2409.22_71-74 Page 1 of 13 FOREST SERVICE HANDBOOK DENVER, CO FSH 2409.22 - TIMBER APPRAISAL HANDBOOK Region 2 Amendment No. 2409.22-96-4 Effective June 29, 1996 POSTING NOTICE: Amendments are numbered consecutively by Handbook number and calendar year. Post by document name. Remove entire document and replace with this amendment. Retain this transmittal as the first page of this document. The last amendment to this Handbook was Amendment 2409.22-96-3 to 2409.22,70 Contents. This amendment supersedes Amendment 2409.22-94-10 to 2409.22,70-74. Document Name 2409.22,71-74 2409.22,72,Ex.01-02 Superseded New (Number of Pages) 16 - 13 2 Digest: 71.1 - Modifies definition of Appraisal Point locations, allowing use of other known appraisal points where POL manufacture is located. 71.72 - Expands move-in unusual adjustment for small volume sales. Adds an unusual adjustment for sorting of products when sawtimber and POL products are being appraised on the same scale. Removes section dealing with POL share of specified road costs. 72 - Revises direction regarding application of timber property values in Timber Settlement sales. 73 - Revises direction for appraisal of dead volume eliminating the need for two volume groups. Removes Exhibit 3 from the handbook. ELIZABETH ESTILL Regional Forester R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 2 of 13 FSH 2409.22 - TIMBER APPRAISAL HANDBOOK R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 CHAPTER 70 - SPECIAL APPRAISALS 71 - APPRAISING ROUNDWOOD PRODUCTS OTHER THAN LOGS (POL). See section 50.5 for definitions of terms applied in this chapter. 71.1 - Introduction. Traditionally, the method for appraising products other than logs (POL) such as posts, poles, pilings, fuelwood, and other roundwood products in Region 2 has been by the Standard Rate or Comparison method of appraisal. Except for the Black Hills National Forest in certain situations, Transaction Evidence Appraisal (TEA) method is approved for all sales $2,000 total value or greater in order to sustain a defensible appraisal method. Forests are encouraged to use TEA on all sales greater than $2,000; however, sales with a total value of $10,000 or less may be offered at standard rates. See FSH 2409.18 and FSM 2431 parent text for proper use of standard rates. Do not use standard rates for POL if sawtimber and POL are to be appraised together in the same sale. Do not use POL TEA for material that could qualify as sawlog material. Use TEA, Standard Rate, Comparison or other approved appraisal method used in the original sale for extension and damage appraisals unless the residual value method was used. TEA is the approved method for extension and damage appraisals if the original sale was appraised using the Residual Value appraisal method. The initial POL database contained only aspen standard rate or comparison with standard rate appraisals. With the November 2, 1992, update, all species of POL sales were included in the database. As a minimum, the database will be updated semi-annually within 30 days after the end of the 1st and 3rd calender year quarter, and contain only POL or POL/Sawtimber mixed sales that were appraised and sold using the POL TEA method. The database shall contain sales and index information for the two previous six month periods. Appraise all POL sales using CCF as the unit of measure. This will prevent errors in the intended appraised price due to conversions between units of measure. Major appraisal points for POL are: Longmont, Mancos, Walden, and Olathe, Colorado; Whitewood, South Dakota; and Encampment, Laramie, and Manderson, Wyoming. Other appraisal points are approved provided there is reasonable assurance that such POL sale is economically viable to that point (sale will sell at or above advertised rates), and the appraisal point is the nearest facility capable of manufacturing the intended product being appraised within the contract period. Adjustments included in the POL TEA system are similar to comparison with standard rates. Adjust for the following: 1. Difference in Haul Mileage. R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 3 of 13 2. Maintenance Deposits. 3. Slash Deposits. 4. Temporary Road Costs (other than stump roads). 5. Unusual Adjustment (In specific cases). 6. Specified Road Costs. 7. There is no Log Cost Adjustment for POL. Appraise costs for treating residual trees, C(T)2.13#, in the slash plan and include as a specific sale adjustment for slash in addition to any slash deposit required. Offer all POL sales as flat rate as there is no basis for an index for this material. Prepare one appraisal summary regardless of the number and kinds of products involved. Appraise sawtimber and POL on one summary when sawtimber is included as a minor component of the sale. 71.4 - Current TE POL Appraisal Data. See Current Appraisal Data Bulletin (sec. 50.5) published semi-annually for updated values and average costs. 71.5 - Adjusted Base Period Price. This is the rate resulting from the average bid adjusted for market conditions and is with roads in place. The following procedure is used to arrive at the published value. The high bid for each sale within the database is weighted by its corresponding volume, and divided by the total volume in the database to arrive at the average high bid. This is considered the Base Period Price. The Market Adjustment is based on Random Lengths - Oriented Strand Board; North Central - 7/16" Index (Random Length Index). Market Price Adjustments are based on the difference between the weighted average Sale Price Index in the database compared to the Current Price Index. The index difference is multiplied by a factor of 0.2 to convert from $/thousand square feet (board measure) to $/CCF (log measure). The sale index entered in the database for each sale sold shall be the index used for developing the database. Example: Sale is advertised on 10/15/92 (Bid Date is 11/17/92), the index in use during the 4/92 - 9/92 period is used. This index is the six month average of 10/91 - 3/92. The Current Price Index is the average of the six monthly prices from the Random Lengths Index for the most recent six month period of the database. The Random Length Price Index for each month is the price listed in the chart entitled "Monthly Averages" which is published in the last weekly issue for each month of Random Lengths. The Random Length Index for each sale within the database is weighted by volume, and divided by the total volume to arrive at the weighted average Random Length Index (Base Period Index). The Base Period R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 4 of 13 Index is subtracted from the Current Price Index to arrive at the difference between the indicies. This difference may be positive or negative. The difference in indicies is multiplied by an adjustment factor (0.2) to convert the Random Length Index value of 1000 square feet of paneling to 100 cubic feet for POL products. The Market Adjustment is added to the Average Bid to arrive at the Base Period Price adjusted for market. An example of the market adjusted Base Period Price (BPP) calculation is: Weighted Ave. High Bid + [(Current Index - Base Per. Index) X Adj.] = BPP $14.20 + [($244.00 - $249.53) X 0.2], or $14.20 + [-1.11] = $13.09 The Adjusted Base Period Price is further modified by the difference between weighted average haul miles for all sales in the database and the base 52 miles. An example of this calculation is: BPP + (Wt'd Haul - Base Ave Mi. X Cost/Mi.) $13.09 + (82 - 52 X 0.17) = = Adj. BPP $18.19 This places the Adjusted Base Period Price (BPP) on an equivalent haul basis of 52 miles, determined to be the balance point where no adjustment is necessary for a given BPP. Upward and downward adjustment to Base Period Price shall be capped at an equivalent of no more than +/- 16 percent of the Current Base Period Price listed in the previous update. 71.6 - Sale Base Period Adjustments. The Adjusted Base Period Price reflects average sale conditions (Sale Base Period Adjustments) to which the specific sale can be compared. The Sale Base Period Adjustments are published in the Current Appraisal Data Bulletin by category. The sale cost categories for road maintenance deposit, slash disposal deposit including treatment of residual trees, and temporary roads are considered within this basis. Haul cost is calculated from the deviation about a base distance; therefore, the Sale Base Period Adjustment is zero. By category, the sale cost for each sale within the database is weighted by volume and divided by the total volume to arrive at the Sale Base Period Adjustments cost for that category. 71.7 - Sale Cost Adjustments. Sale Cost Adjustments to be made for comparison to the average sale in the database fall into two categories, Specific Sale Adjustments and Other Sale Adjustments. These costs need the same level of accuracy as any other appraisal method. Since the database is composed of the sale costs, the accuracy of the future database is dependent upon the accuracy of calculating the sale costs. 71.71 - Specific Sale Adjustments. Specific Sale Adjustments are those sale costs which relate to the Sale Base Period Adjustments (sec. 71.6). The sale cost categories for haul, road maintenance deposit, slash disposal deposit including R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 5 of 13 treatment of residual trees, temporary roads, and unusual adjustments are Specific Sale Adjustments. Refer to section 51.6 and related sections in chapter 40 for direction in calculating these cost categories. The only variance from these sections occurs in the calculation of temporary roads. Section 44.3, exhibit 01 states that, "Since no felling, bucking, and skidding costs are calculated for Transaction Evidence Appraisals, the appraiser must use the sum of the Zone Cost Center for fell and buck; and skid costs located in section 42." Otherwise, the instructions for calculating temporary road costs remain the same. Subtract the average haul mileage from the sale haul mileage and multiply by the haul rate of .1700/CCF/mile. This haul rate will remain in force without change until revised. The haul is calculated as a variance from an average based upon mileage. The database average haul distance for POL appraisal purposes is a constant 52 miles. 71.72 - Other Sale Adjustments. Included within this category of Sale Cost Adjustments are Unusual Adjustments and Specified Developments. Although these items do not relate to the Sale Base Period Adjustments in section 71.6, a relationship is established indirectly through the Average Bid. 1. Unusual Adjustments. Sale adjustments may be necessary for cost items not incorporated within the normal confines of the database and are normally needed in extraordinary situations only. a. Consider a need for an unusual adjustment in cases where volumes are small and move-in costs may not be properly amortized. Use a rate of $5.00/CCF for POL sales of 100 CCF or less. For sales 101 CCF to 500 CCF, use a proportioned rate based on where the sale volume lies within the range. b. Consider a sorting cost involved in separating products to different markets for sales where POL and sawtimber is mixed. Use an unusual adjustment to reflect this cost. Refer to section 51.6 for a similar procedure for sawtimber; however, the component of the volume to which the adjustment is applied differs as follows. POL sale, sawtimber removal is required: Apply the sorting cost equally among all species and product groups (Sale as a whole). POL sale, sawtimber optional removal at time of bidding: Apply the adjustment to the sawtimber to encourage bidding on this material. Use of this adjustment requires experience and knowledge of logging systems, and intuitive reasoning. Be as objective as possible. If the appraiser does not have experience, it is recommended that consultation with a Sale Administrator or a person experienced in logging systems and appraisals be sought for advice on this adjustment. R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 6 of 13 Use the Load Cost in section 42 of this handbook for average cost on which adjustment is to be made. For the adjustment, the appraiser must consider uniformity of POL distribution on the sale area, uniformity of sawtimber distribution, and other factors such as sizes, the volume being served by each landing, and so forth. Document the need for such an adjustment and include reasoning on how the percent adjustment was selected in the appraisal report. Use the following table for sorting: If POL Volume % is: 100% 50% - 99% Use % of Load Cost: 0% 5% - 75% For example, assume load cost in section 42 to be $5.43. POL volume is 85% of sale volume and sawtimber is required to be removed. POL is uniform but sawtimber is concentrated where about 30% of the landings will require sorting. Best judgement indicates a load adjustment of 25%. Because only 30% of the landings will require sorting, apply this percentage to the percent sorting adjustment for sale-as-a-whole and distribute equally to all species groups appraised. $5.43/CCF X .25 adjustment X .30 = $0.41/CCF Unusual Adjustment (sale-as-a-whole) This is the added cost for sorting compared to a normal sale of pure POL and is entered as an unusual adjustment. Use the same approach for calculating the sorting cost on a sale where sawtimber is optional bidding except multiply the same rate per CCF by total sale volume, divide by the sawtimber volume and apply only to the sawtimber component. Example: Sale volume = 1,000 CCF; therefore sawtimber = 150 CCF; thus: $0.41 x 1,000/150(sawtimber volume) = $2.73/CCF for sawtimber 2. Specified Developments. The sale adjustment for specified developments is normally limited to specified road costs. Refer to section 44.5 for direction. The rate entered for Specified Road Cost is the total Purchaser Credit Limit divided by the total volume and the cost per CCF is shared equally among all species and products. Prior requirements to separate purchaser credit between POL and sawtimber no longer applies. Because appraisals make the assumption of roads being in place, and purchaser credit earned is used to pay for stumpage above base for all products. 71.8 - Competition Factor. The Predicted Bid is the high bid which is expected to be received if the sale receives average competition. To allow for competition and minor sale differences not considered within the appraisal, the Predicted Bid is adjusted downward by the competition amount. The amount of adjustment is published in the Current Appraisal Data Bulletin and is based upon the bidding competition within each individual National Forest. When a sale is unadvertised, R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 7 of 13 normal competition does not exist. Therefore, it is not appropriate to apply a factor. Any appraisal for unadvertised sales shall not include a competition factor amount. Noncompetitive forests have a Base Period Bid Ratio in the database which is less than five percent. The Competition Factor for noncompetitive forests will be five percent. Competitive forests have a Base Period Bid Ratio in the database which is five percent or greater. The Competition Factor for competitive forests is ten percent. The Competition Factor is used to calculate the Competition Amount which is the Adjusted Base Period multiplied by the Competition Factor. The following calculation is an example of calculating the Competition Factor Amount. Adjusted Base Period Price X Competition Factor) = Competition Factor Amount Assuming an Adjusted Base Period Price of $17.18 and a Base Period Bid Ratio (Competition Factor) of 10%: $17.18 X .10 = $1.72/CCF Competition Amount 72 - TIMBER PROPERTY. (FSM 2469, FSH 2409.18, sec. 47.3). Determine timber property value by using appropriate cost data (local collected costs or constructed costs). Local collected costs are preferred over constructed costs. Rates for logging costs in section 42 of this handbook may be used. Timber property values may be included with any approved appraisal method. Do not include timber property value for standing timber sold and cut as a result of land clearing under an approved Special Use Permit. As a rule of thumb, timber property value is not included on timber settlement sales if the trees remain on the stump at the time of appraisal. Prepare an appraisal with timber property values in a manner similar to sales without timber property. This will show log value on the stump without any additional processing. Include the cost of processing to the condition at which the sale is made separately and add this cost to the stumpage value and base rates to determine the advertised rate and advertised base rates. In the case of trespass or theft, the condition at which the sale is made could include timber in the form of logs discovered in a mill deck or even lumber that has been produced from trespass or stolen trees. Use caution not to include items that pertain to development of a site which would further reduce stumpage values. Such items as erosion control, roads used for other purposes in addition to timber removal, slash disposal, removal of cull trees, and so forth, should not be included in the appraisal. These items have normally been a requirement as part of a contract or permit; therefore, the costs have already been amortized through being a cost of doing business or direct compensation. Use Form FS-2400-17, Report of Timber Sale-Convertible and Nonconvertible Products, to calculate and summarize values for Timber Property Sales. Exhibit 01 R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 8 of 13 is a sample of a Transaction Evidence Appraisal for a Timber Property Sale where some of the sale volume is on the stump, some has been felled and bucked, and some has been decked (skidded). Column A shows the procedure when the Indicated Advertised Rate (Line 30) is less than minimum rate. The Indicated Advertised Rate must be adjusted to the normal Base Rate (Line 31) as it is the minimum rate which we will accept regardless of type of sale. Use of Paradox to appraise the sale will automatically make the adjustment. Timber Property Value (Line 36) is shown separately and must be added to the calculated Advertised Rate (Line 33) to determine the sale advertised rate. Timber property value must also be added the base rates to assure full recovery of the timber property value of $11.35. The total of the addition of timber property value to Advertised Rates and Base Rates results in the contract rates to charged and are the advertised rates reflected in the prospectus and bid forms as well as the contract. Column B shows the procedure when the Indicated Advertised Rate is greater than minimum rates. The same procedure for determining the contract advertised rate for Column A applies here, except no Adjustment to Base Rates is required as the Indicated Advertised Rate is greater than Base Rate. If some of the sale volume is on the stump and some of the sale volume is timber property, the total timber property value shall be spread over the total sale volume rather than having a special column just for timber property. Line 12, Skid/Yard Cost Adj, illustrates the total cost of fell, buck, skid, load and overhead as if the entire volume was still on the stump. These unit costs are taken from section 42. The figures in parentheses are the costs already spent to deck the sawlogs. The example sale (ex. 01) has a total of 210 CCF, 105 CCF remains on the stump and 105 CCF has been felled and bucked. Of the 105 CCF that has been felled and bucked, 52.6 CCF has also been skidded and decked. No volume has been loaded, hauled or removed. The calculations for the timber property value is as follows (costs displayed are not current costs from section 42 of this handbook): Value of Timber Felled and Bucked: 105 CCF X $8.99 (Felled and Buck Costs) / 210 CCF = $4.50 Value of Timber Skidded: 52.6 CCF X $14.88 (That Portion of Skid & load Costs) / = $3.73 Timber Purchaser Overhead (Timber Purchaser Overhead on the Fell, Buck & Skid Costs): $8.23 X $0.1993 (section 42) = $1.64 P&R Margin of Total Costs: $9.87 X 15 % (Use this percent as reasonable) = $1.48 R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 9 of 13 Timber Property Value: = $11.35 The sum of all timber property values will be included on an added line at the bottom of TE Appraisal Summary Form, R2-2400-17 (11/93) if still being used. Document the actual contract advertised rates and base rates in the appraisal report and be sure the appropriate rates are shown in all sale documents prior to advertisement. For Paradox appraisal users, the timber property value is entered into appropriate block on the Species Information screen. When the FS-2400-17 is calculated, the timber property value is displayed as a separate item on Line 36. Add the timber property value to the Advertised Rate (Line 33) and Base Rate (Line 31) to obtain the actual Advertised Rates and Base Rates for the sale. Exhibit 02 is for a standard rate appraisal of the same sale as exhibit 01. The same procedures are followed except no Sale Conditions costs are applied. Timber property value is deducted from high bid rate to obtain statistical high bid. However, statistical high bid will not be reduced to less than minimum rate, which includes property value. The Paradox appraisal system will perform this operation on statistical high bid automatically. Refer to FSM 2469 and FSM 6530 for instructions on reporting collection of timber property value on the timber sale statement of account. 72.1 - Timber Settlement. (FSM 2464, FSH 2409.18, sec. 47.4). Use timber settlement to sell and remove timber products from a permit area when a commercial timber sale will not meet the objectives of the permittee or the government. This is the only authority which permits the sale of timber over $10,000.00 in value by direct negotiation without advertisement. Payment is required at appraised value for timber products that will be removed from the permit area. Appraise these sales using the same procedure as for normal commercial timber sales. Use TEA whenever possible; however, special requirements may effect the appraisal situation. For example, permit provisions may restrict timing of operation, require unusual prescriptions, or place limits not otherwise experienced in routine timber sales. Appraisers must use careful judgement in such appraisals to recognize costs associated with meeting permit requirements versus costs associated with removal of the timber. In these cases, special cost allowances (plus or minus) and unusual adjustments may be appropriate. The appraiser must document these adjustments. R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 10 of 13 72 - EXHIBIT 01 72 - EXHIBITS 01-02 ARE SEPARATE DOCUMENTS. R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 11 of 13 72 - EXHIBIT 02 72 - EXHIBITS 01-02 ARE SEPARATE DOCUMENTS. R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 12 of 13 73 - DEAD VOLUME. Dead timber is used for a wide variety of products with fluctuating market values, which makes selling value hard to establish. Dead sawtimber may be sold at standard rates if it is the sole product on the sale and (1) has a value less than $10,000; (2) meets criteria listed in chapter 10 and (3) does not include any items listed in section 11.3. If Dead timber meets the criteria of section 11.3 and has a value less than $10,000, Comparison with Standard Rates (sec. 21.2) appraisal methods may also be used if being offered as the sole product. Appraise all dead whenever present on a sale unless the volume is so minor that it may be combined with the lowest value live species group. Appraise dead and live sawtimber using the Transaction Evidence Appraisal method regardless of value when both product forms are being appraised on the same sale. Appraise dead sawtimber to the same appraisal point as live sawtimber unless there are sound reasons to appraise to a different point with a well established history in the use of this product. For Paradox appraisal users: dead sawtimber being appraised to a different location than live sawtimber currently require a separate appraisal unless the difference in haul cost between live and dead is included as an unusual adjustment and noted in the "Remarks" block. Where merchantable dead sawtimber (product code 01) is being appraised, it will be on a "gross" basis to enable selling values, costs and cost adjustments to be applied directly to the volume without the need of adjusting appraisal data on a net and gross volume basis. Determine dead sawtimber volume as the gross volume X (1 total defect left in the woods). This places tree measurement volume for dead on the same basis as dead volume scaled on a gross basis described in C6.823 - Scaling as Presented - Dead Timber and basic scaling practices described in FSH 2409.11a, National Forest Cubic Scaling Handbook. The appraised volume and value of dead is also the volume and value for entry in the advertisement, bid form and contract. Appraise volume of dead products other than logs (POL) using transaction evidence appraisal method (TEA) on a gross volume basis without consideration for defect. All material suitable for manufacture of lumber must be appraised and offered as sawlogs (FSH 2409.22, sec. 06). See section 71 for appraising sales of POL. Calculate dead unit costs on the same basis as live when live and dead volume are being appraised and sold on the same sale. Costs shall be carried evenly by both live and dead volume. Treat dead sawtimber as though it were another live species when dead is appraised with live sawtimber so that adjustments (such as adjustments to base rates if either appraises deficit) may be made equally and for determining the Sale Total or Average column on the FS-2400-17. The Paradox Appraisal System is designed to appraise these two products accordingly. 73.1 - Specified Development Cost. The specified road cost for dead is determined no differently than live sawtimber. Dead volume is included with the volume of other species and products when dividing specified road costs by sale volume for the cost per CCF. This procedure is for live and dead sawlogs when dead is mandatory R2 AMENDMENT 2409.22-96-4 EFFECTIVE 6/29/96 2409.22_71-74 Page 13 of 13 removal. When dead is optional, the live sawlogs carry all of the above costs, and the dead volume must be appraised separately so that no offset due to possible deficit situations occurs. A separate appraisal must be used when standard rates or a comparison appraisal is used. When live and dead are appraised separately, there can be no adjustments between the two appraisals. Advertise dead material as being subject to bidding whenever removal is mandatory. Allow bidding on dead sawtimber if advertised as optional material, and it exceeds 10% of the sale volume. Consider advertising dead sawtimber at a Fixed Rate amount for volumes less than 10% of total sale volume. 74 - ASPEN. Region 2 does not have an established aspen sawlog market, therefore, all aspen in Region 2 shall be appraised and sold as products other than logs (POL). Like dead sawtimber, appraise aspen as a separate species. Do not include aspen with a sawlog species unless it is so minor that normal cruise design did not pick it up in sampling. Transaction evidence appraisal for POL is approved for use on all aspen sales, and is recommended for sales equal to or greater than $2,000 in value. (Refer to sec. 71.1) Aspen may be appraised using standard rate or comparison with standard rate appraisal methods when the sale is less than $10,000 in value. Sell as POL and use TE POL base period price or a higher rate as determined by Forest Supervisors (subject to limitations in FSH 2409.18 chapter 10). If the sale involves a small amount of specified road costs, and the difference between standard rate and base rate will carry road costs, it may still be a standard rate appraisal. Consider road costs for aspen equally with sawtimber when included in the same sale. In this case, appraise both products on the same Appraisal Summary using the TEA method. The product and unit codes for products other than logs (POL) are: POL, Code 3 and CCF, Code 09. The contract can be 2400-6T, 2400-6, 2400-3T or 2400-3. For scaled sales, loads shall be weighed using C6.824# Scaling as Presented - Sale by Weight. A factor of .3478 CCF per Ton may be used where there is no local data available.