644.41—General.
(a) Purpose.
(1)
Subpart B describes the general procedures and standards governing all appraisal work undertaken in connection with the real estate responsibilities of the Corps of Engineers.
(2)
These guidelines are to promote and encourage the utilization of uniform appraisal methods, standards, and techniques. Their use should result in the most effective solutions to the many appraisal problems with which the Corps of Engineers is confronted in the implementation of its real estate programs involving acquisition, disposal, and management of all kinds of real property. They are to encourage the appraiser to include in his appraisal process sufficient factual data and other supporting information to develop sound, unbiased, and independent market value estimates; promote appraisal reporting techniques that reflect acceptable judicial concepts, intelligent and convincing reasoning; and provide a sound basis for negotiations and valid testimony in court.
(b) Applicability.
Provisions of this subpart are applicable to the Office of the Chief of Engineers and all field operating agencies having real estate responsibilities.
(c) Procedures and standards.
(1)
In acquiring, disposing, and managing real estate, or any interest therein, it is the practice of the Department of the Army to impartially protect the interests of all concerned.
(2)
The fair market value of the pertinent real estate interest in each parcel or tract of real property being acquired, disposed of or managed will be developed by a competent appraiser preparing an adequate appraisal report indicating sound estimates of values of each estate required. The appraisal may be prepared by either a staff employee or by a self-employed contract appraiser; however, each must have demonstrated the ability to exercise good judgment and must have had adequate experience in estimating the market value of the particular type of property involved. The qualifications and selection of staff appraisers will be based on the Civil Service Standards for the GS-1171 Series. A contract appraiser must also meet the experience requirements set forth in the Civil Service Standards.
(3)
It is the practice of the Chief of Engineers to engage the services of competent appraisers and consultants to augment staff capabilities in the appraisal of various real estate interests to be acquired, disposed of or managed by the Corps. Preference will be given to local appraisers and consultants, if qualified, and the costs of their services will be paid by the Government. Any appraiser having an interest in the property being appraised or any relationship, family or business, to the owner thereof, will be disqualified from appraising that particular tract.
(4)
Normally, only one appraisal per ownership or tract will be obtained. However, in cases involving controversial appraisal problems or precedent setting patterns of value in first priority areas of large projects, more than one appraisal of the same property may be obtained if considered necessary by the Division or District Engineer. If negotiations with the owners have reached an impasse and it appears that the filing of condemnation proceedings will be necessary to acquire the land or interest therein, the joint Corps of Engineers-Department of Justice policy provides that in fee takings, where the value of the property is between $50,000 and $100,000 only one appraisal need be provided to the Department of Justice so long as it is a contract appraisal; two appraisals will be provided for values exceeding $100,000. In the filing of condemnation proceedings for easement takings in excess of $50,000 two appraisals will be required. At least one of the two appraisals must be made by a contract appraiser. More often than not, both will be by contract appraisers.
(5)
Each appraisal report will be carefully reviewed and acted upon by a qualified reviewing appraiser.
(6)
It is essential that negotiations for any required real estate interests be conducted on the basis of an approved appraisal that reflects current fair market value. Any appraisal report with an effective date of six months or more prior to initiation of negotiations with the landowner or the date of filing of a condemnation action is considered outdated and should be reviewed and brought up to date to reflect current market conditions.
(7)
The appraiser may be called upon, in condemnation proceedings or otherwise, to establish the validity and competence of his estimates. He must familiarize himself with basic rules of trial evidence so that his testimony will be admissible and of probative value. Since, as a witness, he must be prepared to offer convincing testimony, his report should contain an analysis of all factual data upon which his estimates are based.
(8)
Local representatives of the Department of Justice are available for consultation in matters pertaining to acquisitions and legal principles involved in valuation problems.
(9)
Appraised valuations and the supporting appraisal reports, for acquisition or disposal purposes, are privileged information and the appraiser should not divulge his findings and opinions to anyone except authorized officials of the Government. Section 301(3 ), Pub. L. 91-646, January 2, 1971, dictates that written statement of, and summary of the basis for, the amount of the estimate of just compensation, shall be furnished the property owner. This does not mean that the appraisal report or any part of it should be given to the landowner, but only a summary of the amount and methods of appraisal.
(10)
The appraiser is usually the first personal contact the owner has with a representative of the Government. The owner is generally the prime source of information pertaining to the history, condition, management, and operation of the property. It has always been the Corps' practice for the appraiser to contact and consult with the owner of a property prior to and during the inspection of the tract. Section 301(2 ), Pub. L. 91-646, January 2, 1971, dictates that “* * * the owner shall be given an opportunity to accompany the appraiser during his inspection of the property.” Before the appraiser makes his first visit to the property, he must make every effort to contact the owner and invite him or his designated agent or representative to accompany him on his actual field inspection. If personal contact is not possible, a registered letter should be sent to the owner. The appraisal report should reflect when and how the owner or his representative was contacted, whether or not he accompanied the appraiser, and any other pertinent comments.
(d) Definition of market value.
“Under established law the criterion for just compensation is the fair market value of the property at the time of the taking. ‘Fair market value’ is defined as the amount in cash, or on terms reasonably equivalent to cash, for which in all probability the property would be sold by a knowledgeable owner willing but not obligated to sell to a knowledgeable purchaser who desired but is not obligated to buy. In ascertaining that figure, consideration should be given to all matters that might be brought forward and reasonably be given substantial weight in bargaining by persons of ordinary prudence, but no consideration whatever should be given to matters not affecting market value. The cash or on terms reasonably equivalent to cash, requirement is important and numerous courts have noted this factor.” (Source: “Uniform Appraisal Standards For Federal Land Acquisitions,” Interagency Land Acquisition Conference, Washington, DC, 1973.) This definition is considered to be consistent with another definition approved by the American Institute of Real Estate Appraisers which sets out market value “as the highest price estimated in terms of money which a property will bring if exposed for sale in the open market, allowing a reasonable time to find a purchaser who buys with knowledge of all the uses to which it is adapted and for which it is capable of being used.”
(e) Use of appraisal procedures.
(1)
The appraisal of real estate is the estimation of the fair market value of a specified interest in a particular ownership of property, and the appraisal profession has developed certain basic appraisal techniques and procedures. There are three approaches to value which have become standardized—the cost approach; the market approach; and the income approach.
(2)
In the COST APPROACH, the appraiser estimates the cost of reproduction of the buildings and land improvements. A deduction is made for depreciation due to physical deterioration, and also for functional and economic obsolescence. The value of the land is then estimated by comparison with sales of similar unimproved tracts and added to the depreciated value of the improvements. This procedure is also referred to as the Summation Approach. This approach is always applicable in the valuation of publicly owned structures such as schools, fire houses, etc.
(3)
In the MARKET APPROACH, the appraiser compares the subject property on an overall basis with similar properties which have recently sold. Adjustments are made for all factors of dissimilarity. All known sales are considered, but the appraiser selects only those which are verified to be good “arms length transactions” and considered to be most similar to the property appraised. After these sales are analyzed and adjusted to the subject, this data is then correlated into a final estimate of value as indicated by the market.
(4)
In the INCOME APPROACH, the appraiser estimates the probable gross and net income to be expected from the rental of the property, adjusts for the quality and durability of this income stream, and processes this income into a value estimate by use of an appropriate capitalization rate.
(5)
The appraiser then correlates the indicated value estimates from the three approaches into a final estimated market value. Consideration is given to the relative strengths and weaknesses of each approach. Normally, the most weight is given to the approach commonly used by the typical purchasers of the type of property appraised. In almost all routine appraisals the market approach is most applicable.
(f) Importance of the appraisal function.
The measure of success or failure in any real estate transaction is inseparably bound up in the matter of price. The heart of the real estate business is the price estimate or appraisal. The importance of sound appraisals for the Department of the Army cannot be over-emphasized. The courts have established basic rules governing exercise of the power of eminent domain.
(g)
Appraisal is an “Estimate.” The market value of any real estate interest is not a matter of exact determination, and the appraiser does not “establish” or “determine” the value. An appraisal is an “estimate” of current value based upon and supported by an analysis of all the factors, physical, economic, and social which influence the present and future benefits to be derived from the ownership of the property appraised.
(h) The appraisal format.
In order to establish a degree of uniformity throughout the Corps as to an appraisal format, all staff appraisers and contract appraisers will follow the outline as set forth in the “Uniform Appraisal Standards For Federal Land Acquisition” and § 644.42.