CHAPTER 7 APPRAISALS TABLE OF CONTENTS 7.01.00.00 APPRAISAL POLICIES AND GENERAL REQUIREMENTS 01.00 General Overview 01.01 Definition of Market Value 01.02 Necessity for Appraisal 02.00 Appraisal Report Not Required 03.00 Uniform Relocation Assistance and Acquisition Policies Acts 04.00 Standards 04.01 Appraiser Qualifications 04.02 Jurisdictional Exception 05.00 Separation of Appraisal and Acquisition Functions 06.00 Prerequisites for “Preliminary Right of Way” 07.00 Dual Report Requirements 08.00 Donations 08.01 Credit Toward State’s Matching Share 09.00 Dedications 10.00 Notice of Decision to Appraise 11.00 Parcel Diary 12.00 Responsibility for Providing RAP Information 13.00 Legal Opinions 14.00 Responsibility for Preparation 15.00 Appraisal Review 15.01 Cumulative Review Concept 15.02 Review Appraiser Concept 16.00 Review Appraiser Process 16.01 Minor Deficiencies 16.02 Major Deficiencies 17.00 Approval Authority 18.00 Criteria for Use of Independent Fee Appraisers 19.00 Report Processing and Records 20.00 Memo of Transmittal 21.00 Tables 7.02.00.00 APPRAISAL REPORTS 01.00 Federal Project Numbers 02.00 Report Identification Numbers 03.00 Organization, Content, and Sequence 04.00 Parcel Numbering 05.00 Number of Parcels Per Report 06.00 Parcels Straddling an Expenditure Authorization 07.00 Parcel Groups - Mutual Owners 08.00 Parcel Groups - Integrated Operation 09.00 Dual Report Process 09.01 Corrections and Revisions 09.02 Review Process (REV 5/2017) 7.02.00.00 APPRAISAL REPORTS (Continued) 10.00 Replacement Housing Valuation Reports 11.00 Calculations 12.00 Noncomplex Valuations of $25,000 or Less 13.00 Waiver Valuation In Lieu of an Appraisal 13.01 Waiver Valuation ($2,500 or Less) - Contents and Requirements 13.02 Waiver Valuation ($2,501 to $10,000) - Contents and Requirements 14.00 Nominal Values ($2,500 or Less) 7.03.00.00 APPRAISAL PREPARATION 01.00 The Appraisal Summary - Purpose 02.00 Appraisal Summary Format 03.00 Alternate Appraisals 04.00 Appraisals of Excess Property for Acquisition 04.01 Uneconomic in the Market 04.02 Uneconomic to the Owner, or for the Convenience of the Owner 04.03 To Avoid Large Windfall Relocation Payments to Single Family Owner-Occupants 05.00 Legal Larger Parcel and Subparcels 06.00 Allocation Between Excess and Right of Way 07.00 Excess Parcel Inventory Value (VTA) 08.00 Rental Rates 7.04.00.00 VALUE CONCEPTS AND CONSIDERATIONS 01.00 Value Basis 02.00 Total Value 03.00 Encumbered Fee 04.00 Mineral, Water, Oil and Gas Rights 05.00 Improvement Bonds and Assessments 06.00 Leasehold Interests “Bonus Values” 07.00 Access Rights 08.00 Temporary Easements 09.00 Permanent Easements 10.00 Underlying Fee 11.00 Unit Values 12.00 Hazardous Waste and Hazardous Material Definition 12.01 Hazardous Waste General 12.02 Hazardous Waste Identification and Investigation 12.03 Hazardous Materials 12.04 HW Site Identification 12.05 Notification 12.06 Valuation 13.00 Market Value of Nonprofit, Special Use Properties (REV 5/2017) 7.05.00.00 METHODS OF VALUATION 01.00 Value Approaches 02.00 Sales Comparison Approach 02.01 Comparable Data 02.02 Analysis of Comparable Data 03.00 Assessor’s Office Data 04.00 Cost Approach 05.00 Income Approach 05.01 Income Schedule 06.00 Review of Owner’s Claimed Out-of-Pocket Expenses 7.06.00.00 LAND 01.00 General 02.00 Timber Land 03.00 Agricultural Land 04.00 Valuation of Williamson Act or Farmland Security Zone Lands and Timberland Production Zone Land 05.00 Valuation of Land Encumbered by Conservation Easement 05.01 Open-Space Easements 05.02 Wildlife Conservation Easements 05.03 Agricultural Conservation Easements 05.04 Replacement Conservation Easements 05.05 Comparison of Statutes Regarding Valuation of Conservation Easements 06.00 Outdoor Advertising Sites 7.07.00.00 IMPROVEMENTS 01.00 General 02.00 Single Family Residence and Two to Four Unit Multi-Residence - Form Appraisal 03.00 Miscellaneous Improvements and Landscaping 04.00 Agricultural Improvements 05.00 Valuation of Fences 06.00 Valuation of Water Sources 07.00 Improvements - Little or No Value 08.00 Improvements - Interim Value 09.00 Improvements - Purchase or Curative Work? 10.00 Improvement Relocations or Replacements Exceeding Depreciated Value Less Salvage 11.00 Relocation, Rearrangement, or Reconstruction Estimates 12.00 Building Check Sheets 13.00 Service Station, Commercial and Industrial Buildings 14.00 Tenant or Lessee-Owned Improvements (Excluding Personal Property) 15.00 Retention Value 7.08.00.00 IMPROVEMENTS PERTAINING TO THE REALTY 01.00 General 02.00 Appraisal Page Format 03.00 Replacement Cost 04.00 Depreciated Value 05.00 Salvage Value 06.00 Improvements Not Pertaining to Realty Under Section 1263.205 (REV 5/2017) 7.09.00.00 DAMAGES, BENEFITS, AND CONSTRUCTION CONTRACT WORK 01.00 General 02.00 Severance Damages 03.00 Noncompensable Damages 04.00 Cost to Cure 05.00 Benefits 06.00 Summary of Severance Damages and Benefits 07.00 Damage Alternatives 08.00 Utility Service Damage 09.00 Construction Contract Work 10.00 Utility Main Relocations 10.01 Private Utility Connections 11.00 Access Openings 7.10.00.00 REVISION AND REVIEWS 01.00 General 02.00 Changes in Unapproved Appraisals Requiring Division Approval 03.00 Changes in Approved Appraisals-Unacquired Parcels 04.00 Revised Appraisal Pages 04.01 Submittal of Revised Pages 05.00 Revised Parcel Appraisals 06.00 Memorandum of Adjustment 07.00 Changes in Approved Appraisals on Acquired Parcels 08.00 Parcel Splits and Mergers 09.00 Parcel Cancellations 10.00 Review of Condemnation Parcels 11.00 Preparation of the Report Analysis for Expert Witness Appraisals 7.11.00.00 OUTDOOR ADVERTISING SIGNS 01.00 Valuation 02.00 Definitions 03.00 Process 04.00 Payment Schedules/Application Renewal Permit Fees 05.00 Appraisal Procedures for Outdoor Advertising Signs 7.12.00.00 MOBILE HOMES 01.00 Mobile Homes - General 02.00 Mobile Homes - Realty 03.00 Mobile Homes - Personalty 04.00 Mobile Homes - Special Procedures 05.00 Mobile Homes - Format (REV 5/2017) 7.13.00.00 SPECIAL APPRAISAL REPORTS 01.00 General 02.00 Material Site Appraisals 03.00 Disposal Site Appraisals 04.00 Office and Maintenance Station Site Appraisals 10.00 Joint Acquisition Appraisals 20.00 Protection Appraisals 30.00 Appraisals for Other Agencies 40.00 Staff Litigation Reports 50.00 UTILITY, RAILROAD AND GOVERNMENTAL OWNERSHIPS 50.01 Public Utility Property 50.02 Fee Land 50.03 Improvements 60.00 Railroad Property General Prerequisites 60.01 Valuation of Railroad Properties 70.00 Governmental, Indian, Functionally Replaced Publicly Owned Facilities, and State Land 7.14.00.00 EXCESS LAND APPRAISALS 01.00 General 01.01 Excess Land Methods of Disposal 01.02 Excess Land Valuations 01.03 Review and Approval of Excess Land Appraisals and Public Sale Estimates 02.00 Market Value Appraisals 02.01 Format, Content, and Standards 02.02 Dual Report Requirements 03.00 Market Value Determination of $10,000 or Less 03.01 Format, Content, and Standards 04.00 Public Sale Estimates 04.01 Format 04.02 Content 04.03 Examples of Supporting Data 05.00 Review of Request for Proposal Submittals (RFP) 7.15.00.00 AIRSPACE ESTIMATES, BID LEASE VALUATIONS AND APPRAISALS 01.00 General 02.00 Estimates 03.00 Appraisals - General 03.01 Format 03.02 Standards and Methods 03.03 Preparation 04.00 Bid Lease Valuations 05.00 Rental Rate Appraisals (REV 5/2017) 7.16.00.00 RENT DETERMINATION 01.00 General 02.00 Content 03.00 Review and Approval Process 04.00 Special Circumstances 05.00 Nominal Value Nonresidential Rentals 7.17.00.00 BUSINESS GOODWILL APPRAISALS 01.00 Statute - Compensation for Loss of Goodwill 02.00 Interpretation of the Eminent Domain Law, Court Cases, and Legal Issues 03.00 Burden of Proof 04.00 Notification Letter to the Business Owner (Form RW 7-30) 05.00 Timing for the Preparation and Completion of the Goodwill Appraisal 06.00 The Goodwill Appraisal Report 07.00 Parcel Diary 08.00 Cross-referencing the Goodwill and Real Estate Appraisal Reports 09.00 Parcel Numbering 10.00 Review and Approval Process 11.00 Project Influence 12.00 Appraisal Report Components and Sequence 13.00 Goodwill Valuation 14.00 Business Valuation Methods 15.00 Analyzing Financial Statements and State Income Tax Returns 16.00 Betterment at the Relocation Property 17.00 Disadvantages at the Relocation Property 18.00 Compensation to Business Owners Under the Relocation Assistance Program (Pursuant to Section 7262 of the Government Code and 49 Code of Federal Regulation Part 24) (REV 5/2017) 7.00.00.00 - APPRAISALS 7.01.00.00 - APPRAISAL POLICIES AND GENERAL REQUIREMENTS 7.01.01.00 General Overview Article I, Section 19 of California Constitution states “Private property may be taken or damaged for public use only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner.” 7.01.01.01 Definition of Market Value The measure of “just compensation” is “market value.” Section 1263.320 of the Code of Civil Procedure defines market value as: “(a) The fair market value of the property taken is the highest price on the date of valuation that would be agreed to by a seller, being willing to sell but under no particular or urgent necessity for so doing, nor obliged to sell, and a buyer, being ready, willing and able to buy but under no particular necessity for so doing, each dealing with the other with full knowledge of all the uses and purposes for which the property is reasonably adaptable and available. “(b) The fair market value of property taken for which there is no relevant, comparable market is its value on the date of valuation as determined by any method of valuation that is just and equitable.” A just and equitable method of determining the value of nonprofit, special use property as defined, for which there is no relevant, comparable market is: “The cost of purchasing land and the reasonable cost of making it suitable for the conduct of the same nonprofit, special use, together with the cost of constructing similar improvements.” This method of valuation pertains only to those properties where all of the following apply: 1. Operated for a special nonprofit use such as a school, church, cemetery, hospital or a similar property. 2. Tax-exempt. 3. Not owned by a public entity. 4. There is no relevant, comparable market. See Section 7.04.13.00 for further details. 7.01.01.02 Necessity for Appraisal An appraisal is necessary to ensure compliance with the Constitution in arriving at a conclusion of just compensation. The basic document in all appraisals is the Appraisal Report. It contains the appraiser’s estimate of fair market value and all data and narrative necessary to support the appraiser’s conclusions. 7.01 - 1 (REV 3/2014) An approved report is generally required for acquisition, property management, relocation assistance and record purposes. It is of critical importance to further Right of Way activity. It must be complete and reliable in all its contents. The report will be a summary of basic information and conclusions together with pertinent support. It shall contain information about the properties and general aspects of the entire project. Additional backup information such as detailed improvement descriptions and plans, additional photographs, bids, detailed cost studies, interview records, additional comparable data, utility relocation studies, etc., should be maintained until acquisition is complete and the files are no longer necessary for record, testimony, or RAP purposes. 7.01.02.00 Appraisal Report Not Required When the Region/District determines that the valuation problem is uncomplicated and the fair market value is estimated at $10,000 or less, based on a review of available data, a report is not necessary. The $10,000 amount includes severance damages but excludes any nonsubstantial construction contract work. Authority to waive the appraisal is provided for in Federal Regulation [49 CFR 24.102(c)(2)]. Authority to make this determination rests with the Region/District Right of Way Manager (Region/District R/W Mgr.), who may delegate it. The documentation required is the “Waiver Valuation.” (See Section 7.02.13.00.) The Waiver Valuation cannot be used as a basis for deposit when obtaining an Order for Possession. 7.01.03.00 Uniform Relocation Assistance and Acquisition Policies Acts Both the Federal and State Uniform Relocation Assistance and Real Property Acquisition Policies Acts contain basic requirements for the appraisal of real property for public project purposes. These basic requirements are quite similar, and therefore apply to all projects. Appraisals are to be prepared according to these requirements, which are intended to be consistent with the Uniform Standards of Professional Appraisal Practice (USPAP). 49 CFR 24.1, 24.101, 24.102, 24.103, and 24.104 set forth these basic requirements. 7.01.04.00 Standards The appraiser will thoroughly investigate and consider every material fact regarding the market value of the appraised property. Every effort will be made to interview the property owners and to secure factual information on the subject property sales, costs, alterations, income and expense data, age, etc. The subject properties and comparable data shall be viewed in the field and all improvements to be appraised shall be carefully inspected. The appraiser should refrain from furnishing detailed information regarding valuation, time schedule or construction items. At the appraisal stage, such information is usually incomplete and subject to change. 7.01.04.01 Appraiser Qualifications The Associate Right of Way Agent is considered the staff appraiser for routine to complex eminent domain real property appraisals not involving Federally insured financial lending institutions. Staff appraisers (Associate Right of Way Agent) are not additionally required to be licensed by any other State agency having real property appraisal oversight. Ranges A and B Right of Way Agents are considered the staff appraiser when the work product is directly supervised by and cosigned by an Associate Right of Way Agent. 7.01 - 2 (REV 3/2014) 7.01.04.02 Jurisdictional Exception The USPAP Jurisdictional Exception Rule allows for deviation from the USPAP Rules and Standards where Federal and/or State laws or regulations are in conflict. The State appraiser can follow the requirements set forth by the Uniform Relocation Assistance and Acquisition Policies Act in the Code of Federal Regulations and the California Code of Civil Procedures and retain compliance with USPAP. Examples of conflict are: 1) The definition of Fair Market Value. USPAP states “the most probable price” and the California Code of Civil Procedure states “the highest price.” 2) USPAP states when analyzing public or private improvements, the appraiser “must analyze the effect on value of such anticipated improvements to the extent they are reflected in the market.” CFR 24.103 prohibits including project influence in the determination of value. 3) USPAP states the appraiser analyze all transactions of the property prior to three (3) years of the Date of Value. CFR 24.103 states the appraiser analyze all sales prior to five (5) years of the Date of Value. 7.01.05.00 Separation of Appraisal and Acquisition Functions The Department of Transportation (Department) maintains a separation of the appraisal and acquisition functions, except that, the same person can appraise and negotiate a parcel if total valuation, excluding nonsubstantial construction contract work, is $10,000 or less. This dollar limit also applies to revisions where the appraiser was previously assigned to negotiate the parcel. The valuation document can be either an appraisal or Waiver Valuation as discussed in 7.01.02.00 above. When the same person prepares the appraisal and does the acquisition, the Certificate of Appraiser must be revised from the standard Certificate. It should contain a statement substantially as follows: “That I understand that I may be assigned as the Acquisition Agent for one or more parcels contained in this report but this has not affected my professional judgment nor influenced my opinion of value.” Members or candidates of professional appraisal organizations who are assigned to act in the dual capacity of appraiser and acquisition agent should check their organization’s code of ethics for specific prohibitions and disclosure requirements. 7.01.06.00 Prerequisites for “Preliminary Right of Way” Right of Way Planning and Management is the lead right of way function concerning prerequisites for commencement of all “preliminary engineering” activities, “preliminary right of way” activities, and “regular right of way” activities. See Chapter 3. Preliminary Right of Way is defined as those Right of Way activities that occur after: A. The project is programmed or lump sum funded. (Activities are typically charged as Right of Way support to the project’s Phase 2 expenditure authorization.) B. Budgeted spending has occurred. 1. The project is in the current approved Right of Way Capital Plan or in the proposed Right of Way Capital Plan for the budget year. 2. Other Entity Funding is secured. The source of funding is in accordance with the terms of a Cooperative Agreement with a Local Public Agency, if applicable. 7.01 - 3 (REV 3/2014) The Preliminary Right of Way Activities are: 1. Ordering Title Reports. 2. Preparing Base Maps. 3. Preparing Appraisal Maps. 4. Conducting project-wide comparable sales searches once a preferred alternate is internally selected. In addition, the preferred alternate must be made public in some manner, e.g., newspaper announcement, distribution of the final environmental document, or the like, before the following activities can take place. 5. Assigning appraisers to specific parcels. 6. Contacting the property owners to commence appraisal activity (i.e., sending the Notice of Decision to Appraise). 7. Completing the appraisal. These prerequisites do not apply to hardship and protection appraisals. One of the main reasons that project appraisals should not normally be completed far in advance of the environmental clearance on regular right of way acquisition parcels is to avoid their being outdated before offers can be made. If the appraisal must be updated because of a delay in receipt of the environmental clearance, support required to produce the second appraisal is not eligible for federal participation. In addition, appraisals of partial acquisitions should not commence prior to the receipt of appraisal maps. Final environmental clearance is a prerequisite to commencing regular right of way acquisition. The exception to this rule is when “early acquisition” is approved. See the Early Acquisition Guidelines (Reference 3-EX-6). Appraisal support costs may or may not qualify for federal aid. PA&ED plus E-76 approval is the point at which parcel specific right of way support costs become eligible for federal aid on a federally eligible project. 7.01.07.00 Dual Report Requirements The District may determine that dual reports are needed to ensure the owner receives a fair market value offer. Duals should be considered for unusually large or complicated parcels or parcels exceeding $500,000 in value. This amount includes improvements pertaining to realty, severance damages, and substantial construction contract work. The following are items to consider in determining which parcels may require dual reports: • There is a serious question as to highest and best use. • Market data is inconclusive because of its scarcity and/or absence of established patterns and value conclusions must, therefore, be based primarily on opinion. • There are substantial improvements not compatible with the highest and best use of the land. In other words, there is a high degree of economic obsolescence. 7.01 - 4 (REV 3/2014)