UP Standards

4.4.2.4.2. Transactions with Potential Nonmarket Motivations.Not all property transactions can be used as potential comparable sales in valuations for federal acquisitions. While few types of transactions are categorically excluded from consideration under modern jurisprudence,473 as a matter of law several types of sales can be considered only under certain circumstances or for limited purposes. Accordingly, careful verification and analysis of each sale is required to ensure the appraiser’s opinion of value does not reflect any legally improper considerations.474 Transactions that involve potential nonmarket motivations include: (1) forced sales, (2) distress sales, (3) settlement negotiations, (4) sales between related parties or entities, (5) sales to government or other entities with condemnation authority, (6) sales to environmental or other public interest organizations,…

4.4.2.4. Transactions Requiring Extraordinary Care.Not all property transactions can be used as potential comparable sales in valuations for federal acquisitions. While few types of Uniform Appraisal Standards for Federal Land Acquisitions / Legal Foundations For Appraisal Standards  transactions are categorically excluded from consideration under modern jurisprudence,460 as a matter of law several types of sales can be considered only under certain circumstances or for limited purposes. Accordingly, careful verification and analysis of each sale is required to ensure the appraiser’s opinion of value does not reflect any legally improper considerations.461 Of course, extraordinary verification alone would not allow an appraiser to rely on a sale that cannot be considered for other reasons, such as a sale involving a different property…

4.4.2.3. Sales Verification. In developing an opinion of market value for the purpose of determining just compensation, the appraiser must verify sales amounts and ascertain whether terms and conditions of a sale were conventional and under open competitive market conditions.455 Verification typically requires interviews and discussions with the seller, the buyer, the closing agency, and/or the broker handling the transaction in addition to confirming recordation.456 As federal courts recognize, prices reported in public records may not tell the whole story:  [C]ertainly most transactions are likely to be influenced by the motives of the parties thereto, such as the special needs or the strong desires of the buyer, the financial or other exigencies of the seller, and the whims, follies, fancies…

4.4.2.2. Adjustments.Depending on the property involved and the relevant market, the appraiser may need to adjust each comparable sale through quantitative and/or qualitative analysis to derive an indication of the market value of the subject property. Adjustments are made “up or down, depending upon such factors as time of sale, size of parcel, location, topography, and other such variables.”447 Quantitative adjustment, qualitative analysis, or both may be appropriate depending on the specific facts of the valuation problem.448  Quantitative adjustment is appropriate when there are adequate market data to reliably quantify the effect of a sale characteristic in terms of a percentage or dollar amount:  For example, if the comparable sale occurred one year before the taking of the subject property…

4.4.2.1. Comparability.A sale’s comparability “is largely a function of three variables: characteristics of the properties, their geographic proximity to one another, and the time differential.”445 The significance of different elements of comparison will vary with the type of property being appraised and the relevant market. For example, as the Sixth Circuit explained: On the point of similarity in character and locality, obviously if part of an allotment is condemned, sales, in order to be evidence of market value, should be of lots either within the immediate vicinity or very close. But when large areas of open country are involved, similarity of character and locality depends not upon mere propinquity. The character of such land situated several miles from land condemned…

4.4.2. Sales Comparison Approach.Under federal law, unforced, arm’s-length transactions of properties in the vicinity of and comparable to the property being appraised, reasonably near the time of acquisition, are normally the best evidence of market value.438 The process of forming an opinion of a property’s market value through comparison with such comparable sales is known as the sales comparison approach to value.439 The sales comparison approach is normally preferred in federal acquisitions as the best evidence of value, but not to the exclusion of other relevant evidence of value based on market data.440 The essence of the sales comparison approach to value is the comparison of sales transactions to the property being appraised.441 “Generally, the more comparable a sale is,…

4.4.1. The Three Approaches to Value.For purposes of just compensation, market value must be determined “with an approach which seeks with the aid of all relevant data to find an amount representing value to any normally situated owner or purchaser of the interests taken . . . .”429 Three approaches to value are recognized in federal acquisitions: (1) the sales comparison approach, (2) the cost approach, and (3) the income capitalization approach.430 Because the “federal conception of market value . . . is intimately related to selling prices in the market,”431 the sales comparison approach is normally preferred as the best evidence of market value in federal acquisitions, but not to the exclusion of other relevant evidence of value based…

4.4. Valuation Process.

4.3.4.8. Special Considerations in Inverse Takings.Determining the larger parcel in connection with inverse taking claims for liability purposes requires different considerations than in eminent domain-based valuations because of the distinct—and complex—legal issues involved.419 As the Ninth Circuit explained, in eminent domain cases the issue is how much is due the landowner as just compensation: “[But i]n inverse condemnation the issue is liability: Has the government’s action effected a taking of the landowner’s property? [T]he boundaries of the property allegedly taken must be determined by taking jurisprudence rather than the laws of eminent domain.”420 In the context of regulatory inverse takings claims, the larger parcel is commonly referred to as the parcel as a whole or the denominator.421 It is the…