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Welcome to the International Right of Way Association’s Course 401 Appraisal of Partial Acquisitions. 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.
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Welcome to theInternational Right of Way Association’sCourse 401Appraisal of Partial Acquisitions 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...
Objectives (1)At the end of the course,you will have ...Reviewed the basic principlesand the valuation process
Objectives (2)At the end of the course,you will be able to ...Utilize both the Federal(Before and After) Rule and theState (Summation) Method in the valuation of partial acquisitions.
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).
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.
Objectives (5)At the end of the course,you will be able to ...Be better expert witnesses.
Controlling Documents • • USPAP • • UASFLA (“The Yellow Book”) • • The Uniform Act • • States • • Professional Organizations
Schedule (1)(Day One)Review of Principles, Valuation Process and TermsLarger ParcelIntroduction to the State Methodand Federal Rule
Schedule (2)(Day Two) More on State Method and Federal Rule Affects on the Remainder Property Income Capitalization Approach
Schedule (3)(Day Three)Cost Approach and Cost to CuresCompensable and Non compensable DamagesBenefits
Schedule (4)(Day Four) Easements(Day Five)LitigationOpen Forum
Value Principles • Substitution • Supply and Demand • Anticipation • Consistent Use • Contribution
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
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
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
Valuation Process Data Collection and Selection • Market area data • Comparable property data • Subject property data
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?
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
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
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 arriveat the net operating income • Develop a capitalization rate • Convert the net operating income into value
Valuation Process • Defined Value Opinion Report • • Self-contained • • Summary • • Restricted-use
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
Terms(1) • Larger parcel • Federal (Before and After) Rule • State (Summation) Method • Before value • After value • Value of the part taken
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
Terms(3) • Benefits • Cost to cure • Easement • Just compensation
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.
Larger Parcel “Tests” • • Unity of title • • Unity of use • • Contiguity or proximity
Two Methods • Federal (Before and After) Rule • State (Summation) Method
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.
Federal (Before and After) RulePayment 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.
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
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
Federal (Before and After) Rule Before value (minus) After value (equals) Total appraised value
“…$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…”
Features Affecting Land • Accessibility • Access • Landlocking • Size and Shape • Frontage • Topography
Features Affecting Site Improvements • Landscaping • Private utilities • Utilities • Municipal services
Features Affecting Building Improvements • Functional utility • External obsolescence
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
ReconstructedOperating Statement Potential Gross Income (minus) Vacancy and Collection Loss (equals) Effective Gross Income (minus) Operating Expenses (equals) Net Operating Income
Rates Ro Yo