Category: Agricultural

Rails to Trails

In 1916 railroad transportation was at its peak.  At that time, railroads were our main source of transportation.  They hauled food to market, moved coal to heat cities, and carried settlers to the Western frontier. Railroads also helped win World War II.  But, in the 1970’s other modes of transportation–like trucking–took over.  Because of this, many railroads went bankrupt and carriers began abandoning rail lines at an alarming rate.  Because rail corridors have gentle grades and often follow rivers and scenic landscapes, the possibility of creating trails from rail lines for recreation and nonmotorized transportation became an opportunity and a solution.  In 1976, Congress attempted to address the abandonment of rail lines by issuing the Railroad Revitalizaion and Regulatory Reform Act (4-R Act).  This law deferred the disposition of railroad rights-of-way for 180 days to allow for possible transfers for public use, including rails-to-trails conversions.  The biggest challenge came from nearby landowners, many of whom believed that they were entitled to repossess the land when it was abandoned.  In 1983, Section 8(d) of the National Trails System Act attempted to address this issue.  This law allows railroad carriers to free themselves of responsibility for unprofitable rail lines by transferring them (by sale, donation, or lease) to qualified private or public agencies for interim use as trails until they are needed again for rail service.  This process is called “rail-banking.”  An interested trail manager (may be a public agency or qualified organization) can request a railbanking order within 30 days after the railroad files an application for an abandonment. Aggrieviated landowners can file a “takings” claim under the federal Tucker Act.  This requires the government to pay “just compensation” if it “takes” private property for a public use.  But, the Supreme Court explained in the 1990 Preseault case (which challenged the federal railbanking law and resulted in eight reported court decisions in the state and federal courts) that “only some rail-to-trail conversions will amount to taking.”  The law on rails-to-trails conversions is still evolving, particularly in the “takings” litigation, but the Rails-to-Trails Conservancy has materials and resources on its website that can help educate and assist in various legal, political, and communication issues that may arise during the course of a rails-to-trails conversion.  

Valentine Appraisal and Associates sample Rails-to-Trails assignments:

  • 80.48 Mile Transportation Corridor in Siskiyou and Shasta Counties, California
  • 2.7 mile Transportation Corridor in Whittier, California


Valuation of Wetlands

Recent scientific discoveries and a changing political landscape have radically altered the status of wetlands in the marketplace.  Wetlands have been transformed from an undesirable land form to an important natural resource, and are highly regulated types of real estate.  Wetlands bring to mind distinct images of swamps, bogs, marshes, and other areas where wet, mucky bottoms are filled with fish, wildlife, and insects.  However, some are disguised and during the dry season aren’t wet at all, so properly identifying them is difficult.  Wetland identification and boundary delineation is best left to certified specialists, as five basic types of wetland systems are known.  Their general characteristics are:

(1) Rain System, which consists of ocean and extends to the high watermark along the shoreline.

(2)  Estuarine System, such as salt marshes and mangrove swamps, are located in tidal areas.

(3)  Riverine System, associated with rivers, creeks, channels, and channelized waterways. 

(4)  Lacustrine System, associated with lakes and reservoirs.

(5)  Palustrine System, associated with swamps and bogs, separate from other wetland systems.

The wetlands are valuable because of the physical, legal, social and economic aspects of wetlands and what they provide. 

The three traditional approaches to value, Sales Comparison, Cost, and Income, are developed to estimate the market value of real property and should all be used as data permits when appraising wetlands.

There are different ways in appraising wetlands in the Sales Comparison Approach.

(a)  Hole to Hole Analysis: sales having wetland ratios similar to the property being appraised are identified, and their sales prices are adjusted for differences in wetland ratios based on market-extracted data. 

(b)  Sum of the Parts Analysis: the market values of wetlands and the uplands are estimated separately then added together to estimate a market value as the property has evolved. 

(c)  Residual Analysis: if sales of only one component part are available, then a mixture of the Hole to Hole and Sum of the Parts methods can be combined to come up with Residual Analysis. 

The Cost Approach is like the Sales Comparison Approach, but is based on the economic principle of substitution.  The Income Approach is very seldom used in the appraisal of wetlands except when the wetland is encumbered by a lease. 

Some special considerations should be taken into account when appraising the market value interest of wetland properties: when it includes the presence of timber or mercantile agriculture, endangered or threatened species of plants and animals, or restricting easements and reservations are involved. 





Appraisal of Wind Farms

Wind is less expensive per kilowatt than solar or other renewable energy and is competitive with some other types of thermal energy as well.  But without federal government incentives, these renewable sources of energy would suffer.  Approximately 7% of electricity generated nationwide is from renewable energy.  Most states have adopted renewable energy standards set between 20% and 25% within a 10 to 15-year timeframe. 

Renewable energy sources are wind farms, solar energy farms, geothermal, biomass energy, and water energy. 

Solar energy projects typically cost $3,000,000 to $5,000,000 per megawatt of installed power, while wind turbine manufacturers indicate an installed cost of $1,000,000 to $2,000,000 per megawatt.  In order to meet the United States goal of 20% wind power by 2030, it will be necessary to install up to 7,000 wind turbines per year, which is a very aggressive goal.

The three most important geographic characteristics that dictate placement of any likely renewable energy project include (1) availability of resources, (2) availability of land, and (3) proximity to a power grid.  One of the most important characteristics of a utility scaled wind farm is a power purchase agreement.  This is where a utility has committed to buy power that the wind farm may generate.  Historically, energy land sales in Southern California show a significant trend in that premiums for entitled tracts earmarked for solar or wind farms, or other renewable energy, and in close proximity to transmission capacity bring premiums to land values.  It may be pointed out that the premium should not be attributed to the land, but should be attributed to the entitlements for a wind farm or other renewable energy.   

In order to appraise a wind farm, a site area must be determined, entitlements for a wind farm must be secured, and turbine sizes must be accounted for.  Each turbine has a capacity of 1.5 to 3.0 megawatts, and their heights are 280 to 300 feet.  A discounted cash flow model must include land costs, construction costs (site entitlements, off-site costs, installed costs of wind turbines), and any ITC or PTC offsets.  Permitting and construction schedule must be considered, and projected installed power output and projected PPA rate and reversion considered as well.  Subsequent to this, the appraiser then calculates net present value using a discounted cash flow model per yield capitalization approach. 

Remember, what is important in the valuation of a wind farm is (1) the presence of a power purchase agreement, and (2) the eligibility of a developer for production tax credits or other subsidies to offset construction costs. 

Appraisal Review

In virtually every trade and profession, certain persons review, criticize, critique, inspect, examine, cross-check, retest, question, judge, or comment on the work of others.  The essence of appraisal review is to investigate, analyze, and verify the logic, procedures, and methodologies used in appraisal reports to insure that the preparation is competent and thorough, and results in a reasonable estimate, which instills confidence in the reliability of the appraisal report for the client. 

There are various types of appraisal reviews:

A technical review is performed by an appraiser in accordance with Standard 3 of USPAP. 

An administrative review is recognized as a compliance review, usually performed by a client or user and may not necessarily be performed by an appraiser, nor is it bound by Standard 3 of USPAP.  It may just be a preliminary review as part of a technical review process later on. 

The reviewer may suggest several courses of action.  For example:

  •  Additional market data be obtained
  •  Specific pages be corrected for compliance
  •  Interviews be scheduled with people familiar with the property
  • Opinions be obtained from experts in related disciplines

When a field review is needed, the review appraiser conducts a field inspection.  Suggested criteria to measure reviewer performance include:

  • Technical ability
  • Timing
  • Quality of review
  • Conclusion

The appraisal review includes various processes:

  • Real estate to be appraised
  • Property rights involved
  • Use of the appraisal
  • Definition of value
  • Date of value estimate
  • Scope of the appraisal
  • Other limiting conditions

Furthermore, general data consists of information on social, economic, governmental, and environmental factors that affect value.  Also, highest and best use is concluded, taking into consideration what is legally permissible, physically possible, and financially feasible.  Then the three traditional approaches of value are analyzed for reasonableness and accuracy. 

The common reporting deficiencies in an appraisal report include:

  • Poorly written report which is not convincing to the client or reviewer
  • Lacks organization that limits comprehension by the reader
  • Lacks a favorable impression of the appraiser
  • Avoids the main issues and/or inconsistencies within the report
  • Lack of analysis
  • Lack of guidance throughout the report
  • Discrepancies between data analyses, which erodes confidence in its conclusions
  • Reasoning is not straightforward and reasonable
  • Incomplete information of a sale or comp
  • Lack of reconciliation of different value

Finally, the reviewer’s role is to determine if an appraisal report (1) meets acceptable standards in the criteria of the client and users of the report; (2) conforms to the Uniform Standards of Professional Appraisal Practice (USPAP); (3) complies with governmental regulatory requirements; and (4) concludes with a reasonable and reliable market value estimate. 

The client generally wants the appraisals to:

  • Identify market trends
  • Clearly describe the property
  • Explain apparent legal obligations that go with the land, including    covenants, conditions, restrictions, easements, and zoning
  • Provide detailed sales, rental, and investment information regarding similar properties in the same market
  • Outline both property and market risk parameters
  • Provide valuable market trend information
  • Notify the client of any potential environmental hazards
  • Serve as a valuable management tool for portfolio planning and advising third-party clients



Agricultural Property

agriculture1-copyImproved or unimproved land that is devoted to or available for the production of crops and other products of the soil, e.g. fruits, timber, pasture, and buildings for livestock.

(Dictionary of Real Estate Appraisal, 4th edition.)

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