1 Welcome to the International Right of Way Association’s Course 401 Appraisal of Partial Acquisitions 401-PT – Revision 3 – 12.21.07.USA
Dec 24, 2015
1
Welcome to the International Right of Way
Association’s
Course 401Appraisal of Partial
Acquisitions
401-PT – Revision 3 – 12.21.07.USA
2
Introductions
Who we are…What we do…
Where we do it…
How long we’ve been doing it…
Our goals for the course...
3
Objectives (1)
At the end of the course,you will have ...
Reviewed the basic principlesand the valuation process
4
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.
5
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).
6
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 acquisitionsand understand better easement
valuation methods.
7
Objectives (5)
At the end of the course,you will be able to ...
Be better expert witnesses.
8
Controlling Documents
• USPAP• UASFLA (“The Yellow Book”)• The Uniform Act
• States• Professional Organizations
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Housekeeping
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Schedule (1)
(Day One)
Review of Principles, Valuation Process
and Terms
Larger Parcel
Introduction to the State Methodand Federal Rule
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Schedule (2)
(Day Two) More on State Method and Federal Rule
Affects on the Remainder Property
Income Capitalization Approach
12
Schedule (3)
(Day Three)
Cost Approach and Cost to Cures
Compensable and Non compensable Damages
Benefits
13
Schedule (4)
(Day Four)
Easements
(Day Five)
Litigation
Open Forum
14
Value Principles
• Substitution• Supply and Demand• Anticipation• Consistent Use• Contribution
15
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
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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
17
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
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Valuation Process
Data Collection and Selection
• Market area data
• Comparable property data
• Subject property data
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Valuation ProcessHighest 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?
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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
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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 intoa final value opinion
22
Valuation ProcessIncome 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 arriveat the net operating income
• Develop a capitalization rate
• Convert the net operating income into value
23
Valuation Process
Defined Value Opinion Report
• Self-contained
• Summary
• Restricted-use
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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
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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
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Terms (3)
• Benefits• Cost to cure• Easement• Just compensation
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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.
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Larger Parcel “Tests”
• Unity of title• Unity of use• Contiguity or proximity
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Two Methods
• Federal (Before and After) Rule • State (Summation) Method
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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.
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Federal (Before and After) Rule
Payment is the difference betweenthe value before the acquisition
and the value after the acquisition. Under the Federal Rule, benefits can
offset both the value of the part takenand the damages to the remainder.
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State (Summation) Method (1)
• Value of the whole, before acquisition
• Value of the part taken, as part ofthe whole
• Value of the remainder, as part ofthe whole
• Value of the remainder after the acquisition, disregarding benefits
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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
36
Federal (Before and After) Rule
Before value(minus) After value(equals) Total appraised value
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Recap Day One
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Recap Yesterday and Look at Today
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Out of Whack? (1)
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“…$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…”
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Features Affecting Land
• Accessibility• Access• Landlocking• Size and Shape• Frontage• Topography
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Features Affecting Site Improvements
• Landscaping
• Private utilities
• Utilities
• Municipal services
43
Features Affecting Building Improvements
• Functional utility
• External obsolescence
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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 arriveat the net operating income
• Develop a capitalization rate
• Convert the net operating income into value
46
ReconstructedOperating Statement
Potential Gross Income(minus) Vacancy and Collection Loss(equals) Effective Gross Income(minus) Operating Expenses(equals) Net Operating Income
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Rates
Ro Yo
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Recap Day Two
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Recap Yesterday and Look at Today
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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
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Depreciation A loss in value from any cause.
• Physical deterioration• Functional obsolescence• External obsolescence
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Cost to Cure
…the cost to restore an itemto its pre acquisition state.
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Damages
… a loss in value to the remainder property as a result of a
partial acquisition.
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Benefits
… an increase in value to the remainder property as a result
of a partial acquisition.
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Recap Day Three
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Recap Yesterday and Look at Today
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Easement
… a non possessory interest onehas in the property of another for
a specific purpose.
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Dominant and Servient Estates
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Valuation Concepts
• What the owner has lost, not what the condemnor has gained
• Unit Rule
• Remainders (The 3 “Rs”)
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Remainders (The “3Rs”) (1)
• Remnant
• Residual
• Remainder
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Remainders (The “3 Rs”) (2)
Easement1
2
3
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Remainders (The “3 Rs”) (3)
EasementRemnant Residual
Remainder
1
23
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Easement Information Sources
• Easement document• Statutes and Case law• Custom and Usage• Market perceptions
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Market Perceptions
“Property owners…are due compensation, even if the ‘cancerphobia’ driving down the worth of their land is unjustified or irrational…”
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Valuation Considerations
• Nature of the easement• Rights taken• Applicable laws• Characteristics affecting value• Easement effects
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Estates
Dominant estate is the propertybenefited by the easement.
Servient estate is the propertyburdened by the easement.
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Easement Categories
• Sub surface easement
• Surface easement
• Overhead easement
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1
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2
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93
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4
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5
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6
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7
79
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80
9
81
10
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411
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Temporary Easement
… an easement that isfor a limited duration.
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Recap Day Four
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Recap Yesterday and Look at Today
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Expert Witness
… is an individual qualifiedby knowledge, skill, experience, training and education to testify
in a legal proceeding.
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The 3 “Cs”
• Communication skills• Competence• Competitiveness
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Litigation Contexts
• Pre trial conferences• Discovery• Trials
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Valuation Services
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Discovery
… the techniques and procedures bywhich each attorney obtains informationfrom the opposing party, witnesses and
other parties. Discovery includes written interrogatories and depositions.
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Open Forum
92
Objectives (1)
You have ...
Reviewed the basic principlesand the valuation process
93
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.
94
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).
95
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.
96
Objectives (5)
Right now, you should
Be better expert witnesses.
97
Thank you!
401-PT – Revision 3 – 12.21.07.USA