White Paper: Options for Managing the Land Protection Component of the PRRIP

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Land Entity White Paper November 30, 1999 Federal standards are in the Uniform Appraisal Standards for Federal Land Acquisitions (UASFLA) (1992) and the Uniform Standards of Professional Appraisal (1999). The government is required to pay "fair market value" for any real property, defined as the amount in cash, or on terms reasonably equivalent to cash, for which in all probability the property would be sold by a knowledgeable owner, willing but not obligated to sell to a knowledgeable purchaser, who desired, but is not obliged to buy. The valuation of lands and interests in lands generally is accomplished based upon the completion of appraisals. The value determined by the appraisal establishes the beginning value for negotiation. Sometimes public entities will pay somewhat more for 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 charitable objectives. It is difficult to accommodate such a transaction within the federal process, as the federal government, to protect landowners, is prohibited from paying less than the appraisal. (Gifts are not prohibited, however, 43 CFR 24.102(2)). The most common approach used by appraisers to determine the value of real property is through comparisons with prior comparable transactions. An income 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 federal regulation: many types of interests might be acquired; there is a very limited market of suitable acquisitions; 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 appraisal values, review appraisers can be utilized to review the methodology, appraisal instructions, comparables and analysis utilized in establishing value. While the appraisal process may prove cumbersome for some transactions, the authority to formally modify or waive of some of the requirements -- though theoretically possible under the rules -- lies with the Office of Management and Budget, not DOI, and success is very unlikely. If land is later sold, perhaps because the Program has not found it to be beneficial, or 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 government must be repaid its share of fair market value less selling expenses, or title must transfer to the federal government in exchange for compensation proportionate to the federal contribution to the fair market value of the property, or another acceptable arrangement has to be worked out A- 4