1.12. Special Considerations in Appraisals for Federal Land Exchanges. Federal land exchanges differ from other federal land acquisitions in that an exchange must always be voluntary and the parties must reach agreement on the value of the properties. In direct acquisitions, the government has the authority to force owners to transfer their land by the exercise of its power of eminent domain as long as the government’s use of the land will be for a public purpose and the government pays the owner just compensation for the land. However, the government does not have the authority to force individuals to convey their lands and accept federal lands as compensation. Likewise, the government “is not required to exchange any Federal lands. Land exchanges are discretionary, voluntary real estate transactions between the Federal and non-Federal parties.”95 This does not mean that such transactions are exempt from litigation relating to the valuation of the property involved and/or the adequacy of the appraisal report upon which the transaction was based.96

Most federal land exchanges are accomplished pursuant to the Federal Land Policy and Management Act of 1976 (FLPMA), as amended (43 U.S.C. § 1701 et seq.). There are a number of specific statutes authorizing land trades that may not be entirely consistent with the provisions of FLPMA, as for example, certain National Wildlife Refuge System and National Park System exchange acts; the Alaska Native Claims Settlement Act, as amended (43 U.S.C. § 1621); and the Alaska National Interest Lands Conservation Act (16 U.S.C. 3192). Appraisers must therefore confer with the agency to ensure complete understanding of the appraisal development and appraisal report requirements applicable to the specific appraisal assignment. 

The two agencies most actively involved in federal land exchanges are the U.S. Forest Service and the Bureau of Land Management (BLM). Both the Forest Service and BLM have adopted regulations that implement FLPMA and control their land exchange activities.97 Forest Service and BLM regulations are similar and both require some modifications of these Standards. These regulations define appraisal, highest and best use, and market value,98 and appraisers must use these definitions when conducting appraisals for federal land exchanges. 

Exchanges can be proposed by the Forest Service, BLM, or any person, state, or local government. To assess the feasibility of an exchange proposal, the agency may complete a feasibility analysis of the lands involved in the proposal. Valuation input into the feasibility analysis may or may not include an appraisal, but shall always be prepared by a qualified agency appraiser in compliance with the requirements of USPAP. 99 

If the feasibility analysis does not provide an opinion of value, it may not fall under these Standards but would still be considered part of appraisal practice under USPAP.100 The requirements for classification as a qualified appraiser under these exchange regulations are essentially the same as those for a contract appraiser under 49 C.F.R. § 24.103(d)(2) and these Standards.101 

One of the initial steps in an exchange involving federal lands is the formulation of an Agreement to Initiate an Exchange (ATI).102 This nonbinding agreement outlines the exchange process, identifies the proposed lands or interests in lands to exchange, and memorializes the responsibilities of each party (including the appraisal costs and other costs associated with processing the exchange). The ATI also documents whether the proposed land exchange will be processed as an assembled or non-assembled land exchange. 

A qualified appraiser shall be an individual acceptable to all parties and approved by the authorized officer. The appraiser shall be competent, reputable, impartial, and have training and experience in appraising property similar to the property involved in the appraisal assignment pursuant to these Standards. The appraisal report must reference and be prepared according to the applicable regulations and, to the extent appropriate, these Standards.103 All appraisal reports prepared for federal exchanges are subject to review by federal agency review appraisers.104 Therefore, appraisers conducting appraisals for federal exchange purposes have a professional responsibility to recognize the federal agency as the client and the private landowners as intended users of the appraisal report and to identify them as such in the appraisal report.105 

If any party issues an instruction to the appraiser to make an extraordinary assumption or to employ a hypothetical condition in the conduct of the appraisal that would conflict with the exchange regulations, the ATI, or these Standards, the appraiser must advise the client of the conflict. If the client provides written instructions to the appraiser to make the assumption or employ the condition in conducting the appraisal, the appraiser may make the appraisal but must clearly identify the assumption and/or condition in the appraisal report and also report that the opinion of value has not been prepared in accordance with the exchange regulations, the ATI, and/or these Standards, so as to ensure that the intended users of the report are not misled. 

The major technical difference between appraisals prepared for federal land exchange purposes and those typically prepared under these Standards relates to the appraisal of multiple tracts and the appraiser’s determination of the larger parcel.106 For a non-assembled land exchange appraisal (similar to the typical acquisition appraisal, although the estate to be appraised has been identified in the ATI), the appraiser will apply the tests of unity of ownership, of unity of highest and best use, and of contiguity or proximity as it bears on unity of use in determining the larger parcel. However, for purposes of an assembled exchange appraisal, the tracts to be appraised are defined in the property description contained in the ATI. The nonfederal ownerships being assembled for exchange shall be appraised based on the sum of the value of the separate ownerships in the manner they were acquired and conveyed as individual transactions. 

If an appraiser concludes that the property described in the ATI constitutes two or more separate larger parcels, the method of valuation is generally fact dependent and, in most cases, will be controlled by the provisions of the ATI. In some instances, the appraiser may be instructed to value the different larger parcels as separate entities, while under other circumstances the appraiser may be instructed to value the larger parcels only as they contribute to the whole, as if the property described in the ATI would be sold from one seller to one buyer in one transaction.107 If appraiser instructions are contrary to the appraiser’s highest and best use or larger parcel conclusion, the appraiser must advise the client that it may be necessary to identify the instruction as an extraordinary assumption or hypothetical condition under USPAP. It is important, however, for the appraiser to recognize that the same method of valuation must be utilized for both the federal and nonfederal lands.108 

The regulations provide for special treatment of the larger parcel issue in assembled land exchanges.109 This term is defined differently in Forest Service and BLM regulations110 and, for that reason, assembled land exchanges may be administered differently by these agencies. Again, depending on the provisions of the ATI, the value of the various parcels may be estimated as independent parcels, or as a single tract to be sold in a single transaction. 

When appraising the federal land portion of the exchange, the regulations require that the appraiser “estimate the value of the lands and interests as if in private ownership and available for sale in the open market.”111 This is an assignment condition that requires a legal instruction and creates a hypothetical condition. Because the federal land is appraised as if in private ownership, to its highest and best use, any other surrounding federal land cannot be part of a larger parcel because (due to the hypothetical condition) it is under different ownership and has a different highest and best use. 

Because of the complexity of appraising multiple tracts of land for exchange purposes and the fact that their treatment is often fact specific, it is essential that agencies provide clear written instructions to the appraiser in this regard and that the appraiser insist upon such instructions at the initiation of the appraisal assignment.

95 36 C.F.R. § 254.3(a). See also 43 C.F.R. § 2200.0-6(a).
96 See, e.g., Desert Citizens Against Pollution v. Bisson, 231 F.3d 1172 (9th Cir. 2000).

97 Forest Service regulations may be found in 36 C.F.R. § 254 et seq., and BLM regulations may be found in 43 C.F.R. § 2200 et seq.
98 36 C.F.R. § 254.2; 43 C.F.R. § 2200.0-5.
99 43 C.F.R. § 2201.1(b); see also 36 C.F.R. § 254.4(b).
100 If the feasibility analysis provides a value opinion, it would fall under these Standards and must comply with USPAP’s Standard 1 and Standard 2.
101 See 36 C.F.R § 254.9(a)(2); 43 C.F.R. § 2201.3-1(b).
102 43 C.F.R. § 2201.1; 36 C.F.R. § 254.4.
103 36 C.F.R. § 254.9; 43 C.F.R. § 2201.3.

104 36 C.F.R. § 254.9(d); 43 C.F.R. § 2201.3-4.
105 USPAP, Standards Rule 2-2(a)(i) and 2-2(b)(i), 23, 25.
106 For discussion of the larger parcel, see Sections 1.4.6 and 4.3.3.
107 In other words, the value of the whole property cannot be estimated by simply adding together the independently appraised values of the larger parcels, unless market evidence demonstrates that the larger parcels would contribute their full value to the value of the whole property as defined in the ATI.
108 36 C.F.R. § 254.9(b)(v); 43 C.F.R. § 2201.3-2(a)(5).
109 36 C.F.R. § 254.5; 43 C.F.R. § 2201.1-1.
110 An “[a]ssembled land exchange means an exchange of Federal land for a package of multiple ownership parcels of non-Federal land consolidated for purposes of one land exchange transaction.” 36 C.F.R. § 254.2; An “[a]ssembled land exchange means the consolidation of multiple parcels of Federal and/or non-Federal lands for purposes of one or more exchange transactions over a period of time.” 43 C.F.R. § 2200.0-5(f).
111 43 C.F.R. § 2201.3-2(2); 36 C.F.R. § 254.9(b)(ii).