UP Standards

1.10.4. Special Considerations for Forested Properties. In developing an appraisal of forested properties, the appraiser must determine whether any merchantable timber is located on the property and whether the tree products located on the property are marketable and saleable. There must be sufficient volumes for profitable harvesting under existing state forest practice rules (or other applicable jurisdiction if appropriate). Merchantable timber may contribute value to the property. Pre-merchantable timber may or may not contribute value to the property and in some cases is included in the land value.  A critical part of the valuation of forested property is a timber cruise. A cruise plan should be developed that establishes the cruise procedures to be used in accordance with current market…

1.10.3. Special Considerations for Minerals Properties. Property Rights and Interests. It is fundamental that the property rights and interests in minerals properties are identified as part of the problem identification process. The client agency must identify the property rights and interests that are to be acquired and valued. A comprehensive understanding of the rights and interests to be appraised is critical to the proper development of both the sales comparison and income capitalization approaches to value.  In the oil and gas industry there is a distinction between the working interest and the royalty interest. For example, in a federal lease sale the successful bidder acquires a working interest through payment of a bonus bid while the United States retains the…

1.10.2. Highest and Best Use Considerations. Highest and best use analysis is a critical element in the development of a reliable appraisal of property containing valuable natural resources. As a first step, a market analysis should be performed to identify the market supply and demand for the resource located on the property. If no market exists for the resource, then the quantity and quality of the commodity need not be determined. The market analysis provides the foundation for the appraiser’s conclusions regarding the marketability, price, and competition for the commodity found on the property.  If a market exists for a mineral or other resource, then a supported determination must be made concerning both the legal permissibility of extracting the mineral…

1.10.1. The Unit Rule. In the development of an appraisal concerning properties containing resource assets, it is particularly important to understand the unit rule.78 Property must be valued as a whole for federal acquisition purposes, with due consideration of all of the components that make up its value. Its constituent parts are considered only in light of how they enhance or diminish the value of the whole, with care being exercised to avoid so-called cumulative or summation appraisals.79  Accordingly, it is improper to estimate the value of the surface of the property, add to it a valuation of the minerals or other resource such as water or timber (as estimated by a separate expert), and thereby conclude an opinion of…

1.10. Acquisitions Involving Natural Resources. The appraisal of properties containing valuable natural resources such as minerals, timber, and water is a complex subject requiring specialized training and experience (see USPAP Competency Rule). A critical first step in developing an appraisal of properties containing resource assets is identifying the property rights to be acquired and the ownership interests into which they may be divided. The appraiser and the client agency must work together to obtain title information and legal descriptions to ensure that the appraisal properly addresses these components and their contribution to the value of the larger parcel.  While the valuation of these diverse resource assets requires different considerations, there are common elements that apply in all appraisals of these…

1.9.2. Temporary Inverse Takings. Temporary acquisitions by inverse condemnation may be by either a physical invasion of the property by the government (or an agent of the government)73 or by regulation.74 The measure of value in a temporary inverse case is the same as in the acquisition of a TCE, that is, the rental value of the land taken for the term of the taking. The substitution of a return on the fee value of the land for an opinion of the rental value of the land is not generally an accepted alternative.75  What generally makes temporary acquisitions by inverse condemnation uniquely different from the acquisition of a TCE is the amount of indicated compensation. An inverse condemnation acquisition usually…

1.9.1. Temporary Construction Easements (TCEs). A temporary construction easement (TCE) is generally acquired in conjunction with a permanent acquisition and often abuts the boundaries of the permanent acquisition. The permanent acquisition area is used for permanent placement of the public improvement, whereas the TCE is used in addition to the permanent acquisition area for initial construction of the public improvement. After initial construction of the public improvement is completed, the construction easement expires and the unencumbered fee interest in the land reverts back to the owner. Similar to TCEs but shorter in nature is an easement for a right of entry onto the land for purposes of surveying, inspection, and/or testing for contamination. These rights of entry are generally very…

1.9. Temporary Acquisitions. In addition to leasehold acquisitions, there are generally two situations in which the acquisition by the government may be temporary: temporary construction easements (TCEs), and temporary acquisitions by inverse condemnations. TCEs and temporary inverse condemnation acquisitions will be discussed separately below because of their uniquely different characteristics.

1.8.3. Larger Parcel Concerns. There are occasions when the government acquires the leasehold interest in only a portion of a larger property. In those instances, the appraiser must consider the possibility of damages to the remainder property (i.e., that portion not to be occupied by the government). In those instances where severance damages may be significant, appraisers should consult with their client agency and/or its legal counsel before proceeding with the appraisal assignment to ensure that the appraisal will be prepared in accordance with current applicable law.

1.8.2. Leasehold Estate Acquired. It is critical that the client agency provide the appraiser with a description of the leasehold estate it plans to acquire. In turn, the appraiser must fully understand the estate to be appraised and the impact on the market value of the property.  It is important for the appraiser to recognize the characteristics of the rental or income streams being evaluated. Most often rent is paid periodically (e.g., monthly) in advance. However, when the government acquires a leasehold interest or right of use and occupancy in a property, it will usually pay rent in a manner that is inconsistent with the market. If the leasehold interest is acquired by condemnation, all of the rent due for…