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© Copyright 2004 The Trust for Public Land
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© Copyright 2004 The Trust for Public Land
AppraisalsConservation Summit
Minnesota Landscape Arboretum
September 24, 2009
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© Copyright 2004 The Trust for Public Land
The Trust for Public Land conserves land for people
to enjoy as parks, gardens and other natural places,
ensuring livable communities for generations to come.
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© Copyright 2004 The Trust for Public Land
What is an appraisal?What is an appraisal?What is an appraisal?
An opinion of the nature, quality, value or
utility of specified interests in, or aspects
of, identified real estate”
- Dictionary of Real Estate Appraisal
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© Copyright 2004 The Trust for Public Land
Why do you need an appraisal?Why do you need an appraisal?Why do you need an appraisal?
•To make sure you are paying fair value
•May be required for government acquisitions
•Nonprofits need to protect their 501c3 status
•Often required for grants or funding sources
•May be useful in negotiations
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© Copyright 2004 The Trust for Public Land
Types of AppraisalsTypes of AppraisalsTypes of Appraisals
Formats•Consultation
•Opinion letter
•Preliminary or summary report
•Self contained, full narrative
Standards•USPAP
•DNR
•Yellow Book, UASFLA
•IRS
Consider purpose and end user in selecting
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© Copyright 2004 The Trust for Public Land
When to Obtain an AppraisalWhen to Obtain an AppraisalWhen to Obtain an Appraisal
Not to early
•Cost and investment of time
•Scope of project
•Can get stale
Not to late
•Surprise can crater deal and all you’ve
invested
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© Copyright 2004 The Trust for Public Land
Selecting an AppraiserSelecting an AppraiserSelecting an Appraiser
•Knowledge and experience with type of property
and interests being appraised (e.g., for conservation
easements)
•Knowledge of local conditions
•Licensed, certified general real property appraiser
•Professional associations, e.g., MAI
•Reputation, known and respected by acquiring unit
of government and grant makers
•Quality of work, get sample
•Availability
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© Copyright 2004 The Trust for Public Land
The Engagement LetterThe Engagement LetterThe Engagement Letter
Define the job
•Standards
•Type of report
•Land and interests appraised
•Special instructions or hypothetical
conditions
•Intended users
•Deadlines
•Payment terms
•Review
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© Copyright 2004 The Trust for Public Land
What does the Appraiser Actually Do?What does the Appraiser Actually Do?What does the Appraiser Actually Do?
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© Copyright 2004 The Trust for Public Land
What does “Fair Market Value”
(FMV) mean?
What does “Fair Market Value”
(FMV) mean?
The “highest price estimated in terms of money that the
land would bring if exposed for sale in the open market,
with reasonable time allowed in which to find a purchaser,
buying with knowledge of all of the uses and purposes to
which it was adapted and for which it was capable of
being used.”
– Dictionary of Real Estate Appraisal
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© Copyright 2004 The Trust for Public Land
What Does “Highest and Best Use” Mean?What Does “Highest and Best Use” Mean?What Does “Highest and Best Use” Mean?
The “reasonably probable and legal use of
vacant land or an improved property, which
is physically possible, appropriately
supported, financially feasible, and that
results in the highest value.”
– Dictionary of Real Estate Appraisal
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© Copyright 2004 The Trust for Public Land
Approaches to Estimating Fair Market ValueApproaches to Estimating Fair Market ValueApproaches to Estimating Fair Market Value
• Sales Comparison
• Income
• Cost
• Discounted Cash Flow analysis (subdivision)
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© Copyright 2004 The Trust for Public Land
Sales Comparison ApproachSales Comparison ApproachSales Comparison Approach
• Analysis of actual sales prices of similar pieces of
property
• Compare features
• Apply adjustments
• Challenge and art are in finding truly comparable sales
and determining how to make the adjustments
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© Copyright 2004 The Trust for Public Land
Factors that impact the level of
comparability
Factors that impact the level of
comparability
• Availability and use of low interest or seller financing
• Motivations of buyer and seller
• Time elapsed since the sale
• Quality and desirability of location
• Physical differences and impact on price
• Type and condition of improvements
• Highest and Best Use
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© Copyright 2004 The Trust for Public Land
The Review ProcessThe Review ProcessThe Review Process
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© Copyright 2004 The Trust for Public Land