easement that is
for a limited duration.
83
Recap Day Four
84
Recap Yesterday
and Look at Today
85
Expert Witness
… is an individual qualified
by knowledge, skill, experience,
training and education to testify
in a legal proceeding.
86
The 3 “Cs”
• Communication skills
• Competence
• Competitiveness
87
Litigation Contexts
• Pre trial conferences
• Discovery
• Trials
88
Valuation Services
89
Discovery
… the techniques and procedures by
which each attorney obtains information
from the opposing party, witnesses and
other parties. Discovery includes
written interrogatories and depositions.
90
Open Forum
91
Objectives (1)
You have ...
Reviewed the basic principles
and the valuation process
92
Objectives (2)
Right now, you are able to ...
Utilize both the Federal
(Before and After) Rule and
the State (Summation)
Method in the valuation
of partial acquisitions.
93
Objectives (3)
Right now, you are able to ...
Understand and allocate the partial
acquisition compensation among its
components (i.e., value of the part taken,
damages to the remainder, benefits to
the remainder, cost to cure).
94
Objectives (4)
Right now, you are able to ...
• Employ various methods to analyze
and quantify the impacts of partial
acquisitions on remainder properties.
• Analyze easement acquisitions and
understand better easement valuation
methods.
95
Objectives (5)
Right now, you should
Be better expert witnesses.
96
Thank you!
97
401-PT – Revision 3 – 12.21.07.USA