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B-1. Federal Law Controls.

B-1. Federal Law Controls. Since the experience of many appraisers primarily  http://www.harriscompanyrec.com/yellowbookuasfaappraiser.html  non-public acquisition appraisals, or conducting appraisals under various state

laws, it is particularly important that appraisers bear in mind that in federal acquisitions,

because the meaning of just compensation is a matter of fundamental constitutional

interpretation, questions with respect to compensation are to be resolved in accordance

with federal rather than state law.94 Because federal law differs in some important aspects

from the law of some states, it is incumbent upon both the attorney and the appraiser to

make certain that they understand the applicable federal law as it affects the appraisal

process in the estimation of market value, which will generally be the basis for determining

just compensation for property acquired by the United States for public purposes. While

state law once controlled procedural matters, since the adoption in 1951 of Rule 71A,

Federal Rules of Civil Procedure, procedural as well as substantive matters in federal

condemnation cases are controlled by federal law.95

State law is sometimes referred to, though not necessarily followed, in resolving the

nature of property rights acquired. The Supreme Court of the United States has stated that

“[t]hough the meaning of ‘property’ . . . in the Fifth Amendment is a federal question, it will

normally obtain its content by reference to local law.”96 It has been judicially made clear

that “[t]his does not mean, however, that every local idiosyncrasy or artificiality in a state’s

concepts, or the incidents thereof, necessarily will be accepted.”97 It is also established that

the United States may elect to acquire whatever interest it deems necessary whether or not

the state recognizes the definition of the interest selected.98

B-2. Market Value Criterion. Under established law, the criterion for just compensation

is the market value of the property taken. As stated by the U.S. Supreme Court:

The United States has the authority to take private property for public use by eminent domain,

but is obliged by the Fifth Amendment to provide “just compensation” to the owner thereof. “Just

94. United States v. 93.970 Acres of Land, 360 U.S. 328, 332-333 (1959); United States v. Miller, 317 U.S. 369, 380 (1943).

95. Kirby Forest Industries, Inc. v. United States, 467 U.S. 1, 3-4 (1984); United States v. 93.970 Acres of Land, 360 U.S.

328, 333, n.7 (1959).

96. United States ex rel. T.V.A. v. Powelson, 319 U.S. 266, 279 (1943).

97. State of Nebraska v. United States, 164 F.2d 866, 868 (8th Cir. 1947), cert. denied 334 U.S. 815.

98. United States v. Little Lake Misere Land Company, 412 U.S. 580, 604 (1973); United States v. Certain Interests in

Property in Champaign County, Ill., 271 F.2d 379, 384 (7th Cir. 1959), cert. denied 362 U.S. 974.

30 Uniform Appraisal Standards for Federal Land Acquisitions

Compensation,” we have held, means in most cases the fair market value of the property on the

date it is appropriated. “Under this standard, the owner is entitled to receive ‘what a willing buyer

would pay in cash to a willing seller’ at the time of the taking.”99

On a number of occasions, the Supreme Court has addressed the issue of market value,

as the measure of just compensation, in federal condemnation cases. The following definition

of market value has been adopted for use by appraisers in applying these Standards to

their appraisals and reports prepared for federal land acquisitions:

Market value is the amount in cash, or on terms reasonably equivalent to cash, for which in all

probability the property would have sold on the effective date of the appraisal, after a reasonable

exposure time on the open competitive market, from a willing and reasonably knowledgeable

seller to a willing and reasonably knowledgeable buyer, with neither acting under any compulsion

to buy or sell, giving due consideration to all available economic uses of the property at the time

of the appraisal.

This definition is based on a compendium of Supreme Court decisions regarding the

definition of market value for federal eminent domain purposes.100 As with most definitions

of market value, this one contains various implicit elements, some of which have “been

hedged with certain refinements developed over the years in the interest of effectuating the

constitutional guarantee” of just compensation.101

In ascertaining market value, consideration should be given to all matters that might be

brought forward and reasonably be given substantial bargaining weight by persons of

ordinary prudence, but no consideration whatever should be given to matters not affecting

market value.102 In developing the generally applied rule that market value is the measure

of just compensation, the federal courts have employed variations of the term market value;as explained by the Supreme Court in

United States v. Miller, 317 U.S. 369, 374 (1943)

(internal citations omitted):

The owner has been said to be entitled to the “value,” the “market value,” and the “fair market

value” of what is taken. The term “fair” hardly adds anything to the phrase “market value” which

denotes what “it fairly may be believed that a purchaser in fair market conditions would have

given,” or, more concisely, “market value fairly determined.”

It is clear from these decisions that the adding of adjectives, such as fair or cash to the

term market value does not alter its meaning for federal acquisition purposes.

The Supreme Court has cautioned that:

 

strict adherence to the criterion of market value may involve elements which, though they affect

such value, must in fairness be eliminated in a condemnation case, as where the formula is

attempted to be applied as between an owner who may not want to part with his land because of

its special adaptability to his own use, and a taker who needs the land because of its peculiar

fitness for the taker’s purposes. These elements must be disregarded by the fact finding body in

arriving at “fair” market value.103

99. Kirby Forest Industries, Inc. v. United States, 467 U.S. 1, 9-10 (1984) (citations omitted).

100. Almota Farmers Elevator and Warehouse Co. v. United States, 409 U.S. 470, 474 (1973); Kerr v. South Park Commissioners,

117 U.S. 379, 386-387 (1886); United States v. Miller, 317 U.S. 369, 374 (1943); Kirby Forest Industries, Inc. v.

United States, 467 U.S. 1, 10 (1984); McCoy v. Union Elevated R.R. Co., 247 U.S. 354, 359 (1918); United States v.

Reynolds, 397 U.S. 14, 17 (1970).

101. United States v. Reynolds, 397 U.S. 14, 16 (1970).

102. United States v. 50 Acres of Land, 469 U.S. 24, 29 (1984).

103. United States v. Miller, 317 U.S. 369, 375, (1943). See also United States v. Fuller, 409 U.S. 488, 491 (1973).

Section B-2

Uniform Appraisal Standards for Federal Land Acquisitions 31

Likewise, since market value is the test, no consideration should be given in the

appraisal to any special value of the property to the owner not directly reflected in the

market value.104

In this connection, the Supreme Court has noted that “[t]he value compensable under

the Fifth Amendment, therefore, is only that value which is capable of transfer from owner to

owner and thus of exchange for some equivalent. Its measure is the amount of that equivalent.”

105 The Court goes on to state: “If exchanges of similar property have been frequent, the

inference is strong that the equivalent arrived at by the haggling of the market would probably

have been offered and accepted, and it is thus that the ‘market price’ becomes so

important a standard of reference.”106 Accordingly, it is the market price which arises from the

“haggling of the market” which is being sought. When price-controlled property is taken, the

controlled price, being the only lawful market price, is the normal measure of just compensation,

107 as “The Fifth Amendment allows the owner only the fair market value of his property;

it does not guarantee him a return on his investment.”108

It is significant that the federal definition of market value is based on the presumption

that the property, prior to the effective date of valuation, was on the open market for a

reasonable length of time to find a buyer who was ready, willing, and able to consummate a

purchase on the effective date of valuation. The federal courts have not attempted to define a

reasonable length of time, probably in recognition of the fact that such length of time may

vary dependent upon a myriad of factors, such as property type, market conditions, property

location, and price range of property. Nor have the federal courts required that an estimate of

market value be linked to a specified exposure time on the open market, only that it be

reasonable under the circumstances. For that reason, appraisers should not link their estimates

of market value made for federal acquisition purposes to a specific exposure time. To

do so places a limiting condition on the estimate that is not required for federal land acquisition

purposes, and one which may be found to be unacceptable by the federal courts.

The question of what constitutes reasonably knowledgeable buyers and sellers, within

the context of market value, has been addressed. It has been found that reasonably knowledgeable

does not require buyers and sellers to be all-knowing, but rather to have the

knowledge possessed by the “typical ‘willing buyer-willing seller’” in the marketplace: “The

market from which a fair market value may be ascertained need not contain only legally

trained (or advised) persons who fully investigate current land use regulations; ignorance of

the law is every buyer’s right.”109 Consideration should be given to “a relevant market made

up of investors who are real but are speculating in whole or major part.”110 As the same

court explained in a later appeal:

 

The uncontroverted evidence of an active real estate market compels the conclusion that the

typical ‘willing buyer-willing seller’ requirement of fair market value had been met; it would be

inappropriate for a court to substitute its own judgment of value for that of the market. While an

[appraiser] might be justified in adjusting the fair market value figure by discarding aberrational

values based upon sales between related entities or fraudulent sales to widows and orphans, an

[appraiser] may not discard an entire market as aberrational.111

104. United States v. 50 Acres of Land, 469 U.S. 24, 35 (1984); United States v. 564.54 Acres of Land, 441 U.S. 506, 511

(1979); United States v. Miller, 317 U.S. 369, 375 (1943).

105. Kimball Laundry Co. v. United States, 338 U.S. 1, 5 (1949).

106. Ibid., 6.

107. United States v. Commodities Trading Corp., 339 U.S. 121, 124-125 (1950).

108. United States ex rel. T.V.A. v. Powelson, 319 U.S. 266, 285 (1943).

109. Florida Rock Industries, Inc. v. United States, 18 F.3d 1560, 1566, n.12 (Fed. Cir. 1994).

110. Florida Rock Industries, Inc. v. United States, 791 F.2d 893, 903 (Fed. Cir. 1986).

111. Florida Rock Industries, Inc. v. United States, 18 F.3d 1560, 1567 (Fed. Cir. 1994).

Section B-2

32 Uniform Appraisal Standards for Federal Land Acquisitions

The Supreme Court has ruled that any alteration in the market value of the property

being acquired that is attributable to the project for which it is being acquired must be

disregarded.112 This subject is discussed in detail in Section B-10. The market value which is

sought is not merely theoretical or hypothetical; it represents, insofar as it is possible to

estimate it, the actual selling price. As has been judicially declared: “where ‘private property

is taken for public use, and there is a market price prevailing at the time and place of the

taking, that price is just compensation.’”113

Even though “[t]he Court has repeatedly held that just compensation normally is to be

measured by ‘the market value of the property at the time of the taking contemporaneously

paid in money,’”114 it has also recognized that deviation from this measure of just

compensation has sometimes been required “‘when market value has been too difficult to

find, or when its application would result in manifest injustice to owner or public.’”115 As

explained by Justice Douglas:

The Court in its construction of the constitutional provision has been careful not to reduce the

concept of “just compensation” to a formula. The political ethics reflected in the Fifth Amendment

reject confiscation as a measure of justice. But the Amendment does not contain any definite

standards of fairness by which the measure of “just compensation” is to be determined. The Court in

an endeavor to find working rules that will do substantial justice has adopted practical standards,

including that of market value. But it has refused to make a fetish even of market value, since that

may not be the best measure of value in some cases.116

This should not be construed to mean that in all instances in which highly similar

comparable sales are unavailable, the courts will disavow the market value measure of

compensation. As the Supreme Court explained:

There may have been, for example, so few sales of similar property that we cannot predict with

any assurance that the prices paid would have been repeated in the sale we postulate of the

property taken. We then say that there is ‘no market’ for the property in question. But that does

not put out of hand the bearing which the scattered sales may have on what an ordinary purchaser

would have paid for the claimant’s property. We simply must be wary that we give these

sparse sales less weight than we accord ‘market’ price, and take into consideration those special

circumstances in other sales which would not have affected our hypothetical buyer.117

The Court has also made it clear that “[t]he ascertainment of compensation is a judicial

function, and no power exists in any other department of the government to declare what

the compensation shall be or to prescribe any binding rule in that regard”118 because themeaning of just compensation is a matter of fundamental constitutional interpretation, and

the ability to make binding interpretations of the Constitution rests only with the United

States Supreme Court.

In short, while the “Court has never attempted to prescribe a rigid rule for determining

what is ‘just compensation’ under all circumstances and in all cases . . . market value has

normally been accepted as a just standard.”119 Thus, these Standards are based on the

premise that the compensation for federal land acquisitions will be measured by the

112. United States v. Reynolds, 397 U.S. 14, 16-17 (1970).

113. United States v. Toronto, Hamilton & Buffalo Navigation Co., 338 U.S. 396, 404 (1949), citing United States v. New

River Collieries, 262 U.S. 341, 344 (1923).

114. United States v. 50 Acres of Land, 469 U.S. 24, 29 (1984) (citations omitted).

115. Ibid.

116. United States v. Cors, 337 U.S. 325, 332 (1949) (citations omitted).

117. United States v. Toronto, Hamilton & Buffalo Navigation Co., 338 U.S. 396, 402 (1949).

118. United States v. New River Collieries, 262 U.S. 341, 343-344 (1923).

119. United States v. Commodities Trading Corp., 339 U.S. 121, 123 (1950).

Section B-2

Uniform Appraisal Standards for Federal Land Acquisitions 33

relatively objective working rule120 of market value as established by the Supreme Courtover 100 years ago.121 It is also for that reason that appraisers are instructed by these

Standards to estimate the market value of property being acquired by the government,

rather than to estimate the just compensation due for the property acquired. The determination

of “just compensation” is beyond the scope of the appraiser’s assignment, expertise,

and authority. If the circumstances of a particular case render the market value measure

“too difficult to find, or when its application would result in manifest injustice to owner or

public,”122 that determination will be made by the court in accordance with applicable law.Buildings and improvements,123 timber, crops, sand, gravel, minerals, oil, and so forth, in

or upon the property are to be considered to the extent that they enhance the market value

of the property as a whole. The total value of the property shall not be estimated by adding

the values of such separate items to the value of the land, and the fact that the various

items are in separate ownerships does not alter this rule. It must be remembered that it is

the market value of the entire property that is the standard of valuation, and not the total

of the money values of the separate items. This subject is discussed in greater detail in

Section B-13 of these Standards. The mere possibility of the existence of minerals, oil, or gas

is not sufficient to affect market value. Such a possibility can be given consideration only

when there is sufficient probability of the presence of mineral, oil, or gas as to affect market

value and when that probability would be given weight by a prudent person in bargaining.

Government-constructed buildings and improvements put on the property during the

government’s prior occupancy (e.g., when the government begins construction of the public

improvement prior to the transfer of title and the effective date of the appraisal, or when the

government made improvements as a prior lessee of the property) are often excluded from

consideration in estimating market value, depending upon the specific facts of the case.

Therefore, appraisers who encounter government-constructed improvements on the property

to be appraised as of the effective date of the appraisal should request written instructions

from the client agency or legal counsel on how the improvements should be treated. 124

120. United States v. 564.54 Acres of Land, 441 U.S. 506, 511 (1979).

121. E.g., Boom Company v. Patterson, 98 U.S. 403, 408 (1878).

122. United States v. 50 Acres of Land, 469 U.S. 24, 29 (1984).

123. Section 302(a) of P.L. 91-646, the Uniform Relocation Act (URA), approved January 2, 1971, 84 Stat. 1905, 42 U.S.C.

§4652 provides:

[n]otwithstanding any other provision of law, if the head of a federal agency acquires any interest in real property in any

State, he shall acquire at least an equal interest in all buildings, structures, or other improvements located upon the real

property so acquired and which he requires to be removed from such real property or which he determines will be adversely

affected by the use to which such property will be put.

The appraiser should receive from the acquiring agency advice as to the requirements of such agency for the

removal of buildings, structures and the identification of these which the head of the agency determines will be

adversely affected by the proposed use of the property. However, appraisers should also recognize that such instructions

may not be applicable if the case is referred to the Department of Justice for condemnation, because Section 102

of the Act provides:

(a) The provisions of section 4651 of this title of the Act [relating to real property acquisition policy and practices] create no

rights or liabilities and shall not affect the validity of any property acquisitions by purchase or condemnation.

(b) Nothing in this Act shall be construed as creating in any condemnation proceedings brought under the power of eminent

domain, any element of value or of damage not in existence immediately prior to January 2, 1971. 42 U.S.C. §4602.

124. In researching this issue, legal counsel may want to start their research by referring to the following cases: Old

Dominion Co. v. United States, 269 U.S. 55, 65 (1925); Searl v. School District, Lake County, 133 U.S. 553, 562-565

(1890); Washington Metropolitan Area Transit Authority v. One Parcel of Land, 780 F.2d 467, 471 (4th Cir. 1986); United

States v. Delaware, Lackawana & Western Railroad Co., 264 F.2d 112, 116-117 (3rd Cir. 1959); Bibb County, Georgia v.

United States, 249 F.2d 228, 230 (5th Cir. 1957), but see United States v. Certain Space in Rand McNally Building, 295

F.2d 381, 383-384 (7th Cir. 1961).

Section B-2

34 Uniform Appraisal Standards for Federal Land Acquisitions

As a general rule, the property being acquired should be valued as of the time of

acquisition, or as near that time as is possible.125 When the appraisal is made after the

taking, no consideration whatever should be given to physical changes, particularly improvements

made by the condemnor, or changes in value occurring after the taking.

Likewise, as discussed in Section B-10, no consideration should be given to or allowance

made for enhancement or diminution in value of the property attributable to or resulting

from the project or from the government’s special need for the property, other than that

due to physical deterioration within the reasonable control of the owner, whether such

changes in value occur before or after the time of acquisition.

B-3. Highest and Best Use. Market value is to be determined with reference to the

property’s highest and best use, that is:

The highest and most profitable use for which the property is adaptable and needed or likely to

be needed in the reasonably near future. . . .126

Such use “is to be considered, not necessarily as the measure of value, but to the full

extent that the prospect of demand for such use affects the market value while the property

is privately held.”127

“Ordinarily, the highest and best use for property sought to be condemned is the use to

which it is subjected at the time of the taking. This is true because economic demands

normally result in an owner’s putting his land to the most advantageous use.”128 In the

conduct of appraisals for federal land acquisition purposes, there is a presumption that the

existing use of land is its highest and best use.129 Therefore, when there is a claim that the

highest and best use of a property is something other than the property’s existing use, the

burden of proving that different highest and best use is on the party making the claim.130

However, if the property is clearly adaptable to a use other than the existing use, its

marketable potential for such use should be considered to the extent that potential affects

market value.131 But, market value cannot be predicated upon potential uses that are

speculative and conjectural; as the Supreme Court has said:

Elements affecting value that depend upon events or combinations of occurrences which, while

within the realm of possibility, are not fairly shown to be reasonably probable should be excluded

from consideration, for that would be to allow mere speculation and conjecture to become a

guide for the ascertainment of value—a thing to be condemned in business transactions as well as

in judicial ascertainment of truth.132

A proposed highest and best use requires a showing of reasonable probability that the

land is both physically adaptable for such use and that there is a need or demand for such

125. That will generally be the date of the appraiser’s last property inspection in voluntary acquisitions. In a declaration of

taking case, the proper time of valuation is the date of filing the declaration of taking or the date of the government’s

entry into possession, whichever occurs first. United States v. Dow, 357 U.S. 17, 21-22 (1958). In a straight condemnation

(without declaration of taking), the date of commencement of trial is used as the date of valuation. See Kirby Forest

Industries, Inc., v. United States, 467 U.S. 1, 16-17 (1984), for a full discussion of the date of valuation question in a

straight condemnation case.

126. Olson v. United States, 292 U.S. 246, 255 (1934). See also Boom Company v. Patterson, 98 U.S. 403, 408 (1878).

127. Ibid.

128. United States v. Buhler, 305 F.2d 319, 328 (5th Cir. 1962).

129. United States v. L. E. Cooke Company, Inc., 991 F.2d 336, 341 (6th Cir. 1993); United States v. 62.50 Acres of Land, 953

F.2d 886, 890 (5th Cir. 1992); United States v. 69.1 Acres of Land., 942 F.2d 290, 292 (4th Cir. 1991).

130. United States v. 62.50 Acres of Land, 953 F.2d 886, 890 (5th Cir. 1992); Tennessee Gas Pipeline Co. v. 104 Acres of

Land, 780 F.Supp. 82, 86 (D.R.I. 1991).

131. Olson v. United States, 292 U.S. 246, 255 (1934).

132. Ibid., 257.

Sections B-2 through B-3

Uniform Appraisal Standards for Federal Land Acquisitions 35

use in the reasonably near future; physical adaptability alone is insufficient.133 “[O]bviously

the more profitable operation must be allowed by law to be carried out on the premises.”134

(See Sections B-23, “Zoning and Permits” and D-6, “Zoning and Other Land Use Regulations.”)

In no event may an appraisal be made on the basis of one use for the land while the

improvements are valued on the basis a different, inconsistent use. (See A-14, “Analysis of

Highest and Best Use”). Various parts of a single property may have different highest and

best uses as long as these uses are not inconsistent (e.g., residential or commercial alongroad or highway frontage and agricultural use for the rear land).135 These differences,

however, may enter into the determination of the larger parcel, which is discussed in

Section B-11. In no event is it proper that the different uses be valued independently and

merely added together to derive a value for the whole property.136

Highest and best use cannot be predicated on a demand created solely by the project

for which the property is acquired (e.g., rock quarry, when the only market is the highway

project for which property was acquired.).137 A proposed highest and best use cannot be theuse for which the government is acquiring the property (e.g., missile test range, habitat

conservation, airfield, park), unless there is a prospect and competitive demand for that use

by others than the government:138

The Supreme Court has recognized the existence of a ‘principle which excludes enhancement of

value resulting from the government’s special or extraordinary demand for the property.’ . . . .The

focal point of the ‘special or extraordinary’ standard is that values resulting from the urgency or

uniqueness of the government’s need for the property or from the uniqueness of the use to which

the property will be put do not reflect what a willing buyer would pay to a willing seller. . . . [I]t is

clear that government projects may render property valuable for a unique purpose. Value for such

a purpose, if considered, would cause ‘the market to be an unfair indication of value,’ because

there is no market apart from the government’s demand.139

Likewise, “[t]he benefit a real estate development produces for a community or the

amenity contribution provided by a planned project (i.e., the public space in a park-like

area) is not considered in the appraiser’s analysis of highest and best use. Highest and best

use is driven by economic considerations and market forces, not by public interest.”140

Therefore, “a non-economic highest and best use is not a proper basis for the estimate of

market value [thus] a highest and best use of conservation, preservation, or other use that

133. Ibid., 256; United States v. 27.93 Acres of Land, 924 F.2d 506, 512 (3rd Cir. 1991); United States v. 33.90 Acres of

Land, 709 F.2d 1012, 1014-1015 (5th Cir. 1983); United States v. 158.24 Acres of Land, 696 F.2d 559, 563 (8th Cir.

1982); United States v. 77,819.10 Acres of Land, 647 F.2d 104, 110 (10th Cir. 1981).

134. United States v. Meadow Brook Club, 259 F.2d 41, 45 (2nd Cir. 1958), cert. denied, 358 U.S. 921.

135. United States v. 179.26 Acres of Land, 644 F.2d 367, 371 (10th Cir. 1981); United States v. 320.0 Acres of Land, 605

F.2d 762, 817 n.124 (5th Cir. 1979); Eagle Lake Improvement Co. v. United States, 160 F.2d 182, 184 (5th Cir. 1947),

cert. denied, 332 U.S. 762; United States v. Carrol, 304 F.2d 300, 306 (4th Cir. 1962).

136. United States v. 91.90 Acres of Land, 586 F.2d 79, 87 (8th Cir. 1978); cert. denied, 441 U.S. 944 (1979); Morton Butler

Timber Co. v. United States, 91 F.2d 884, 888 (6th Cir. 1937); United States v. Jaramillo, 190 F.2d 300, 302 (10th Cir.

1951); United States v. Certain Parcels of Land in Rapides Parish, La., 149 F.2d 81, 82 (5th Cir. 1945).

137. United States v. Cors, 337 U.S. 325, 333 (1949); United States v. 320.0 Acres of Land, 605 F.2d 762, 811 n. 107 (5th

Cir. 1979); United States v. 46,672.96 Acres of Land, 521 F.2d 13, 15, 16 (10th Cir. 1975); J. A. Tobin Construction Co.

v. United States, 343 F.2d 422, 423 (10th Cir. 1965), cert. denied, 382 U.S. 830; United States v. 158.76 Acres of Land,

298 F.2d 559, 560 (2nd Cir. 1962).

138. United States v. Chandler-Dunbar Co., 229 U.S. 53, 80-81 (1913); United States v. 320.0 Acres of Land, 605 F.2d 762,

783 n.26, 811 n.107 (5th Cir. 1979); United States v. 46,672.96 Acres of Land, 521 F.2d 13, 15-16 (10th Cir. 1975).

139. United States v. Weyerhaeuser Co., 538 F.2d 1363, 1366, 1367 (9th Cir. 1976), cert. denied, 429 U.S. 929 (1976)

(internal citations omitted).

140. The Appraisal of Real Estate, 11th ed. (Chicago: Appraisal Institute, 1996), 298 n.1.

Section B-3

36 Uniform Appraisal Standards for Federal Land Acquisitions

requires the property to be withheld from economic production in perpetuity, is not a valid

use upon which to estimate market value.”141

The Department of Justice’s “view is that an appraisal premised on a highest and best use

of ‘preservation,’ ‘conservation,’ ‘natural lands’ and the like is not an appraisal of ‘fair market

value’ and is unacceptable for both direct purchase and eminent domain acquisitions. That

view is largely based on the principles of eminent domain law from which we conclude that a

non-economic use is not a proper basis for assessing fair market value, that a value premised

on a highest and best use of ‘preservation’ or the like does not represent a ‘market’ value, and

certainly does not represent a ‘fair’ value.”142 Therefore, the Department of Justice will not

approve any appraisal report for federal acquisition purposes wherein the value estimate is

based upon an uneconomic highest and best use. Nor will it approve any appraisal report that

incorporates a definition of highest and best use that includes the concept of non-economic

uses. (See A-14, “Analysis of Highest and Best Use.”)

When determining the highest and best use of land riparian to navigable water, there

are special considerations that must be taken into account. See discussion in Section B-14.

Because the highest and best use is a most important consideration in estimating

market value, it must be dealt with specifically in appraisal reports. Many things must be

considered in determining the highest and best use of property and each potential use must

be analyzed in terms of its physical possibility, legal permissibility, financial feasibility, and

its degree of profitability. That use which meets the first three tests and is the most profitable

use (i.e., results in the highest value) is the property’s highest and best use.

Important practical applications of highest and best use estimates arise in connection

with partial acquisitions, such as flowage, conservation, clearance or other types of easements.

The value of the remainder, after a partial acquisition, is governed largely by its

highest and best use. If, for example, what was essentially farmland before the acquisition

has become lakefront property having a highest and best use for recreational home sites,

the important principle of offsetting special benefits discussed in Section B-12, might

become applicable. However, if the acquisition causes the remainder property to have a less

valuable highest and best use, the difference between the values of the property before and

after the acquisition will reflect both the diminution in the value of the remainder resulting

from the acquisition as well as the value of the land or property interest actually acquired.

This is more fully discussed in Section B-11 of these Standards.

Concerning partial acquisitions, the appraiser must consider any material change in the

intensity of use within a highest and best use classification: for example, when a balanced

farm in the before position becomes an unbalanced farm in the after position because of

the partial acquisition by the government.143 The highest and best use classification of an

agricultural farm would cover both positions. However, the two intensities of that use, a

balanced versus an unbalanced farm, would identify the need to carefully re-analyze the

comparative ratings of each of the comparable sales in the after position, or even the need

to use different comparable sales in the after position than were used before the

government’s acquisition.

141. Interagency Land Acquisition Conference, “Position Paper: On the issue whether a noneconomic highest and best use

can be a proper basis for the estimate of market value” (Washington D.C., 1995).

142. William J. Kollins, “Presentation on Issues Raised by the ‘Public Interest Value’ Concept: Views of the Department of

Justice” (Paper delivered at the Annual Meeting of the American Society of Farm Managers and Rural Appraisers, Reno,

NV, November 11, 1994), 4. See also, William J. Kollins, “Public Interest Value,” United States Attorney’s Bulletin

(February 2000): 47-53.

143. For example, in the before position the farm may have a balanced ratio of supporting outbuildings to service the land

area in the farm, whereas in the after position, because of the reduced land area of the farm, the outbuildings may

constitute an over-improvement and thus contribute less value, because of the lessened land area to be served.

Section B-3

Uniform Appraisal Standards for Federal Land Acquisitions 37

B-4. Sales Comparison Approach to Value. Arms length transactions in lands inthe vicinity of and comparable to the land under appraisement,

144 reasonably near the time

of acquisition, are the best evidence of market value,145 but not to the extent of exclusion ofother relevant evidence of value.

146 Such transactions are commonly referred to as comparable

sales, and the process of forming an opinion of the property’s market value through

comparison of such sales transactions with the subject property is known as the sales

comparison approach to value. Too often it has been found in appraisal reports that, under

the circumstances of the case, the most reliable approach to value has been over-shadowed

by the time, attention, and detail given to other less reliable approaches to value.

Comparison of sales transactions to the subject property being appraised is the essence

of the sales comparison approach to value. The basic elements of comparison to be considered

are recognized as:

• Property rights conveyed

• Financing terms

• Conditions of sale

• Market conditions (historically referred to as a time or date of sale adjustment)

• Location

• Physical characteristics

• Economic characteristics

• Use and zoning

• Non-realty components of value included in the sale property147

Accepting the truism that all three of the usual approaches to value are based on market data

interpretation, the federal courts recognize that the sales comparison approach is normally the

best evidence. Adjustments made to comparable sales are often developed by the use of techniques

from the income capitalization and cost approaches to value and, conversely, factors used

in the income capitalization and cost approaches are often derived from comparative market data.

The important role of the sales comparison approach to value in appraisals for federal

land acquisitions is illustrated by the Supreme Court’s statement that: “Where private

property is taken for public use, and there is a market price prevailing at the time and place

of the taking, that price is just compensation.”148 Or, as put by the 10th Circuit: “The best

evidence of such value is like and comparable sales within a reasonable time preceding the

condemnation.”149 The sales comparison approach normally should be stressed and care

144. This would include a prior sale of the land under appraisement, which could very well be the most comparable of all the

comparable sales. See Section B-5, “Prior sales of the identical property,” for fuller discussion of this point.

145. E.g., El Paso Natural Gas Co. v. Federal Energy Regulatory Commission, 96 F.3d 1460, 1464 (D.C. Cir. 1996); United

States v. 819.98 Acres of Land, 78 F.3d 1468, 1471 (10th Cir. 1996); United States v. 24.48 Acres of Land, 812 F.2d 216,

218 (5th Cir. 1987); Nemmers v. City of Dubuque, 764 F.2d 502, 505 (8th Cir. 1985); United States v. 103.38 Acres of

Land, 660 F.2d 208, 211 (6th Cir. 1981); United States v. 100 Acres of Land, Etc., Marin Cty., Cal., 468 F.2d 1261, 1265

(9th Cir. 1972), cert. denied, 414 U.S. 822 (1973); United States v. Upper Potomac Properties Corp., 448 F.2d 913, 918

(4th Cir. 1971); United States v. 344.85 Acres of Land, 384 F.2d 789, 791-792 (7th Cir. 1967); United States v. 60.14

Acres of Land, 362 F.2d 660, 665 (3rd Cir. 1966).

146. El Paso Natural Gas Co. v. Federal Energy Regulatory Commission, 96 F.3d 1460, 1464 (D.C. Cir. 1996); United States v.

819.98 Acres of Land, 78 F.3d 1468, 1471 (10th Cir. 1996); Servalli v. United States, 845 F.2d 1571, 1575 (Fed. Cir. 1988);

United States v. 421.89 Acres of Land, 465 F.2d 336, 338-339 (8th Cir. 1972); United States v. Upper Potomac Properties

Corp., 448 F.2d 913, 917 (4th Cir. 1971); United States v. 344.85 Acres of Land, 384 F.2d 789, 792 (7th Cir. 1967).

147. For a general discussion of these elements of comparison see, The Appraisal of Real Estate, 11th ed. (Chicago:

Appraisal Institute, 1996), 403-414.

148. United States v. New River Collieries, 262 U.S. 341, 344 (1923).

149. Onego Corporation v. United States, 295 F.2d 461, 463 (10th Cir. 1961).

Section B-4

38 Uniform Appraisal Standards for Federal Land Acquisitions

should be taken that it does not get lost among other evidence concerning what the courts

often view as less reliable approaches to value. Because it is the most easily understood

approach to value, it often develops the most acceptable and convincing evidence of the

market value of the property to both the courts and the parties to the transaction.

It is imperative to verify sales amounts and to ascertain whether terms and conditions

of a sale were conventional and under open competitive market conditions. This requires

interviews and discussions with the seller, buyer, the closing agency, or the broker handling

the transaction and the verification of recordation, which is the only avenue of verification

not based upon statements of persons other than the appraiser. Verification must be

accomplished by competent and reliable personnel, and if the case goes into condemnation,

the sale must be personally verified by the appraiser who will testify.

The extent of sales verification will vary with the circumstances of each sale, including

the specific parties involved in the sale and the importance and weight ultimately given to

the sale in the final estimate of value. Sales must be evaluated under two criteria: the

weight, if any, to be given them by the appraiser in arriving at an estimate of market value

of the property under appraisal, and the admissibility of such sale if the acquisition must be

by condemnation. Although the criteria for these evaluations are similar, they are not

identical, and the result of one evaluation does not necessary dictate the result of the other.

For instance, a sale that is found to be inadmissible does not necessarily have to be entirely

excluded from the appraiser’s consideration in deriving an estimate of market value (e.g.,

see discussion of “offers” in Section B-16 of these Standards). Nor is a sale which the

appraiser concluded should be given no weight necessarily inadmissible. The criteria for the

evaluation of sales for purposes of admissibility will be discussed below. Sections A-17, and

D-9 discuss the criteria and required verification process for various categories of sales to

determine the weight, if any, these sales should be given by the appraiser.

However, in determining when to consider, and if so how much weight to give sales in

their appraisals, appraisers should recognize that the criteria established for the admissibility

of sales by the federal courts were established for legitimate and persuasive reasons.

Therefore, one of the factors that should be considered in the selection and weighing of

comparables sales is their admissibility.

Forced sales, i.e., sales made under some form of legal (as distinguished from economic)

compulsion, are generally not admissible in a condemnation trial.150 “A forced sale

is one which has no probative value whatever and therefore must be excluded from evidence.”

 

151 “The phrase ‘forced sale’ is used in the law of condemnation to describe a sale of

property which is inadmissible as evidence of value because elements of compulsion so

affected the seller that the sale could not be said to be fairly representative of market value

at the time made. This conception of a forced or compulsive sale includes force or compulsion

as a result of some kind of legal process.”152 It has been held that a comparable sale

was not under compulsion, coercion or compromise, such as to be inadmissible in evidence,

if the witness testifies or if it is otherwise shown, that the public records do not disclose that

the sale was at foreclosure, under deed of trust securing an indebtedness, at execution or

attachment, at auction, under the pressure of the exercise of the power of eminent domain,

or under other coercion sui generis – types of legal compulsion generally disclosed by

150. United States v. Certain Land in Fort Worth, Texas, 414 F.2d 1029, 1031-32 (5th Cir. 1969); District of Columbia

Redevelopment Land Agency v. 61 Parcels of Land, 235 F.2d 865, 865-66 (D.C. Cir. 1956); Hickey v. United States, 208

F.2d 269, 275 (3rd Cir.1953), cert. denied, 347 U.S. 919(1954); United States v. 5139.5 Acres of Land, 200 F.2d 659,

661 (4th Cir. 1952); Baetjer v. United States, 143 F.2d 391, 397 (1st Cir.), cert. denied, 323 U.S. 772.

151. Hickey v. United States, 208 F.2d 269, 275 (3rd Cir. 1953), cert. denied, 347 U.S. 919 (1954).

152. Ibid.

Section B-4

Uniform Appraisal Standards for Federal Land Acquisitions 39

public records.153 The motivation behind other transactions can be shown, but only as

affecting the weight that should be afforded a sale, not as to its admissibility.154

Sales to a condemning authority are often inadmissible. (See Section B-18, “Price paid by

government entity for similar property.”) The reasons for excluding sales to a condemning

authority are not applicable, however, to sales by a condemning authority. Sales between

members of a family or closely related business entities are not arms-length transactions, and

since they may involve other factors than market value considerations, such sales are generally

inadmissible. Sales involving the exchange of property are generally not admissible

because they are considered unreliable indicators of market value and introduce too many

collateral issues. As has been explained:

If evidence of . . . an exchange is to be considered as proof of present valuation, the values of such

exchanged lands obviously must be proved by the same standards as attends proof of value of the

property being condemned. Then it becomes the task of the trial judge to determine ordinarily

whether such collateral issues would be so confusing or so lengthy as to cause him to rule out any

effort to prove value of the condemned tract in such a fashion.155

Sales that include personal property (e.g., the sale of a farm that includes the farm

equipment and/or livestock), are likewise considered inadmissible, unless they can accurately

be adjusted to reflect only the real property transaction. Distress sales and sales with

atypical financing terms are of questionable reliability and should be used only with great

care. If want of available market data necessitates reference to such a sale or sales, it is

important that proper adjustments be made.

Sales after the date of acquisition are not per se inadmissible (contrary to popular

belief) and with appropriate caution and restraint may be utilized by the appraiser if they

meet the usual standards of comparability and are not otherwise incompetent as evidence

of value.156 Sales transacted on or before the date of acquisition are the preferred support

for an appraisal and if such sales are available and adequate, there is little justification for

using post-acquisition sales. Use of post-acquisition sales should be avoided where they

reflect artificially inflated or depressed values resulting from the acquisition itself or from

the government’s project,157 or if they significantly post-date the acquisition date.

A binding and unconditional contract of sale, even where title has yet to be conveyed,

is generally competent admissible evidence of value and may be utilized by the appraiser as

a comparable sale.158 However, it is essential that the contract be binding and unconditional.

153. United States v. Certain Land in Fort Worth, Texas, 414 F.2d 1029, 1031-1032 (5th Cir. 1969); District of Columbia

Redevelopment Land Agency v. 61 Parcels of Land, 235 F.2d 865, 865-866 (D.C. Cir. 1956).

154. United States v. 6, 162.78 Acres of Land, 680 F.2d 396, 399 (5th Cir. 1982); United States v. Certain Land in Fort Worth,

Texas, 414 F.2d 1029, 1032 (5th Cir. 1969); District of Columbia Redevelopment Land Agency v. 61 Parcels of Land,

235 F.2d 865, 866 (D.C. Cir. 1956); United States v. Katz, 213 F.2d 799, 800 (1st Cir. 1954); United States v. 5139.5

Acres of Land, 200 F.2d 659, 661 (4th Cir. 1952).

155. United States v. Leavell & Ponder, Inc., 286 F.2d 398, 406 (5th Cir. 1961), cert. denied, 366 U.S. 944.

156. United States v. 68.94 Acres of Land, 918 F.2d 389, 398 (3rd Cir. 1990): United States v. 0.161 Acres of Land, 837 F.2d

1036, 1044 (11th Cir. 1988); United States v. 312.50 Acres of Land, 812 F.2d 156, 157 n.3 (4th Cir. 1987): United States

v. 428.02 Acres of Land, 687 F.2d 266, 270 (8th Cir. 1982); United States v. 320.0 Acres of Land, 605 F.2d 762, 799-803

(5th Cir. 1979); United States v. 691.81 Acres of Land, 443 F.2d 461, 462 (6th Cir. 1971); United States v. 63.04 Acres

of Land, 245 F.2d 140, 144 (2nd Cir. 1957).

157. Ibid. But in the case of a partial acquisition where offsetting of benefits or damages are involved, post-acquisition sales

could be particularly relevant in valuing the remainder. For example, they may also be particularly useful when the

measure of damages is the difference between the market value before and after imposition of an easement. United

States v. 1129.75 Acres of Land, 473 F.2d 996, 999 (8th Cir. 1973).

158. United States v. 312.50 Acres of Land, 812 F.2d 156, 157 (4th Cir. 1987); United States v. 428.02 Acres of Land, 687

F.2d 266, 270-271 (8th Cir. 1982); United States v. 114.64 Acres of Land, 504 F.2d 1098, 1100 (9th Cir. 1974); United

States v. Smith, 355 F.2d 807, 811-812 (5th Cir. 1966).

Section B-4

40 Uniform Appraisal Standards for Federal Land Acquisitions

Mere offers and unexercised options, by contrast, are inadmissible as evidence of value and,

therefore, the appraiser should give little or no weight to such options, except to the extent

that they may set limits of value.159 See Section B-16.

The consideration and weight accorded to sales of other lands is determined by the

reliability of the data collected and verified and by the application of the three tests of

proximity (in time, in location, and in physical and economic similarity). But, the appraiser

should throughly investigate sales that were considered though not relied upon as direct

comparables in reaching a final estimate of market value. Such research material should be

retained in the appraiser’s file. When the comparability, thus admissibility, of a sale is

disputed in the course of a valuation trial, it is a well-recognized principle of law that the

determination of admissibility rests within the sound discretion of the presiding judge,

whose ruling is subject to review only for abuse of discretion.160 Retention of all data

considered by the appraiser in concluding a value estimate will insure that adequate market

data will be available for presentation to a trier of fact if the acquisition has to be accomplished

by condemnation.

B-5. Prior Sales of the Identical Property. Prior sales of the same property,

reasonably recent and not forced, are extremely probative evidence of market value.161

Accordingly, the appraiser has an obligation to determine what the owner paid for the

property. Adjustments for changes in market conditions may have to be made, or the prior

sale may have been made under circumstances that render it irrelevant to the determination

of the market value as of the date of valuation, but each appraisal report must include

a statement with respect to the consideration accorded to the immediate past sale of the

property under appraisal.

The admission into evidence of a sale of the property being acquired is extremely

pertinent, and thus courts have sustained such admissions even when a considerable period of

time has elapsed between the sale and the date of valuation.162 Not only must the appraisal

report include the latest sale of the property (regardless of when it was made) with whatever

statement is deemed relevant to the value as of the effective date of appraisal and any

adjustments made to reflect current value, but these Standards also require the reporting of

all sales of the subject property within 10 years of the date of valuation. (See Section A-13e.)

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