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 practices for the area and type of timber. The objective is to establish cruise standards and sampling errors based on private market expectations in the local market when timber is sold with the land.

The sales comparison and income capitalization approaches are both appropriate for use in valuing properties with a highest and best use for timber production. In developing the sales comparison approach, the selection of the unit of comparison should be based on common local market practices. In developing the income capitalization approach, the appraiser must consider all factors including lumber selling price and absorption period (based on supply and demand analysis in the market), all harvesting and transportation costs, costs of sales, and profit. The discount rate used to estimate present value must be market supported and should reflect timber investment rates and risk associated with the subject property.