Summary of Assignment. Identification of Property and Appraisal

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1 Summary of Assignment My assignment is to review an appraisal of the Athow Property owned by Lewis and Janice Athow. The property is located near the mouth of the Dungeness River in Clallam County, Washington and contains approximately 0.77 acres and a 1,392 square foot home. The author of the appraisal is Russ Mellon of R.E. Mellon and Associates. The Mellon appraisal was commissioned by the Clallam County Department of Community Development in furtherance of its efforts to purchase the property. I have been retained to review the Mellon appraisal by the Clallam County Department of Community Development who intend to purchase the property with assistance from the Washington Recreation Commission Office (RCO). Report Reviewed: Identification of Property and Appraisal Dungeness River-floodplain acquisition RCO Project # The Athow Property. Appraisers: Russ Mellon R.E. Mellon and Associates; P.O. Box 1353 Sequim, Washington Appraisers Client: Clallam County Department of Community Development. Type of Appraisal: Summary Appraisal Report. Type of Report: Narrative in combination with residential URAR Fannie Mae Form Report Transmittal Date: August 9, Valuation Date: August 4, Identification of Property: Tax Parcel: Owner of Property: Lewis and Janice Athow. Property Rights Appraised: Fee Simple. Highest and Best Use Summary of Property Present use: one residential homesite with 392 square foot pole building. Opinion of Market Value $198,000.

2 Reviewer s Client: Review Assignment Hannah Merrill Natural Resources Planner Clallam County Department of Community Development 223 E. 4 th Street, Suite 5 Port Angeles, WA Intended Users: Property owners Lewis and Janice Athow, Clallam County Department of Community Development, and the Washington Recreation Commission Office (RCO) are the intended users. Intended Use: An appraisal review is a requirement for purchase of land by the Washington Recreation Commission Office (RCO). Purpose of this Review Assignment: The purpose of this review assignment is to determine whether the Mellon appraisal conforms to the Uniform Standards of Professional Appraisal Practice, and the reporting requirements of Manual 3, Acquiring Land: Policies of the IAC. Scope of Work for the Review Appraisal Report: This review assignment is a technical field review, as defined in the Uniform Appraisal Standards for Federal Land Acquisitions. A field review represents the highest level of due diligence within the appraisal review practice. As such, I performed a thorough review and analysis of the information and analysis contained in the appraisal report under review and a careful examination of the internal logic and consistency. In addition, I inspected the subject property from the street and I am familiar with all comparable data used in the appraisal report. I also searched for data that may have transpired between the effective date of the appraisal and the date of the review. The scope of work required by the Washington State Parks and Recreation Commission outlines three additional requirements: 1. Appraisal and Review Appraisal Reports must include a statement of assumptions and limiting conditions. If the Review Appraiser utilizes Extraordinary Assumptions and/or Hypothetical Conditions, the Review Appraiser must specifically list these in the report. Additionally, the Review Appraiser must list all Extraordinary (Special) Assumptions and/or Hypothetical Conditions and comment on their reasonableness. 2. Appraisal and Review Appraisal Reports must include consideration of any existing encumbrances that could impact property value. If the Appraiser or Review Appraiser assumes that any encumbrances having a detrimental impact on value will be cleared prior to a sale closing, and consequently dismisses the value impact, the Appraiser or Review Appraiser must list those encumbrances. 3. Appraisers and Review Appraisers must conclude a specific value rather than a value range.

3 Standards Imposed on the Reviewer: The Uniform Standards of Professional Appraisal Practice (hereafter referred to as USPAP) sets forth the steps that an appraiser must follow when reviewing a real property appraisal. The steps, as codified in Standards Rule 3-1; 3-2; and 3-3 are: Standards Rule 3-1: In developing an appraisal review, the reviewer must: a) Identify the reviewer s client and intended users, the intended use of the reviewer s opinions and conclusions, and the purpose of the assignment; b) Identify the (i) subject of the appraisal review assignment, (ii) effective date of review, (iii) property and ownership interest appraised (if any) in the work under review, (iv) date of the work under review and the effective date of the opinion or conclusion in the work under review, and (v) appraiser(s) who completed the work under review, unless the identity was withheld; c) Determine the scope of work necessary to produce credible assignment results in accordance with the Scope of Work Rule; d) Develop an opinion as to the completeness of the material under review, given the reviewer s scope of work; e) Develop an opinion as to the apparent adequacy and relevance of the data and the propriety of any adjustments to the data, given the reviewer s scope of work; f) Develop an opinion as to the appropriateness of the appraisal methods and techniques used given the reviewer s scope of work, and develop the reasons for any disagreement; and g) Develop an opinion as the whether the analyses, opinions, and conclusions are appropriate and reasonable, given the reviewer s scope of work, and develop the reasons for any disagreement. Standards Rule 3-2: In reporting the results of an appraisal review, the reviewer must: a) State the identity of the client, by name or type, and intended users; the intended use of the assignment results; and the purpose of the assignment; b) State the information that must be identified in accordance with Standards Rule 3-1(b); c) State the scope of work used to develop the appraisal review; d) State the opinions, reasons, and conclusions required in Standards Rule 3-1 (d-g), given the reviewer s scope of work; e) Include all known pertinent information; and f) Include a signed certification in accordance with Standards Rule 3-3. Standards Rule 3-3: Each written appraisal review report must contain a signed certification that is similar in content to the signed certification on page nine of this appraisal review report. Extraordinary Assumptions and Hypothetical Conditions: The UASFLA Standards for Review of Appraisals requires that any extraordinary assumptions or hypothetical conditions must be clearly listed and justified in the appraisal report and be found reasonable by the review appraiser. In addition, the review appraiser must list all extraordinary assumptions or hypothetical conditions and comment on their reasonableness.

4 This review appraisal is based on the extraordinary assumption that the facts relied upon by the original appraiser, Russ Mellon that are incorporated into my review appraisal, are accurate. Consideration of Existing Encumbrances: Exhibit B, Scope of Work, Review Appraisal Report, states that: The appraisal must include consideration of existing encumbrances that could impact property value. and that It is the responsibility of the project sponsor to provide the appraiser and review appraiser with the preliminary title report and the encumbrance documents. Review of Appraisal My review is organized by the main sections of the appraisal report Summary of Salient Facts and Conclusions: The Client (not specifically mentioned except by inference), Intended Users, Intended Use, Property Appraised, Purpose of the Appraisal, Date of Value, Date of Appraisal, Zoning, Total Land Area, Assessed Value, Improvements, Highest and Best Use, and Valuations are listed in the appraisal. Identification of the Subject Property: The subject property is clearly identified by several means, including a general description, aerial photographs, and the Clallam County Assessor s parcel numbers. The owner is also identified. The legal description is included. Appraisal Assignment: The purpose of the appraisal assignment, which is to estimate the market value of the property, is clearly set forth. The property owners (Lewis and Janice Athow), Clallam County, and the State of Washington Recreation Conservation Office are identified as the intended users. The intended use is to assist in the potential acquisition of the property. The client asked the appraiser to estimate the Market Value of the subject property in its As is condition. The appraisal report format is represented to be a Summary Report which is acceptable based on acquisition of the whole property as a non-complex assignment. The reader is advised that the appraisal is being prepared in conformance with both the Uniform Standards of Professional Appraisal Practice (USPAP) and the reporting requirements of Manual 3, Acquiring Land: Policies of the IAC. The property is valued as of August 4, 2010, which is the date the subject property was last inspected. The valuation applies only to real property, and does not include any personal property. The definition of market value provided is from The Appraisal Institute, The Appraisal of Real Estate, 12 th edition (2001), pg There is no specific requirement in USPAP to use any particular definition of market value. The Appraisal Institute definition, which is generic, is acceptable.

5 Scope of Work: The appraisal report being reviewed contains a section titled Purpose, Function, and Scope of the Appraisal on page 8. The scope of work described appears adequate to solve the appraisal problem. Community Analysis: The Mellon appraisal contains a description of the local economy. The appraiser states that demand for single family residences in the $175,000 to $250,000 price range is stable, with a somewhat more than one year supply of moderately priced homes. Demand for used homes on less than five acres, and rural acreage has remained fairly good with only a small year over year decrease in the number of sales and the median selling price. The appraiser predicts continued growth of 3% to 4% in the Sequim area, although the rate of growth in the next one to two years is likely to be in the 1% to 2% range. Neighborhood Description: The local neighborhood, in unincorporated Clallam County near the mouth of the Dungeness River in an area known as Dungeness, is described. The appraiser anticipates the neighborhood will remain rural, with organic farming and residential use where appropriate. Site Description: The property is adequately described, with particular attention to characteristics relevant to single-family residential development. A flood control dike crosses over the northern portion of the subject property, which is used by the public as a walking and cycling path. Water is provided by a drilled well with an unknown depth and capacity. Above ground power and phone is in to the site. A conventional septic system is in place and functioning. The critical areas map depicts the subject is partially in a floodway designation, which may cause any expansion of the residence to require a variance, and potentially a new septic system. The site is cluttered with a variety of vehicles and junk with minimal landscaping. No evidence of hazardous materials was found. Zoning: Zoning maps without descriptions are included in the appendix on page 36. Highest and Best Use: The present use as one residential homesite with custom home and barn/workshop is the highest and best use. This is indicated on page 16 under site details on the URAR form. Assessed Value: The assessed values are reported on page 8, and in the appendix on page 40. A minor typing error is found on page 8, where the total assessed value is shown as $201,223 rather than the correct assessed value of $202,223. Valuation: The Mellon appraisal contains an analysis of the land value and the value as improved. The land value is based on a thorough analysis of three comparable land sales. Land value analyses are reported in narrative form stated on pages 18 and 19.

6 Greater weight is given to Sale 2 which is most current and a cash sale is given the majority of the weight. The appraiser concludes that the subject has an estimated site value of $75,000. The appraiser has a section of additional comments on the improvements. The appraiser noted significant deferred maintenance, and applied the cost to cure to the loss in value, under the logic that would be the anticipated market reaction. The total loss in value from deferred maintenance is estimated as $23,500. Three improved sales are used as comparables. The appraiser uses a 50% adjustment in gross living area or $45 per square foot as a size adjustment. The subject s 392 square foot pole building contributes value at $15 per square foot. The attached 648 square foot garage contributes $17 per square foot. The lack of a master bedroom results in a downward adjustment of $5,000. The appraiser says that the three sales offer reasonably offsetting elements of comparison, but that Sale #1, which also fronts on a dike, is considered the most similar overall, resulting in a market value of $198,000 for the subject property. The appraiser also analyzes one listing as an example of a property that the subject would compete against in the market. The listing is a high indicator. Extraordinary Assumptions and Hypothetical Conditions: The Mellon appraisal lists 14 Assumptions and Limiting Conditions on pages 6 and 7 that deal with critical areas, hazardous substances, environmental conditions, and survey matters. General assumption 4 on page 6 discusses the possibility of a shift in the location of the Dungeness River but concludes that the river channel has been stable in this area. The appraiser notes, on page 7, item #12 that no hazardous substances were apparent at the time of inspection. Under item #13 the appraiser notes that he has not received a copy of the title report and assumes that there are no significant adverse easements. As review appraiser I, too, have not received a copy of the title report and assume that there are no significant adverse easements. Under item #14 the appraiser notes that he did not take interior photos and was not able to access the attic or the crawl space. Consideration of Existing Encumbrances: The appraiser states on page 16: The dike crossing the subject site is an encumbrance that reduces the subject s privacy to the north but pedestrian use is minimal and curtailed to locals. In some regards it could be considered a positive element as the subject property owner can also use it as a walking path. Summary: In my opinion the work under review, which is the Mellon appraisal of the subject property, is complete, adequate, relevant, appropriate and reasonable, and conforms to the Uniform Standards of Professional Appraisal Practice. Point Value: The appraiser provided a single point opinion of value, as required by the IAC Manual.

7 Review Conclusions: Having completed the review of the appraisal report pertaining to the Athow property, I state the following conclusions. I conclude that the Mellon appraisal report substantively conforms to the Uniform Standards of Professional Appraisal Practice. I concur with the opinion of market value of $198,000. Dated: September 24, 2010 John V. Halberg, MAI Subject

8 UNDERLYING ASSUMPTIONS AND CONTINGENT CONDITIONS: The appraiser assumes: That any legal descriptions furnished are correct. That the title of the property is good. That there are no encumbrances or defects of title other than those mentioned in this report. That the property is free and clear of all liens. That the property will be managed efficiently and maintained properly. That any plans furnished are correct. That a use permit will be issued consistent with the highest and best use of the property. This appraisal report is submitted subject to the following contingent conditions: That no guarantee is made, nor liability assumed for inaccuracies or errors in estimates or opinions identified in this report as being furnished by others. That no survey of the property has been made by your appraiser and no liability is assumed on matters of a legal character affecting the property, such as title defects, overlapping boundaries, etc. Any sketches in this report are included to assist the reader in visualizing the property. The distribution of the total valuation between land and buildings applies only under the existing program of utilization. The separate valuations between land and buildings must not be used in conjunction with any other appraisal and are invalid if so used. Testimony or attendance in court is not required by reason of this appraisal, with reference to the property in question, unless arrangements have previously been made therefor. This report, or any parts thereof, may not be reproduced in any form without permission of the appraiser. RESTRICTION UPON DISCLOSURE AND USE: 1. Disclosure of the contents of this appraisal report is governed by the By-laws and regulations of the Appraisal Institute. 2. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraiser or the firm with which he is connected, or any reference to the Appraisal Institute or to the MAI designation) shall be disseminated to the public through advertising media, public relations media, news media, sales media or any other public means of communication without the prior written consent and approval of the undersigned.

9 HAZARDOUS MATERIALS: Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on or in the subject property, was not observed by the appraiser. The appraiser has no knowledge of the existence of such materials on or in the property. The appraiser, however, is not qualified to detect such substances. The presence of substances such as urea-formaldehyde foam insulation, asbestos, or other potentially hazardous materials may affect the value of the property. The value estimated is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired. CERTIFICATE OF APPRAISAL: I certify, to the best of my knowledge and belief: 1. The facts and data reported by the reviewer and used in the review process are true and correct. 2. The analyses, opinions and conclusions in this review report are limited only by the assumptions and limiting conditions stated in this review report and are my personal, impartial, and unbiased professional analyses, opinions and conclusions. 3. I have no present or prospective interest in the property that is the subject of the work under review and no personal interest with respect to the parties involved. 4. I have no bias with respect to the property that is the subject of the work under review or to the parties involved with this assignment. 5. My engagement in this assignment was not contingent upon developing or reporting predetermined results. 6. My compensation is not contingent on an action or event resulting from the analyses, opinions and conclusions in this review or from its use. 7. The appraisal review was made and the review report prepared in conformity with the Uniform Appraisal Standards for Federal Land Acquisitions. 8. My analyses, opinions and conclusions were developed, and this review report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice, and in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. 9. I have made a personal inspection of the subject property of the work under review. 10. No one provided significant appraisal, appraisal review, or appraisal consulting assistance to the person signing this certification. 11. This report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. 12. As of the date of this report, John V. Halberg, MAI, has completed the requirements of the continuing education program of the Appraisal Institute. Dated: September 24, 2010 John V. Halberg, MAI

10 QUALIFICATIONS OF JOHN V. HALBERG, MAI John V. Halberg is an independent real estate appraiser located in Clallam County, Washington. He has completed appraisal assignments for acquisition, arbitration, condemnation, feasibility, financing, and sale. His professional territory has included more than seventy-five cities in California, Alaska, Washington, Arizona, Montana and Nevada. Appraisal practice is currently limited to Olympic Peninsula properties. Clientele has included various individuals, attorneys, corporations, financial institutions, and government agencies. He has evaluated real estate with a total worth in excess of $200,000,000, including recreational land, residential land, industrial properties, waterfront land, motor hotels, shopping centers, office buildings, medical office buildings, retail store buildings, special purpose properties, gasoline service stations, apartments, condominiums, planned unit developments and miscellaneous properties. His appraisal experience began in 1959 and has included several years as staff appraiser in Seattle and San Francisco for prominent real estate appraisal and mortgage banking companies. He has qualified in the Superior Courts as an expert on real estate value. Mr. Halberg has served on the faculty of the American Institute of Real Estate Appraisers, and as an instructor in real estate at Peninsula Community College in Port Angeles, Washington. Educated at the University of Washington in Seattle, John V. Halberg majored in real estate and received a Bachelor of Arts degree in Business Administration. This basic real estate education has been supplemented by a number of real estate and appraisal courses and seminars sponsored by the University of California and by the Appraisal Institute. Appraisal courses and seminars that have been completed recently include: Uniform Standards of Professional Appraisal Practice July 2009 Valuation of Conservation Easements January 2008 Market Analysis and Highest and Best Use March 2007 Business Practices and Ethics April 2005 Report Writing and Valuation Analysis March 2004 Uniform Standards for Federal Land Acquisitions April 2002 Partial Interest Valuation, Divided and Undivided October 2001 Advanced Income Capitalization June 2001 Washington State Planning and Land Use Seminar May 2000 Environmental Influences on Valuation October 1998 Litigation Valuation Overview March 1998 High Tech Appraisal Office November 1997 Right of Way Valuation and LIDs May 1995 Predevelopment Land May 1994

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