1
Welcome to the
International Right of Way
Association’s
Course 401
Appraisal of Partial
Acquisitions
401-PT – Revision 2 – 01.20.07.CAN

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

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

4
Objectives
(2)
At the end of the course, you will be able to ...
Utilise both the Before and After Rule and the Summation Method in the valuation of partial acquisitions
Understand and allocate the partial acquisition compensation among its components (i.e., value of the part taken, injurious affection, special benefits to the remainder, cost to cure)

5
Objectives
(3)
At the end of the course, you will be able to ...
Employ various methods to analyse and quantify the impacts of partial acquisitions on remainder properties
Analyse easement acquisitions and understand better easement valuation methods

6
Objectives
(4)
At the end of the course, you will be able to ...
Be better expert witnesses.

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Controlling Documents
• Federal and Provincial Expropriation Acts
• Canadian Uniform Standards of Professional
Appraisal Practice (CUSPAP)

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Housekeeping

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Schedule
(1)
(Day One)
Review of Principles,
Valuation Process and Terms
Larger Parcel
Introduction to the Summation Method and the Before and After Method

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Schedule
(2)
(Day Two)
More on the Summation Method and the
Before and After Method
Effects on the Remainder Property
Income Approach

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Schedule
(3)
(Day Three)
Cost Approach
Compensable and Non compensable Damages
Benefits

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Schedule
(4)
(Day Four)
Easements
(Day Five)
Litigation
Open Forum
Exam

13
Value Principles
• Substitution
• Supply and Demand
• Anticipation
• Consistent Use
• Contribution

14
Valuation Process
Appraisal Problem Definition
Scope of Work
Data Collection and Description
Land Value Opinion
Three Approach to Value
Reconciliation and
Final Value Opinion
Defined Value Opinion Report

15
Valuation Process
Appraisal Problem Definition
• Identification of the client, intended use, and users
• Value to be developed
• Date of the value opinion
• Identity and location of the subject property
• Property rights to be valued
• Limiting conditions

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

17
Valuation Process
Data Collection and Description
• Market area data
• Comparable property data
• Subject property data

18
Valuation Process
Highest and Best Use
The reasonably probable and legal use that is physically possible, appropriately supported, and financially feasible, and that results in the highest value.
• Physically possible?
• Legally permissible?
• Financially feasible?
• Maximally productive?

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

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

21
Valuation Process
Income Approach
• Estimate the subject’s annual potential gross income
• Determine a vacancy and collection loss
• Subtract the vacancy and collection loss from the potential gross income
• Estimate annual property expenses and subtract the expenses from the effective gross income to arrive at the net operating income
• Develop a capitalization rate
• Convert the net operating income into value

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Valuation Process
Defined Value Opinion Report
• Narrative
• Short narrative
• Form

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Valuation Process
Appraisal Problem Definition
Scope of Work
Data Collection and Description
Land Value Opinion
Three Approach to Value
Reconciliation and
Final Value Opinion
Defined Value Opinion Report

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Terms
(1)
• Larger parcel
• Before and After Method
• Summation Method
• Before value
• After value
• Value of the part taken

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Terms
(2)
• Value of the part taken, as part of the whole
• Value of the remainder, as part of the whole
• Value of the remainder after the acquisition, disregarding special benefits
• Injurious affection

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Terms
(3)
• Value of the remainder after the acquisition, considering special benefits
• Benefits
• Cost to cure
• Easement
• Due compensation

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

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

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Two Methods
• Summation Method
• Before and After Method

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

Before and After Method
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Payment is the difference between the value before the acquisition and the value after the acquisition. No breakdown of the compensation is required and theoretically
(but not practically) the market value of the acquisition could be nil. In practice, the owner must be compensated for the value of the land taken, regardless of any betterment to the remaining lands.

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Summation Method
(1)
• Value of the whole, before acquisition
• Value of the part taken, as part of the whole
• Value of the remainder, as part of the whole
• Value of the remainder after the acquisition, disregarding special benefits

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Summation Method
(2)
• Injurious affection
• Value of the remainder after the acquisition, considering special benefits
• Special benefits to remainder
• Net injurious affection or net special benefits
• Total compensation

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Before and After Method
Before value
(minus) After value
(equals) Total compensation

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Recap Day One

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Recap Yesterday and Look at Today

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Out of Whack?
(1)

“…$75,000 home
… and a mere slice of land around the corner
…just sold for
$100,000.”
“It causes consternation…
(w)e got one appraisal at
$48,000 and one at $135,000…”
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Features Affecting Land
• Accessibility
• Access
• Landlocking
• Size and Shape
• Frontage
• Topography

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Features Affecting
Site Improvements
• Landscaping
• Private utilities
• Utilities
• Municipal services

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Features Affecting
Building Improvements
• Functional utility
• External obsolescence

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

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

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Rates
Ro
Yo

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Recap Day Two

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Recap Yesterday and Look at Today

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

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

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

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Injurious Affection
… a loss in value to the remainder property as a result of a partial acquisition.

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

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Recap Day Three

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Recap Yesterday and Look at Today

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

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Dominant and Servient Estates

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

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

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Remainders (The “3 Rs”)
(2)
1
2
3

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

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

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

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

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

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Easement Categories
• Sub surface easement
• Surface easement
• Overhead easement

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2

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4

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5

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6

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4 11

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

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Recap Day Four

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Recap Yesterday and Look at Today

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

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The 3 “Cs”
• Communication skills
• Competence
• Competitiveness

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Litigation Contexts
• Pre trial conferences
• Discovery
• Trials

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

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90
Objectives
(1)
You have ...
Reviewed the basic principles and the valuation process

91
Objectives
(2)
Right now, you are able to ...
Utilize both the Before and After Method and the Summation Method in the valuation of partial acquisitions.

92
Objectives
(3)
Right now, you are able to ...
Understand and allocate the partial acquisition compensation among its components (i.e., value of the part taken, injurious affection, special benefits to the remainder, cost to cure).

93
Objectives
(4)
Right now, you are able to ...
Employ various methods to analyse and quantify the impacts of partial acquisitions on remainder properties.
Analyse easement acquisitions and understand better easement valuation methods.

94
Objectives
(5)
Right now, you should
Be better expert witnesses.

95
401-PT – Revision 2 – 01.20.07.CAN