1. 1 Welcome to the International Right of Way Association’s Course 401 Appraisal of Partial Acquisitions 401-PT – Revision 3 – 12.21.07.USA

2. 2 Introductions Who we are… What we do… Where we do it… How long we’ve been doing it… Our goals for the course...

3. 3 Objectives (1) At the end of the course, you will have... Reviewed the basic principles and the valuation process

4. 4 Objectives (2) At the end of the course, you will be able to... Utilize both the Federal (Before and After) Rule and the State (Summation) Method in the valuation of partial acquisitions.

5. 5 Objectives (3) At the end of the course, you will be able to... Understand and allocate the partial acquisition compensation among its components (i.e., value of the part taken, damages to the remainder, benefits to the remainder, cost to cure).

6. 6 Objectives (4) At the end of the course, you will be able to... Employ various methods to analyze and quantify the impacts of partial acquisitions on remainder properties. Analyze easement acquisitions and understand better easement valuation methods.

7. 7 Objectives (5) At the end of the course, you will be able to... Be better expert witnesses.

8. 8 Controlling Documents USPAP UASFLA (“The Yellow Book”) The Uniform Act States Professional Organizations

9. 9 Housekeeping

10. 10 Schedule (1) (Day One) Review of Principles, Valuation Process and Terms Larger Parcel Introduction to the State Method and Federal Rule

11. 11 Schedule (2) (Day Two) More on State Method and Federal Rule Affects on the Remainder Property Income Capitalization Approach

12. 12 Schedule (3) (Day Three) Cost Approach and Cost to Cures Compensable and Non compensable Damages Benefits

13. 13 Schedule (4) (Day Four) Easements (Day Five) Litigation Open Forum

14. 14 Value Principles Substitution Supply and Demand Anticipation Consistent Use Contribution

15. 15 Valuation Process Appraisal Problem Definition Scope of Work Data Collection and Analysis Land Value Opinion Three Approaches to Value Reconciliation and Final Value Opinion Defined Value Opinion Report

16. 16 Valuation Process Appraisal Problem Definition Identification of the client, intended use, and users Value to be developed Date of the value opinion Identity and location of the subject property Property rights to be valued Limiting conditions

17. 17 Valuation Process Scope of Work Degree to which the property is inspected or identified Extent of research into physical and economic factors Extent of data research Type and extent of analysis applied to arrive at opinions or conclusions

18. 18 Valuation Process Data Collection and Selection Market area data Comparable property data Subject property data

19. 19 Valuation Process Highest and Best Use The reasonably probable and legal use that is physically possible, appropriately supported, and financially feasible, and that results in the highest value. Physically possible? Legally permissible? Financially feasible? Maximally productive?

20. 20 Valuation Process Cost Approach Develop a value opinion for the land Estimate the cost new of the improvement Deduct depreciation Add land value opinion to the depreciated improvement value

21. 21 Valuation Process Sales Comparison Approach Research the market for comparable data Develop relevant units of comparison Compare the sales to the subject and adjust for dissimilarities Reconcile the value indications into a final value opinion

22. 22 Valuation Process Income Capitalization Approach Estimate the subject’s annual potential gross income Determine a vacancy and collection loss Subtract the vacancy and collection loss from the potential gross income Estimate annual property expenses and subtract the expenses from the effective gross income to arrive at the net operating income Develop a capitalization rate Convert the net operating income into value

23. 23 Valuation Process Defined Value Opinion Report Self-contained Summary Restricted-use

24. 24 Valuation Process Appraisal Problem Definition Scope of Work Data Collection and Analysis Land Value Opinion Three Approaches to Value Reconciliation and Final Value Opinion Defined Value Opinion Report

25. 25 Terms (1) Larger parcel Federal (Before and After) Rule State (Summation) Method Before value After value Value of the part taken

26. 26 Terms (2) Value of the part taken, as part of the whole Value of the remainder, as part of the whole Value of the remainder after the acquisition, disregarding benefits Damages

27. 27 Terms (3) Benefits Cost to cure Easement Just compensation

28. 28 Larger Parcel … the tract or tracts of land, which possess a unity of ownership and have the same, or an integrated, highest and best use.

29. 29 Larger Parcel “Tests” Unity of title Unity of use Contiguity or proximity

30. 30 Two Methods Federal (Before and After) Rule State (Summation) Method

31. 31 State (Summation) Method Payment is made for the value of the part taken plus (damages to the remainder property minus benefits to the remainder property). The amount of damages minus the amount of benefits cannot be less than zero dollars.

32. 32 Federal (Before and After) Rule Payment is the difference between the value before the acquisition and the value after the acquisition. Under the Federal Rule, benefits can offset both the value of the part taken and the damages to the remainder.

33. 33

34. 34 State (Summation) Method (1) Value of the whole, before acquisition Value of the part taken, as part of the whole Value of the remainder, as part of the whole Value of the remainder after the acquisition, disregarding benefits

35. 35 State (Summation) Method (2) Damages to remainder Value of the remainder after the acquisition, considering benefits Benefits to remainder Net damages or net benefits Total appraised value

36. 36 Federal (Before and After) Rule Before value (minus) After value (equals) Total appraised value

37. 37 Recap Day One

38. 38 Recap Yesterday and Look at Today

39. 39 Out of Whack? (1)

40. 40 “…$75,000 home … and a mere slice of land around the corner …just sold for $100,000.” “It causes consternation… (w)e got one appraisal at $48,000 and one at $135,000…”

41. 41 Features Affecting Land Accessibility Access Landlocking Size and Shape Frontage Topography

42. 42 Features Affecting Site Improvements Landscaping Private utilities Utilities Municipal services

43. 43 Features Affecting Building Improvements Functional utility External obsolescence

44. 44

45. 45 Income Capitalization Approach Estimate the subject’s annual potential gross income Determine a vacancy and collection loss Subtract the vacancy and collection loss from the potential gross income Estimate annual property expenses and subtract the expenses from the effective gross income to arrive at the net operating income Develop a capitalization rate Convert the net operating income into value

46. 46 Reconstructed Operating Statement Potential Gross Income (minus) Vacancy and Collection Loss (equals) Effective Gross Income (minus) Operating Expenses (equals) Net Operating Income

47. 47 Rates Ro Yo

48. 48

49. 49

50. 50 Recap Day Two

51. 51 Recap Yesterday and Look at Today

52. 52 Cost Approach Develop a value opinion for the land Estimate the cost new of the improvement Deduct depreciation Add land value opinion to the depreciated improvement value

53. 53 Depreciation A loss in value from any cause. Physical deterioration Functional obsolescence External obsolescence

54. 54 Cost to Cure …the cost to restore an item to its pre acquisition state.

55. 55

56. 56

57. 57 Damages … a loss in value to the remainder property as a result of a partial acquisition.

58. 58 Benefits … an increase in value to the remainder property as a result of a partial acquisition.

59. 59 Recap Day Three

60. 60 Recap Yesterday and Look at Today

61. 61 Easement … a non possessory interest one has in the property of another for a specific purpose.

62. 62 Dominant and Servient Estates

63. 63 Valuation Concepts What the owner has lost, not what the condemnor has gained Unit Rule Remainders (The 3 “Rs”)

64. 64 Remainders (The “3Rs”) (1) Remnant Residual Remainder

65. 65 Remainders (The “3 Rs”) (2) Easement 1 2 3

66. 66 Remainders (The “3 Rs”) (3) Easement Remnant Residual Remainder 1 2 3

67. 67 Easement Information Sources Easement document Statutes and Case law Custom and Usage Market perceptions

68. 68 Market Perceptions “Property owners…are due compensation, even if the ‘cancerphobia’ driving down the worth of their land is unjustified or irrational…”

69. 69 Valuation Considerations Nature of the easement Rights taken Applicable laws Characteristics affecting value Easement effects

70. 70 Estates Dominant estate is the property benefited by the easement. Servient estate is the property burdened by the easement.

71. 71 Easement Categories Sub surface easement Surface easement Overhead easement

72. 72 1

73. 73 2

74. 74 93

75. 75 4

76. 76 5

77. 77 6

78. 78 7

79. 79 8

80. 80 9

81. 81 10

82. 82 411

83. 83 Temporary Easement … an easement that is for a limited duration.

84. 84 Recap Day Four

85. 85 Recap Yesterday and Look at Today

86. 86 Expert Witness … is an individual qualified by knowledge, skill, experience, training and education to testify in a legal proceeding.

87. 87 The 3 “Cs” Communication skills Competence Competitiveness

88. 88 Litigation Contexts Pre trial conferences Discovery Trials

89. 89 Valuation Services

90. 90 Discovery … the techniques and procedures by which each attorney obtains information from the opposing party, witnesses and other parties. Discovery includes written interrogatories and depositions.

91. 91 Open Forum

92. 92 Objectives (1) You have... Reviewed the basic principles and the valuation process

93. 93 Objectives (2) Right now, you are able to... Utilize both the Federal (Before and After) Rule and the State (Summation) Method in the valuation of partial acquisitions.

94. 94 Objectives (3) Right now, you are able to... Understand and allocate the partial acquisition compensation among its components (i.e., value of the part taken, damages to the remainder, benefits to the remainder, cost to cure).

95. 95 Objectives (4) Right now, you are able to... Employ various methods to analyze and quantify the impacts of partial acquisitions on remainder properties. Analyze easement acquisitions and understand better easement valuation methods.

96. 96 Objectives (5) Right now, you should Be better expert witnesses.

97. 97 Thank you! 401-PT – Revision 3 – 12.21.07.USA