White Paper: Option for Land Protection Component

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Land Entity White Paper November 30, 1999 Federai standards are in the Uniform Appraisal Standards for Federal Land Acquisitions (UASFLA) (1992) and the Unifarm Standards af Professional Appraisal (1999). The goverrurient is required to pay "fair market value" far any real property, defined as the amount in cash, or on terms reasonably equivalent to cash, for which in all probability the pt'operty would be sold by a knowledgeable owner, willing but not obiigated tv sell to a knowledgeable ptfrchaser, who desired, but is not obliged to buy. The valuation of lands and interests in lands generaliy is accomplished hased upon the campletion of appraisals. The value determined by the appraisal establishes the begiruiing value for negotiation. Sometimes public entities will pay somewhat more fdr a property than the appraisal indicates if there are unique public values or conditions that would justify a higher payment. In most circumstances, however, public entities will pay what the market information identified in the appraisal indicates is a justifiable value, although generally there are ranges of value that can be expected for certain kinds of property. As discussed in Appendix B, in some instances, landowners may desire to sell lands or interests in lands at below market values because of potential tax benefits or family cttaritabFe objectives. It is difficu[t to accvmmadate such a transaction within the federal process, as the federal government, to protect landovmers, is prohibited from paying less than the appraisal. (Gifts are not prohibited, however, 43 CFR 24.102(2)). The most cammon approach used by appraisers to determine the value of reai property is through comparisons with prior comparable transactions. An incame approach for income- producing properties, and a cost approach to estimate replacement costs of improvements are also accommodated within the federal process for obtaining appraisals, Several factors are present that may make it difficult to use typical appraisal practices endorsed by fedecal ypes of interests might be acyuired; there is a very limited market of suitable regulation: many t acc}uisitions; prices have been changing rapidly in the area; and the Program is creating a market for interests in land that never existed before. In some cases appraisers who have specialized experience (i.e. conservation easements) may be justified in an area where little market activity has occurred. If there are concerns about apgraisal values, review appraisers can be utilized to review the methodology, appraisai instructions, comparables and amalysis utilized in establishing value. Wilile the appraisal pracess may prove cumbersome for some transactions, the authority to formally modify or waive of some uf the requirements -- though theoretically possible under the rules -- Iies with the Office of Management and Budget, not DOI, and success is very unlikely. If land is later sold, perhaps becattse the Program has not found it to be benefieial, ar if the Program fails and the Land Entity is to be dissolved, the government retains ties to the property acquired with government funds. From the federal perspective, either the govemment must be repaid its share of fair market value less selling expenses, or titIe must transfer to the federal government in exchaage for compensation prvportionate to the federal cantribution to the fair market value of tbe property, or another acceptable arrangement has to be worked out A- 4