401-PT – Revision 3 – 12.21.07.USA

1

Welcome to the International Right of Way

Association’s Course 401

Appraisal of Partial Acquisitions

401-PT – Revision 3 – 12.21.07.USA

2

IntroductionsWho 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 acquisitions

and 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

9

Housekeeping

10

Schedule (1)

(Day One)

Review of Principles, Valuation Process

and Terms

Larger Parcel

Introduction to the State Methodand Federal Rule

11

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 ProcessAppraisal 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

16

Valuation ProcessAppraisal 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 ProcessScope 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

18

Valuation Process

Data Collection and Selection

• Market area data

• Comparable property data

• Subject property data

19

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?

20

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

21

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 ProcessDefined Value Opinion Report

• Self-contained

• Summary

• Restricted-use

24

Valuation ProcessAppraisal 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

25

Terms (1)

• Larger parcel• Federal (Before and After) Rule• State (Summation) Method• Before value• After value• Value of the part taken

26

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

27

Terms (3)

• Benefits• Cost to cure• Easement• Just compensation

28

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.

29

Larger Parcel “Tests”

• Unity of title• Unity of use• Contiguity or proximity

30

Two Methods

• Federal (Before and After) Rule • State (Summation) Method

31

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.

32

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.

33

34

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

35

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

37

Recap Day One

38

Recap Yesterday and Look at Today

39

Out of Whack? (1)

40

“…$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…”

41

Features Affecting Land

• Accessibility• Access• Landlocking• Size and Shape• Frontage• Topography

42

Features Affecting Site Improvements

• Landscaping• Private utilities• Utilities• Municipal services

43

Features Affecting Building Improvements

• Functional utility

• External obsolescence

44

45

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

47

Rates

Ro Yo

48

49

50

Recap Day Two

51

Recap Yesterday and Look at Today

52

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

53

Depreciation A loss in value from any cause.

• Physical deterioration• Functional obsolescence• External obsolescence

54

Cost to Cure

…the cost to restore an itemto its pre acquisition state.

55

56

57

Damages

… a loss in value to the remainder property as a result of a

partial acquisition.

58

Benefits

… an increase in value to the remainder property as a result

of a partial acquisition.

59

Recap Day Three

60

Recap Yesterday and Look at Today

61

Easement

… a non possessory interest onehas in the property of another for

a specific purpose.

62

Dominant and Servient Estates

63

Valuation Concepts

• What the owner has lost, not what the condemnor has gained

• Unit Rule

• Remainders (The 3 “Rs”)

64

Remainders (The “3Rs”) (1)

• Remnant• Residual• Remainder

65

Remainders (The “3 Rs”) (2)

Easement1

2

3

66

Remainders (The “3 Rs”) (3)

EasementRemnant Residual

Remainder

1

23

67

Easement Information Sources

• Easement document• Statutes and Case law• Custom and Usage• Market perceptions

68

Market Perceptions

“Property owners…are due compensation, even if the ‘cancerphobia’ driving down the worth of their land is unjustified or irrational…”

69

Valuation Considerations

• Nature of the easement• Rights taken• Applicable laws• Characteristics affecting value• Easement effects

70

Estates

Dominant estate is the propertybenefited by the easement.

Servient estate is the propertyburdened by the easement.

71

Easement Categories

• Sub surface easement• Surface easement• Overhead easement

72

1

73

2

74

93

75

4

76

5

77

6

78

7

79

8

80

9

81

10

82

411

83

Temporary Easement

… an easement that isfor a limited duration.

84

Recap Day Four

85

Recap Yesterday and Look at Today

86

Expert Witness

… is an individual qualifiedby knowledge, skill, experience, training and education to testify

in a legal proceeding.

87

The 3 “Cs”

• Communication skills• Competence• Competitiveness

88

Litigation Contexts

• Pre trial conferences• Discovery• Trials

89

Valuation Services

90

Discovery

… the techniques and procedures bywhich each attorney obtains informationfrom the opposing party, witnesses and

other parties. Discovery includes written interrogatories and depositions.

91

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