DRAFT Not for Reproduction or Duplication. Guide to Plant Appraisal 10 th edition January 2017

Transcription

1 DRAFT Not for Reproduction or Duplication Guide to Plant Appraisal 10 th edition January 2017 Prepared by the Council of Tree and Landscape Appraisers James R. Clark, Chair American Society of Consulting Arborists Pieter Severynen American Society of Landscape Architects Dick Gooding AmericanHort Bret Vicary Association of Consulting Foresters Mark Duntemann International Society of Arboriculture Len Burkhart National Association of Landscape Professionals Tom Smiley Tree Care Industry Association

2 Table of Contents Guide for Plant Appraisal, 10 th edition Council of Tree & Landscape Appraisers Preface 3 1. Introduction 5 2. Concepts The Appraisal Process Data Collection and Analysis Cost Approach Income Approach Sales Comparison Approach Reconciliation, Reasonableness and Reporting Additional Considerations: Wooded & Forested Areas, Trees near Utilities, Historic Trees, Casualty Loss 239 Appendices Plant nomenclature 2. Calculating Area & Volume 3. Missing Plants 4. Regional Plant Appraisal Committees: Establishing the largest commonly available nursery-grown tree 5. Future costs 6. Establishing a Capitalization Rate

3 Preface to the 10 th edition It is now some 60 years since the publication of the 1 st edition of the Guide to Plant Appraisal. As it prepared this 10 th edition, the overarching objective of the Council of Tree and Landscape Appraisers was to provide the appraiser with a systematic process for defining the appraisal problem, identifying the appraisal approach, and developing a credible conclusion. To meet this objective, the Council was guided by three goals. First, to build on and strengthen the approaches and methods presented in previous editions: Cost, Sales (formerly called Market) and Income. The strengths and weaknesses of each plant appraisal approach and method are described. We incorporate recent research relevant to tree appraisal, particularly related to contribution of trees to real estate market value and the value of environmental and ecological benefits provided by trees. Second, to lay a foundation to the process of plant appraisal. Previous editions of the Guide focused largely on methods. This edition provides detailed discussion of the concepts and process associated with plant appraisal. It stresses that the key step in the appraisal process is identifying the appraisal problem. In addition, this edition emphasizes the difference between estimates that are based on cost and those that are based on value. Third, to align the concepts and terminology of plant appraisal with the concepts and terminology employed in the general practice of appraisal. The Council views this goal as similar to International Society of Arboriculture s recent effort to align tree risk

4 assessment with the general practice of risk assessment. While plant appraisers face unique circumstances, the ideas and concepts that we employ are the same as for general appraisal. To this end, the 10th edition adapts general terminology and, where necessary, modifies terms to better fit plant appraisal. New to this edition are several Appendices, a Glossary and an index. The Council believes that these changes provide a stronger foundation for the practice of plant appraisal as well as enhancing the credibility and stature of plant appraisal. All publications of the Council are published by the International Society of Arboriculture (ISA) and are available from ISA and some of the other Council organizations.

5 Introduction Contents History 3 Plant Appraisal and Property Value 7 Sidebar: Plant Appraisal and the Uniform Standards of Appraisal Practice7 A Guide or a Standard? 8 Sidebar: Appraisal Licensing 8 Using the Guide Trees and landscapes have value, both actual and perceived. The appraisal process is routinely used to identify a cost or value associated with plants and landscape features. Common reasons for plant appraisals include inventories, tree preservation, insurance, casualty loss, income, accounting, tax, financing, and litigation purposes. A plant appraiser must deal with a broad spectrum of plant valuations from an individual tree to an entity as complex as a wooded residential or recreation area, an industrial park, or an entire city. The benefits provided by plants in urban, suburban and rural settings are numerous (Figure 1-1). Over the past two decades research has demonstrated the role of plants in conserving energy, removing atmospheric contaminants, moderating storm water run-off, sequestering carbon, improving physical and mental aspects of human health, and improving social capital (Jonnes 2016). The contribution of trees and landscape to real estate property value has also been the subject of recent research (see Chapter 7).

6 Chapter 1. Introduction Page 2 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Figure 1-1. Trees and other landscape plants provide a wide range of benefits. Illustration by Nelda Matheny

7 Chapter 1. Introduction Page 3 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction HISTORY In 1905, Dr. George E. Stone, at what is now the University of Massachusetts, Amherst, revised an earlier formula devised by a University of Michigan professor for placing a monetary value on shade and ornamental trees. In 1938, Dr. Ephraim P. Felt, director of the Bartlett Tree Research Laboratories, and Orville Spicer, president of The F.A. Bartlett Tree Expert Company, revised Dr. Stone s formula to create what can still be recognized today (Table 1-1) Stone s formula emphasized tree size, location, and condition. The Felt/Spicer formula expanded Stone s formula to include species and residential land values. A tree s initial value was based on a cross section of its trunk measured 4.5 ft (1.4 m) above the ground. This was adjusted by the location, condition, species, and land value, each expressed as a percentage, to obtain an appraised value. Considerable judgment was necessary as few criteria were provided with which to evaluate each of the rating factors The first edition of the Guide as we know was Shade Tree Evaluation, published in 1957 through the joint efforts of the National Shade Tree Conference (now International Society of Arboriculture) and the National Arborist Association (now Tree Care Industry Association). The first edition was patterned after the Felt/Spicer formula except that the real-estate rating was dropped, leaving such considerations to be included as part of the location rating. The first edition was revised twice before the American Society of Consulting Arborists (ASCA) and the American Association of Nurserymen (now AmericanHort) joined the first

8 Chapter 1. Introduction Page 4 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction two organizations in preparing the fourth edition, published in This edition was called A Guide to the Professional Evaluation of Landscape Trees, Specimen Shrubs and Evergreens In 1975, the four organizations and the Associated Landscape Contractors of America (now National Association of Landscape Professionals) formed the Council of Tree and Landscape Appraisers (CTLA). They published the fifth edition of the Guide for Establishing Values of Trees and Other Plants in In 1996, the Association of Consulting Foresters joined the Council, followed by the American Society of Landscape Architects in In each of these early editions one method of establishing basic value (dollars per square inch of trunk cross-sectional area) for trees too large to be replaced was defined. In 1957, unit cost was identified as $5 per in 2 ($0.78 per cm 2 ). The unit cost increased with each edition to $27 per in 2 ($4.19 per cm 2 ) by the seventh edition (1988). 72

9 Chapter 1. Introduction Page 5 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Table 1-1. Highlights of Plant Appraisal in the United States & Canada. For a more detailed account, see Cullen (2005) Stone (University of Massachusetts, Amherst) prepares a formula for placing a monetary value on shade and ornamental trees Felt & Spicer revise Stone s formula to become The Felt/Spicer formula (included a land value % in it) First Shade Tree Evaluation Guide Shade Tree Evaluation-Revision 1 published Shade Tree Evaluation-Revision II published Revision III titled published Council of Tree and Landscape Appraisers (CTLA) officially formed, composed of National Shade Tree Conference (now ISA), National Arborist Association (now TCIA), American Society of Consulting Arborists and American Association of Nurserymen (now AmericanHort) Fourth Edition published Fifth Edition published Sixth Edition published Manual for Plant Appraisers First Edition, published by CTLA Seventh Edition published Eighth Edition published Ninth Edition published

10 Chapter 1. Introduction Page 6 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction The first seven editions described Replacement Value and Formula methods of appraisal, but a smooth transition from Replacement to Formula was lacking. In fact, in the seventh edition, a 9-in. (23-cm) diameter Replacement tree was said to have a value of $44 per in2, and the Formula tree was said to be worth $27 per in The eighth edition, published in 1992 (now the Guide for Plant Appraisal), based the Formula value of large trees on the Replacement cost plus the increase in value due to the increase in tree size above that of the Replacement tree. The formation of Regional Plant Appraisal Committees was recommended to determine what information was needed to appraise plants in individual geographic regions. Such information included the size of the largest transplantable tree, its cost, the cost-per-unit trunk area (formula), and a species rating list A further refinement of the Guide formula addressed the rapid increase in trunk area and, therefore, the value of trees larger than 30 in. (75 cm) in diameter. The Guide allowed an appraiser to adjust for trees larger than 30 in. (75 cm) in diameter In preparing the ninth edition of the Guide, the Council identified three approaches to value: Cost, Income, and Market. Aside from the expansion of methods that range from Cost of Repair and Replacement Cost to Trunk Formula

11 Chapter 1. Introduction Page 7 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction and Cost of Cure, the Council compiled information on professional considerations and responsibilities, and plant appraisal within easements and rights-of-way PLANT APPRAISAL AND PROPERTY VALUE Although the Felt/Spicer formula incorporated land values, a connection between tree value and property value was not included in early editions of the Guide. Previous to the 8 th Edition (1992), plants were viewed as having intrinsic value, more or less independent of their contribution to the market value of the property on which they grew. This is not surprising as most plant appraisers were plantsmen, emphasizing and in some cases advocating for intrinsic plant values. What we currently refer to as the Cost Approach was the primary means of appraising plants The 9 th edition of the Guide emphasized that estimates of value must be both reasonable and reflect the value of the property. The intrinsic value placed on a tree or landscape by one property owner may not be shared by another property owner. Although we may ascribe a wide range of values to trees and landscapes, the contribution to real estate market value is a foundational aspect of how the plant appraisal process establishes value. Recent research has informed plant appraisers about the contribution of individual trees and other landscape plants to property value. 143

12 Chapter 1. Introduction Page 8 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction 144 **** Sidebar. Plant Appraisal & USPAP **** This edition of the Guide uses terms and concepts from the real estate appraisal community. It does so to help augment the plant appraiser s vocabulary and provide a foundation for understanding concepts relating to highest and best use, contributory value, the principles of diminishing returns and balance, and others fundamental to economic theory and market behavior. With this foundation of understanding and application, plant appraisal should share increased credibility within the appraisal community in general Professionals within the green industry are uniquely aware of property owner s appreciation of, and actual monetary expenditures toward, obtaining and maintaining their trees and landscape. With daily financial interaction providing clients desired arboricultural, nursery and landscape goods and services, those professionals who offer plant appraisal services are in an exceptional and perhaps singular position to opine on landowner s concepts of tree and landscape value. However the Guide strongly discourages advocacy and other practices that are not rooted in economic reality or empirical data A GUIDE OR A STANDARD? As reflected in its title, this edition of the Guide is intended as a resource to the plant appraiser. It is not meant to be considered an absolute or complete treatment of the subject of plant appraisal. It is meant to be an aid to those just

13 Chapter 1. Introduction Page 9 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction beginning in appraisal by presenting tried and true concepts which one needs to be familiar with to begin appraising plants. The Guide, however, cannot take the place of actual experience in completing, supporting and defending when needed, properly written plant appraisals *** Sidebar. Appraisal Licensing. *** The Guide for Plant Appraisal is not a standard in the same sense that the American National Standards Institute (ANSI) publications are. That said, plant appraisers should be aware that many outside the green industry regard the Guide as a standard. Professionals in the legal, insurance and real estate professions think of the Guide as a standard. Until recently, the Guide has been the only North American-focused reference available to plant appraisers. For these reasons, the Guide may be thought of as a de facto standard Throughout this Guide we refer to industry standards. These include both national (e.g. American National Standards Institute {ANSI}) and state or regional (e.g. Florida Grades and Standards for Nursery Stock) in application and scope. Groups such as Regional Plant Appraisal Committees (RPACs) may also establish reference information that may act like a standard (see Appendix 4). These publications will change over time. The Council believes that it is the duty of each individual plant appraiser to stay abreast of changes and updates to these standards. 190

14 Chapter 1. Introduction Page 10 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction USING THE GUIDE This edition of the Guide is organized to reinforce the steps taken during the process of plant appraisal. The Concepts Chapter introduces principles and ideas important to plant appraisal. The Process Chapter describes the steps from initial contact, definition of the assignment, gathering pertinent data, deciding on an appropriate approach, producing a result, and reporting This edition of the Guide describes three approaches to appraisal: Cost, Sales and Income. Within each approach are one or more Methods. In the Income approach, the Methods are either Direct or related to Benefits. The Sales approach focuses on one Method: Component Analysis. In Cost approach are three Methods: repair, functional replacement and reproduction

15 Chapter 1. Introduction Page 11 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction References The Appraisal Foundation Uniform Standards of Professional Appraisal Practice edition. Washington D.C. Cullen, S Tree Appraisal: Chronology of the North American Industry Guidance. J. Arboriculture. 31(4): Jonnes, J URBAN FORESTS: A Natural History of Trees and People in the American Cityscape. Viking. 216

16 Chapter 1. Introduction Page 12 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Sidebar. Appraisal licensing At the time of publication, the CTLA is unaware of any instance where a state real estate licensing board has successfully challenged an individual s right to appraise plants on the basis that the individual does not possess an appraisal license or certification. A court of law may restrict the plant appraiser from opining on market value, but in most cases where an objection arises, the court will allow the plant appraiser to testify as to component property value and consider the weight of the testimony in light of the appraiser s qualifications. The CTLA does not advocate the position that all plant appraisers should be licensed as real estate appraisers. Nevertheless, a plant appraiser should recognize when the Sales Comparison Approach is appropriate to use, and apply it accurately and effectively, with or without the assistance of a real estate appraiser

17 Chapter 1. Introduction Page 13 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Sidebar. USPAP and Plant Appraisal The Uniform Standards of Professional Appraisal Practice (USPAP) is recognized throughout the United States as a generally accepted standard of appraisal practice, providing definitions, rules and standards (The Appraisal Foundation 2016). The Appraisal Foundation oversees USPAP through the Appraisal Standards Board. Like the green industry s ANSI standards, USPAP is updated and revised by a group of practicing professionals. USPAP has been adopted by appraisal organizations as well as state and federal agencies The CTLA does not believe plant appraisers can or should be expected to adhere to USPAP. Plant appraisers using the Guide should consider USPAP a useful resource. Being knowledgeable about USPAP can strengthen and enhance the quality and credibility of plant appraisals. 247

18 CHAPTER 2 CORE CONCEPTS INTRODUCTION The purpose of this chapter is to introduce key terminology and concepts that are common to the plant appraisal community and other appraisal communities. It highlights core concepts for the appraiser to consider when developing cost and value estimates. It also covers a broad array of concepts related to value, cost, and economic principles pertaining to appraisal, and provides the foundation for subsequent chapters and the underpinnings for professional plant and landscape valuation. The procedures for appraising plants and landscapes can vary widely depending on the facts and circumstances of the assignment. Understanding common appraisal concepts, guiding principles, and terminology will prepare the appraiser to apply the most appropriate valuation procedures to landscape assets. Plant Appraisal Is Unique The Guide focuses mainly on plants in a landscape setting, in contrast to forests and native woodlands. Note the following special features of plant appraisal. 1. Plants are living organisms whose utility and benefit change over time, unlike inanimate objects. The benefits and utility provided by landscape plants depends on their function. The utility of well-placed plants generally increases with plant size. Benefits may appreciate with time, remain stable, and ultimately decline. As a rule, larger plants also produce greater environmental and ecological benefits. 2. Plants are diverse in size, form and a range of characteristics. The variation in commercial and residential land, houses, buildings, and equipment is relatively easy to quantify. Assets like gems, art work, and plants require highly specialized knowledge. Plants have the added complexity of being part of a larger real estate asset whose features also may need to be considered. 3. Landscape plants provide a wide range of benefits and utilities to their owners and communities. Contribution to real estate market value. Aesthetic values. Ecological and environmental benefits. Fruit and wildlife habitat. Social and psychological benefits. Plants can also detract from a utility of a site, as in the case of invasives, hazard trees, infrastructure conflicts, and litter. 4. Plant appraisal often focuses on the cost to install or restore. Most other appraisal focuses on market value. And, many assignments involve properties that are not commonly traded (institutions, public spaces). 5. Small plants are readily bought and sold (e.g., nurseries), but not once installed in the landscape. Installed plants cannot be readily traded apart from the entire property. When seeking market value, this requires plant appraisers to consider how much the plants add to value of the site.

19 Chapter 2. Core Concepts Page 2 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction APPRAISAL DEFINED The term appraisal has been defined many different ways by trade organizations, government agencies, and the courts. The following definition from The Appraisal Institute is simple and to the point: Appraisal The act or process of developing an opinion of value. 1 Valuation is a synonym for appraisal and therefore may be used interchangeably with it (Dictionary of Real Estate Appraisal, Fourth Edition). For appraisers specializing in plants, landscaping, and associated services, it is expedient to broaden this definition. This is because they are commonly asked to develop cost estimates, with no particular view to a value estimate. For purposes of this text, we offer the following definition: Plant Appraisal The act or process of formulating an opinion of a defined value or a defined cost. This may apply to plants, landscape elements, or services. 2 The product of an appraisal is an opinion or estimate, not a fact. While appraisal may draw on science, economics, and math, the process of developing and communicating a cost or value conclusion is nevertheless a systematic process using both quantitative analysis and qualitative judgment. The definition of plant appraisal acknowledges that plant appraisers may develop either cost or value estimates, or both. Cost estimates may even provide the basis for value estimates. The terms of the assignment and nature of the appraiser s work will determine the nature and scope of the work product. There are many types of costs and values, each with specific meanings. An important early step in the appraisal process is to define the type of value or cost to be estimated. This is required by certain appraisal standards, such as the Uniform Standards of Professional Appraisal Practice (USPAP). The result or product of the appraiser s work is referred to as an assignment result: an appraiser s opinions and conclusion developed specific to an assignment (USPAP ). Assignment Result An assignment result is an appraiser s opinions and conclusions developed specific to an assignment (USPAP ). Typically an opinion of value or cost. Past editions of the Guide have used the term appraised value, which is ambiguous as to whether the appraiser is estimating a value or a cost. The appraiser should also define the assignment result (e.g., reproduction cost, repair cost, market value).

20 Chapter 2. Core Concepts Page 3 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction PRICE, COST, AND VALUE In casual conversation, price, cost and value are often used interchangeably. However, it is important to distinguish among them in appraisal. Price is the amount of money asked, offered, or paid for property or services. Once stated, it is a fact, not an estimate. 3 It also can be the amount of money that a seller is asking for property or services. Price may or may not relate to value or cost. To the appraiser, price is an observable data point, not something that the appraiser estimates. For instance, one can collect price data from a nursery, or a listing price from a real estate broker. Cost is the amount of money required to create, produce, or obtain a property or service. The term is used either as an historic fact or as an appraisal estimate of current, future, or historic reproduction or functional replacement cost. 4 Cost may include profit margin. Value is the monetary worth of an item at a given moment in time. It is created by the expectation of future benefits in the minds of sellers, buyers, and users of assets. 5 Appraisers may use both cost and price information to develop estimates of value. The cost of an item may be more or less than its value, and in some cases the cost of an item may have little or no relationship to its value. COST CONCEPTS Cost estimates are the primary focus of valuation for many plant appraisers. The beginning point for the appraiser producing a cost estimate is estimating what it will cost to install a new plant or landscape item. There are two fundamental ways to apply the cost approach. One is to develop a reproduction cost, or the cost to produce an exact (or nearly exact) replica of a landscape item. The other is to develop a functional replacement cost, or the cost to replace a landscape item with an item having equivalent utility. Cost estimates may also be used as inputs for estimating expenditures necessary for repairing or mitigating deterioration caused by decay, wear and tear, or partial destruction. Depreciation Once the cost to establish a new plant or landscape item has been established, it may be necessary to adjust for sub-optimum conditions, such as imperfections in condition, utility, and location.. There are three basic components of depreciation: 6

21 Chapter 2. Core Concepts Page 4 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction condition (physical deterioration) e.g., poor health, reduced vigor, poor structural integrity, poor form functional limitations e.g., poor placement, excessive size or quantity external limitations e.g., adverse neighborhood influences, environmental conditions external to the property Developing a cost estimate may be the objective of the assignment, either with or without depreciation. In either case, the appraiser may focus on cost, with no particular regard to willingness to pay (discussed below). In other cases, the appraiser may use a cost estimate as the basis for estimating value, in which case depreciation will reflect the difference between cost and market value. 7 The type and objective of the assignment will determine which methods are appropriate. VALUE CONCEPTS Value is the monetary relationship between properties and those who buy, sell, or use them (USPAP ). Anticipation of future benefits creates utility and utility creates value. In appraisal, value is not a fact but an opinion of the worth of a property at a given time and in accordance with a specific definition of value. For economic value to exist there must not only be demand, but also some degree of scarcity, or limited supply. Where market value is sought, the supply-demand balance in the marketplace ultimately determines an item s value. Appraisers estimate value, whereas buyers and sellers determine value. Utility and Scarcity Are Required Air has inestimable value because it sustains all forms of life; it has the ultimate utility (think benefits ). But, under most circumstances, air has limited or no monetary value because its great supply. Confusing Terminology The insurance industry uses the term actual cash value, but this term refers to functional replacement cost and reproduction cost, not market value (Rubin, Harvey W Dictionary of Insurance Terms, Fifth Edition, Barron s Educational Services, Hauppauge, NY, p. 6) [Note: Word would not allow me to insert an endnote number, so this is the full reference.]

22 Chapter 2. Core Concepts Page 5 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction The appraiser must define the type of value to be appraised at the outset of the assignment. Most value-based appraisal problems require estimating what someone is willing to pay to obtain the benefits provided by the asset. Evidence of willingness to pay can be derived from previous purchases. Examples of value include market value, investment value, and liquidation value. In plant appraisal, landscape plants have market value because they are real property. When the property is sold, landscape plants are part of the transaction. Young nursery stock or woodlots have investment value because of the expectation of future return. Trees killed by fire or insects may have some liquidation value. Other types of value are non-transaction-based, and must be analyzed in terms of inferred supply and demand. Examples of non-transaction-based value include ecosystem value, existence value, and public interest value. Ecosystem values may include benefits associated with carbon sequestration, temperature control, biodiversity, and wildlife habitat. The value of landscape plants associated with public property (such as parks) and institutions must be inferred because these properties are not transacted on the market. Historic trees may have public interest value. The value of these things can be measured using willingness-to-pay models, or inferred from applications like i-tree. The most common type of value appraised is market value, which may be defined as: an opinion of value that presumes the transfer of a property, as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser (USPAP ). Key conditions applying to most definitions of market value include: a cash transaction, closing on the effective valuation date; specified property rights are exchanged; reasonable exposure in a competitive market; buyer and seller are each acting prudently, knowledgeably, and for self-interest, and neither is under undue duress. 8 Market Value A Key Concept Also known as fair market value. Various definitions share basic threads: the presumption of an open market sale free of abnormal influences, where seller and buyer are knowledgeable and act in their own interests, and cash is exchanged on a specified date. Different conditions call for other types of value.

23 Chapter 2. Core Concepts Page 6 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction Willingness to Pay Value estimates are generally based on willingness to pay (WTP), or the notion that an item s value can be demonstrated by how much one would be willing to pay for it. Willingness to pay is tied to the principle of substitution, discussed later in this chapter. Appraisers consider willingness to pay when estimating both market and non-market values. Market value is demonstrated through the actions of buyers and sellers in the marketplace. Transaction data reflect supply and demand dynamics and provide the basis for valuation analysis. Cost estimates may also infer WTP, subject to market evidence linking cost to value. Non-market values, such as the value of trees in a public park, can be demonstrated by willingness to spend time and money to enjoy the park. Or, they can be estimated through willingness to support public funding by paying higher taxes. S uch inferred price data provides a basis for estimating willingness to pay. Trees and other landscape items have tangible and intangible value to their owners. Tangible benefits might include energy savings and fruit; intangible values might include privacy and beauty. To some extent these values are independent of the land that these items occupy, and may be independent of the true market value of the landscape items themselves. Such benefits can also be extremely difficult to objectively measure in terms of their economic value. A tree producing various tangible and intangible benefits may be worth $10,000 to its owner (e.g., the owner might state a willingness to pay $10,000 to avoid losing it). The tree may have a reproduction cost of $25,000. It may add only $500 to the overall property value. It is not uncommon to observe a material disconnect between the cost of a tree and its market value. Qualities that produce intangible values such as aesthetics or sentimentalism for one owner may not produce the same sense of value for another owner. However, the appraisal process should be objective and impersonal. The appraiser should apply reasonable industry standards to the appraisal process, not subjective personal opinions offered by others. W here market value is sought, transactional behavior should ultimately provide the foundation for estimating the amount that the plant or landscape item contributes to overall property value.

24 Chapter 2. Core Concepts Page 7 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction Value to the Owner It is highly problematic for the appraiser to estimate value to the owner because the factors producing this value are unique to that owner, highly subjective, and incapable of being objectively modeled in economically meaningful terms. Cost Estimates vs. Value Estimates Cost estimates are based on production costs, which include acquisition of plant and landscaping materials, plus labor and direct costs associated with transportation, installation, and after-care. or, all costs required to convert personal property (e.g., plant specimens, brick and mortar) to real estate (e.g., installed trees and patios). Value estimates are based on willingness to pay. Where market value is sought, evidence of WTP derives from transaction evidence. Cost-based valuation may be used to develop market value estimates. Here, the plant appraiser picks up where the cost estimate ends, adjusting the installed cost for depreciation derived from market evidence that supports the differential between installed cost and contributory market value. The result is an estimate of the market value of the installed item. Note that a cost estimate does not support a value estimate until it is pegged to market value or some other form of WTP. One of the challenges facing users of cost methods (e.g., trunk formula technique) who seek market value is to connect installed cost to real estate transaction data. Cost and Value Estimates Cost estimates include all costs required to convert personal property to real estate. When a tree is installed on a residential site, it becomes real property. Value estimates focus on real estate value, which should account for the contribution of trees and landscape to overall property value.

25 Chapter 2. Core Concepts Page 8 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction Highest and Best Use Where market value is sought, highest and best use (HBU) has been described as the cornerstone of the appraisal process. Market value is a function of an asset s HBU. Properly assessing the market value of real estate property or its component parts requires understanding the HBU of the property. Highest and best use may be defined as: The reasonably probable use of property that results in the highest value. The four criteria that the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivity. 9 The term probable is widely interpreted as reasonably probable within the reasonably forseeable future. When appraising the market value of plants or landscape services, plant appraisers should consider the current use and potential utility of the overall property and the types of markets within which that property is traded, before deciding which valuation approaches and methods to use. In most cases, a property s HBU will be obvious from the current use of the property and neighborhood characteristics. In other cases, the plant appraiser may need to consult with local professionals (e.g., tax assessor, real estate broker, real estate appraiser). Highest and Best Use Where market value is sought, the first critical analysis for the appraiser is to identify the asset s highest and best use. In most cases, the highest and best use of the plants and hardscape will correspond to the highest and best use of the overall property. This concept may also come into play when developing cost estimates, where utility is reflected in depreciation estimates. For example, the market value of shade trees within an urban residential subdivision will be a function of what they contribute to residential property value. The cost and sales comparison approaches may apply. Trees on a rural woodlot produce different benefits and must be measured using different transaction data. Here, the sales comparison and income approaches may apply. The appraiser develops a highest and best use conclusion by considering property features in the context of market supply and demand. Highest and best use often coincides with

26 Chapter 2. Core Concepts Page 9 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction current use, but not always. For instance, a forested property may be in transition to commercial use where development is encroaching. Here are examples of various highest and best use conclusions: Residential Commercial Industrial Cropland Grazing Timberland Orchard / Vineyard Recreation Campground Wetland TYPES OF PROPERTY Valuation requires an understanding of the type of property being appraised. So we must first understand what we mean by property. Implied in any appraisal assignment is the notion that the asset being appraised is held under some form of ownership, and that its owner has some specific ownership interest or set of legal rights in the asset. It is imperative that the appraiser understand the type of ownership interest to be appraised and clearly articulate this in the appraisal report. This section focuses on the terms real estate and personal property. Each term has a distinct meaning, so the appraiser should clearly identify which type of property is being appraised. Real Estate Real estate is the physical land and appurtenances attached to the land. 10 The legal definition of real estate includes the following tangible items: Land All things that are a natural part of the land, such as trees and minerals All things that are attached to the land by people, such as buildings and site improvements (e.g., fences or landscaping). 11

27 Chapter 2. Core Concepts Page 10 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction Two distinguishing features of real estate are: (1) its utility and value are a function of its location; and, (2) it is intended to be used in its current location, not moved to some other more permanent site. It is a basic legal principle that trees, shrubs, and other landscape features, where they exist in their final location, constitute real estate rather than personal property. This is true for both natural plant communities and designed landscapes. For example, consider the following from the United States federal tax code: [Timber is] defined by the Internal Revenue Code as the wood in standing trees that is to be recovered when the trees are cut and processed. Once trees are cut, they cease to be timber for income tax purposes. The simple act of cutting standing trees converts timber from real property to wood products and personal property. 12 Where a homeowner pursues a deduction for loss or damage to ornamental or shade trees, the Internal Revenue Service (IRS) ordinarily recognizes the depreciation in the value of the entire property (land and improvements) as the appropriate measure of the value of the loss. 13 The treatment of plants and other site improvements as real estate is by no means limited to public agencies and courts; it is a fundamental tenet of real property appraisal and taxation. So where components of a property are damaged, it is not uncommon for damages to be measured in terms of loss in market value, which is manifested in transactions that include the entire property of which the damaged components are a part. These basic real estate concepts have profound implications for the plant and landscape appraiser. For example, where the appraiser is asked to estimate the cost to replace a tree or to restore a site to some previous condition or utility, it may be appropriate to use cost methods without particular regard for market value or transaction behavior. But where an assignment calls for estimating market value of plants and other landscape items, the appraiser estimates their value in the context of overall property value, or what they contribute to the value of the whole Real Property The concept of property implies ownership. Generally speaking, it is this ownership interest that raises the need for property, or components of a property, to be appraised in the

28 Chapter 2. Core Concepts Page 11 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction first place. Real property is all of the interests, benefits, and rights accruing to the owner of real estate, otherwise described as the bundle of rights. 14 Simply put, real property is the legal interest in real estate or the rights associated with ownership of the physical land and improvements. The bundle of rights is composed of individual sticks representing specific ownership interests. Fee simple ownership is the most comprehensive form of ownership in the United States. to: Fee Simple Interest Defined Originally conceived under British Common Law to extend from the bowels of the earth to the heavens, today a fee simple interest is limited by four powers deriving from government bodies: the right to take property for public benefit (eminent domain); the right to levy property taxes; the right to regulate land use; and the right to determine where one s property goes if he or she dies without a will (escheat). There are other limitations as well, such as government control of air rights. Fee simple ownership in a parcel of real estate includes, but is not limited to, the right Sell or lease the property to another party Develop the property Use the property for habitation, recreation, retail, forestry, agriculture, minerals, etc. Prevent others from entering the property Install plants and hardscape features Clear vegetation Place covenants or easements on the property A partial interest in real estate might include: The right to rent property belonging to another owner (leasehold interest) The right of an owner to lease property to another party (leased fee interest) Fee ownership subject to another party holding an easement or some other partial interest The right to hold and enforce an easement (right-of-way, utility, conservation, scenic, avigation, sunlight, etc.) that burdens another s property

29 Chapter 2. Core Concepts Page 12 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction The right to cultivate and harvest trees, orchard crops, vineyards, and other products grown on property owned by another party Appraising a partial interest may require the appraiser to consider how that particular interest adds to, complements, or even detracts from the value or utility of other rights comprising the fee simple interest. Personal Property Personal property includes all tangible property that is not classified as real estate, as well as intangible property like goodwill (e.g., franchise reputation, customer lists and local patronage, or management skill). 15 It has also been defined as everything that is the subject of ownership that does not come under the denomination of real property; any right or interest that an individual has in movable things. 16 Some distinguishing features of personal property are: Partial Interest: Avigation Easement An appraiser may be asked to value the impact of an avigation easement that extends over adjacent residential property, thereby giving the airport the right to clear vegetation that penetrates air space within a 7:1 glide path. The adjacent landowner whose property is burdened by the easement owns less than fee simple interest, and this may impair the value of the property and the trees that otherwise would penetrate the easement area. Its utility and value are not generally tied to its location. It is often intended for use across a variety of potential locations. It is moveable without damage to itself or the real estate. 17 The manner in which an item is affixed to the land may determine whether it is personal property or real estate. For instance, a mobile home may be considered personal property while it rests upon its wheels, particularly if it is not being occupied as a residence. But if it rests

30 Chapter 2. Core Concepts Page 13 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction upon a foundation, then it is usually considered real estate. A modular greenhouse that is bolted to a cement slab may be considered real estate in some situations and personal property in others. Whether something is viewed as real estate or personal property may also depend on the intention of the party that made the annexation (that is, to leave permanently or to remove at some time). 18 Trees planted in someone s yard or in a commercial forest plantation are real estate. Nursery stock is personal property because it is part of a business stock in trade; it is temporary inventory to be moved and installed in some other permanent location. Out-planting nursery stock to a field for subsequent removal from the site still means the nursery stock is personal property. It becomes real estate once it has been installed in a permanent location. Its value thus becomes related to its location, though the cost to replace or restore it may not be. If it is subsequently transplanted to another location, it can actually become personal property again and then convert back to real estate once installed. A standing tree in the forest is real estate, but it becomes personal property once it is severed from the stump. Contracts Can Define Property For federal income tax purposes, commercial timber may become personal property at the moment the right to cut that tree (i.e., a stumpage contract) has been sold to another party.

31 Chapter 2. Core Concepts Page 14 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction Even Christmas trees are real estate once planted in the grower s field. They become personal property when they are cut. Figure 1-1 illustrates the evolution of a tree from personal property to real estate Figure 1-1: Progression of trees from personal property to real estate. B&B = balled & burlapped. Containerized plants such as Bonsai, dwarf specimens, and highly maintained plants such as espalier may be personal property. Some specimens are over 1,000 years old and passed from generation to generation. They may be installed temporarily or originally cultivated in the landscape. One would expect an owner who vacates a property to remove such specimens and carry them away. TYPES OF MARKETS Appraisal assignments call for estimates of either cost or value, or sometimes both. Regardless of the assignment, at some point early in the process the appraiser must analyze one or more market factors, such as what it will cost to acquire a landscape item or service. What is a market? It is a venue or economic structure within which goods and services are exchanged for money. T he structure may be virtual, physical, or some combination of the two. A market is characterized by an exchange mechanism demonstrating willingness to pay. Market prices are driven by supply and demand factors that influence the behaviors of sellers and buyers. Economists think of value in terms of utility and scarcity, supply and

32 Chapter 2. Core Concepts Page 15 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction demand. Goods and services have value because they are exchanged in markets where these factors work together to influence behaviors and thereby determine prices. Real Estate Markets. Transaction-based markets include properties sold for residential, commercial, industrial, agriculture, orchards, timberland, recreation, wetlands, and other uses. They all produce empirical market data that appraisers analyze when developing market value estimates for land and improvements to the land. Non-Transaction Markets. Non-transaction markets reflect tangible and intangible values associated with public benefits. Technically speaking, these are non-market values. They can be measured using hedonic models that infer value from peoples willingness to pay for travel, lodging, food, and user fees. This might apply to a public recreation area. WTP models such as public interest value in a park, where public interest value can be inferred from user expenditures for travel, lodging, food, and use fees. Non-market values can also be inferred from survey techniques like contingent valuation. Another interesting case of a non-market values is ecosystem values. Rather than gathering evidence of what people might be willing to pay to use an ecosystem, the i-tree suite of software tools estimates the value of ecosystem services such as carbon sequestration, atmospheric contaminant removal, energy conservation, and stormwater control. T he value of these services is based on the cost of control or mitigation in regional-based markets. ECONOMIC PRINCIPLES Several economic principles that affect the creation of value in the marketplace are discussed below. Each one of the principles can have a direct bearing on the appraiser s analysis of utility, depreciation, HBU, and other factors contributing to the development of assignment results. These concepts may seem to apply mainly to value estimation, but they also apply to cost estimation in many cases. Principle of Substitution The principle of substitution states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price will attract the greatest demand and widest distribution. This is the primary principle upon which the cost and sales comparison approaches rest. 19

33 Chapter 2. Core Concepts Page 16 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction In the context of estimating market value, the principle of substitution may be re-stated by asserting that a rational buyer will not pay more for a particular property than the cost to obtain a substitute property having similar utility. This principle is helpful to the appraiser who needs to decide whether reproduction cost or replacement cost should be used, and for establishing whether cost and value estimates are reasonable in relation to consumer behavior. For example, a hedge of exotic species that was used for screening is destroyed. It is possible to reproduce it for $10,000 or replace it with a hedge of local species for $2,000 without sacrificing any utility. The principle of substitution suggests that the $2,000 figure may be a more reasonable starting point for the market value of the hedge. Principle of Anticipation The principle of anticipation states that value is created by the expectation of future benefits. 20 This is the primary principle upon which the income approach rests. As discussed earlier in this chapter, it also provides the very foundation for value. When contemplating market value, the principle of anticipation may be re-stated by asserting that HBU rests on the expectation of future utility, and this utility is what determines the demand for a given property. For a market value conclusion to be reasonable, it must reflect what typical buyers would pay in anticipation of this future utility. In contrast, past or anticipated costs may, in certain cases, have little relevance to anticipated benefits. For example, investors evaluate vineyard, orchards, Christmas tree farms, and timber properties in terms of potential income that can be derived from their management. Here, market value is reflected by the present value of future net cash flows. Models used in programs such as i-tree estimate the current and future ecosystem benefits provided by a tree in a given setting. Principle of Balance The principle of balance applies to the relationship among various property components, such as land, trees, and buildings. It rests on the fact that property value is maximized when contrasting, opposing, or interacting components are in a state of equilibrium. Economic balance exists where there is an optimum combination of land and improvements that is, when no additional benefit is achieved by adding another unit of capital 21 (i.e., investment in improvements).

34 Chapter 2. Core Concepts Page 17 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction As an example, consider a residence with a house and landscaping that are typical for its neighborhood. One could double the investment in house or landscaping, but it is unlikely that this would result in a commensurate increase in property value. This reflects the law of diminishing returns, which states that incremental capital and labor increase profit or value up to a point, after which added units produce decreasing increments of profit or value in relation to their cost. For instance, once the optimum number of trees is in place, adding another tree may have little or no impact on the value of the property. Excessive landscaping may even detract from property value. Therefore, the market value of an excess tree may be much less than its replacement cost, or even zero. This illustrates functional obsolescence due to a superadequacy (see Chapter 5. Cost Approach). The principle of balance also applies to the relationship between a property and its environment. 22 A residential property near a landfill may be worth less than the same property near a park. In the same way, a USD $100,000 landscape may add more value to an upscale estate property than to a small lot in a low-income subdivision. A sugar maple providing shade and fall color may be more valuable than a Lombardy poplar, even though the two specimens may have identical reproduction costs. Principle of Contribution The principle of contribution holds that the value of a particular component of a property is measured in terms of its contribution to the value of the whole property, or the amount by which its absence would detract from the value of the whole. 23 This amount is called contributory value. A landscape item s contributory value may be higher than, equal to, or less than its cost. These items are real estate, and rarely trade in the absence of the sale of the entire property of which they are a part. Therefore, their market value must generally be measured in terms of their contribution to the whole. This provides the framework for judging the credibility of the value estimate. For example, just because a tree costs $10,000 to install does not mean that a typical buyer of the property on which it sits would pay $10,000 more for the property after it was installed, or $10,000 less for the property after it was removed. A landscape item might even detract from property value if it is an invasive species, blocks views, produces excessive litter, or needs to be removed due to poor health or unsatisfactory location.

35 Chapter 2. Core Concepts Page 18 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction For many plant appraisal projects, particularly where the assignment calls for estimating the cost to reproduce property or restore it to a previous condition, contributory value may not be particularly relevant. Contributory Value Is Often Less Than Reproduction or Replacement Cost Contributory value is often less than reproduction or replacement cost in cases like these: Principle of Consistent Use Special amenities such as swimming pools, tennis courts Over-designed or poorly designed landscaping Trees placed where they obstruct sunlight or create hazard Poor market conditions that depress market values The principle of consistent use holds that land cannot be valued based on one use while improvements (e.g., landscaping and structures) on the land are valued based on another use. 24 This principle applies primarily to market value analysis. For example, consider a residential property that is adjacent to an industrial park. Local zoning allows conversion of the residential property to industrial use, and a real estate appraiser concludes that the latter is its HBU. In this case, it may be incorrect to assert that the landscape has any positive market value, particularly if would have no utility to the typical buyer contemplating conversion to industrial use. However, the landscape may well have positive value in use (i.e., value to the residential owner). It may also possess positive non-market value if, instead of being under residential ownership, it is contained within a city park. Consider another situation in which natural woodland property lies between two highvalue residential lots. The appraiser concludes that the HBU of the property is to sell it for residential use, and the typical buyer would build a house and install a landscape typical for the neighborhood. This is a case where the property is currently in an interim use. If, prior to the development, an abutter were to damage some of the natural trees and ground cover, it may be incorrect to conclude that the market value of damaged plants is commensurate with the cost to replace them, particularly if it is likely that the plants would be removed in the development process. So it behooves the appraiser to think objectively about likely uses of the property and the relative utility of existing trees under those uses. Plants that would be retained may have positive value, whereas plants requiring a net expenditure to remove them may not.

36 Chapter 2. Core Concepts Page 19 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction Principle of Conformity The principle of conformity holds that property value is created and sustained when the property characteristics conform to the demands of its market as expressed in economic pressures and shared preferences for certain types of structure, amenities, and services. Land use regulations also influence standards for conformity. 25 For instance, a lower-priced property will be worth more in a neighborhood having higher-priced properties than it will in a neighborhood having similar properties, just as a higher-priced property will be worth less in a lower-priced neighborhood than it will in a neighborhood of similar properties. The same principle applies to plant and landscape values. A Japanese red maple will probably add more value to a well maintained high-value property than to a poorly maintained low-value property. These factors can influence value, and the estimation of external obsolescence in the cost approach. CONCLUSION Multiple use tree cover Consider a situation in which natural forest trees occupy property that is likely to be converted to a sizeable residential subdivision. Whether these trees contribute to the property s market value depends on what the typical buyer would expect to do with them. It is possible that certain trees would be retained for natural screening or shade, whereas other trees would be removed if they obstruct views, are too numerous, lack landscape quality, or pose potential hazards. The appraiser might evaluate potential screen trees in terms of the cost to install natural or artificial screening, and the trees to be cut in terms of potential stumpage value the landowner or contractor can redeem. A stumpage analysis may require deducting the cost of stump and debris removal. Stumpage value may not exist where there is insufficient volume to cover operating costs, or where there is no evidence that a typical buyer would contemplate selling the timber. This chapter serves as the foundation for succeeding chapters, covering definitions and concepts that are relevant to the appraisal process in general. Key applications of appraisal theory introduced here are more fully developed later in the text.

37 Chapter 2. Core Concepts Page 20 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction KEY TERMS Amy You asked for these at the beginning of the Chapter. I thought it might be easier on reviewers to have it back here. Feel free to move to the front if you wish. I have elected to paste in an Excel table which facilitates sorting alphabetically. accrued depreciation principle of balance appraisal principle of conformity assignment result principle of consistent use bundle of rights principle of contribution contributory value principle of substitution cost property external obsolescence real estate fee simple ownership real property functional obsolescence replacement cost highest and best use reproduction cost law of diminishing returns retail market market retail price market value scarcity personal property utility physical deterioration valuation plant appraisal value price wholesale market principle of anticipation willingness to pay

38 Chapter 2. Core Concepts Page 21 Guide for Plant Appraisal, 10 th edition DRAFT. Not for duplication or reproduction REFERENCES 1 Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th Edition, CTLA, March 23, Appraisal Institute, The Dictionary of Real Estate Appraisal, Appraisal Institute, The Dictionary of Real Estate Appraisal, Appraisal Institute, The Dictionary of Real Estate Appraisal, Fifth Edition, Appraisal Institute, The Appraisal of Real Estate, Twelfth Edition, INSERT PAGE #. 1 Appraisal Institute, The Dictionary of Real Estate Appraisal, Appraisal Institute, The Dictionary of Real Estate Appraisal, Appraisal Institute, The Dictionary of Real Estate Appraisal, Appraisal Institute, The Dictionary of Real Estate Appraisal, Fourth Edition, Appraisal Institute, The Appraisal of Real Estate, Twelfth Edition, 7. 1 Passewitz, Ohio State University Fact Sheet F-32, Timber Tax definition. See also p. 83 of 1 The West Group, American Law Reports 3d Appraisal Institute, The Dictionary of Real Estate Appraisal, Fourth Edition, Appraisal Institute, The Dictionary of Real Estate Appraisal, Fourth Edition, Thompson Gale Legal Encyclopedia at 1 Appraisal Institute, The Dictionary of Real Estate Appraisal, Fourth Edition, See Real Estate Definitions at 1 Appraisal Institute, The Dictionary of Real Estate Appraisal, Appraisal Institute, The Dictionary of Real Estate Appraisal, Appraisal Institute, The Appraisal of Real Estate, Twelfth Edition, Appraisal Institute, The Appraisal of Real Estate, Twelfth Edition, Appraisal Institute, The Appraisal of Real Estate, Twelfth Edition, 40; Appraisal Institute, The Dictionary of Real Estate Appraisal, Appraisal Institute, The Appraisal of Real Estate, Twelfth Edition, Appraisal Institute, The Appraisal of Real Estate, Twelfth Edition,

39 Chapter 3. The Appraisal Process Introduction 1 Step One: Define the Appraisal Problem 4 Sidebar: Solicited Solutions 5 Step Two: The Scope of Work 11 Step Three: Define the Assignment Result 12 Step Four: Collect & Analyze Relevant Data 13 Step Five: Apply Relevant Valuation Approaches 13 Step Six: Reconciliation 17 Step Seven: Prepare the Report 18 Summary of the Appraisal Process 18 Appraisal Process Example 19 References 25 INTRODUCTION This chapter introduces the steps that are taken when preparing a plant appraisal (The Appraisal Institute 2013a): 1. Define the appraisal problem. 2. Summarize the required scope of work (i.e., the assignment). 3. Define the assignment results (i.e., the relevant type of cost or value to be estimated). 4. Collect relevant data. 5. Apply the appropriate approaches, methods, and techniques. 6. Reconcile the analyses to produce the assignment result (as appropriate). 7. Prepare a report. These steps are listed in a linear, ordered manner. In typical appraisal assignments, however, steps #2, 3, and 4 may be performed in varying order. Even the definition of appraisal problem may require a site visit and/or research. Under normal circumstances, steps #1, 2 and 3 should be undertaken before #4, 5 and 6. The appraisal problem, assignment and context are clarified with a series of questions (Table 3-1). 1

40 Chapter 3. The Appraisal Process Page 2 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Table 3-1. Questions that will be answered during the appraisal process. Each answer provides context to the problem and assignment. As more questions are addressed, the context becomes more and more specific. WHO Will be preparing the appraisal? Will be collecting the data? Is the owner of the landscape item being appraised? Are the intended users of the appraisal? Are any other parties involved in the appraisal? WHAT Is the item being appraised? Is the intended use of the appraisal? Is the definition of the cost or value to be estimated? Approaches, methods and techniques are relevant to the problem? Is the result to be a value or cost estimate? Data is needed to respond to the assignment? Are limitations to developing the appraisal? What are the relevant dates associated with the appraisal? (e.g., effective valuation date; inspection date; date analysis was completed; date report was completed). WHERE Is the item located (community, neighborhood, site description)? Is the item present or has it been moved elsewhere? WHY Were specific approaches, methods, or techniques employed? Plant appraisal assignments will vary widely in size, scope and complexity. Most assignments will fall into one of several broad categories (Table 3-2). 2

41 Chapter 3. The Appraisal Process Page 3 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Table 3-2. Common situations were plant appraisal is requested. Situation Comments Loss associated with. May or may not involve litigation. May range in scale from a single tree to many acres of trees. Chemical/pesticide injury or encroachment (eg. drift, spill) Pruning w/o permit or permission Removal w/o permit or permission Fire / flood / natural disaster Construction activity Vehicle accidents Tree failure Trespass Landscape installation and / or maintenance Eminent domain The taking of real property for the public benefit using resulting in lost market value. Land development May encompass either bonding or mitigation of damage or loss for trees planned for retention during development and construction. Municipal Code and/or relevant ordinances may suggest specific direction in these situations. Tree inventory Inventories are records of individual tree attributes within a geographic area i. They can be for private, municipal, university, corporate or other properties. The can include estimates of replacement cost, market values and/or annual benefits. Insurable value Used to provide a cost or value estimate on which to base and 3

42 Chapter 3. The Appraisal Process Page 4 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction insurance policy for specific trees or landscape elements. Insurance claims Casualty loss costs or values estimated to make damage claims to insurance companies IRS casualty loss Tax deduction associated with loss in market value produced by a sudden, unusual and unexpected event. STEP ONE: DEFINE THE APPRAISAL PROBLEM The first step in the process is to identify the appraisal problem. This sets the parameters of the assignment and eliminates any ambiguity about the nature of the assignment. In this step the appraiser identifies the client and intended users of the appraisal, the intended use of the appraisal, the effective date of the opinion, the relevant property characteristics and the assignment conditions. Identify the Client and Intended Users The appraiser s client is the person or entity for whom the appraiser is conducting the valuation. The client may be a landowner, attorney, insurance company, potential buyer, lender, government agency, non-government agency or some other entity. Identifying the client allows users of the appraisal to know who has hired the appraiser and to whom the appraiser owes a duty of care. The client is always an intended user of the appraisal. The client may specify other intended users, such as a lender, abutter, or some other party. It is important to clearly establish all parties who are authorized by the client to have access to the appraiser s work product. A plant appraiser has certain duties to his or her client, although some of these duties may not be explicitly defined. For example, these duties might include: 4

43 Chapter 3. The Appraisal Process Page 5 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Understand the nature of the assignment. Develop a scope of work and share it with the client. Conduct the appraisal according to the agreed-upon scope of work (eg. item to appraise, location, cost, report delivery date). Protect the confidentiality of all communications and work products. Many situations involve parties other than the client. Such parties should also be identified as early as possible. A tree might be located on a property line and so is jointly owned, an insurance matter will involve one or more insurance companies, a policy holder and claimants. A lawsuit will involve attorneys, defendant, plaintiff and others. Access to the property and tree may require dealing with a renter or real estate agent. Identifying all relevant parties will facilitate the work and help avoid conflicts of interest and delays in performing the scope of services. Finally, an appraiser s responsibility is to provide an independent, objective, and impartial result without discrimination or accommodation of personal interests or the interests of their client. If an appraiser is perceived as having a personal interest, bias, or a conflict of interest, it may be necessary to step away from the assignment or, at a minimum, to disclosed the conflict at the onset of the assignment or as soon as discovered. Ethical standards for appraisers are outlined in the Uniform Standards of Professional Appraisal Practice (The Appraisal Foundation 2016). An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the highest standards of professional ethics. An appraiser must perform assignment with impartiality, objectivity and independence and without accommodation of person interest. This includes: not performing with bias, not advocating the interest of any party, not accepting an assignment that includes a predetermined conclusion, and not communicating misleading information. **** Sidebar: Solicited Solutions ***** 5

44 Chapter 3. The Appraisal Process Page 6 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Identify the Intended Use of the Appraisal The intended use of an appraisal answers the question: Why and for what purpose does your client need the appraisal? Although the basic situation may sound simple, discovering more details of the intended use of the appraisal may take some work. It is common for the appraisal to have more than one intended use. Because there are various options for the type appraisal to provide, probing questions may be needed during the initial inquiry to help both the appraiser and client identify the intended use(s) and establish the scope of work. For example, you may be contacted because A neighbor came onto my property while our family was on vacation and cut down one of my trees. While that explains what happened to the trees, it does not identify the intended use. Examples of the details that clarify the intended use include: I want to sue him for the loss I have incurred. The City arborist says I need an appraisal to establish the fine for violating our tree ordinance. I want to know if there has been any change in the value of my property. I want to claim the loss on my taxes. My home insurance company says I need an appraisal to establish the value of my claim. I want to know how much it would cost to replace the lost tree with an exact duplicate. I want him to replace the tree with landscaping that will provide the same screening. Effective Date of Reporting and Valuation An appraiser must stipulate dates of the valuation. Appraisers may occur in one of three general time-frames. Retrospective appraisals offer an opinion of value that pre-dates the inspection. This type of appraisal is common in damage cases, casualty loss claims and estate or inheritance tax matters. A typical retrospective plant appraisal involves 6

45 Chapter 3. The Appraisal Process Page 7 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction tree damage or removal. Lawsuits tend to develop over a period of time, so the appraiser may not become involved until several years after the effective valuation date. Current appraisals occur when the effective date of the opinion of value is the same as the date of property inspection or report completion, or is current with today s market conditions. Its use is commonly associated with tree inventories, tree protection/construction bonds, and transactions. Prospective appraisals offer an opinion of value for a date in the future. This may be appropriate in the case of future development or as part of cash flow analysis in which projections of future cost or value made. A prospective appraisal could be the estimation of the probable value of a nursery, orchard or timber resource at some future date. Identify the Asset to Be Appraised The appraiser needs to identify what is being appraised: Is it one or more trees, shrubs, an orchard, turf, timber, hardscape? Is the item real estate or personal property? A tree being held in a temporary location, with the intention of planting in the future is personal property. A tree growing in a landscape is real estate. Who owns the property? Is the client the tree owner or the tree owner s representative? What is the ownership interest in the asset(s) being appraised? Are there any limitations to the ownership of the tree or landscape due to easements, leases, timber rights or a tree preservation ordinance? Where is the tree or landscape located? What is the address and where on the property is the tree? Is the tree on the property line? Adjacent to street, street light, sidewalk, etc. A tree s location is commonly defined by the location of the 7

46 Chapter 3. The Appraisal Process Page 8 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction base of the trunk. But the location of the crown and roots may be important in some cases. Where is the tree or landscape located? Identify the community, neighborhood, and address. State where on the site the plant or landscape item sits. Is the tree on the property line, or adjacent to a street, street light, sidewalk, etc. A tree s location is commonly defined by the location of the base of the trunk. But the location of the crown and roots may be important in some cases. How is the property currently being used? Is it a residence, a vacant lot, a commercial site, an urban street tree setting, a park, or a woodlot? Is the current use the highest and best use? Assignment Assumptions Assignment conditions are the assumptions applied in the appraisal. Appraisers often need to undertake an assignment with the understanding that some information is presumed to be true, but has not been verified. Such unverifiable information is known as an assumption. Plant appraisers should distinguish between two types of assumption, general and extraordinary. General assumptions are facts or data that are understood to be true (The Appraisal Institute 2015). The appraiser assumes the information is correct. For example, appraisers assume that measuring trunk diameter with a diameter tape accurately reflects the true diameter of the tree and therefore provides an accurate basis for determining trunk cross-sectional area. One of the assumptions in using the trunk formula technique (see Chapter 5) is that the cost of a large tree can be extrapolated from the price of a commonly available nursery tree. Extraordinary assumptions presume as fact otherwise uncertain information that, if not true, could have a material impact on the appraiser s conclusions (The Appraisal Institute 2013b). This may include physical, legal, or economic characteristics of the subject property, or features external to the property such as market conditions. Extraordinary assumptions should only be used if they are required to develop credible appraisal. 8

47 Chapter 3. The Appraisal Process Page 9 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Extraordinary assumptions need to be disclosed in the appraisal report, and if known about early enough, in the scope of work. A property owner tells the appraiser that a tree was located 10 feet outside a utility rightof-way. Assuming the tree to be outside of the right-of-way would be an extraordinary assumption. If the tree is within the right-of-way, the utility contractor was within their rights to prune the tree and it would be unreasonable for the plant appraiser to establish a loss for tree work. The following examples illustrate the difference between general and extraordinary assumptions. A property owner tells the appraiser that the backyard fence was constructed on the property line. If the subject tree was located 20 ft. from the fence, assuming the fence to be the property line would be a general assumption. But if the tree were located 1 ft. from the fence, assuming the fence to be the property line would be an extraordinary assumption. The distinction between general and extraordinary assumption lies in the potential for the property line and fence to be misaligned and the possibility that tree is shared between the two properties. Similarly, many plant appraisers use price data and other information prepared by a Regional Plant Appraisal Committees (RPAC) used in the TFT. If the data was published within a year of the appraisal, using it would be considered a general assumption. But if the data was published 10 years ago, it would be considered an extraordinary assumption. In either situation, if RPAC price data is used in an appraisal, this fact should be disclosed including the date of the data publication. Assignment Conditions Hypothetical conditions are assumptions made contrary to fact, but which are assumed for the purpose of discussion, analysis, or formulation of opinions (The Appraisal Institute 2013b). Hypothetical condition should only be used when they are clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison; and if they lead to a credible analysis. Hypothetical conditions need to be disclosed in the appraisal report, and if known about early enough, in the scope of work. 9

48 Chapter 3. The Appraisal Process Page 10 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction For example, a hypothetical condition is the idea that a forest tree could be reproduced as is implied with the cost approach, reproduction method, trunk formula technique. Forest trees should not be appraised using that technique without disclosing the hypothetical condition that cannot be applied (planting a large tree in the forest). While extraordinary assumptions assume a condition true when its truth is unknown or uncertain, a hypothetical condition is known to be untrue. Limiting conditions are defined in two ways. First is specific to appraisal, where a limiting condition is a special condition that limits the use of an appraisal, primarily by specifying the intended use and intended users of the results and appraisal report (The Appraisal Institute 2013b). The more general usage in arboriculture are conditions that limit the investigation and analysis. Limiting conditions may be imposed by the situation at the site, clients, a controlling authority, or the appraiser. For example, using the cost approach may require an assessment of plant condition, i.e., health, structure and form (see Chapter 4). If the appraiser is unfamiliar with the species and/or the factors involved in assessing condition, then that lack of knowledge is a specific limiting condition. Other examples of limiting conditions include a tree that cannot be directly accessed and must be inspected from some distance away or estimating trunk diameter from a stump (see Appendix 3). In both cases, the facts should be disclosed as a limiting condition. Finally, an appraiser s responsibility is to provide an independent, objective, and impartial result without discrimination or accommodation of personal interests or the interests of their client. If an appraiser is perceived as having a personal interest, bias, or a conflict of interest, it may be necessary to step away from the assignment or, at a minimum, to disclosed the conflict at the onset of the assignment or as soon as discovered. Sometimes, an appraisal assignment is conducted under conditions that limit the investigation and analysis. Such limitations are referred to as limiting conditions. Limiting conditions may be imposed by clients, the appraiser, or local statutory law. If 10

49 Chapter 3. The Appraisal Process Page 11 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction the tree cannot be directly accessed and must be inspected from some distance away, this fact should be noted as a limiting condition. Finally, an appraiser s responsibility is to provide an independent, objective, and impartial result without discrimination or accommodation of personal interests. If an appraiser is perceived as having a personal interest, bias, or a conflict of interest, it may be necessary to step away from the assignment. When plant appraisers take care to identify and define a specific type of value, income or cost to be estimated, it enables appraisers to make the critical decisions in the appraisal process such as describing appropriate parameters of the assignment, identifying relevant data to be collected, and selecting approaches/methods to employ for estimating the identified and defined assignment result. STEP TWO: THE SCOPE OF WORK Once we know the appraisal problem have been identified, a scope of work can be prepared. It should contain a statement of the appraisal problem, goals of the agreement, the type of report to be provided, a timeline, and fee. The following are steps to developing a scope of work: Develop a contract outlining the work to be conducted. Define the appraisal problem Schedule a date and time to inspect the property and collect field data. Consider the time required to research background information such as nursery tree costs, property values, or income data Consider the approach, method and techniques to apply. Disclose appropriate assignment conditions. Define the type and due date for the appraisal report. Estimate the price for the work and present a payment schedule. The scope of work must be sufficient to provide credible results supported by relevant evidence and logic. It should not, however, be excessive or go beyond the bounds of the assignment. For instance, if the scope focuses on the cost of a replacement tree, 11

50 Chapter 3. The Appraisal Process Page 12 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction obtaining data about the highest and best use of a property or overall property value would be superfluous. The scope of work arises at least two times in the appraisal process. First, at the outset of the assignment, the appraiser should identify what should, should not, or cannot be done. Second, after the data collection and analyses are completed, the appraiser should document what actually was done, and in some cases, disclose what was not done. STEP THREE: DEFINE THE ASSIGNMENT RESULT Once the intended use of the appraisal is clear, the assignment result can be defined as either a cost or a value estimate? In some cases, both may be required. Examples of cost estimates include: Reproduction Cost - cost to install the same landscape item. Replacement Cost cost to replace the landscape item with an item(s) having equivalent utility. Repair Cost cost to repair a damaged landscape item. Examples of value estimates include: Contributory market value what the landscape item adds to overall property value. Present value of future benefits which may be lost. Such as an i-tree Eco evaluation (see Chapter 6). Public interest value how much the landscape item is worth to the general public. Market value is the most common assignment result where value is sought. Public interest value is an example of inferred or non-transaction value that is beyond the expertise of even the most advanced plant appraisers. There is considerable confusion around definitions of cost and value. The definition should be cited from an authoritative source, such as the Dictionary of Real Estate Appraisal (Appraisal Institute) or statutes and regulations. 12

51 Chapter 3. The Appraisal Process Page 13 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction STEP FOUR: COLLECT & ANALYZE RELEVANT DATA Deciding what data are relevant is often a process that spans several steps in the appraisal process. It usually begins with discussing the assignment with the client. Once the appraiser has defined the intended use of the appraisal and the assignment result, inspected the property, and settled on the appropriate approaches, it should be clear what data must ultimately be collected (see Chapter 4). Appraisals intended to be used for resolving litigious situations will likely require discussions with attorneys, clients, and other parties. Such discussions may lead to a need to research and understand local ordinances, state statutes, past appellate case rulings, or contractual language. STEP FIVE: APPLY RELEVANT VALUATION APPROACHES There are three appraisal approaches: cost, sales comparison, and income. Each one may involve one or more methods, and each method may involve one or more techniques. The Cost Approach (Chapter 5) analyzes the costs of goods or services in the marketplace and then utilizes this data to estimate the value of an asset, estimate the cost to replace the benefits provided by the asset, or offer the costs of reproducing the plant or replace a landscape item with an equally valuable substitute. The Cost Approach is based on the principle of substitution. That is, a buyer would not pay more for an asset than the cost to acquire an asset with similar utility. The Income Approach (Chapter 6) develops a value for income-producing assets by estimating anticipated income. Plant appraisers have traditionally used this method to estimate different types of value for green industry businesses such as nurseries, Christmas tree farms, orchards, timber, etc. In addition, the future value of current ecological and environmental benefits can be quantified with programs such as i-tree ECO. The Income Approach is based on the principle of anticipation, or the expectation of future benefits (income). 13

52 Chapter 3. The Appraisal Process Page 14 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction The Sales Comparison Approach (Chapter 7) examines and analyzes property sales, comparing prices of similar properties to estimate value. For plant appraisal, the appraiser is most commonly concerned with how much the plants in question contribute to the market value of the overall property. In some cases similar properties with and without trees or other landscape features are compared. The Sales Comparison Approach is based on the principle of substitution, the theory being that knowledgeable buyers acting in their own best interest would not pay more than the price necessary to obtain a comparable property. Before selecting a specific approach and method, the plant appraiser should determine if there are local, state, federal or other controlling authority regulations that require a specific approach and/or method. For example, in the State of Florida, methods for determining the mitigation value of roadside vegetation are described in Administrative Code Rule The plant appraiser selects the Approach and Method based on their professional judgement and analysis of the appraisal problem to be addressed. A series of questions may assist the appraiser in these decisions (Table 3-3). The intent of the key is to guide the plant appraiser to an Approach and Method. Some plant appraisal problems can be addressed by more than one approach. An appraiser may determine that more than one approach, method, or technique is necessary to produce a balanced and credible cost or value estimate. The assignment may call for simply reporting various results, or reconciling them into a final conclusion

53 Chapter 3. The Appraisal Process Page 15 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction 442 Table 3-3. A Simple Key to Selecting an Appraisal Approach and Method. Step Question Response 1 Is there a controlling authority that will specify the approach, method and/or technique to be applied? 2 Is the subject property part of a natural or managed forest? 3 Does the assignment call for an estimate of cost or of value? 4 Can the item(s) to be appraised be repaired to the extent that the post-repair condition will be satisfactory or similar to the pre-damage condition? 5 Does the assignment call for developing a cost estimate to reproduce a replica of the landscape item? 6 Would it be practical for the item being appraised to be reproduced directly by planting new a tree(s) of the same or similar size? 7 Does the assignment call for estimating the cost to reproduce a tree that is too large to be directly planted? 8 Does the assignment call for developing a cost for replacement of the item's function or utility in the landscape? If yes, apply the defined methodology. If yes, go to Additional considerations. Cost Approach, Sales Comparison Approach, or Income Approach may be appropriate. If cost, go to #3. If value, go to #8. If yes, go to Cost approach, Repair method. If yes, go to Cost approach, Reproduction method. If yes, go to Cost approach, Reproduction method, Direct Cost technique. If yes, go to Cost Approach, Extrapolation (TFT or Cost Compounding technique). If yes, go to Cost approach, Functional Replacement. Consider Extrapolation (TFT or Cost Compounding) or 15

54 Chapter 3. The Appraisal Process Page 16 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction 9 What is the highest & best use of the property (HBU)? Does current use reflect HBU? 10 Does the assignment call for as assessment of change in market value? 11 Does the assignment call for as assessment of change in market value, based on cost to reproduce the lost item or its utility? 12 Does the assignment call for estimating the present value of future benefits that were lost when the item was destroyed? 13 Does the item being appraised or property generate income? Such as: orchard, woodlot, nursery, vineyard, Christmas tree farm. 14 Does the assignment support IRS Casualty Loss valuation? Direct Cost. Value should be a function of HBU. If yes, go to Sales approach. May consider Cost & Income approaches as well. If yes, go to Cost approach, then reconcile to market value. If yes, go to Income approach. If yes, go to Income approach. May consider Sales & Cost approaches as well. If yes, go to Additional considerations - IRS. Consider Cost, Sales, and/or Income approach Note: This is a simplified key. Not all situations or subtleties are considered. More than one Approach, Method and Technique may be appropriate for a situation. 16

55 Chapter 3. The Appraisal Process Page 17 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction STEP SIX: RECONCILIATION Reconciliation is the final step in developing the assignment result (see Chapter 8). The Uniform Standards of Professional Appraisal Practice (USPAP) requires the appraiser to reconciliation every appraisal, even where only one of the three approaches is applied (The Appraisal Foundation 2016). Reconciliation has not, however, been a part of plant appraisal as described in previous editions of the Guide. The 9 th edition, for example, did not mention reconciliation (Council of Tree and Landscape Appraisers 2000). As noted in Chapter 1, USPAP is a good guide for plant appraisers but may not be applicable in all situations. During the reconciliation process, the appraiser weighs the strengths and weaknesses of each approach based on the quality of data, the level of subjectivity of the analysis, and the relevance of the approach to the appraisal problem. Reconciliation also provides a recap of the appraisal process and reviews the strengths and weaknesses of various valuation approaches. An appraiser relies more on professional experience, expertise, and judgment in reconciliation than in any other part of the appraisal process. Where reconciliation requires developing a final result from two or more indications of cost or value, the appraiser should apply logic and objectivity to the process. Consider the strengths and weakness of the data and their relevance to the intended use of the appraisal and defined assignment result. There may be an objective way to reconcile the results, or it may come down to subjective judgment. It may be logical to pick one result over another; to average the results; apply a percentage weighting; or simply present each result. Many plant appraisers refer to the final result as an appraisal of value, regardless of how that result was obtained. When using this term, plant appraisers should be clear that the result is an estimate of value rather than a cost. Appraised value and assignment result are considered interchangeable (The Appraisal Institute 2015)

56 Chapter 3. The Appraisal Process Page 18 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction STEP SEVEN: PREPARE THE REPORT The final step in the appraisal process is communicating the assignment result and supporting information obtained throughout the appraisal process to the client and other intended users (see Chapter 8). This can be done orally or, more commonly, in a written report. USPAP recognizes appraisal reports and restricted appraisal reports. The former takes on either full narrative or summary format, and goes into sufficient detail to lead the appraiser through the appraisal process. The latter is very short and merely states key elements of the assignment and the assignment results. An oral report is any oral communication that transmits the assignment result from the appraiser to the client or another intended user. USPAP requires appraisers to support oral reports by creating and maintaining file notes that support their conclusion. In almost all cases, the assignment result will be a cost or a value. Because the two are distinct from one another, the appraiser must be clear about the distinction throughout the entire appraisal process. If there is any chance that the reader might confuse a cost estimate with a value estimate, the appraiser should take care to communicate clearly which of the two the assignment result represents. SUMMARY OF THE APPRAISAL PROCESS Appraisal assignments may vary but the basic framework for the appraisal process should not. Whether dealing with loss due to fire or repair of an injured tree, the steps to reach a result should be similar. A well-defined appraisal leads to a clear scope of work and informs the selection of approaches, methods and techniques. The appropriate data is collected and analyzed. A final result is obtained, documented and reported

57 Chapter 3. The Appraisal Process Page 19 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction 509 The Appraisal Process: An example In March 2015, a consultant was contacted by an attorney regarding a case of chemical trespass and death of several trees, shrubs and understory plants. During the initial phone call, the general facts and nature of the case were introduced. The parties and attorneys were revealed in order that the consultant could perform a check for conflicts. No conflicts existed Following this initial phone conversation, the consultant provided a simple engagement letter detailing fee arrangement as well as a CV An initial meeting at the tree owner s property took place the following week Initial meeting The tree owner s had lived at the property for over 20 years. The neighborhood was residential, older and well-established. Individual lots were relatively small, less than one-quarter acre. The tree owners had an agreement with the uphill neighbor to maintain a hedge of Leyland cypress (x Cupressocyparis Leylandii) trees at a height of 25. The hedge was located in the rear yard near the property line. The agreement had been in place for many years and the cost of pruning the trees had been shared by both parties In the fall of 2014, the client s gardener noticed that the cypress trees were starting to die. Upon closer inspection, he observed that the lower trunks and soil were coated with a black oily substance that gave off a very strong odor. Soil samples were collected and sent for analysis. Results indicated very low ph with positive indications of a strong 19

58 Chapter 3. The Appraisal Process Page 20 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction acid. A plant diagnostic laboratory concluded that concentrated acid had been applied to the soil and lower trunk of the tree. The County Agriculture Department agreed with the conclusion that very concentrated acid had been applied The tree owners filed suit against their neighbors. The attorney wanted to retain the consultant s services as a consulting expert with the intent of calling them as an expert witness at the trial Step One: Defining the appraisal problem. After the initial contact and site visit, the consultant was able to begin to define the appraisal problem. The matter was in litigation and involved chemical trespass. There was evidence to support the assertion that the trees and other landscapes plants had been killed by the strong acid. The property owners wanted to restore their landscape, i.e., to re-create the landscape as it was prior to the application of the chemical The appraisal would be used to support a claim for damages. The client s wish was to restore the aesthetic, screening and privacy functions. The area of concern comprised a portion of the rear yard Step Two: Establishing the scope of work. Based on conversations with the attorney and tree owners, the following scope of work was established: Review documents, photographs and laboratory test results provided by the attorney. 20

59 Chapter 3. The Appraisal Process Page 21 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Inspect the landscape and area of damage to document the species, condition, number and size of affected plants, establish the size of the affected area, take photographs and make any other observations and measurements that were relevant. 3. Develop a conclusion as to the cause of tree death and assess the likelihood that additional plants would decline and/or die in the future. 4. Develop an estimate of the cost to restore the landscape to its pre-poisoning state. 5. Prepare a report if requested Verifying the location of the property line was not included the scope. Until otherwise determined, the consultant was to assume that the fence separating the two properties represented the property line. In all the years of maintaining the trees, the location of the property line had neither been in dispute nor was it raised by the lawsuit The scope of work was established through conversation and agreement with the attorney. No formal proposal or contrast was prepared Step Three: Define the assignment result. Given the appraisal problem, the consultant selected the Cost Approach and Reproduction Method using the direct reproduction technique Step Four: Collect relevant data. Data collection proceeded in three steps:

60 Chapter 3. The Appraisal Process Page 22 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Review reports, documents, statements and photographs regarding the timing, cause and pattern of the damage. This included soil test reports Inventory the affected area. Identify the species, size, condition and location of the dead and injured plants. Determine which if any plants could be repaired Overall site layout and topography were noted. The client s property sloped uphill from the street. The rear yard was only accessible from the street by a set of stairs. The distance between the house and its side yard property lines was less than Obtain cost information. The consultant contacted a landscape contractor familiar with the area and type of landscape. They met on-site to discuss the steps required to restore the property. Among the contractor s observations was the need to perform all work by hand. There was no access for equipment. Anything that needed to be moved in or out of the area would be moved by hand The consultant also checked the availability and price of the needed plants with two local wholesale growers Record the three site visits that were made: 1) the initial meeting, 2) data collection and 3) meeting with the landscape contractor Step Five: Apply appropriate approaches, methods and techniques. 22

61 Chapter 3. The Appraisal Process Page 23 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction The dead cypresses for 25 tall and formed a continuous hedge along the property line. A nursery-grown 24 box cypress was the largest tree that could be moved to the rear yard. Such a tree would be 10 tall and 3½ wide. At that size, trees could be placed box-tobox and offer some immediate screening The appraisal consisted of two parts. First, all of the direct costs for labor and materials were totaled. Second, cost compounding was applied to the cypress trees. The consultant estimated it would take 10 years for newly planted trees to establish a continuous screen at Step Six: Reconcile the analyses to produce the assignment result. No formal reconciliation was performed. The combination of direct and cost compounding was deemed appropriate Step Seven: Prepare a report. No written report was prepared. An oral report was provided to the attorney The case settled at mediation This project was typical of the consultant s litigation experience. Little or no paperwork was exchanged. No report was prepared. Were this not a matter of litigation, a formal proposal, scope of work and contract would have been prepared. And a report would have been submitted

62 Chapter 3. The Appraisal Process Page 24 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction As chemical trespass, the project was more straight-forward than most. The project did not address issues of an intentional act or any wrong doing. The solution to the problem should reflect a cost to restore regardless of the cause. There was, however, clear evidence that an acid had been poured on the soil. Although the contaminated soil had to be removed and replaced, the chemical affected a relatively small area of the yard The appraisal process was also straight-forward. Limited access made the restoration much more time-consuming and was a significant limiting condition Note that only 5 of the 7 steps were completed. Had a report been required, both Steps 6 and 7 would have been needed. The report would have described how and why the reproduction approach was chosen and why it was applicable

63 Chapter 3. The Appraisal Process Page 25 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction References The Appraisal Foundation Uniform Standards of Professional Appraisal Practice edition. Washington D.C. The Appraisal Institute. 2013a. Understanding the Appraisal. Chicago IL. The Appraisal Institute. 2013b. The Appraisal of Real Estate. 14 th edition. The Appraisal Institute. Chicago IL. The Appraisal Institute The Dictionary of Real Estate Appraisal/. 6 th edition. The Appraisal Institute. Chicago IL. Bond, J Best Management Practices, Tree Inventories. International Society of Arboriculture. Champaign IL 35pp. Council of Tree and Landscape Appraisers Guide for Plant Appraisal. 10 th edition. International Society of Arboriculture. Champaign IL. 25

64 Chapter 3. The Appraisal Process Page 26 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Sidebar: Solicited Solutions A plant appraiser may receive explicit instructions on the type of cost or value to employ in a given assignment. How the appraiser responds will depend on the situation and the ethical position that is likely to develop. For example. A private property owner asks you to appraise the cost to restore the site to its near-exact pre-damage condition, regardless of whether it would be reasonable to do so. CTLA s position is that while plant appraisers can execute this type of assignment, they should be careful to disclose in the report the limitations on using this sort of cost or value estimate. An attorney asks the appraiser to estimate reproduction cost when replacement cost or market value seem (to the appraiser) to be more appropriate. The appraiser should convey these concerns to the attorney. If the appraiser decides to submit to the attorney s instructions, then the appraiser assumes direct responsibility for adequately informing the reader of the limitations of the work product. If the attorney will not accept these caveats in the report, then the appraiser should step away from the assignment. Under no circumstances should someone acting in the capacity of a plant appraiser mislead the report reader. Errors of omission can be just as misleading as errors of commission. That is, what you do or say can be just as significant as what you don t do or say. A client asks for a reproduction cost without any deductions for depreciation. The same general advice applies here. So long as you are not misleading the report reader by failing to disclose the limitations of the assignment and you clarify what you have been asked to provide, then you may proceed. But if you have reason to believe that users of your report will attempt to mislead another party by using your work product, then you should recuse yourself from the assignment. Finally, an appraiser s valuation process can differ depending on the agreed-upon scope of the assignment. Plant appraisers are commonly hired to estimate costs, irrespective of value. Examples include requests to estimate the cost to restore a property to its predamage condition; the cost to acquire, move, and install a large tree; and the cost to 26

65 Chapter 3. The Appraisal Process Page 27 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction replace the benefits provided by a hedge that was destroyed. The plaintiff in a damage case may seek depreciated reproduction costs, whereas the defendant may seek a more economical solution to restoring the benefits provided that existed prior to damage

66 1 Chapter 4. Data Collection and Analysis Contents Introduction 2 Sidebar: Sources of information on data collection 2 Background Information 3 Plant Observations 5 Plant Identification Plant Size Plant Count or Inventory Plant Placement Plant Utilization Plant Age Plant Condition Assessing Physical Damage Management History Sidebar: Adjust Trunk Area 17 Off-Site Research 41 Literature Cited Tree Appraisal Data Sheet 22 23

67 Chapter 4. Data Collection and Analysis. Page 2 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Introduction Data are facts that provide the basis for reasoning, discussion, or calculations. Appraisers collect both quantitative and qualitative data. Quantitative data are measurements, counts, rankings or ratings: height, diameter, number. Qualitative data are descriptive, relating to qualities: descriptions of plant health, site conditions and management history. The subjectivity of qualitative data does not render it any less important or relevant than quantitative data. For example, veneer-grade trees, and Florida fancy-grade nursery stock are commodities where grade (quality) affects selling price. The exact data needed for an appraisal will vary with the assignment, approach, method, and technique applied Categories of data important to plant appraisal include: Background information Observations of plant or landscape features Horticultural practices Site characteristics (general, improvements, hardscape elements) Off-site research *** Sidebar. Sources of Information on Data Collection *** Plant appraisers use a field form when visiting a site. A sample data collection form is found at the end of this chapter. 46

68 Chapter 4. Data Collection and Analysis. Page 3 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Background Information General Site Information Most appraisals begin by collecting background information regarding the site where the plants or landscape items are physically located. A site is thought of as the area where the appraisal is being performed. The site can be an individual parcel, a portion of a parcel, or multiple parcels. Data regarding the site may be collected during conversations with the client and through field observations. Other site information may require a document search (research) from various sources (e.g. maps, landscape plans, assessment records, laws, local ordinances, dated images or photographs, etc.). Many plant appraisals begin with a collection of general land information The site information (data) collected may include: 1. Address or legal description of land 2. Land owner, or agent and contact information 3. Land Use Current use. E.g. residential, industrial, park, right of way, urban, rural. Zoning (especially in city planning). Of or pertaining to the division of an area into zones, as to restrict the number and types of buildings and their uses: zoning laws.

69 Chapter 4. Data Collection and Analysis. Page 4 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Property Tax Assessment. An assessment is the process of determining the market value of a piece of property. Property taxes are then based on this assessment. 4. Construction (history and development) 5. Maps, aerial photographs, or architectural drawings 6. Topography, including slope, aspect, and drainage patterns. 7. Soil type 8. Climate and environmental data such as hardiness zones. Weather events such as abnormal temperatures, ice, snow, and wind Site Improvements Improvements include buildings, hardscape items, and infrastructure built on the land. Structures Landscape appraisers often need to understand how landscape items affect the architectural appearance and engineering of buildings on a site, and how buildings affect plant growth, vigor, longevity, etc. Observations and notes regarding the interface between buildings and plants or hardscape items are important for understanding if the plants are utilized appropriately. Additionally, the interaction between plants and buildings or structures can be negative. Large woody trees can damage infrastructure and buildings can limit soil, light, nutrients and water critical for sustained growth. 90

70 Chapter 4. Data Collection and Analysis. Page 5 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Relevant building characteristics may include 1) type (e.g. house, multi-story, warehouse, skyscraper), 2) age and construction, and 3) footprint relative to property Hardscape Elements Plant appraisers may need to collect quantitative and qualitative data of hardscape features. An appraiser may need to know if there is a relationship or interdependence of a hardscape element to a plant. Relevant hardscape items might include: 1) paving systems (walks, patios, drives, etc.), 2) fences, walls, gates, 3) retaining walls, 4) roads and bridges, 5) overhead structures (trellis, arbor, pergola), 6) irrigation systems, 7) lighting systems, 8) landscape rocks and boulders, 9) fountains, 10) sculptures and garden art, 11) water features (ponds, streams and plumbing) and 12) drainage system (pipes, inlets, catch basins) Analyzing these features may require special knowledge to estimate a cost or value. An appraiser may need to hire other experts, such as landscape architect, landscape contractor, structural engineer, electrician, plumber, or art appraiser, to gather relevant information on hardscape elements Plant Observations Certain data are required for most plant appraisals. Examples include the identification, size, placement, use, and the condition of the plant. 113

71 Chapter 4. Data Collection and Analysis. Page 6 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Plant Identification An appraiser should accurately identify the plant(s) being appraised to the extent required by the appraisal problem. Appendix 1 describes the system used in naming plants Plant Size The dimensions measured depend on the type of plant being appraised. Turf and groundcovers are measured in area (square foot or square meter). Annual and perennial herbaceous plants can be measured by bed area, plant height, width and/or quantity. Shrubs are measured by number, height, spread and/or volume. Trees are measured by trunk diameter, height, or crown size. Timber cruises develop an estimate of harvestable wood volume in the form of log diameter and length which leads to an estimate of board feet of lumber Nursery stock measurements are defined by industry standards or regional practices (ANSI Z ). Conifers and multi-stem deciduous trees are commonly sold by height. Herbaceous plants, shrubs, and small trees are often sold by container size. In the Western U.S., nursery stock is sold by container size. In the Eastern U.S., larger nursery stock is generally sold based on trunk diameter Some plant size measurements are calculated or derived from direct observations. Planting bed size or turf area, for example, is calculated from outside dimension

72 Chapter 4. Data Collection and Analysis. Page 7 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction measurements. The trunk cross sectional area is calculated from trunk diameter. The size of an individual plant crown or an aggregate canopy can be calculated from height and spread measurements, this can be used in specifying a functionally equivalent replacement of plants. Such derived measurements might be developed either during initial data collection or later in the analysis Height Plant height measurements are often included in the plant description and when appraising plants that provide screening; are being grown for timber; or sold by height (e.g. shrubs, conifers, palms, Christmas trees). Height is measured from the soil line to the uppermost branches. The appraiser can collect height data using a clinometer, hypsometer, laser range finder, measuring tape, or telescoping rod Palms are measured by trunk height or tree height (Figure 4-1) depending on region and species. Plant appraisers should consult local buyer guides or suppliers of palms regarding locally accepted method Trunk Diameter Where to measure trunk diameter differs depending upon the location of the tree (Figure 4-2). Cullen (2015) provides a detailed discussion of caliper and height measurements. 159

73 Chapter 4. Data Collection and Analysis. Page 8 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction For nursery stock and transplants, the height at which the trunk diameter is measured depends upon its size. For trunk diameters up to and including 4 (10 cm) the measurement is made at 6 (15 cm) above the ground (ANSI Z60.1, 2014). When the diameter at 6 above the ground is greater than 4, the height of measurement is then increased to 12 above the ground (ANSI, 2014),

74 Chapter 4. Data Collection and Analysis. Page 9 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Figure 4-1. Palm trunk height is measured from grade to the base of the spear leaf (from ANSI Z60.1, 2014). 172

75 Chapter 4. Data Collection and Analysis. Page 10 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction In the U.S., trees outside of nurseries are measured 4.5 ft. (54 in.) above the ground (Bond, 2014), a point known as breast or standard height. Measurements taken at 4.5 ft. are referred as diameter at breast height (dbh) or diameter at standard height (dsh). In forest inventories, trees of most any size are measured at 4.5 ft. Measuring diameter at 4.5 feet arose as a general standard because it is above any trunk flare and convenient for measurement Outside the U.S., trees are measured from m above existing grade (Swiecki and Bernhardt 2001) There are two basic tools for estimating the diameter of a tree trunk: diameter tapes and calipers (Figure 4-3) Diameter tapes are wrapped around the trunk and directly read diameter using a scale conversion marked on the tape. One side of the tape shows lineal distance or circumference, and the other side shows the conversion to diameter (circumference divided by 3.14, or pi, (π)). The main advantage of a diameter tape is its ease of use. The main disadvantage is that it over-estimates diameter, except where a trunk is a near perfect circle. 192

76 Chapter 4. Data Collection and Analysis. Page 11 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Figure 4-2. The location of diameter measurement varies by location. Left: The caliper of an American elm growing in a nursery is measured 6 above the ground when the stem is 4 in. Upper & bottom left: The diameter of the same tree in growing in the landscape would be measured at 54 above the ground (dbh).

77 Chapter 4. Data Collection and Analysis. Page 12 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Figure 4-3. Tools for measuring trunk diameter. Left: diameter tape with linear scale on one side and diameter on the other. Right: nursery calipers. Bottom: field calipers. 207

78 Chapter 4. Data Collection and Analysis. Page 13 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Calipers take two diameter measurements at right angles to each other, and compute the square root of their product, also known as quadratic mean diameter (QMD). The main advantage of calipers is that QMD yields a more accurate estimate of diameter, particularly when tree trunks are asymmetric. The disadvantage is that 2 measurements must be taken. When appraising multiple trees, QMD can be used to calculate the area of the average tree in the stand. Appendix 2 describes the calculations involved in QMD. Calipers are especially useful when measuring nursery stock or determining the cross sectional area of elliptical stems Field Adjustment to Measuring Diameter Because the form of the lower trunk varies widely, it is not always possible to measure at 4.5 ft. Trees with excessive basal flare, leaning trees, trees on a slope, trees with multiple trunks (stems), low-branching trees, and other patterns of tree growth make it necessary to modify where diameters are measured (Figure 4-4)

79 Chapter 4. Data Collection and Analysis. Page 14 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Figure 4-4. Common modifications to the location of diameter measurement (Illustration Leonard Burkhart, Jr. & Richard Harris). (dbh = diameter at breast height. D = measurement point) Leaning Trunk The trunk measurement of a leaning tree or a tree on a slope should be made 4.5 feet from the point where the trunk intersects the ground furthest from the root system (Figure 4-4). This conforms to current Best Management Practices for

80 Chapter 4. Data Collection and Analysis. Page 15 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction tree inventories (Bond 2013). Some landscape appraisers prefer to measure diameter at the mid-point between the shortest and longest sides of the trunk. Such measurements are made at right angles to the trunk Low Branching Low branches may make it difficult to measure at 4.5 feet above the ground. In such cases, the smallest trunk diameter above 4.5 feet usually provides the best available estimate of size of the tree trunk (Figure 4-4). The appraiser should note the location where diameter is measured Excessive Trunk Flare or Trunk Taper Excessive trunk flare presents a problem similar to that of low-branching trees. If the trunk continues to taper markedly above 4.5 feet, a trunk measurement at that height may not accurately represent the size of the tree trunk. Either measure higher on the trunk if it will provide a reasonable estimate of tree diameter, or measure nearby trees as suggested above for low-branching trees as a substitute Multi-Stem and Clump Trees Measuring the size of a multi-stemmed tree may require considerable judgment in deciding how to measure each stem and estimate its contribution to the total tree (Figure 4-4). There are several ways to determine and record the size of a multistem tree. 258

81 Chapter 4. Data Collection and Analysis. Page 16 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction If all the stems arise from or within 3 feet (1 m) of the ground and each stem contributes equally to the crown, compute the sum of the crosssectional areas (Figure 4-4). Different stem configurations may require measuring at other heights. Stems that fork 3 to 5 feet above the ground can be measured either at their least diameter below the fork (Figure 4-4) or a reasonable distance above the fork Example. 5 stems measure 3, 5, 3, 3, & 3 inches. The trunk area for each stem is calculated follows: Stem X (3 inch) 2 = 7.1 inch 2 trunk area Stem X (5 inch) 2 = 19.6 inch 2 trunk area Stem X (3 inch) 2 = 7.1 inch 2 trunk area Stem X (3 inch) 2 = 7.1 inch 2 trunk area Stem X (3 inch) 2 = 7.1 inch 2 trunk area Sum = 47.9 inch 2 total trunk area This is equivalent to the trunk cross-sectional area of a 7 in diameter tree. Note: It is incorrect to sum trunk diameters together (e.g. 3 inch + 5 inch + 3 inch + 3 inch + 3 inch = 17 inch) and compute the cross-sectional area. Doing so will over-estimate the cross-sectional trunk area (i.e X (17 inch) 2 = inch 2 total trunk area) Measure and record the size of adjacent single-stem trees of the same species with crowns of similar size.

82 Chapter 4. Data Collection and Analysis. Page 17 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Substitute measurements If there are severe limitations in measuring trunk diameter, the appraiser has the option to measure nearby tree(s) of the same species and size (diameter, height and/or crown spread) then use that measurement or the average measurement from several trees, as a substitute. These limitations may include multistemmed/clumps, branch location that encompass 4.5, swelling, cavities, or if the tree has been removed Cross Sectional Area Trunk cross-sectional area is calculated directly from diameter (see Appendix 2). The more a tree s cross section deviates from a circle, the smaller its true area will be for a given circumference **** Sidebar: ATA **** Crown Area/ Crown Volume The crown is the upper part of a tree or shrub, measured from the lowest to highest branch, including all the branches and foliage. Plant size can be expressed as a crown area or volume. Crown measurements may be used to calculate the two-dimensional area either vertically (average height by average width) or horizontally as defined by two or more measures of width within the dripline.

83 Chapter 4. Data Collection and Analysis. Page 18 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction The circular dripline area is calculated by measuring crown spread radius or diameter in two or more directions, as described above. When estimating the three-dimensional volume of the crown, the formulae applied vary according to its shape (Appendix 2). To calculate volume, measure the crown radius or width at right angles. Unless highly accurate estimates are required, the appraiser can simply average the width or radius measurements. Crown volumes are calculated based upon simple geometric shapes (Coder, 2000). For instance, the volume of a conical crown (most conifers) is 1/3 x (π x r 2 x h), where r = radius and h = crown height. Plant Count or Inventory A plant inventory collects information when there are many plants on a site such as in timber stands, large-scale urban forests, and large properties. The inventory may be complete (100 %) or a sample (partial inventory) of the population. They may be limited to a specific type of plant (e.g. only trees >12, only oak species) or collect information on all trees. A random and systematic sample is a cost-effective way to inventory. Populations may be subdivided or stratified to increase precision and offer statistically validity. Strata may be based on forest cover types or urban land use (e.g. industrial areas, parks, historic districts, new developments, and commercial space). For sample inventories of urban street trees the minimal sample size should be to be 3% to 6% of the length of streets within the municipality (Bond 2013). If there is large variability from site to site, more samples are required to achieve a target standard error or confidence interval. Geographic Information System (GIS) based sampling tools such as i-tree ( provide sampling

84 Chapter 4. Data Collection and Analysis. Page 19 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction parameters but they may or may not be appropriate for a particular appraisal assignment (Nowak et al. 2015). Park, preserve, and forest sampling schemes base requirements for sampling on confidence intervals. Common standards for tree inventories range from +/-10% total volume at the 90% confidence level, to +/-5% of total volume at the 95% confidence level (Husch et al. 2003). Higher levels of confidence (i.e., more narrow confidence intervals) require more samples. Precision is influence by sampling variability and sample size. A detailed discussion of this is beyond the scope of this text. Plant Placement There are two aspects of plant placement. The first is the location of a plant or landscape item on the site. The second reflects current or future influence on plant growth. The location aspect of placement may be general (e.g. two large trees on the north side of home) or very specific (e.g. Global Positioning System (GPS) coordinates). Generalized placement information is necessary during early stages of an appraisal to identify the subject tree(s) and avoid confusion. More specific placement information may be useful to locate or verify which plant or landscape item was appraised. For some appraisals architectural drawings, GIS mapping, or GPS mapping showing the placement of plants or landscape items may be necessary, especially on a large site. If a rough diagram will be helpful, a quick sketch may be drawn. Plant placement information can include (adapted from Urban Tree Growth & Longevity Working Group, 2016) : Location details such as which part of a yard (front, back, side) or street (tree lawn, median).

85 Chapter 4. Data Collection and Analysis. Page 20 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Site map- sketch or formal drawing. Reference objects that provide distance and orientation. Global Positioning System (GPS) coordinates. Identification tag. Distance measurements. Photographs of appraised item in relation to other site features. Unique benefits provided such as providing screening, enhancing a desirable view or centerpiece of the landscape. Placement is important. Trees and other landscaping in the front yard of a residential home than in the back yard. Placement that complements a view is generally more desirable than one that obscures it. Unless the view is undesirable. Here, placement can guide the appraiser in estimating the relative contributory value of landscaping around the property, even though its cost is unaffected by placement. The second aspect of placement reflects the current or future influence on plant growth. A single tree in a large turf area has no physical limitations to its development where a tree planted adjacent to a building does. In general, growing space is an interaction between the plant s growth potential and the proximity to structures or activities that will limit future growth. Common placement limitations include: overhead utility lines: underground gas lines; nearby structures, pavement, and infrastructure; and planting density. Conflicts arise when plants grow into space intended for transportation, pedestrians, signage or a building. A large tree planted near a sidewalk may lift the paved surface creating a tripping hazard. If conflicts are present it may be important to measure the distance from buildings, utilities, landscape items, or

86 Chapter 4. Data Collection and Analysis. Page 21 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction other infrastructure as well as the degree of damage, such as height that the sidewalk is lifted. Photographs can document the conflicts. Plant Utilization Plant utilization is the description of how the plants are being used on the site, that is, their function or main benefits. Plants can to provide shade, enhance vistas, create a focal point, and screen adjacent properties. Plants have many traditional uses as well as some contemporary applications such as green roofs, vertical gardens, rain gardens and biowalls. How effectively plants achieve their purpose (function) is generally a matter of professional judgment. Inventory programs such as i-tree can estimate the value of benefits such as removal of atmospheric contaminants or energy conservation. Addressing general functions such as shade, screening or aesthetic requires professional judgement. Sometimes it is not known why a plant was installed or retained on a site. Moreover, the use of the plants can change over time as when an orchard or woodland is converted to a residential neighborhood. Plant Age Depending on the assignment, appraisers may need to determine the actual or relative age of the plant and/or its life expectancy. Relative age is based on the development stage, commonly described as young, semi-mature, mature, or overmature. Actual plant age can be determined from growth ring counts or records of the installation. Installation can be estimated by examining planting invoices or records of when a site was developed. Photographs may provide estimates of planting or development dates in the absence of other documentations (Google Earth (

87 Chapter 4. Data Collection and Analysis. Page 22 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Appraisers can estimate age by counting annual growth rings in the trunks of most trees in temperate climate regions. This procedure is less dependable in Mediterranean climates and even less so in tropical climates. The most common tool is for tree sampling is an increment borer which removes a core of wood from the trunk (Maeglin 1979). Rings may be visible enough to count or may require additional surface treatment (smooth cutting or sanding) or staining. Ring counts provide an estimate of age and growth rate. Counting annual ring growth is not applicable to all plants. Shrub age can be difficult to estimate if they have been routinely pruned to the stump. Some cacti, succulents, and tropical plants are difficult to estimate age because they do not have distinct seasonal growth cycles. False growth rings develop in response to dramatic changes in soil moisture level, temperature, light exposure or other factors. The presence of false rings and other anomalies can be a considerable source of error. For example, a 42 inch diameter Monterey cypress (Hesperocyparis macrocarpa) growing in San Francisco had more false rings than true rings. Without cross-dating this core with known references, tree age could only be estimated as 48 to 125 years. Knowing tree age gives the appraiser insight into potential longevity. Tree species have widely different life spans, whether in natural or landscape settings (Burns and Honkala, 1990). Plant Condition For woody plants, condition is a general term that incorporates health, structure and form (Table 4-1). While these three components are not strictly independent of one another, each is integral to condition (Figure 4-5). In addition, condition

88 Chapter 4. Data Collection and Analysis. Page 23 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction should reflect the species and the plant s stage of development. In assessing health, structure and form, the entire plant should be systematically inspected. Condition (and each of its components) can be expressed in several ways (Table 4-1). It can be qualitative using terms such as excellent, good, fair, poor, very poor, and dead Alternatively, a scale of numbers (0, 1, 2, 3, 4, etc.) may be employed. Finally, percentages based on a scale of 0% (dead) to 100% (excellent) has been employed. Some appraisers prefer to use percentage ratings because they fit well into depreciation (see Chapter 5, Cost Approach) Whatever method a plant appraiser chooses to assess condition and its components, the method should be consistently applied and verifiable Plant Health Assessing plant health has traditionally considers factors such as: vigor, foliage size and color, leaf density, live crown ratio, presence or absence of pests (e.g. insects, disease, or parasites), twig growth rate, and wound closure based on a visual inspection (Table 4-1). The seriousness of the symptoms and their effect on a plant health may only be fully understood when the cause is diagnosed Many pest problems can affect the utility or value of a plant. Of greatest concern are those that will significantly shorten the life of the tree. These can be vascular

89 Chapter 4. Data Collection and Analysis. Page 24 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction wilt diseases, root rot and decay, boring insects, canker diseases and many others. If a potentially fatal pest affects the tree, the condition rating may be low or very low (Table 4-1). Pests that otherwise damage the plant should be rated in relation to the damage that they can do Abiotic disorders include damages from chemicals, such as herbicides, pesticides, air pollutants, home heating fuel, natural gas, chlorine or fertilizers. Chemical damage occurs if a chemical is misapplied or escapes from its intended use, either accidentally or intentionally. Plant response depends on the chemical, the amount that was applied, the time it was applied, the weather, the sensitivity of the plant, and the health of the plant at the time. Diagnosing chemical damage is often difficult. The appraiser should try to determine the cause of the injury, its extent, and the condition of the affected plant(s) before the damage. The pre-event condition is often the starting point for determining the change in the condition. Determining responsibility usually is not the function of the plant appraiser unless it is part of the assignment Plants affected by construction projects or improper planting procedures may decline over several years or decades. The damage may be due to physical injury to branches, trunk or roots; soil compaction; changes in soil moisture level; girdling; or other injuries. Damage may be accounted for based on their current condition or how they may be anticipated to affect the tree in the near future. 496

90 Chapter 4. Data Collection and Analysis. Page 25 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Table 4-1. Assessment of plant condition considers health, structure and form. Each may be described in one of five rating categories. Rating Condition Components Percentage Category Health Structure Form Rating Excellent Good Nearly perfect vigor and health with little or no twig dieback, discoloration.or defoliation. Applicable to small-diameter plants that are well-established. No significant damage due to diseases or pests. Vigor is normal for the species. Any twig dieback, defoliation or discoloration is minor. Any dead branches are small in size. Nearly ideal and free of defects. Well-developed structure. Defects are minor and can be corrected. Nearly ideal or generally symmetric. Consistent with the species and/or the intended use. Minor asymmetries/deviations from species norm and/or the design intent. Function and aesthetics are not compromised. 80 to 100% 60 to 80% Fair Poor Normal to slightly reduced vigor. Significant damage due to insects or diseases but is unlikely to be fatal. twig dieback, defoliation, discoloration and/or dead branches may comprise up to 50% of the crown. Unhealthy and declining in appearance. Overmature in development or severely stressed. Poor vigor. Twig dieback, poor foliage density and poor foliage color are present. Multiple defects of a moderate nature. Most cannot be corrected. Significant defects in structure. Recent change in orientation. Observed structural problems cannot be fully corrected Major asymmetries/deviations from species norm and/or design intent. Function and aesthetics are compromised. Largely asymmetric/abnormal. Detracts from function and aesthetics to a significant degree. 40 to 60% 20 to 40%

91 Chapter 4. Data Collection and Analysis. Page 26 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Very poor Appears to be dying and in the last stages of life. Severe defects in structure cannot be treated and are likely to result in failure. Visually unappealing. Provides little or no function in the landscape. 0 to 20%

92 Chapter 4. Data Collection and Analysis. Page 27 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Figure 4-5. Illustration of plant 504 health, structure and form in Monterey cypress. Top left: mature tree with typical form, good structure and excellent health. Top right: Tree in poor health. Structure & form and normal. Bottom left: Tree in good health and typical form but with compromised structure: crack between codominant stems. Bottom right: Tree with good health and structure but compromised form due to side-trimming.

93 Chapter 4. Data Collection and Analysis. Page 28 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Tree condition should be reduced if there is significant loss of roots, branches or damage to trunk. Since some species tolerate more damage than others, the amount of reduction will be based on species, age and site conditions. If a vigorous, young tree were to lose 20 percent of its bark around its trunk circumference, the main effect would be visual. The effect of an older, mature tree is more severe. If 50% or more of the roots or branches are lost, or if more that 50% of the trunk circumference has bark loss, in most cases the condition would be rated as poor or very poor Plant health should be based on condition in the plant at the time it was inspected. Health should not be reduced based on species susceptibility or concern about future issues. For example the health rating of an American elm should not consider susceptibility to Dutch elm disease unless the tree actually has the disease. Features inherent to the genotype of the plant will be considered as functional limitations (see Chapter 5) More recently, tree health has been described by more general crown indicators such as live crown ratio, light exposure, position, vigor, density, dieback and transparency. Rather than focus on individual plant parts, this approach concentrates on the overall appearance of the crown. In the USDA Forest Service Forest Inventory & Analysis Program, crown factors may be used individually or combined (USDA Forest Service Field Guides for Standard Measurements. Version 7.0. USDA Forest Service. Forest Inventory and

94 Chapter 4. Data Collection and Analysis. Page 29 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Analysis National Program. methods-proc/) Plant Structure A plant appraiser should look for obvious structural problems that could lead to failure (Table 4-2). A number of publications illustrate defects in tree structure, usually in the context of tree risk assessment. Prominent among these is the Tree Risk Assessment Manual (Dunster et al., 2013). Appraisers should bear in mind that an examination for structural defects does not constitute a tree risk assessment as defined in publications like the Best Management Practices: Tree Risk Assessment (Smiley et al., 2011) and Hazard Tree Guidelines For Forest Service Facilities and Roads in the Pacific Southwest Region (Angwin et al. 2012). There are two primary differences between an inspection of tree structure and a tree risk assessment. First, a risk assessment evaluates tree, site and target while an inspection of structure evaluates only the tree and site. Second, a tree risk assessment considers the potential for failure while an inspection of tree structure does not. During inspection of a tree as part of an appraisal assignment, a plant appraiser may determine that a formal tree risk assessment is needed In addition, to inspecting for defects and other problems in structure, an appraiser must also look for response growth, woody tissue produced to strengthen areas of mechanical weakness. From a visual examination of the plant s structures, an appraiser should develop a plant structure rating system (Table 4-1).

95 Chapter 4. Data Collection and Analysis. Page 30 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction 557 Table 4-2. Checklist for assessment of tree structure Dead tree or branches Indicators of decay: Roots Trunk Cavities, fruiting bodies Wounds Cankers & galls Nesting holes Carpenter ants Cavities, wounds Mounded soil Exposed or uplifted roots Change in grade (e.g. fill soil) Abnormal flare (e.g. bottle butt) Stem girdling roots Deviation from the vertical (lean, bow, sweep) Codominant or multiple attachments with or without included bark Cracks, seams, ribs Taper

96 Chapter 4. Data Collection and Analysis. Page 31 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Crown Site factors Management history Orientation (vertical, horizontal) Symmetry (one-sided, end weight, over-extended) Codominant or multiple attachments with or without included bark Poor branch attachment Cracks, seams, ribs Broken / partially attached / hanging branches Dieback and decline of branches or twigs History of failure Drainage Recent change General forest characteristics Site change (construction, grading, exposure) Pruning (crown, roots) Structural support (cable, brace, prop, guy) Lightning protection

97 Chapter 4. Data Collection and Analysis. Page 32 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Features that reduce structural integrity are not independent of one another. Several factors may interact and reduce structure. A leaning tree may or may not be stable. But a leaning tree with a crack in the lower trunk is a less stable situation and would receive a lower condition rating Foresters collect other information on product grade (quality), though this is technically the product of both timber size measurements (e.g. diameter, log length, and number of defects) and subjective observations (e.g. crook, sweep, rot, and branches) Plant Form Form describes the shape of a plant s silhouette (Figure 4-6). Form development is based on species genetics, management history, pruning system, design intent, and the growing environment. Plants of one species can be expected to have the same overall form in the same growing conditions. For example, all other things being equal, eastern white pine, sweetgum, and coast redwood will have a pyramidal form. American elm will have a broad vase-shaped form. Weeping willow and weeping beech will have just that, a weeping form. Cultivars are genetically identical and will have the exact same form. That said, form may change over time as the plant ages

98 Chapter 4. Data Collection and Analysis. Page 33 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Figure 4-6. Examples of tree form. Illustration by Tim Toland. Form may be modified by pruning system and this should be considered when evaluating it. Pruning systems define the long-term form of the plant. Most trees are pruned to the natural system where the intent is to maintain the trees characteristic size, growth pattern and adaptations. Other pruning systems include topiary, pollard, and espalier. A pollard can have excellent form even though this is not the natural shape of the plant. Form is one of the key criteria in selecting plants for use in the landscape. A wise horticulturalist once observed, The more natural the plant looks, the more beautiful it is. Successful function, aesthetic appeal, longevity and intensity of maintenance are all influenced by plant form. At the same time, tree form is often manipulated to provide a special effect. Hedges and topiary are two examples.

99 Chapter 4. Data Collection and Analysis. Page 34 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Another aspect of tree form is its position relative to other trees in the landscape or forest stand, often categorized as crown class (Figure 4-7): Dominant. Stands above the canopy of neighboring trees. Codominant. At the same general level as the main canopy, receiving light from above but not the sides. Intermediate. Shorter in height than codominant and receiving light only from directly above. Suppressed. Beneath the general level of the main canopy. Trees that have been suppressed or are intermediate in class are unlikely to have or develop good form Figure 4-7. Crown class. D = dominant. CO = codominant. I = intermediate. SU = suppressed. Illustration by Nelda Matheny When evaluating plant form, the important questions are: Is the form of the subject plant consistent with the natural form of the species, growing conditions, management history and stage of development?

100 Chapter 4. Data Collection and Analysis. Page 35 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Has the plant s form been manipulated to achieve a desired function or appearance? Pruning can alter form in a way that enhances plant appearance and/or improves a specific function. Pruning can also alter form in a manner that detracts from either appearance or function. What factors have resulted in an atypical form? Aside from management activities like pruning and growth regulators, plant placement may alter form. Growth of trees placed below overhead power lines, close to structures and near other plants may never achieve a notionally ideal form. Knowing the natural form of the species, design intent, and management history as well as understanding the intended use of the plant allows the appraiser to assess the form of a particular plant (Table 4-1) Form should not be confused with structure (Figure 4-8). Because form focuses on overall shape and silhouette of the crown, its assessment is largely based on aesthetic considerations. Form can be judged as excellent even if a tree is not tall, straight or symmetric so long as it provides a high level of function and aesthetics

101 Chapter 4. Data Collection and Analysis. Page 36 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Figure 4-8. Although this tree does not have the classic natural form of the species, it offers significant aesthetic appeal Combining Ratings of Individual Components into the Condition Rating The appraiser evaluates plant health, structural and form which must be combined into an overall condition rating. This can be accomplished in several ways. First, the appraiser can look at the tree and use their professional judgement to determine the overall rating whether qualitative, numeric or percentage Second, the appraiser can use the lowest individual rating as the overall rating. In this approach if health was poor but structure and form were good, the overall rating would be poor.

102 Chapter 4. Data Collection and Analysis. Page 37 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction A third approach would be using weighted averages of the three components. With this process each component is rated and is then multiplied by a weighting factor (Table 4-3). The appraiser places value on the significance or importance of each individual component to overall condition. For example, the appraiser decides to weight components as: structure 0.50; health 0.30; and form If the ratings for the three factors are health 80%, structure 80% and form 40%, the appraiser can develop a weighted average for overall condition. Although form had the lowest component rating (40%), it was not considered as important to overall condition as structure or health Table 4-3. Using weighted averages establish an overall condition rating. Condition Weighting Component Rating Product (%) Component (%) Health Structural Integrity Form Total Weighted Average Condition Rating =

103 Chapter 4. Data Collection and Analysis. Page 38 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction There is no single best way to compute the rating, but the process should be thoughtful and credible, not arbitrary and mechanical. Rather than be prescriptive, we leave it to the appraiser to develop a reasonable adjustment for condition (see examples below) When determining an overall rating for plant condition, any of these three methods can produce a credible result. The CTLA does not recommend averaging the three component ratings Assessing Physical Damage to Landscape Plants Estimating physical damage combines qualitative assessment and quantitative measurement. Type and extent of injury can be documented with measurements, descriptions, and photographs. After deciding if the plant is a complete or partial loss, appraisers may assess tree condition twice: 1) prior to the damaging event; and 2) after the damaging event Damage assessment should consider: What plant parts are affected? What is the extent of the damage (e.g, % trunk girdling, % crown loss)? Has plant health, structure, and/or form been compromised? Are the plants vigorous or in poor condition. Is the damage short-term (plant will recover) or permanent? Has plant longevity has been reduced?

104 Chapter 4. Data Collection and Analysis. Page 39 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Can the plant be restored to the pre-damage condition by pruning or other treatment? Below-ground injury is more difficult to assess than above-ground damage. It is far easier to assess things we can see such as broken branches or twig dieback than something we cannot such as root loss. A neighbor dispute may result in pruning one side of a tree. Such a tree may be partially damaged, its life-span may or not be shortened For example, a moving van runs into the lower branches of a 60 year old Japanese maple (Acer palmatum). A number of branches are broken. The tree s appearance and symmetry are damaged. Tree health, structure and potential longevity, however, have not. Aside from removing the damaged branches, no additional treatment may be needed. The amount of damage can be reflected in the form rating when using the cost method Understanding the type and extent of injury will assist the appraiser in determining the cause of the injury. For the Japanese maple in this example, the cause is clear: a truck ran into the tree. A logical follow-up question might be: Did the branches extend into a travel lane or loading zone? Being able to describe the location, pattern and extent of injury are important component in the description of damage. 763

105 Chapter 4. Data Collection and Analysis. Page 40 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction If damage occurred to the main trunk, scaffold limbs, or roots, the effect on tree condition may not be known for years. How tree health and structure are adversely affected will be in proportion to the extent of loss. In both cases, the tree will remain in place for some time and providing continued benefits, although at a reduced level. The appraiser's task, then, is to determine the proportion of benefit loss. As a general rule, if half or more of the bark on the trunk, half or more of the root system or half or more of the crown is lost on a mature tree, it is considered a total loss Management History Information regarding the history of landscape plantings and maintenance may be important. Data collection considerations for understanding horticultural practices may include: Determining if plants are planted, native, or naturalized. Assessing planting density (planted or natural). Reviewing past fertilization, irrigation (including water quality), pruning, and pest management (insects, disease, weeds). Site disturbance (from cultivation to construction). Soil properties and management If the horticultural practices are relevant to an appraisal assignment, the types of goods and services, costs, and dates of those practices may also be relevant to the final appraisal assignment estimate.

106 Chapter 4. Data Collection and Analysis. Page 41 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Off-site Research In addition to information collected at a site, data may also be acquired through off-site research. As always, the type of data needed will depend upon the appraisal problem. One of the most common examples of this type of information is cost information for the purchase and installation of landscape plants. If the appraisal problem involves market value, information on real estate markets and transactions is necessary. Literature searches can document plant information (such as life-span) and apply appropriate research findings. Relevant ordinances and regulations may be found If highest and best use (HBU) of a property is needed, focus research on stability of the residential neighborhoods. If owner turnover is generally low and homes are typically renovated rather than torn down, this is an indication of stability. Historic neighborhoods may have regulations to limit activities or dictate aesthetic considerations (including appropriate plant species). In contrast, transitional neighborhoods can be subject to redevelopment pressures. In these neighborhoods plans may call for significant lot reconfiguration, changes in zoning, building density or road design Commercial and industrial districts can be highly variable in their dynamics as well, ranging from stable use to those likely to be redeveloped. These changes can

107 Chapter 4. Data Collection and Analysis. Page 42 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction include new commercial/industrial uses, as well as wholesale redevelopment into multi- and mixed-use neighborhoods Rural areas can also be highly variable. Development pressures can be significant as agricultural land sold for development can be highly lucrative in some markets, and highway improvement encourages farther sprawl from urban centers. In these cases HBU may change in the short to mid-term. Countering this are land preservation initiatives in some regions that seek to preserve rural character and protect the environment Appraisers may need to be aware of the development dynamics in the regions they are working in. When there is a high potential for land use changes, appraiser should consider contacting local planning and regulatory agencies to identify whether there are any short to midterm plans for an area or neighborhood

108 Chapter 4. Data Collection and Analysis. Page 43 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Sidebar. Sources of Information on Data Collection Plant appraisers have a wide range of resources on types of plant data that can be collected and procedures for that collection. As examples: Best Management Practices: Tree Inventories (Bond, 2013) describes the types of data typically collected in tree inventories. The focus is on urban and suburban settings The Northern Research Station of the USDA Forest Service has a program in forest inventory, assessment and monitoring. Data collection tools and procedures are available on-line The i-tree suite of urban forestry assessment and management programs also provides resources on collection and analysis. Although the manuals and workbooks are designed to be used with the software, they are relevant and information on their own. i- Tree is a cooperative effort of the USDA Forest Service, The Davey Institute, The Arbor Day Foundation, the Society of Municipal Arborists, the International Society of Arboriculture and Casey Trees The Urban Tree Growth & Longevity Working Group ( is a joint program of the International Society of Arboriculture and the Arboricultural Research & Education Academy. Its goal

109 Chapter 4. Data Collection and Analysis. Page 44 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction is foster communication and partnerships between practitioners and scientists. The Group has developed a protocol for monitoring growth and development of urban trees

110 Chapter 4. Data Collection and Analysis. Page 45 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Sidebar: Adjusted Tree Area (ATA) The 8 th edition of the Guide (1992) introduced Adjusted Trunk Area as an adjustment for trees over 30 in diameter. ATA was developed by CTLA on the basis of the perceived increase in tree size, expected longevity, anticipated maintenance and structural safety. The Council believed that above 30 in diameter tree values based on trunk area became unrealistically high. ATA had the effect of modifying the geometric increase in trunk area meeting the Council s goal. For example, the actual trunk area of a 45 diameter tree is 1,590 sq. in. The Adjusted Trunk Area is 1,353 sq. in The ATA formula was arbitrary and not derived from information about the cost to transplant large trees. The CTLA simply drew a line on a graph that they believed represented the goal of modifying cross-sectional area. A formula that fit the curve was then derived. Data found in Table 4.4 of the 9 th edition (2000) were derived using the formula In 2016, Komen published an analysis of ATA. He noted that using ATA resulted in a decrease in cross-sectional area above trunk diameters of 103. The ATA of a 120 tree would be smaller than that of a 100 tree. Komen proposed several solutions to this problem, one of which was to remove ATA from the Guide The CTLA decided to remove ATA from this edition of the Guide. First and foremost, ATA was arbitrarily formulated. It was not based on actual costs.

111 Chapter 4. Data Collection and Analysis. Page 46 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Second, the CTLA agreed with Komen s assessment regarding trees larger than 103. Finally, the Council was not able identify a solution that it believed was reasonable

112 Chapter 4. Data Collection and Analysis. Page 47 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Literature Cited American National Standards Institute (ANSI) ANSI Z American Standard for Nursery Stock. Washington, DC: American Nursery & Landscape Association. Angwin, P., D. Cluck, P. Zambino, B. Oblinger and W. Woodruff Hazard Tree Guidelines For Forest Service Facilities and Roads in the Pacific Southwest Region. USDA Forest Service. Forest Health Protection. Pacific Southwest Region. Report # RO Redding CA /www/nepa/99921_FSPLT3_ pdf Bond, J Urban Tree Health: A practical and precise estimation method. Urban Forest Analytics LLC. Geneva NY Bond, Jerry Best Management Practices: Tree Inventories. 2 nd edition. Mattoon, IL: United Graphics. Burns, R. and B. Honkala Silvics of North America. USDA Forest Service Agricultural Handbook 654. Washington D.C. Coder, Kim D Crown Shape Factors & Volume. University of Georgia Cooperative Extension Service. Tree Biomechanics Series Publication FOR Accessed August 19, Costello, L., E. Perry, N. Matheny, J. M. Henry and P. Geisel Abiotic Disorders of Landscape Plants: A Diagnostic Guide. University of California. Agriculture & Natural Resources Publication Berkeley CA.

113 Chapter 4. Data Collection and Analysis. Page 48 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Council of Tree and Landscape Appraisers Guide for Plant Appraisal. 8 th edition. International Society of Arboriculture. Champaign IL. Council of Tree and Landscape Appraisers Guide for Plant Appraisal. 9 th edition. International Society of Arboriculture. Champaign IL. Cullen, D. S Measurement Height of Trunk Caliper. Arboricultural Consultant 48(1): American Society of Consulting Arborist. Rockville MD. Curtis, Robert O. and David D. Marshall Why Quadratic Mean Diameter? Western Journal of Applied Forestry 15 : Dunster, J., E. T. Smiley, N. Matheny and S. Lilly Tree Risk Assessment Manual. Champaign IL. International Society of Arboriculture. Harris, R., J. Clark and N. Matheny Arboriculture The Integrated Management of Landscape Trees, Shrubs and Vines. 4th edition. Englewood Cliffs NJ. Prentice-Hall Inc. Husch, Bertram, Thomas W. Beers, and John A. Kershaw, Jr Forest Mensuration.4th Ed. Hoboken, New Jersey: John Wiley & Sons, Inc. Komen, J Critical Analysis of the ATA Formula. Arboricultural Consultant. 49(1): American Society of Consulting Arborists. Maeglin, R Increment Cores: How to collect, handle, and use them. USDA Forest Service. Forest Products Lab. General Technical Report FPL-25. Madison WI. Nowak, D., J. Walton, J. Baldwin and J. Bond Simple Street Tree Sampling. Arboriculture & Urban Forestry 41(6): Smiley, E., S. Lilly and N. Matheny Best Management Practices: Tree Risk Assessment. International Society of Arboriculture. Champaign IL.

114 Chapter 4. Data Collection and Analysis. Page 49 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Swiecki, T. J.,and E. A. Bernhardt Guidelines for Developing and Evaluating Tree Ordinances. PDF Version October 31, Phytosphere Research: Vacaville, CA. Accessed September 14, USDA Forest Service Field Guides for Standard Measurements. Version 7.0. USDA Forest Service. Forest Inventory and Analysis National Program. Urban Tree Growth & Longevity Working Group. A joint program of the International Society of Arboriculture & the Arboricultural Research & Education Academy. USDA Forest Service Field Guides for Standard Measurements. Version 7.0. USDA Forest Service. Forest Inventory and Analysis National Program. USDA Forest Service. Northern Research Station. Forest Health Inventory Assessment and Monitoring. USDA Forest Service. North Research Station. I-Tree Manuals & Workbooks. USDA Forest Service. Standardized codes for trees species

115 Tree Appraisal Data Sheet Client Name Phone Date Address Tree Information Species ID Tag No.: Plant Size: DBH AREA Height Crown dimensions Adjustments to DBH measurement Crown volume = height x base = Age / stage of development: Core collected: Health: Structure: Form: Crown class: Comments: Placement (use box for sketch/map) Location of tree: Distance to reference items: Limitations to growing space: Plant density: Ground plane: Landscape quality: Function in landscape: Damage / injury

116 General description: Date of injury: Will plant recover? Testing needed: Soil Plant ID / fruiting body Treatment: Site Features Land Use: Structures: Management history Irrigation: Fertilization: Pruning: Pest mgt: Disturbance? Other: Additional information

117 Chapter 5 - The Cost Approach Contents Overview 1 Selecting Methods and Techniques 3 Repair 3 Reproduction 3 Functional Replacement 4 Techniques for Estimating Cost 6 Direct Cost Technique (DCT) 7 Extrapolated Costs 7 Trunk Formula Technique (TFT) 8 Cost Compounding Technique (CCT) 11 Depreciation 14 Monetary Reductions 17 Percentage Reductions 17 Determining Percentage Reductions 18 Additional Costs 29 Cost Approach Examples 30 Example 1: Determining the Cost of Repair using the Direct Cost Technique 30 Example 2a - Functional Replacement method using the Direct Cost Technique. 32 Example 2c - Reproduction Method using the Trunk Formula Technique. 36 Example 2d. Reproduction Method using the Cost Compounding Technique. 38 Example 3. Preconstruction Bonding using the Reproduction Method using the Trunk Formula Technique. 41 Example 4. Reproduction Method using the Trunk Formula Technique for a Municipal Tree Inventory 42 Example 5a. Functional Replacement method using Trunk Formula Technique. 44 Example 5b. Reproduction method using the Trunk Formula Technique. 46 Example 5c. Reproduction Method using the Cost Compounding Technique based on size. 48 Example 5d. Functional Replacement Method using the Cost Compounding Technique based on age. 50 Example 5e. Estimating a Market Value using TFT and Hedonic Regression Techniques. 52 Example 6. Partial Loss using the Reproduction method, Trunk Formula Technique.56 Example 7. Reproduction Method using the Trunk Formula Technique for a Palm. 57

118 Example 8. Functional Replacement Method using the Trunk Formula Technique for a Superadequate Landscape 58 Data Sheets 30 References 34

119 OVERVIEW The Cost Approach is commonly used when appraising trees, shrubs, hardscape and other landscape features. It produces a cost estimate for repairing, replacing, or restoring the utility of the item. The cost approach applies to damaged or destroyed items, tree inventories, preconstruction bonds, insurance claims, and other cases. The principle of substitution, as described in Concepts Chapter (Chapter 2), is the foundation of the cost approach. Within the cost approach, there are three methods (repair, reproduction, functional replacement), and three techniques used to develop a basic cost. Selecting a specific method and technique depends on the assignment and the judgment of the appraiser. For complex assignments, the appraiser may need to apply multiple approaches, methods and/or techniques. Figure 5-1 depicts the general process of the cost approach. Figure 5-1. Flow chart of the Cost Approach

120 Chapter 5. The Cost Approach Page 2 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Appraisers can estimate either New Names direct or extrapolated cost. Direct In this edition of the Guide, the names of several costs reflect actual or estimated methods and techniques were changed in in order to costs for labor, materials, align plant appraisal and terminology with that used equipment, and supplies used to by the larger appraisal profession and in the legal install, treat or maintain the profession. They include: cost of cure changed to landscape item. Extrapolated cost functional replacement cost, replacement cost changed to reproduction cost, and trunk formula begins with the cost of the largest method changed to trunk formula technique. commonly available nursery-grown plant (e.g., a seedling, sapling, container plant, balled and burlap), and then infers (i.e., extrapolates) the cost of a larger or unavailable specimen. Plant appraisers commonly apply two techniques for extrapolating cost: the Trunk Formula Technique (TFT) and the Cost Compounding Technique (CCT, syn. Cost Forwarding). Because the appraised tree or item is usually neither new nor perfect, it may be necessary to account for certain suboptimum characteristics. This deduction or depreciation considers factors to such as condition, functional limitations, and external limitations. A depreciated cost estimate is the result of applying depreciation to a basic cost. In some appraisals there are additional costs beyond the replacement plant that need to be considered. These include the cost of removing the damaged plant, installing the new plant, site clean-up, and plant maintenance during the establishment period. They are usually not extrapolated, but may be adjusted for inflation or to current value. The assignment result can be the basic cost; the depreciated cost; basic or depreciated cost plus additional costs; or a reconciliation among several approaches, methods or techniques. The result should not be considered market value unless it is tied to a commonly purchased item such as real estate. Whichever method and technique is applied, cost needs to be reasonable, appropriate and for the effective date of the appraisal. 93

121 Chapter 5. The Cost Approach Page 3 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction METHODS FOR ESTIMATING COST Selecting Methods and Techniques The appraiser s choice of method and technique is a function of the appraisal problem, context of the assignment, direction provided by the client, and constraints imposed by rules and regulations. The repair method addresses the cost to repair damages or mitigate further loss. Functional replacement estimates the cost to restore benefits. The reproduction method estimates a cost of an exact replica of the item being appraised. Repair The repair method applies when there is damage to a plant or other landscape feature and the assignment focuses on correcting the damage or mitigating further losses. Application requires two fundamental assumptions: 1) the item will remain in place; and, 2) it will continue to provide benefits similar to those prior to damage. Unlike the other two methods, the repair method does not usually estimate the cost to return the plant or landscape item to its pre-damage condition or utility. For example, a large-diameter broken branch cannot be reattached, but it may be appropriate to prune off the stub. The repairs in this case mitigate cleans up the damage and promotes wound closure. Reproduction Reproduction estimates the cost of a replica or duplicate of the item being appraised. Generally, this means estimating the cost of replacing the landscape item with one that is close to identical: the same species or brand, size, shape, and condition; and thereby providing most or all of the characteristics and benefits of the original. The reproduction method is commonly used where a landscape item has been destroyed, removed or was significantly damaged. This methodology is widely used for tree inventories, preconstruction bonding and some insurance claims. Reproduction may not be appropriate where the appraiser is concerned about superadequacy or economic factors including supply, demand, market value, and reasonableness in relation to overall property value.

122 Chapter 5. The Cost Approach Page 4 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction 124 Functional Replacement Functional replacement estimates the cost for substitute items that provide equivalent utility, benefits or function, rather than the cost to produce an exact replica. The principle of substitution is the foundation of the functional replacement methodology: a prudent person would not spend more to purchase an item or restore its benefits than the cost of a substitute item that produces similar benefits. The primary advantage of functional replacement is that it replaces the utility and benefits of a plant. It may sometimes result in a more realistic, cost-effective alternative to the reproduction method. This methodology is commonly applied to a broad range of appraisal problems, particularly where utility is more important than replicating the exact item. Functional replacement also applies when items cannot be replicated due to size, access, availability, species availability, or other factors. For instance, a reasonable replacement for a damaged medium size tree may be a similar size tree of a different species, a smaller tree of the same species, several smaller trees, a hedge or a landscape structure, or some combination of these. Functional replacement cost estimates start with assessing the utility of, or benefits provided by, the item. The appraiser then develops a plan that would produce a landscape that is functionally similar to the original landscape and is reasonable and appropriate for the site. The functional replacement basic cost may be depreciated when the original item was not ideal. However, one of the advantages of functional replacement is that it reduces or eliminates the need for large and subjective deductions for depreciation. This is particularly true when considering excessive landscape items, a condition known as superadequacy. Superadequacy is an excess in quality or quantity of a landscape component which does not add additional value or utility. Superadequacy is often manifested in high-density plantings (Figure 5-2). Landscapes may be initially overplanted in order to create a more finished look. As plants mature, they may restrict the development of adjacent plants.

123 Chapter 5. The Cost Approach Page 5 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Figure 5-2. Two types of superadequacy. Lower left: Density. Five pines were installed in a space better suited for a single tree. Lower right: Size. The energy conservation benefits provided by this large oak would also be provided by a tree only 75% as tall

124 Chapter 5. The Cost Approach Page 6 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Superadequacy may also result from size, i.e., situations where a tree is too large for the growing space or intended function (Figure 5-2). A strategically placed shade tree may reduce heating and cooling costs. A 30 tree may provide the same energy savings as a 60 tree. In such a situation, a tree larger than 30 could be considered superadequate. Alternatively, installing a large-growing tree beneath overhead utility lines creates a conflict that may also be considered superadequate due to size. Superadequacy is most relevant to functional replacement in that fewer or more common trees or shrubs can be used in the replacement plan. Once the appraiser has developed a landscape plan that matches the benefits provided by the subject trees, the direct cost or an extrapolation technique can be applied to that plan to estimate how much it would cost to produce the plan. For a superadequate large tree, a smaller size measurement may be used in the calculation. For a superadequate dense planting, the cost of planting fewer substitute trees may be used. When applying the reproduction method, superadequacy can be considered as a functional limitation depreciation factor. However, there are instances where the appraiser is called upon to estimate the cost to restore property to its exact pre-damage condition, despite the existence of superadequacy. In these cases, it may not be appropriate to estimate functional replacement cost or depreciate for superadequacy with reproduction. TECHNIQUES FOR ESTIMATING COST The Direct Cost (DCT), Trunk Formula (TFT) and Cost Compounding (CCT) are techniques applied within the Cost approach. The DCT estimates costs to install or repair a landscape item. The TFT and CCT are extrapolation techniques that take the cost of a nursery plant and proportionally increase it to infer the cost of a larger plant. Basic cost estimates reflect a notionally ideal condition with all techniques. This figure may need to be depreciated for suboptimum conditions and/or augmented to account for additional costs associated with clean-up, planting, and future maintenance.

125 Chapter 5. The Cost Approach Page 7 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction 192 Direct Cost Technique (DCT) The direct cost technique totals the costs of materials and services needed to repair, functionally replace, or reproduce the property. This is an estimate of actual cost, realistic in terms of its scope, availability of materials and contractor services, and feasibility. This process starts with a plan for repair or landscape installation. The appraiser then estimates and tabulates all costs associated with the project. Because of its empirical nature, DCT is the preferred technique for landscape applications involving items commonly available in sizes equivalent to the subject items. DCT may be useful for appraising large trees where the appraiser can find a local company experienced with moving large trees. Logistics of large tree moving can be challenging and require large expenditures. The advantage of DCT for large trees is that, compared to an extrapolation techniques, it provides empirical evidence of the cost. In forest and wildland settings it is usually not appropriate to apply DCT, particularly where cost estimates are disproportionate to total property value. Here, it may be more reasonable to apply CCT, as is common in commercial forest applications. The basic cost developed using the DCT is the total cost of the items or plants. Only those treatments directly related to the damage should be included. For example, pruning broken branches caused by a truck collision is appropriate, but removing all dead branches throughout the canopy would improve on the pre-damage condition of the tree so would not be appropriate. Depending on the assignment, depreciation may be applied. Additional costs for cleanup, delivery, planting, or future maintenance may be added when reasonable and appropriate. Extrapolated Costs To develop the basic cost of a tree, shrub, or palm that is larger than commonly available from a local nursery, the appraiser can extrapolate the cost of a nursery plant using the trunk formula technique (TFT) or cost compounding technique (CCT). The largest commonly available nursery plant should be used as the basis for these calculations. Size is derived from nursery standards such as ANSI Z60. There is geographic variation in both size and the way plants are grown. For example, hardwood

126 Chapter 5. The Cost Approach Page 8 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction trees are often sold by trunk caliper while evergreens are sold by height. In the Western U.S. trees, whether hardwood or softwood, are sold by container and box size. Palms are sold by clear (brown) trunk height. Availability of the largest tree must be reasonable and locally available. Regional Plant Appraisal Committees (RPAC) can provide guidance on establishing these parameters for a given region (see Appendix 4). The nursery plant cost is Unit Cost: Wholesale, Retail or the price a landscape Installed Price? professional would pay for the The unit cost the price per trunk cross-sectional area plant at the nursery. It should ($ / sq. in.) of the largest commonly available nurserygrown tree. In both the 8 th and 9 th editions, the include delivery but not planting, appraiser and RPACs could use either the wholesale, staking, or any other services. retail or installed price as the basis for determining the unit cost. In this edition of the Guide, the CTLA However, those and other costs recommends using the price that a landscape including site clean-up, and professional would pay a nursery grower to purchase and deliver the plant as the basis for maintenance during the unit cost. establishment period, may be included as additional costs. Trunk Formula Technique (TFT) TFT extrapolates the costs to purchase the largest commonly available nursery plant to the size of the subject plant (Figure 5-3). The underlying assumption is that the cost of a large plant is directly proportional to the unit cost of the nursery plant. Figure 5-3. Trunk formula technique (TFT) Tree being appraised Nursery tree used Extrapolation of nursery tree for cost basis to the tree being appraised Illustration by Tim Toland.

127 Chapter 5. The Cost Approach Page 9 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Unit cost is the cost per square inch (or cm 2 ) of trunk area, feet (or m) of trunk height, square feet (or m 2 ) of canopy projection, or cubic feet (or m 3 ) of crown volume. Arborists commonly use the price per square inch of trunk cross-sectional area measured at a standardized height (see Data chapter, Chapter 4 for measurement details). To apply the TFT for trunk diameter, determine the cross-sectional area of the subject plant then multiply it by the unit price. For example, a 20 dbh tree has a 314 sq. in. cross-section (10*10*3.14 = 314 sq.in.). A 3 diameter nursery tree has 7 sq.in. of cross sectional area (1.5 * 1.5 * 3.14 = 7 sq.in.) and costs $500. So the unit cost is $500 7 = $71.43/sq. in. The basic cost is therefore 314 * = $22, When possible, the nursery tree should be the same species and cultivar as the appraised tree. For functional replacement, extrapolation may be applied to different species, or to a smaller size tree that will replace the benefits of the appraised tree. One differences between reproduction and functional replacement is the calculations can be based on the estimated diameter of the functional replacement tree rather than the actual diameter of the reproduction tree. For example, if you are appraising a 40 dbh tree, and a 30 dbh tree would provide the same function and benefits in the landscape, use the 30 dbh as the starting point for the TFT. Alternatively, several small specimens of similar or mixed species may provide a more cost-effective way to produce the same (or even superior) benefits. A similar process is used when the landscape is excessively vegetated (i.e., there is superadequacy). If there are ten 25 trees in the front yard of a suburban residential quarter acre lot, the loss of one tree may have no impact on the overall benefits, so the value can be appraised at zero or each tree can be depreciated to reflect superadequacy. In some insurance cases, the extrapolated cost may be the i-tree Compensatory (Structural) Value The i-tree suite of urban forest management assignment result. In other tools ( uses a variation of the trunk cases, this basic cost may need formula technique to estimate compensatory value. The calculation isng a variation based on location to be depreciated and/or have the values described in the 8th edition (1992) of the additional costs added to it. The Guide. Therefore, the results are not directly comparable to those using the trunk formula additional cost may include tree technique described in this edition. i-tree Eco also uses a different system to removal, site clean-up, planting, monetize the environmental and ecological benefits and/or future maintenance. provided by trees (see Income Approach, Chapter 6). Where future maintenance is

128 Chapter 5. The Cost Approach Page 10 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction required, proposed costs can be adjusted for inflation and then converted to present value using an appropriate discount rate Palm and Shrub Appraisal using the Trunk Formula Technique. Since even large palms are relatively easy to transplant, many areas have nurseries or transplanting companies that can provide prices for large palms that can be used in the DCT. An extrapolation technique is applied when a palm cannot be replaced. The unit pricing for palms is usually based on plant height. The height measurement that is used will vary with region and species. The typical unit is a foot (or m) of clear trunk or a foot (m) of overall plant height. To apply the TFT to palms, determine which height increment is used as the basis for pricing at local nurseries. Then research the unit price from local nurseries or the Regional Plant Appraisal Committee. The nursery cost can vary greatly with species and location, the unit cost applied should be from the same or similar species. Multiply the height of the appraised palm by the unit cost to determine the basic cost. Depreciation and additional cost can be applied when appropriate. Height-based or crown volume based pricing also applies to shrubs in many areas. The procedure is similar to that described for palms. Strengths and Weaknesses of the Trunk Formula Technique Strengths: A cost-effective and practical way to appraise large trees. Relatively easy to calculate unit cost from RPACs, online data or nursery catalogs. Long history of use and acceptance by arborist, landscape professional, and legal communities. 316 Weaknesses of TFT:

129 Chapter 5. The Cost Approach Page 11 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction The technique is based on the assumption that the cost of a nursery tree can be scaled to the cost of a large tree. In many areas this lacks an empirical basis. May result in estimates of tree value that are greatly out of proportion to the value of the land and other property improvements, or to what people would actually pay for a replacement tree. Application is generally limited to residential and urban landscape settings. 323 Cost Compounding Technique (CCT) Cost compounding (CCT, syn cost forwarding) is an extrapolation technique that relates the cost of money over a specific time period to tree growth. The appraiser estimates the time required for a new planting to attain equivalent size, or provide similar benefits or utility as the subject tree and then estimates the cost of money over that period (Figure 5-4) Figure 5-4. Cost compounding extrapolates the cost of tree replacement to a future date when the size or benefits of the appraised tree will be attained. Illustration by Tim Toland.

130 Chapter 5. The Cost Approach Page 12 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction There are three primary inputs to the CCT: 1) the nursery cost of the nursery tree (present cost, PC); 2) the time in years it will take to reach equivalent size or utility (n); and, 3) the appropriate compound interest rate (i). The formula for cost compounding is shown below in Formula 5-1. Formula 5-1: Formula for cost compounding CC = PC * (1 + i) n where, CC = compounded cost PC = present cost of the nursery tree i = compound interest rate n = years for the new tree to reach parity with the appraised tree The number of years (n) to attain equivalent size or benefits is sometimes called years-to-parity. Size parity can be based on recent growth rates of the tree being appraised or on nearby trees of the same species. Data may be obtained from planting records; crown size comparisons from inspection of photographic images; or by increment core or stump growth ring counts and measurements. It may be important to account for growing conditions that differ between the subject tree and a new tree. For example, a timber plantation that is 12 years old may have been released through a pre-commercial thinning, whereas a new tree planted in place of the 12-year old tree may take only 8 years to attain the same size. Moreover, genetically improved seedlings now available may take only 10 years to grow the same size. Selecting an interest rate (i) to use in the compounding formula is a key decision in the use of the CCT. The concept is to select a rate that is relevant to the type of property being appraised so that the result is reasonable and defensible. For residential properties, current mortgage rates or prime plus 2% may be applicable. For forestry or other commercial real estate investments, the rate is often determined using the client s commonly required rate of return for such investments. The cost of the tree (PC) is the nursery cost of the largest commonly available plant. The compounded cost (CC) is the basic cost. The basic cost can be depreciated or have additional costs applied, depending on the assignment.

131 Chapter 5. The Cost Approach Page 13 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction In commercial forest applications, CCT involves projecting the costs of site preparation and planting to the age of the subject trees. It is most useful for young trees that have not reached merchantable size. Applying CCT to older trees, particularly trees that are financially mature, often results in unrealistic value estimates. CCT produces results that are much more closely tied to market value because the appraiser starts with the costs of seedlings, not large nursery stock. It may cost $300 per acre to plant 600 trees, or $0.50 per tree. Here, the extrapolated cost per tree (at 5%) is only $19 for a single tree that is 75 years old. Table 5-1 presents the compounded cost (CC) of a dollar (PC) invested for n years at various interest rates (i). It illustrates how sensitive calculations are to the choice of interest rate and number of years it takes to reach parity. Table 5-1. Annual compound interest factor, computed as (1+i) n. Where i = the interest rate and n= years to parity. To apply, multiply the interest factor (from the table) by the cost of the replacement tree (PV) to estimate the compounded cost (CC). Annual Interest Rate Years 2% 3% 4% 5% 6% 7% 8% 9% Because cost estimates can vary widely based on the years-to-parity and interest rate assumptions, the appraiser must be able to explain the inputs. As with any cost approach technique, it may be necessary depreciate the basic cost (CC) to account for condition, functional limitations and external limitation (as described later in this chapter) or to add in additional maintenance or clean-up costs. Strengths and Weaknesses of the Cost Compounding Technique Strengths:

132 Chapter 5. The Cost Approach Page 14 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Cost estimates are based on documentable tree cost and interests rates which are defendable, empirical, and based on biological and financial facts. Calculations are easily performed. Results work best where the years-to-parity can be reliably estimated. Can be applied in both urban landscape and wildland settings. Results reflect actual investor behavior in certain forestry applications. 400 Weaknesses: Results are highly sensitive to years-to-parity estimates and interest rates. Arborists may need to seek professional advice when selecting interest rates. May result in estimates of tree value that are greatly out of proportion to the value of the land and other property improvements DEPRECIATION As described in the Concepts Chapter (Chapter 2), depreciation is the monetary expression of suboptimum factors. Appraisers use depreciation factors to account for the differences between the cost of the new or notionally ideal item, and the item being appraised which typically has some lower level of quality due to compromised conditions or other limitations. General appraisal practice holds that depreciation is the combination of three factors: 1) physical deterioration, 2) functional obsolescence, and 3) external obsolescence. For tree and landscape appraisal, we refer to the components of depreciation as: Condition = Physical deterioration Functional limitations = Functional obsolescence External limitations = External obsolescence

133 Chapter 5. The Cost Approach Page 15 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction For plants, physical Species, condition, and location? deterioration is essentially plant condition, reflecting structural Previous editions of the Guide integrity, plant health and form. addressed three depreciation factors Functional limitations species, condition, and location. To avoid are interactions between plant issues with double-counting and present a and site that restrict future plant framework that is more consistent with the development (Table 5-2). These general appraisal community, this edition factors are normally incurable presents three categories of depreciation: without drastic or repeated condition, functional limitations, and treatments. They include plants external limitations. that have or will soon have overgrown their site (superadequacy) or are otherwise limited by their site, have lifespan limitations, are poorly placed, or have factors associated with the tree genetics such as problematic fruit drop or pest susceptibility. External limitations are factors outside the control of the tree owner. These limitations are normally incurable. They include regulations or easements that allow people other than the property owner to treat an area with herbicide, perform crown reduction, or remove the tree. Examples of this include trees within the utility rights-ofway, or solar access corridors, trees that imping on deeded views or those on nuisance plant lists. Other external limitations may include limitations imposed by climate changes, mandated watering restrictions, or shade from new building construction. When considering depreciation, some features may fit into more than one depreciation category. The appraiser must depreciate each feature only once. For example, overhead electrical wires may be viewed as either a functional or external limitation. When applying depreciation, the appraiser should only depreciate once. If a tree is this situation has been topped, the appraiser may depreciate for both condition (form) and functional limitations that will limit future height growth.

134 Chapter 5. The Cost Approach Page 16 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction 448 Table 5-2. Common conditions considered in functional limitation. Placement Superadequacy Soil Plant genotype Water Overhead utilities Underground utilities Nearby structures, sidewalks, road Solar access Growing space Excess size Excess plant density Volume available for development Chemistry (lack or excess of specific mineral elements) Drainage and/or water table Fruit & litter Thorns Invasiveness Failure pattern Disease & insect susceptibility Tolerance to construction activities Sprouting Allergenicity Water quality

135 Chapter 5. The Cost Approach Page 17 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction 451 Monetary Reductions Depreciation can be calculated in two ways, using monetary reductions and/or percentage reductions. Monetary reductions are costs for work that can be done to improve the condition of the plant. Percentage reductions are numeric multipliers that reflect the difference between the ideal plant or site and the subject tree. Monetary reductions can be applied to curable conditions that decrease the value of plant. This can reduce or eliminate percentage reduction for those conditions. The underlying assumption is that the value of any item is reduced by the cost to repair it. Monetary reductions are estimated by subtracting the cost of the treatment from the basic value. Monetary reductions need to be made prior to percentage reduction. Consider an 18-inch diameter sugar maple (Acer saccharum) on a residential property within 15 feet of the house. The tree is in good condition, other than a branch broken by a storm. The appraiser applies the reproduction method and determines a basic cost of $10,000. The cost of pruning the broken branch is estimated to be $500. The basic cost can be adjusted to $9,500 ($10,000 - $500). Percentage Reductions The second depreciation method employs percentage reductions. The appraiser assigns a multiplier ranging from 0% to 100% to each of the depreciation categories: condition, functional limitations, and external limitations. The basic cost is multiplied by each of the three numbers to estimate the depreciated cost. More information on percentage reductions is provided below. The resulting depreciated cost may be the assignment result, but should not be considered a value unless it is tied to a market value. Going back to the 18-inch diameter sugar maple example, we can compare the results of applying a monetary reduction against applying a percentage reduction. As outlined above, the maple is in good health, other than a branch broken by a storm, it is close to the house and has an estimated reproduction basic cost of $10,000. The cost of pruning the broken branch is estimated to be $500. One option is to adjust the basic cost to $9,500 ($10,000 - $500) using a monetary reduction. The other option is to apply a percentage deduction due to condition. For the sugar maple, the appraiser might estimate

136 Chapter 5. The Cost Approach Page 18 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction that tree condition is 80% with the broken branch. The other depreciation factors remain constant. A summary comparison of this example is found in Table 5-3. Table 5-3. Comparison of depreciated cost estimates with and without a monetary reduction for condition. The starting basic cost of the tree was estimated at $10,000. Depreciation Factors Factors considered Monetary Reduction Percentage reduction with Monetary reduction Percentage reduction without Monetary reduction Condition Functional limitations External limitations Depreciated cost Good condition, some chlorosis and a broken branch Close to house, will need routine pruning None known $500 90% 80% 0 85% 85% 0 100% 100% -$500 ($10, )*0.90*0.85*1= $ $10,000* 0.80*0.85*1=$6, Determining Percentage Reductions Condition (Physical deterioration) The components to plant condition: health, structural integrity, and form were discussed in Chapter 4 (see Table 4-1). A tree that is ideal with regards to these components is rated at 100%. A dead tree should be rated at 0%.

137 Chapter 5. The Cost Approach Page 19 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Species Depreciation Functional Limitation A species depreciation factor has been used since the beginning of tree appraisal. The Functional limitations result species factor was originally included because from the interaction of site the Guide also included a dollar per square inch conditions, placement, and genetic value for a 100% species rated tree. The dollar per square inch value was multiplied by the limitations that affect plant species factor to estimate the unit value of other performance in the landscape (Table species. Species ratings mixed genetic factors, response to growing conditions, business 5-4). For example, if a large tree practice and personal appreciation of aesthetics. grown in a natural form is located In this version of the Guide, the nursery plant under power lines, close to adjacent price should be based on the same species that structures, or within a narrow tree is being appraised. This combined with the addition of the functional limitation factor, lawn, or is susceptible to a lethal eliminates the need for a species depreciation pest, it will have a lower value than a factor. tree that is not so constrained. The site factors to consider are those that will limit development of the plant within a few years (not decades) or as prescribed in the assignment. Functional limitations are considered incurable or would require repeated or costly treatments to mitigate. A case can be made for considering the presence of an overhead powerline as an external limitation, rather than a functional limitation. However, if the appraiser has accounted for the current pruning under condition and pruning that will need to occur in a few years under functional limitations, the powerlines or their related clearance requirements should not be considered an external limitation. Factors considered within condition or limitations should not be included more than one time when estimating depreciation.

138 Chapter 5. The Cost Approach Page 20 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Table 5-4. Examples of functional limitation ratings. Percentage ratings are for illustrative purpose only, they are not intended to be used without sound appraiser judgment. Situation Pruning System Example rating range Notes Specimen tree Any 100% No limits to growing space Large maturing tree Near property line Any 20-90% Based on proportion of canopy growing into neighboring property & disruption of use Under powerline Natural 50-75% Under powerline Pollard % Under powerline Hedge/Topiary % Medium width tree lawn Any 50-75% Potential for root pavement conflict low Narrow width tree lawn Any 25-50% Potential for root pavement conflict severe Small maturing tree Under powerlines Natural % Medium tree lawn Natural % Narrow tree lawn Natural 50-75% Shrubs Close to house foundation, sidewalk, driveway etc. Natural 25-50% Based on proximity to foundation & need for clearance pruning Near foundation Natural % No clearance pruning needed

139 Chapter 5. The Cost Approach Page 21 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Near property line Hedge % Species with problematic fruit Residential lawn Natural 80 to 100% Does fruit interfere with maintenance like mowing or use of lawn? High use area 10% to 30% Patio, sidewalk, parking, street Invasive species Based on state or regional listing Landscape setting 60 to 90% Potential for disrupting native vegetation low Location dominated by native vegetation 10 to 30% Potential for disrupting native vegetation high Tree or shrub susceptible to lethal pest Any 10 to 30%

140 Chapter 5. The Cost Approach Page 22 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction External Limitation External limitations are factors that lie outside the control of the property owner and diminish a plant s utility. These factors include legal restrictions that limit the development of the plant and environmental factors that affect long-term health and life expectancy of the plant not taken into consideration with the condition or functional limitation ratings. Examples of external limitations include: Laws, ordinances, and easements that grant to other parties the authority to prune or remove vegetation impinging on power lines, obstructing views, or blocking solar access. Water use limitations, restrictions on irrigation. Drainage issues originating on adjacent property. Neighborhood nuisance that affects the health or enjoyment of the landscaping. An example of external limitations is a tree that blocks a pre-existing solar collector that is protected from shading by local regulations. The rating may be related to the percentage of the tree that will remain after the required solar clearance pruning. Where 30% of the tree can be removed, the external limitation rating might be 70% if the tree remains healthy, or 10% or less if its health is threatened. In many assignments the appraiser will find no external limitations so the rating should be 100%. Table 5-5 illustrates how external limitations might contribute to depreciation. Summary of Depreciation As noted above, condition, functional limitation and external limitation factors are accounted for either by assigning percentage ratings, deducting dollar amounts, or some combination of the two. It is essential that appraisers avoid double counting for individual factors that contribute to depreciation. The process and results should be reasonable. Depreciating the basic cost does not produce a market value. If the assignment result is a market value, then the result must reflect the item s contribution to overall property value (see example 5e).

141 Chapter 5. The Cost Approach Page 23 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Table 5-5. Summary of percentage ratings for depreciation. Ratings are for illustrative purposes only and are not intended to be used as strict guidelines. Condition Functional limitations External limitations Excellent = % No impact = % No impact = % Good = 60-80% Minor impact = 60- Minor impact = 60-80% 80% Fair = 40 to 60% Moderate impact = 40-60% Poor = 20 to 40% Severe impact= 20 - Moderate impact= 40-60% Severe impact= 20-40% 40% Very Poor = 0-20% Extreme impact= 0-20% Extreme impact = 0-20% Dead =

142 Chapter 5. The Cost Approach Page 24 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Examples of Depreciation Example 1. Cypress tree adjacent to powerline Condition: Health very good 90%, Structure very good 90%, Form is fair since the tree is onesided - 60%. Options for overall condition ratings: Appraiser judgement: 70%. Lowest component (form): 60% Weighted average: 84% 1. weighting: health 0.40, structure 0.40, form weighted average: (90% * 0.40) + (90% * 0.40) + (60 * 0.20) = =84%. Functional limitations: 70% Any branch closer than 10 to the powerlines, less than 14 above the road and less than 7 above the sidewalk will be removed. Cypress canker in common in this area but has not affected this tree. External limitations: 80% State mandate to reduce irrigation by 50%. Since the utility powerline easement was taken into account in Functional limiations, is should not be considered in External limiations.

143 Chapter 5. The Cost Approach Page 25 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Example 2. Live oak: Condition: Health- very good 90%, Structure- very poor 10%, Form- good 70%. The low structure rating reflects imminent likelihood of failure due to the crack between co-dominant stems. Options for combining the condition ratings: Appraiser judgement: 50%. Lowest component (structure): 10% Weighted average: 58% 1. weighting: health 0.45, structure 0.35, form weighted average: (90% * 0.45) + (10% * 0.35) + (70% * 0.20)= =58%. Alternatively, we can apply a monetary reduction as the cost to install two brace rods and one cable (in accordance with the ISA BMP on Tree Support Systems). This would cost $800 and it will not create a perfect structure. As a result the structure rating could be increased from 10%. The monetary reduction is taken before the basic cost is multiplied by the condition, functional limitation and external limitation depreciation factors. Functional limitations: 80% Root collar buried, may increased susceptablity to disease. Species nearly ideal for this location. External limitations: 100% View easement in area, but tree will need to grow 30 to be affected. Rating is 100% because it will take a decade for the tree to reach that height.

144 Chapter 5. The Cost Approach Page 26 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Example 3. Pine. Condition: Health: poor 25% Structure: several weak branch attachments 70% Form: good; some asymmetry 70%. Options for combining the condition ratings: Appraiser judgement: 50%. Lowest component (condition): 25% Weighted average: 57% 1. weighting: health 0.30, structure 0.40, form weighted average (25% * 0.30) + (70% * 0.40) + (70% * 0.30) = = 56.5%. Functional limitation: 90% Species susceptible to numerous insects and needle cast disease present region External limitations: 100% None present.

145 Chapter 5. The Cost Approach Page 27 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Example 4. Maple street tree. Condition: Health: poor 40% Structure: fair, possible likelihood of failure 50% Form: medium, history of thru-pruning for overhead wires 50%. Options for combining the condition ratings: Appraiser judgement: 40%. Lowest component (health): 40% Weighted average: 47% 1. weighting: health 0.35, structure 0.35, form weighted average (40% * 0.35) + (50% * 0.35)+(50% * 0.30 = 14%+17.5%+15%= 46.5%. Functional limitation: 50% Limited rooting space. Adjacent pavement displaced. Species is susceptible to verticillium wilt which is in region. External limitations: 75% Branches less than 14 above the roadway will be pruned by the City for fire truck and garbage truck clearance. The power company has an easement for their wires which will restrict future height growth.

146 Chapter 5. The Cost Approach Page 28 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Example 5. Pollarded Deodar cedar. Condition: Health: good, 70% Structure- two poor branch attachments 90% Form- appropriate for pruning system 90% Options for combining the condition ratings: Appraiser judgement: 85%. Lowest component (form): 70% Weighted average: 82% 1. weighting: health 0.40, structure 0.40, form weighted average (70% * 0.40) + (90% * 0.40) + (90% * 0.20)/= 28%+36%+18%= 82%. Functional limitation: 90% Limited rooting area, but with this pruning system, not a major impact. External limitations: 85% View easement owned by second floor resident and neighbors.

147 Chapter 5. The Cost Approach Page 29 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction ADDITIONAL COSTS Basic or depreciated costs may need to be adjusted to account for costs associated with clean-up, planting and future maintenance. These additional costs can be include treatments necessary to remove the damaged tree or debris, prepare the site, install the new plant, prune damaged branches, clean-up the site, irrigate new plantings, treat pests, and/or otherwise restore the tree or landscape feature to pre-damage condition, or as close to those conditions as practical. Estimates may come from contractors or other professional s price estimates. It may be appropriate to obtain several estimates, and select the most reasonable and appropriate for the situation. Additional costs should be projected as far into the future as defined in the assignment. If the assignment is to appraise the additional costs for the first year after replacement planting, then it should include the cost of one year of care. If it is for 10 years after planting, then it should include the anticipated costs for the next 10 years of care, discounted at an appropriate interest rate (Appendix 5). All treatments recommended should be consistent with industry standards and best practices. Only those treatments directly related to the damage should be included. For example, pruning broken branches caused by a truck collision is appropriate, but removing all dead branches throughout the canopy would improve on the pre-damage condition of the tree. Root, soil, and other treatments may be appropriate if they will aid in recovery, provided the treatments and costs are neither uncommon nor excessive. When large plants or landscape features are involved, or when site conditions dictate the use of heavy equipment or specialized techniques, it may be appropriate to include resulting cost of collateral damage. As with all appraisal data, additional cost should be reasonable and for the effective date of the valuation.

148 COST APPROACH EXAMPLES Example 1: Determining the Cost of Repair using the Direct Cost Technique A car drove into the front yard of Mrs. Renee s property leaving ruts in the grass, destroying a concrete bird bath, and knocking over a pear tree before slamming into her 18 DBH oak. The appraiser was hired by the car owner s insurance company to determine the cost to repair the landscape. The appraiser first develops a plan to repair the damage: 1. Clean up debris from the displaced soil, bird bath and damaged trees. 2. Fill in the ruts with topsoil. 3. Cover the fill soil with sod of the same grass species that is in the rest of the yard. 4. Replace the bird bath. 5. Pull the pear tree to a vertical angle, guy and anchor. 6. Remove the loose damaged bark from the oak and wrap the trunk with burlap to promote bark regeneration. In addition the appraiser determined that the new sod, pear and oak trees will require irrigation. The sod will require it for one month and the trees for the remainder of the summer and next summer during times of drought. The oak tree should be treated with: An insecticide spray to defend against insect attack A fungicide to reduce the risk of Phytophthora infection Fertilizer to promote health and growth. Mulch to conserve soil moisture. Water as needed during droughts A cost was then estimated for each item on the list: 1. Clean up. 2 people 1.5 $75 = , dump charge $ Fill ruts. 2 people 1.75 $75= Soil cost $ Sod laying. 2 people 1 $150. Sod cost $ Bird bath. Replacement $125. Pick up and install 1 person Guy the Pear tree Treat oak wound - 1 person

149 Chapter 5. The Cost Approach Page 31 Guide for Plant Appraisal, 10 th edition Temporary irrigation system. Will use clients hose, but the client needs to purchase two more hoses at $25 each, one sprinklers for $20, two section of soaker hose for $ 20 each, a split connector for $15 and timer for $35. $ Increased water bill from irrigation. Anticipate watering 500 square feet, 0.10 inches twice a day for one month (800 gallons per inch of water so 1,120 gallons per week x 4 weeks = 4,480 gallons) and one inch per week for the 250 square feet associated with the two trees (anticipating 8 weeks of irrigation over the next year, 400 gallons x 8= 3,200 gallons) Addition to water $0.01/5gallons (36800 gallons x $0.002/gallon)= $ Pest Management $ Soil analysis and fertilization $ Mulch delivery and installation $ Total cost for repair $

150 Chapter 5. The Cost Approach Page 32 Guide for Plant Appraisal, 10 th edition 785 Example 2a - Functional Replacement method using the Direct Cost Technique Mr. Butler s 15 tall evergreen hedge is along his property line. The plants were in good condition growing at a rate of about one foot per year. However, there were areas infested with bagworms which resulted in some branch dieback. Mr. Butler s neighbor misapplied a herbicide which ultimately killed the hedge. The appraiser interviewed Mr. Butler and determined that the main benefit of the hedge was to provide a screen so he would not have to see his neighbor s house. The vegetative screen was solid below 6 but above that height, the screen decreased rapidly due to the conical shape of each crown. The appraiser judges that 10 tall replacement plants would provide the same level of benefits because they would adequately screen the neighbor s house. As a side benefit, the smaller plants will require less maintenance for the next 8 years or so, while they grow to the height of the current plants. As another purely utilitarian option, the appraiser can see that a 6 fence would also provide the screening benefits of the original hedge. A third option would be a 6 wood lattice with vines. The appraiser will estimate costs of the option(s) that the client prefers, depending on the context of the assignment, but in any case, it should be rooted in the cost to restore the property to its prior utility. Here is what the calculations look like: Option 1: new hedge Remove dead and dying trees 8 $50 = $400 Purchase and install 10 tall arborvitae $250 = $2500 Purchase and install soaker hoses, timer and extra hose for temporary irrigation $150 Hire contractor to provide PHC/IPM services for one growing season 6 $100= $600 Total cost= Total $ Option 2: new fence Remove dead and dying trees 8 $50 = $ feet of 6 colored vinyl fence installed $

151 Chapter 5. The Cost Approach Page 33 Guide for Plant Appraisal, 10 th edition Total cost= Total $ Option 3: fence plus vine Remove dead and dying trees 8 $50 = $ feet of 6 colored vinyl lath fencing, installed $ gallon pot climbing hydrangea, installed $ Purchase and install soaker hoses, timer and extra hose for temporary irrigation $150 Total cost= $ These three options were presented to the client and the client chose option 1. The appraiser developed a cost estimate as shown above and presented it to the insurance company.

152 Chapter 5. The Cost Approach Page 34 Guide for Plant Appraisal, 10 th edition Example 2b - Reproduction Method using the Direct Cost Technique. In the previous example of appraising a hedge, the Functional Replacement method focused on replacing the benefits of the hedge. With the reproduction method we focus on the cost of reproducing the 15 evergreen hedge with the same species and size plants. If 15 plants are available locally, the Basic cost is the nursery cost of the plants. However, if 15 evergreens of the same species are not available in the area, the nursery cost of the largest most commonly available tree is used as a starting point for one of the two extrapolation techniques. Additional costs of site clean-up, planting, debris disposal, and necessary future maintenance may also be added into the cost. In this example we will assume that 15 tall plants are available. Here is what the calculations look like: Basic Cost Purchase tall arborvitae $400 = $4000 Depreciated Cost If the assignment calls for depreciating the basic cost in order to produce the assignment result, here are the calculations: Monetary reductions none $0 Condition Structural Integrity no issues 85% Plant Health bagworm and some dieback Form slight malformation due to health issues Functional Limitation No overhead issues, on property line 100% External No known external issues 100% Depreciated cost = (Basic Cost $ Monetary Reduction $0) X Condition 85% X Placement 100% X External Limitations 100% = $3400 Additional costs Remove dead and dying trees 8 hours at $50/ hour $400 Planting cost 10 trees at $100 per tree $1000 Purchase and install soaker hoses, timer and extra hose for temporary irrigation $150

153 Chapter 5. The Cost Approach Page 35 Guide for Plant Appraisal, 10 th edition Hire contractor to provide PHC/IPM services for one growing season 6 visits at $100= $600 Total additional cost $2,150 Total cost estimate = = $5,550 An second way to look at the depreciation is as follows: Monetary reductions bagworm spray $150 Condition Structural Integrity no issues 95% Plant Health bagworm and some dieback Form slight malformation due to health issues Placement No overhead issues, on property line 100% External No known external issues 100% Depreciated Cost= (Basic Cost $ Monetary Reduction $150) X Condition 95% X Placement 100% X External Limitations 100% = $3, In the second set of depreciation calculations, the bagworm treatment was applied as a monetary reduction rather than a percentage reduction. The remaining percentage reduction is due to the tip dieback that was considered incurable. The insect damage can only be counted once, either as a monetary reduction or a percentage reduction, but not both.

154 Chapter 5. The Cost Approach Page 36 Guide for Plant Appraisal, 10 th edition 893 Example 2c - Reproduction Method using the Trunk Formula Technique Using information in the previous example, the appraiser also wants to look at the cost developed using the Reproduction method using the Trunk Formula technique. Again, with the Reproduction method we focus on the cost of reproducing the 15 evergreen hedge with the same species and size plants. If 15 plants are not available locally, cost of the largest most commonly available nursery tree is used as a starting point for extrapolation. Site clean-up, debris disposal, and necessary future maintenance may also be added into the Basic Cost. In this example we will again use a 10 tall replacement arborvitae which costs $150 at the nursery. Arborvitae are priced in the nursery based on total height not diameter. We are making the assumption that the price per foot of height is a linear progression. Here is what the calculations look like: Basic Cost Extrapolate the cost of 10 tall arborvitae to 15 tall. $150/10 tall = $15 per foot of height 15 * $15= $225 per 15 tree. 10 replacement trees needed 10 * 225 = Basic cost = $2, Depreciated Cost If the assignment calls for depreciating the basic cost in order to produce an assignment result, here are the calculations: Monetary reductions none $0 Condition Structural Integrity no issues 85% Plant Health bagworm and some dieback Form slight malformation due to health issues Functional Limitation No overhead issues, on property line 100% External No known external issues 100% (Basic Cost $ 2,250- Monetary Reduction $0) X Condition 85% X Placement 100% X External Limitations 100% = Depreciated Cost $ Additional costs Remove dead and dying trees 8 hours at $50 per hour = $400 Installation $100 per tree times 10 trees= $1000

155 Chapter 5. The Cost Approach Page 37 Guide for Plant Appraisal, 10 th edition Purchase and install soaker hoses, timer and extra hose for temporary irrigation = $150 Hire contractor to provide PHC/IPM services for one growing season 6 visits at $100= $600 Total additional costs $2, Total cost estimate $ ,150= $4, A second way to look at the depreciation is as follows: Monetary reductions bagworm spray $150 Condition Structural Integrity no issues 95% Plant Health bagworm and some dieback Form slight malformation due to health issues Placement No overhead issues, on property line 100% External No known external issues 100% Depreciated Cost= (Basic Cost $ 2,250- Monetary Reduction $150 ) X Condition 95% X Placement 100% X External Limitations 100% = $

156 Chapter 5. The Cost Approach Page 38 Guide for Plant Appraisal, 10 th edition 952 Example 2d. Reproduction Method using the Cost Compounding Technique Using information in the previous example, the appraiser also wants to look at the cost using the reproduction method, cost compounding technique. Again, with the reproduction method we focus on the cost of replicating the 15 evergreen hedge with the same species and size plants. If 15 plants are not available locally, the cost of the largest most commonly available nursery tree is used as a starting point for extrapolation. Site cleanup, debris disposal, planting, and necessary future maintenance may also be added in. In this example we will again use a 10 tall replacement arborvitae which costs $150 at the nursery. Arborvitae are priced in the nursery based on total height not diameter. We are making the assumption that the price per foot of height is a linear progression. Here is what the calculations look like: Basic Cost Extrapolate the cost of 10 tall arborvitae to 15 tall. The recent growth rate of the arborvitae is about one foot per year, so it will take 5 years for the 10 tall replacement plants to reach size parity. The cost of a 10 plant is $ replacement trees needed 10 * 150 = $1500 To compound the cost CC = PC * (1 + i) n where, CC = compounded cost PC = present cost of the nursery tree i = compound interest rate n = years for the new tree to reach parity with the appraised tree The interest rate is based on a 5/1 Adjustable rate mortgage, it was 2.8%. CC= $1500 * ( ) 5 CC=$1500 * (1.15) = Basic cost = $ Depreciated Cost If the assignment calls for depreciating the basic cost, here are the calculations:

157 Chapter 5. The Cost Approach Page 39 Guide for Plant Appraisal, 10 th edition Monetary reductions none $0 Condition Structural Integrity no issues 85% Plant Health bagworm and some dieback Form slight malformation due to health issues Functional Limitation No overhead issues, on property line 100% External No known external issues 100% (Basic Cost $ Monetary Reduction $0) X Condition 85% X Placement 100% X External Limitations 100% = Depreciated Cost $ Additional costs Remove dead and dying trees 8 $50 = $400 Planting cost 10 trees at $100 each= $1000 Purchase and install soaker hoses, timer and extra hose for temporary irrigation = $150 Hire contractor to provide PHC/IPM services for one growing season 6 $100= $600 Total Additional costs $2, Total cost estimate $ ,150= $ An second way to look at the depreciation is as follows: Monetary reductions bagworm spray $150 Condition Structural Integrity no issues 95% Plant Health bagworm and some dieback Form slight malformation due to health issues Placement No overhead issues, on property line 100% External No known external issues 100%

158 Chapter 5. The Cost Approach Page 40 Guide for Plant Appraisal, 10 th edition Depreciated Cost= (Basic Cost $ Monetary Reduction $150) X Condition 95% X Placement 100% X External Limitations 100% = $

159 Chapter 5. The Cost Approach Page 41 Guide for Plant Appraisal, 10 th edition Example 3. Preconstruction Bonding using the Reproduction Method using the Trunk Formula Technique A consultant was hired by Piney Homes Inc. to examine and appraise all of the trees over 6 dbh at the Anley Blvd. site prior to development. The consultant identified fourteen trees. Almost all trees appeared to have been planted as part of the site s landscape development. The consultant report described the condition of each tree that would remain on the site and recommendations for maintenance. There were no functional or external limitations identified, so each of these were considered 100% ratings. The consultant applied a reproduction, depreciation TFT with no additional costs to develop the cost estimate: Proposed Action and Appraisal of Value for the trees on Any Blvd. Anywhere USA Tree Species Trunk Heritage Condition Proposed Estimate No. Diameter Tree? % Action of Value 325 Tree of heaven 10 No 80 Preserve $ Tree of heaven 11,10,9 Yes 80 Preserve $ Tree of heaven 17,14,13 Yes 80 Preserve $ Japanese privet 6,5 No 60 Preserve $ Tree of heaven 8 No 80 Remove $ Cordyline 10,10,8,6 Yes 80 Remove $ Canary Island date palm 28 Yes 100 Remove $1, Modesto ash 28 Yes 60 Remove $3, Cordyline 5,5,3,3 No 60 Remove $ Japanese privet 7,2 No 80 Remove $ Western sycamore 42,30,20 Yes 80 Preserve $21, Calif. black walnut 13 No 60 Preserve $1, Modesto ash 11,10 Yes 60 Preserve $ Valley oak 7 No 80 Preserve $1, The appraised cost of the 8 trees recommended for preservation is $25,650. The cost of the 6 trees recommended for removal is estimated at $5,500.

160 Chapter 5. The Cost Approach Page 42 Guide for Plant Appraisal, 10 th edition Example 4. Reproduction Method using the Trunk Formula Technique for a Municipal Tree Inventory Hansom Home Builders, cut down a tree in the public right of way as part of residential property tear down and rebuild project. The tree was removed to provide for a wider driveway for the home being built. Village ordinance does not allow for the removal of healthy street trees to accommodate private property construction. The appraisal method prescribed by the Village is the reproduction method, trunk formula technique for trees over six inches in diameter. They base the data for the appraisal on their tree inventory which occurred the three years prior. Based on this data, the tree in question was a thirteen inch diameter Bur Oak (Quercus macrocarpa) in very good condition. Since most village owned trees are between the sidewalk and curb, there are functional limitations that the appraiser rated at 85%. There were no overhead powerlines or other external limitations on this block. Calculations were as follows: Basic Cost 13 dbh has 133 sq.in. cross-sectional area (6.5 * 6.5 * 3.14 = sq in) Unit cost of the largest commonly available nursery tree - $58/sq.in. Basic cost = sq.in. * $58/sq. in. = $7, Depreciated Cost Monetary reductions none $0 Condition Structural Integrity no issues 90% Plant Health very good Form no issues Functional limitations Rooting space limitations 85% External limitations No issues 100% Depreciated Cost = (Basic Cost $ 7, Monetary Reduction $0) X Condition 90% X Functional limitations 85% X External Limitations 100% = Depreciated Cost $5,

161 Chapter 5. The Cost Approach Page 43 Guide for Plant Appraisal, 10 th edition The contractor was fined $5, by the village. The fine was paid in order to receive a certificate of occupancy for the new building.

162 Chapter 5. The Cost Approach Page 44 Guide for Plant Appraisal, 10 th edition 1077 Example 5a. Functional Replacement method using Trunk Formula Technique A large (44 dbh) red oak in Mrs. Thomas front yard in Athens GA was killed by a lightning strike. Mrs. Thomas wants to determine the value of the tree so that she can submit a claim to her home owner s insurance company. The tree was in good health prior to the strike, it had not been pruned excessively and did have one codominant stem at 10. There are powerlines 10 to the side of the crown and bacterial leaf scorch disease (BLS) is common in this area. Otherwise the tree had adequate growing space. There are two other trees in her front yard, a white oak and a pin oak. The appraiser in her site inspection notices that the tree is the largest in the immediate area. Other red oaks trees in the area are in the 24 to 30 dbh size range. She asks Mrs. Thomas if a tree similar in size to her neighbors tree would provide the benefits of her current tree. Mrs. Thomas states that this tree was a lot of work in the fall after leaf drop while her neighbor s trees seem to provide plenty of shade to their homes. So, the appraiser determines that a 24 dbh tree would provide similar benefits to the dead tree. She calls three local nurseries to get prices on their red oaks. The nurseries provide verbal bids of $800 for a 5 tree, $700 for a 4 tree and $875 to for 5 tree. Cost per square inch of trunk diameter therefore were $40 ($800/20 sq in.), $56 ($700/12.5 sq.in.) and $44 ($875/20 sq.in.), respectively. She qualifies the bids and chooses the $875 ($44/sq, in.) tree to base her cost calculations and because of the reputation of the nursery. Here are the calculations; Basic Cost Determine the functional replacement value of the tree using TFT 24 dbh tree has 452 sq. in. cross-section (12*12*3.14=452) Unit cost of the largest commonly available nursery tree - $44/sq.in. Basic cost 452 sq.in. * $44/sq. in. = $19,888 Additional costs Remove the existing dead tree, grind the stump to a depth of 6, fill the hole with soil $3000 Planting $300 Provide temporary irrigation and one season PHC/IPM $600

163 Chapter 5. The Cost Approach Page 45 Guide for Plant Appraisal, 10 th edition Total additional costs $3,900 Total cost estimate $19, ,900= $23,788 rounded to $24,000

164 Chapter 5. The Cost Approach Page 46 Guide for Plant Appraisal, 10 th edition 1116 Example 5b. Reproduction method using the Trunk Formula Technique Using the example stated above, the appraiser decides to compare her previous cost estimate with the reproduction method, trunk formula technique. So, she bases her calculations on the actual diameter of the tree, not the diameter of the smallest tree that would provide similar benefits. Here are the calculations: Basic Cost Determine the reproduction value of the tree using TFT 44 dbh tree has 1520 sq. in. cross-section (22*22*3.14=1520) Unit cost of the largest commonly available nursery tree - $44/sq.in. Basic cost 1520 sq.in. * $44/sq. in. = $66,880 Depreciated Cost If the assignment calls for depreciating the basic cost in order to produce the assignment result, here are the calculations: Monetary reductions none $0 Condition Structural Integrity codominant stem Plant Health good Form no issues 80% Functional limitations Overhead powerlines results in minor side-trimming & asymmetry, Bacterial Leaf Scorch susceptibility 75% External limitations none known 100 % Depreciated Cost= (Basic Cost $ 66,880- Monetary Reduction $0) X Condition 80% X Functional limitations 75% X External Limitations 100% = $40,128. Additional costs Remove the existing dead tree, grind the stump to a depth of 6, cover the hole with soil $3000 Planting $300 Provide temporary irrigation and one season PHC/IPM $600

165 Chapter 5. The Cost Approach Page 47 Guide for Plant Appraisal, 10 th edition Total $3,900 Total cost estimate $40,128+ 3,300= $43,728 Rounded to $44,000

166 Chapter 5. The Cost Approach Page 48 Guide for Plant Appraisal, 10 th edition Example 5c. Reproduction Method using the Cost Compounding Technique based on size Using the example stated above, the appraiser decides to compare her previous cost estimate with the reproduction method, cost compounding technique. So she bases her calculations on the time that it took for the original tree to reach the size it was at the time of the damage. Since the tree was present when Mrs. Thomas purchased the property and she did not know when it was planted, the appraiser based her age calculations on a count of the growth rings visible in the tree stump. There were 65 identifiable growth rings at the base of the 44 dbh red oak. The tree had a bark thickness of 1, so the diameter of the wood was 42. Therefore, on average, the tree was growing 0.65 inches per year in diameter. The replacement tree that the appraiser decided on, as in the previous example was a 5 red oak for $875. Here are the calculations: Basic Cost Determine the reproduction value of the tree using CCT The 42 dbh red oak is 65 years old (based on stump growth ring count) The replacement tree is a 5 dbh white oak that costs $875 The difference in size between the replacement tree and the apprised tree is (42-5) =37 inches in diameter. Assuming that the nursery tree will resume the growth rate of the appraised tree, it will take 57 years (37 inches/ 0.65 inches per year =56.9, rounded to 57 years) for the nursery tree to reach the size of the appraised tree. Home mortgage rates (30 year) at the current time are 5% in this area at the time of the appraisal. The appraiser uses the cost compounding formula (CC=PC* (1+i) n ) to calculate the compounded cost over 57 years where CC= compounded cost at age n, PC= present cost of the service, i= rate interest rate, and n = the number of years. CC=$875 (1+0.05) 57 = $875(1.05) 57 =875 * 16.14= $14, Depreciated Cost If the assignment calls for depreciating the basic cost in order to produce the assignment result, here are the calculations: Monetary reductions none $0 Condition Plant Health good 80%

167 Chapter 5. The Cost Approach Page 49 Guide for Plant Appraisal, 10 th edition Structural Integrity codominant stem Form no issues Functional limitations Overhead powerlines will cause some issues Bacterial Leaf Scorch susceptibility 75% External limitations 100% Depreciated Cost= (Basic Cost $ 14, Monetary Reduction $0) X Condition 80% X Placement 75% X External Limitations 100% = $8, Additional costs Remove the existing dead tree, grind the stump to a depth of 6, fill the hole with soil $3000 Planting $300 Provide temporary irrigation and two seasons PHC/IPM $600 $3,900 Total cost estimate $8, ,900 = $12, round to $12,

168 Chapter 5. The Cost Approach Page 50 Guide for Plant Appraisal, 10 th edition Example 5d. Functional Replacement Method using the Cost Compounding Technique based on age Using the example stated above, the appraiser decides to compare her previous cost estimate with the functional replacement method, cost compounding technique. So she bases her calculations on the time that it took for other trees in the neighborhood reach the size that they are now, because the size of those trees will provide similar benefits as the appraised tree. Since most trees are planted at the time the house is built, the appraiser decides to look online at one of the popular real estate sites to find out when houses in the neighborhood were built. She finds that Mrs. Thomas neighbor houses were built between 43 and 45 years ago. She decides to use the average of the range, 44 years. She assumes that at that time, like now, most landscapers install 2 dbh trees with new houses to meet the minimum planting code requirements in the area. The replacement tree that the appraiser decided on in the previous example was a 5 dbh red oak for $875. The nursery owner states that 5 trees are grown for 7 years after being planted as whips. Here are the calculations: Basic Cost Determine the reproduction value of the tree using CCT It will take 44 years for a two inch dbh replacement tree to provide similar benefits The replacement tree is a 5 dbh white oak that cost $875 Assumption - nursery tree would have been 2 in diameter after 3 years (5 /7years = 0.71 /year. 2 /0.71 inches per year = 2.8 years round to 3 years) Years to parity 44-3= 41 years Home mortgage rates (30 year) at the current time are 5% in this area at the time of the appraisal Use the compound interest formula to calculate the value of money over 41years CC=PC* (1+i) n where CC= compounded cost at age n, PC= present cost of the service, i= rate of interest, and n = the number of years. Basic cost = CC=$875 (1+0.05) 41 = $875(1.05) 41 =875 * 7.39= $6, Depreciated Cost

169 Chapter 5. The Cost Approach Page 51 Guide for Plant Appraisal, 10 th edition If the assignment calls for depreciating the basic cost in order to produce the assignment result, here are the calculations: Monetary reductions none $0 Condition 80% Plant Health good Structural Integrity codominant stem Form no issues Functional limitations Overhead powerlines will cause some issues 75% External Bacterial Leaf Scorch susceptibility 100% Depreciated Cost= (Basic Cost $ 6, Monetary Reduction $0) X Condition 80% X Functional limitations 75% X External Limitations 100% = $3, Additional cost Remove the existing dead tree, grind the stump to a depth of 6, fill the hole with soil $3000 Planting $300 Provide temporary irrigation and one season PHC/IPM $600 Total $3,900 Total cost estimate $3, ,600= $7, Rounded to $7,800

170 Chapter 5. The Cost Approach Page 52 Guide for Plant Appraisal, 10 th edition Example 5e. Estimating a Market Value using TFT and Hedonic Regression Techniques Using the example stated above, the appraiser decides she wants to call the result a value so she needs to connect the cost estimate with the property value. She decides to do this by combining the TFT cost estimate with a hedonic regression technique. Specifically, the sales comparison approach, hedonic regression technique. Looking at table 5.x, the appraiser decides that the hedonic regression analysis research conducted by Anderson and Cordell (1988) is the most appropriate to apply since there are several trees in the landscape and they are in the same area that the research was conducted. This research shows that front yard trees typically contribute 3.5 to 4.5% of the property value. The appraisal starts with a depreciated, extrapolated reproduction cost estimate using the trunk formula technique. Since there are three trees in the front yard, she needs to estimate the cost of each tree then compare that result to the sales regression estimate. The other two trees in Mrs. Thomas front yard are a 20 dbh willow oak and a 15 dbh white oak. The appraiser estimates the depreciated reproduction cost of the three trees as follows: Basic Cost for Red Oak Reproduction cost of the red oak using TFT 44 dbh tree has 1520 sq. in. cross-section (22*22*3.14=1520) Unit cost of the largest commonly available nursery tree - $44/sq.in sq.in. * $44/sq. in. = $66,880 Depreciated Cost Monetary reductions none $0 Condition Structural Integrity codominant stem Plant Health good Form no issues 80% Functional limitations Overhead powerlines results in minor side-trimming & asymmetry, Bacterial Leaf Scorch susceptibility 75%

171 Chapter 5. The Cost Approach Page 53 Guide for Plant Appraisal, 10 th edition External limitations none known 100 % Depreciated Cost= (Basic Cost $ 66,880- Monetary Reduction $0) X Condition 80% X Functional limitations 75% X External Limitations 100% = $40,128 Basic Cost for Willow Oak Reproduction cost of the willow oak using TFT 20 dbh tree has 314 sq. in. cross-section (10*10*3.14=314) Unit cost of the largest commonly available nursery tree - $38/sq.in. 314 sq.in. * $38/sq. in. = $11,932 Depreciated Cost Monetary reductions none $0 Condition Structural Integrity no issues Plant Health good Form no issues 90% Functional limitations Close to house, will need routine clearance pruning 85% External limitations none known 100 % Depreciated Cost= (Basic Cost $ 11,932- Monetary Reduction $0) X Condition 90% X Functional limitations 85% X External Limitations 100% = $9,128. Basic Cost for White Oak Reproduction cost of the white oak using TFT 15 dbh tree has 177 sq. in. cross-section (7.5*7.5*3.14=176.6) Unit cost of the largest commonly available nursery tree - $48/sq.in. 177 sq.in. * $48/sq. in. = $8,496

172 Chapter 5. The Cost Approach Page 54 Guide for Plant Appraisal, 10 th edition Depreciated Cost Monetary reductions needs structural pruning $250 Condition Structural Integrity codominant stems (not considered here, only in monetary reductions) Plant Health excellent Form no issues beyond codominant stems 100% Functional limitations no limitations 100% External limitations none known 100 % Depreciated Cost= (Basic Cost $ 8,496- Monetary Reduction $250) X Condition 100% X Functional limitations 100% X External Limitations 100% = $8,246. Total Cost Total reproduction cost of all three front yard trees (40,128+9,128+8,246)= $57,502 Additional cost Remove the existing dead tree, grind the stump to a depth of 6, fill the hole with soil $3000 Planting $300 Provide temporary irrigation and one season PHC/IPM $600 Total $3,900 Market Value Market value of the property according to: Realtor.com is $213,548, Zillow is $299,626, and Property tax assessment is $497,000. She selects $299,626 as the most reasonable estimate of current market value. This value is then multiplied by average value from the hedonic regression research (4.0%) to estimate the contribution to market value of all the trees in the front yard (299,623 * 0.04=$11,984.92) $11,985. Since this is for all three trees, the contribution of each tree needs to be estimated:

173 Chapter 5. The Cost Approach Page 55 Guide for Plant Appraisal, 10 th edition Tree Cost % of total Cost Market Value (% X Contribution value) Red oak 40, *11,984= $8, Willow oak 9, *11,984= $1, White oak 8, *11,984= $1, Total $57, $11,984 With this data, she estimates the market value of the damaged red oak is $8, which rounds to $8,400. Mrs. Thomas presented the appraisal to her insurance company and ask to be compensated for the loss. Her insurance agent stated that her policy is limited to a $500 compensation for the loss of the tree plus the cost of clean-up. She was therefore awarded a settlement check for $3500 ( ).

174 Chapter 5. The Cost Approach Page 56 Guide for Plant Appraisal, 10 th edition Example 6. Partial Loss using the Reproduction method, Trunk Formula Technique The city arborist calls Lew, a tree appraiser, to determine the monetary damages to a street tree that was struck by an out-of-control pick-up truck. Lew s site examination finds that the tree in question is a 26 dbh sugar maple. It has bark missing from a 28 wide section that goes from 6 above the ground line to 5 high, more-or-less in the shape of a football. Lew monitors the value of local nursery trees on a yearly basis so he knows that the largest commonly available nursery sugar maple is 4 dbh and costs $1350. He determines that this is a case where he can use the TFT before and after the damage to determine the loss. There are two ways to do this, he does both to make sure they provide the same result. Basic Cost 28 sugar maple has a 615 sq. in. cross-sectional area (14*14*3.14= 615.4). The 4 nursery tree has a 12.6 sq. in. cross-sectional area (2*2*3.14=12.56), costs $1350. The unit price of the nursery tree is $ per sq. in. ($1350/12.6sq.in.=$107.14/sq.in.) The extrapolated cost of the appraised tree is $65, round to $65,900 (615sq.in. * $107.14/sq.in. = $65,892.86) Partial Loss Lew uses the general rule that if a tree loses bark from half or more of its circumference, it loses all of its value. The circumference of a 26 tree is (26 * 3.14= 81.64) 82. Half of that is 41. The appraised tree lost 28 of bark width which is 34% of the tree circumference (28 /82 = 0.34). That loss is less than ½, so the tree still has value. If 50% loss is a 100% loss in value, then 34% can be considered a (34%/50%=0.68) 68% loss. $65,900 * 0.68= $44,812 rounded to $44,800. The monetary loss is the pre-damage value minus the post-damage value, $65,900-$44,800= $21,100 The alternative way to calculate this is multiplying the pre-damage Reproduction cost by 100% minus the percentage of the tree that is lost = 100%-68%=32% so $65,900 * 0.32=$21,088 which rounds to $21,100.

175 Chapter 5. The Cost Approach Page 57 Guide for Plant Appraisal, 10 th edition 1416 Example 7. Reproduction Method using the Trunk Formula Technique for a Palm With palms, the TFT is typically based on plant height. The height is multiplied by the unit cost to determine the Basic cost. In this example we are appraising a 30 Phoenix palm which is in good condition with some nutrient deficiency apparent on the older fronds and there are some dead fronds attached. The palm is in an area where Texas Phoenix Palm Decline has been found. There are no placement limitations. This size specimen is not readily available in local nurseries, but shorter palms are available. It is determined that the contractor price of 10 Phoenix dactylifera palm is $320. Here are the calculations: Basic Cost Determine the reproduction value of the palm using TFT Subject palm is a 30 tall Phoenix palm Largest commonly available nursery tree is 10 tall and cost $320. Unit cost of the largest commonly available nursery tree - $32/foot 30 * $32/foot = $960 Depreciated Cost If the assignment calls for depreciating the basic cost in order to produce the assignment result, here are the calculations: Monetary reductions none $0 Condition 80% Plant Health good Structural Integrity dead fronds Form Functional limitations Texas Phoenix palm decline susceptibility 75% External limitations no issues 100% Depreciated Cost= (Basic Cost $ 960- Monetary Reduction $0) X Condition 80% X Functional limitations 75% X External Limitations 100% = $576.00

176 Chapter 5. The Cost Approach Page 58 Guide for Plant Appraisal, 10 th edition Example 8. Functional Replacement Method using the Trunk Formula Technique for a Superadequate Landscape A fire causes damage to Mrs. Spices s landscape. At the advice of her lawyer she hires an appraiser to estimate the monetary loss in the landscape. Her intent is to get the neighbor who started the fire while burning trash on a windy day, to compensate her for the damages. The appraiser examines the landscape and finds 12 dead dbh pines and 16 dead azaleas in the front yard of her house which is on a quarter acre lot in a middle class suburban residential neighborhood. The azaleas are 3 tall with a crown spread diameter of 5. He determines that the pine trees were much more closely planted than other houses in the neighborhood and that the service that the trees provide to the landscape could just as well be provided with six trees. He finds that the local nursery has 3 dbh pine trees available in 48 boxes and the nursery also has 2 tall x 2.5 diameter crown spread azaleas in 3.5 gallon containers. The appraiser s functional replacement plan is as follows: Clean up the site remove dead and dying pines and azaleas Install 6 new pine trees and extrapolate their cost to the current size. Install 16 tall azaleas and extrapolate their cost to the current size. Provide three year of maintenance. Basic Cost Extrapolated the cost of the plant killed by the fire: Replacement pine trees in 48 box cost $350 each, 7 sq.in cross section (1.5 * 1.5 * 3.14= 7.1 round to 7), $350/7 sq.in. = $50 per sq.in. Current trees have an average dbh of 16, so the cross-sectional area is (8 * 8 * 3.14= 201) 200 sq.in., The extrapolated average cost of each tree using the TFT is 200 sq. in. * $50/sq.in.= $10,000, The appraised replacement cost of 6 trees (not 12 because of superadequacy) = 6* $10,000 = $60,000 Replacement Azaleas are 3.5 gallon $100 each The crown volume of the replacement azaleas is calculated as a cylinder (height x radius 2 x pi) = 2 * (2.5 /2) 2 * 3.14 = 9.8 cubic feet of crown volume. So the replacement cost is $100/9.8 cu.ft.= $10.20 per cubic foot of crown volume.

177 Chapter 5. The Cost Approach Page 59 Guide for Plant Appraisal, 10 th edition The crown volume of the original plants was 3 * (5 /2) 2 * 3.14 = 58.9, rounded to 59 cubic feet. Appraised cost of each azalea $10.20 * 59 cu.ft. = $602, rounded to $600 each. The appraised cost of all the azaleas is $600 *16 plants= $9,600 Additional Costs Remove dead trees and shrubs $8500 Install all plants $1800 Three year s maintenance including temporary irrigation and PHC/IPM $1,200 Total cost $81,

178 DATA SHEETS Example data sheets are included in this section to assist the appraiser in the systematic collection of information. The use of these sheets in consulting practices is in no way required. 1501

179 Datasheet for Tree Appraisal Using the Cost Approach Repair Method, Direct Cost Technique Client Name Phone Date Address Assignment Damage description more on back Tree 1, DBH inches Height feet Other Tree 2, DBH inches Height feet Other Tree 3, DBH inches Height feet Other Tree 4, DBH inches Height feet Other + Shrub 1 Size Shrub 2 Size Shrub 3 Size Turf Area sq. ft. Hardscape Other Remediation Plan more on back Clean-up $ Planting $ Maintenance $ Depreciation or other $ Other factors $ Assignment result $ Comments:

180 Datasheet for Tree Appraisal Using the Cost Approach Reproduction Methodology Client Name Phone Date Address Assignment Appraised Tree (AT) Species Plant Size: DBH inches or Crown dimensions feet or Clear trunk feet Calculated Cross Sectional Area (CSA) = π * r 2 or 0.78 * d 2 square inches Crown volume = height x base= cubic feet Clean-up (if any) $ Nursery Tree Species Plant Size: Dia inches or Crown dimensions feet or Clear trunk feet Number of units in Nursery Tree price $ Cost/unit area Dollars/Inch CSA or other Delivery and planting cost $ Other costs $ Basic Cost Unit Cost Nursery $/in 2 X Units in AT in 2 = $ Basic Cost Depreciation Monetary reduction $ Condition (Physical deterioration) Describe % Structural integrity Plant health Form Functional Limitations % External Limitations % Depreciated Cost Additional costs Debris disposal/clean-up $ Delivery and installation $ Establishment maintenance $ Calculations (Basic Cost $ - Monetary Reduction $ ) X Condition % X Functional Limitations % X External Limitations % = Depreciated Cost $ + Additional Cost $ = Comments:

181 Datasheet for Tree Appraisal Using the Cost Approach Functional Replacement Methodology Client Name Phone Date Address Assignment Appraised Tree (AT) Species Species group Plant Size: DBH inches, Height ft, or Dimensions or Clear trunk ft Calculated Cross Sectional Area (CSA) = π * r 2 or 0.78 * d 2 square inches Functional Replacement (FR) Program More on back Number of trees FR DBH/Size Units sq. in. FR Species (Species Group) price $ ea Cost/unit area $/Inch CSA or $/ft or cu.ft. Basic Cost Unit Cost Nursery $/in 2 X Units in FR in 2 = $ Basic Cost Basic cost per tree $ x number of trees = $ Depreciation Monetary reduction $ Condition (Physical deterioration) Describe % Structural integrity Plant health Form Functional Limitations % External Limitations % Depreciated Cost (Basic Cost $ - Monetary Reduction $ ) X Condition % X Functional Limitations % X External Limitations % = Depreciated Cost $ Additional Costs Clean-up/Debris disposal $ Planting costs $ Establishment maintenance $ Depreciated Cost $ + Additional cost $ = $

182 REFERENCES Appraisal Institute The Dictionary of Real Estate Appraisal (4th ed.). Appraisal Institute, Chicago, IL. 527 pp. Council of Tree and Landscape Appraisers Valuation of Landscape Trees, Shrubs, and Other Plants: A guide to the methods and procedures for appraising amenity plants. 7 th edition. International Society of Arboriculture. Champaign IL. Council of Tree and Landscape Appraisers Guide for Plant Appraisal. 8 th edition. International Society of Arboriculture. Champaign IL. Council of Tree and Landscape Appraisers Guide for Plant Appraisal. 9 th edition. International Society of Arboriculture. Champaign IL.

183 CHAPTER 6 - THE INCOME APPROACH Contents Overview... 1 Direct Capitalization Method... 3 Using the Capitalization Rate to Make Business decisions... 4 Applying itree using Direct Capitalization... Error! Bookmark not defined. Yield Capitalization Method... 5 Discounted Cash Flow Analysis Technique... 5 Converting Annual Net Operating Income into Present Value... 5 Using DCF Analysis in the Cost Approach... 7 Applying i Tree using DCF... 8 Using DCF to aid in Business Decisions... 8 Examples... 8 Example 1: Nursery Affected by Highway Relocation*... 8 Example 2: Apartment Value Damaged by Removal of Specimen Shade Trees Example 3: Fire Kills Maple Trees in Commercial Sugar Bush Example 4. Buying a Developing Tree Nursery Items for the Appendix... Error! Bookmark not defined. Computing the Present Value of Annual Maintenance Costs... Error! Bookmark not defined. Developing a Cap Rate... Error! Bookmark not defined. OVERVIEW The Income Approach (syn. Income Capitalization Approach) is used to appraise incomeproducing plants or property where plants support the value, such as: Nurseries Christmas tree farms Orchards Vineyards Arboreta / botanical gardens Timber and forestland. Benefit assessment

184 Chapter 6. The Income Approach Page 2 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction In addition, in some housing or retail areas, a tree or particularly attractive landscape may provide aesthetics benefit that result in higher rent or increased sales. In those cases the Income approach would be appropriate. Income-based analyses can also provide important decision-making information for business owners. The principle of anticipation is basis of this approach: value is derived from the anticipation of future benefits in this case, income. The time value of money is also a key aspect. That is, a dollar received today is worth more than a dollar to be received in the future. Assignments that typically call for the Income Approach include: 1. Appraising income-producing property or the potential loss of income. 2. Estimating value from the ecological benefits of a tree. 3. Providing information for making investment and business decision. Application of the Income approach can be complex. It is not the intent of this chapter to provide detailed information on how to apply this approach in a broad array of situations. It is the CTLA s intent to provide an overview so that a landscape appraiser can see where this approach is applied and how it might be used as part of reasonableness testing or reconciliation. First time users of this approach are encouraged to solicit the input of a qualified accountant or another landscape appraiser familiar with these techniques. There are two methods of income-based valuation: direct capitalization and yield capitalization. Both convert projected net operating income into present value. Within these methods are various techniques (Figure 6-1). They all result in a market value of the property being appraised. Establishing a capitalization rate is discussed in Appendix 6.

185 Chapter 6. The Income Approach Page 3 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction 59 Figure 6-1. Flow chart of the Income Approach DIRECT CAPITALIZATION METHOD Direct capitalization is the process of converting projected net operating income into an estimate of current market value using the formula: Value= Income/Capitalization rate Value= current market value of property Income= total annual income minus operating expenses (Net Operating Income or NOI) Capitalization rate = the current or desired rate of return on an investment To apply this formula, a projection of the net operating income (NOI) is needed. To calculate this, total the expected annual income and subtract all anticipated fixed and variable expenses. Income may come from the sale of products (trees, containerize plants, or benefits) or from rent, if part of the

186 Chapter 6. The Income Approach Page 4 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction property is rented out. Expenses can be management fees, property taxes, insurance, maintenance, planting, utilities or others necessary for the business. Income taxes or mortgage interest are not expenses in this regard. Selecting the appropriate capitalization rate (or cap rate) is often the most subjective portion of the direct capitalization method. The result is very sensitive to the rate used. A cap rate may be determined for the business or it may be assigned by an investor to aid in purchasing decisions. A cap rate can be determined from market transactions by rearranging the Direct Capitalization formula so that the buyer s acquisition price (value) is divided by the projected first-year net operating income (Cap rate = Value/NOI). By observing multiple transactions, the appraiser can develop a reasonable cap rate for a specific type of business in the local area. Consulting with a real estate appraiser or accountant may be necessary to determine the appropriate cap rate to use in detailed landscape appraisals. As an example of Direct Capitalization, a small nursery has a projected net operating income of $10,000 and was purchased for $100,000. This results in a cap rate of 10% ($10,000 / $100,000 = 0.10= 10%). On the market investment side, cap rates reflect a risk-return tradeoff. The higher the perceived risk, the greater the rate of return required to attract capital to the investment. If a business is wellestablished and has a solid client base, it would justify a lower cap rate than a younger business with a few large accounts. An example of direct capitalization is in the appraisal of an orchard that has been in business for decades and has a dependable market for their fruit. They produce a net annual income of $23,000 and the capitalization rate for this type of business is 7.5%, therefore the value of the business is $306,666 (23,000/0.075) rounded to $307,000. Assumptions in this method are that cash flow (NOI) is consistent and perpetual, and the capitalization rate is a constant. If either cash flow or risk levels are expected to change, then the discounted cash flow technique is used. The direct capitalization method does not take into account the condition or functional limitations of the plant or property or income beyond one year. Since only a single year s income is used, the property s value may be underestimated especially if the crop is not harvested every year. In addition this method does not consider resale value or inflation. Using the Capitalization Rate to Make Business decisions Transactions occur for various reasons, and one of them may be that the seller s required rate of return is greater than the buyer s. Using the ongoing example, if the seller s required rate of return is 11%, the property is worth only $90,000 (100,000/.11) to the seller. The buyer obviously is satisfied with

187 Chapter 6. The Income Approach Page 5 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction a lower rate of return (10%), which produced an attractive sale price of $100,000 (10,000/.10). One can readily see that the buyer s lower cap rate produces a higher value than the seller s cap rate, which makes it an attractive business proposition for both parties. **** Sidebar: i-tree **** YIELD CAPITALIZATION METHOD The yield capitalization method converts estimates of future income from a property into present value. This method evaluates all aspects of the business to determine future cash flow as affected by conditions both internal and external to the company. It is applied when there is a defined time period for harvest or sale, and it can take into consideration the value of the property when it is ultimately sold There are several techniques that are used within the Yield Capitalization method, only one will be discussed within this chapter, the Discounted Cash Flow Analysis technique DISCOUNTED CASH FLOW ANALYSIS TECHNIQUE For businesses or assets having highly variable net operating income, the discounted cash flow analysis (DCF) is commonly applied. There are two parts to the formula used to calculate DCF. The first part is calculating the current value of money that will be earned or spent in the future. Converting Annual Net Operating Income into Present Value Once the net operating income has been projected, the appraiser converts each year s NOI into present value using the discount rate. The discount rate is similar to the cap rate, it is the interest rate used to determine the present value of future cash flows. The formula for calculating the Present Value is: PV=FV /(1+r) n where PV= present value, FV= future value, r= discount rate and n=number of years In this formula, the number of years in the future is used as the power function in the denominator, that is, the discount rate plus 1 is raised to the power of the year. For example in year 2 if the discount rate is.06, 1.06 is squared ((1.06) 2 ).

188 Chapter 6. The Income Approach Page 6 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction The discount rate may be derived from transaction analysis or it may be based on common financial instrument like treasury bills or stocks that have a similar risk as the property being appraised. Like the cap rate, the discount rate is a direct expression of the time value of money, the more risky the investment, the higher the discount rate. The second part of the DCF formula is simply adding each years present value together. Since the DCF formula was created for a cash flow analysis, the future value (FV) term is changed to cash flow (CF). This formula is used over a defined time period, so each CF amount is identified by the year it occurs with a subscripted number (e.g. CF 2 ). The DCF formula is: DCF = CF 1 + CF CF n (1+r) 1 (1+r) 2 (1+r) n Where CF= cash flow or net operating income, r= discount rate, n= number of year Appraisers apply this technique with timber, Christmas tree farms, and other businesses where cash flow is expected to vary considerably from year to year. For instance, young plantings for Christmas tree will have costs (a negative cash flow) for planting and maintenance at the beginning, but will bring in cash at the time of harvest. In addition to income from the harvest there may be income from the sale of the land or other assets at the end of the period. Any lump sum expected at the end of an investment is called the reversion value. In the classic application of DCF, the reversion value is the present value of expected income from the one-time sale of all of the timber, or from the sale of the land after one or more harvests. In cases like commercial timberlands there may be series of harvest cycles (rotations). If there is an uneven distribution of age classes, the net operating income will rise and fall for each harvest period. It is customary to model the asset as a collection of forests, each of which has its own distribution of species, products, and age class, and hence a unique projected net operating income. An example of a simple DCF analysis is a timber company entering into a 10-year timber lease where the quantity of timber available for harvest and price for the timber is anticipated to change during the lease period. The appraiser must forecast net operating income for each year. These calculations need to consider a range of variable costs (management fees, sales commissions), annual carrying charges (e.g., property taxes, annual rent), overhead costs, and changing timber prices. There may be no reversion beyond harvest income in this case, as the lease simply expires. Table 6-1 summarizes the required steps in the basic application of DCF analysis.

189 Chapter 6. The Income Approach Page 7 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction Table 6-1. Steps for applying discounted cash flow (DCF) analysis Step Description 1 Define the holding period. Definite Perpetual or indefinite 2 Project annual revenues. Gross sales from services or products 4 Project annual costs Fixed costs (carrying charges, admin/overhead) Variable costs (labor, commissions, management operations) 5 Derive and apply the appropriate discount rate 6 Convert projected net operating income into present value PV=FV/(1+r ) n where PV= present value, FV= future value, n= number of years and r= discount rate 7 Total the Present values to estimate the Discounted Cash Flow 8 Apply the DCF value as the business value or compare it to the selling price to determine if this is a good deal. Using DCF Analysis in the Cost Approach DCF analysis can be a component of the Cost approach for appraising the economic impact of damage and computing the present value of annual maintenance costs (Appendix X). In addition, if future maintenance costs are included in a Cost approach analysis, those values can be corrected for inflation by using a variation of the present value formula. That variation solves for future value if the present value and interest rate is known. The formula is: FV= PV * (1+r) n where PV= present value, FV= future value, r= discount rate and n=number of years An example of this would be for plant health care services that need to occur every year for three years. If the service currently cost $250 and you anticipate tree health care cost to increase at 3% per year, then the future value of the service would be $265 in year two ($250(1.03) 2 ), and $273 in year three ($250*(1.03) 3 ). The total of these values may need to be brought to present value for inclusion in the cost estimate. If the discount rate is 6% the present value is PV= FV/(1+r) n = $250, 265/(1.06) 2 =$235, 273/(1.06) 3 = $229, which total a present value of $714.

190 Chapter 6. The Income Approach Page 8 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction 191 Applying i-tree using DCF As described in the direct capitalization section, results of an i-tree Eco analysis can be used to estimate the value of ecological and environmental benefits provided by an individual tree or groups of trees. The value of these benefits are currently produced are one-year estimates (current year). However, future values can be estimated using the i-tree Forecast module which will virtually grow trees into the future and estimate future values. One issue with projecting future value is establishing the tree s life-span. Estimates of life span for trees are accounted for based on average mortality rates for a tree population (if known). Based on future projections of benefits, a net present value of benefits can be calculated using a discount rate (as described above). Using DCF to aid in Business Decisions The Income approach can be used to assist the owner of orchard, vineyard, nursery, or timberland in the evaluation of whether a property should be held or sold. For this type of evaluation, the Income approach is combined with the Sales Comparison approach. For example, an investor would retain an appraiser to use the Income approach to estimate how much a property is worth in terms of the net present value. The appraiser would then use the Sales Comparison approach to test the results against the estimate market value of the property. If the market promises to pay more for the sale of the land than it will realize in net operating income over time, they may choose to sell. If we apply the Direct Capitalization method to an income-producing timberland property that has a net operating income of $35,000, and apply a rate of return of 10%, the resulting value would be $350,000. $35,000 / 10% = $350,000 If the Sales Comparison approach offered a probable market value of $400,000 for the same income-producing property, the owner of the timberland property may choose to sell EXAMPLES To illustrate the concepts presented in this chapter, here are four scenarios in which the Income approach is applied Example 1: Nursery Affected by Highway Relocation* A new four-lane highway will take one-third of the land area and planted material from Moon Pie Nursery. The nursery has an annual income of $150,000. After deducting all costs from gross sales, the

191 Chapter 6. The Income Approach Page 9 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction annual net operating income is $15,000. The appraiser hired by the State Department of Transportation estimates the depreciated reproduction cost of the shrubs and trees at $35,000 and the value of the bare land at $6,000, for a combined value of $41,000. Mr. Moon thinks the loss to his business is greater than the sum of the plants plus the land. He hires an appraiser for a second opinion. Is he right in his argument? Negotiations or litigation may ultimately decide the actual damages in this example, but the Income Approach, Direct Capitalization method can provide an analysis of the change of value in his business. With one-third of his land and nursery income lost because of the highway expansion, the owner s argument is that his annual net income will also dwindle by one-third from $15,000 to $10,000. Mr. Moon hires a knowledgeable appraiser to estimate the current value of the nursery. The appraiser looks at other nurseries that have recently sold in the area to determine the market value using the Sales Comparison approach. Her appraisal for Moon Pine Nursery was $156,250. To appraise the value of the business before and after the taking, the appraiser employs the Direct Capitalization method. After looking at NOI the appraiser calculates a capitalization rate prior to the taking: Cap Rate=NOI/Value Cap Rate= $15,000/$156,250 = 0.096= 9.6% The appraiser then estimates the value after the taking assuming a NOI of $10,000 and a constant cap rate of 9.6%. Value = NOI/Cap Rate Value = $10,000/0.096= $104,167. Therefore, the loss of value is $156,250 $104,167 = $52,083, which is greater than the $41,000 offered by the DOT.

192 Chapter 6. The Income Approach Page 10 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction Example 2: Apartment Value Damaged by Removal of Specimen Shade Trees An exclusive apartment complex commands a view of an alley of stately oaks. The oaks are over 100 years old and range in diameter from 30 to 36 inches (75 to 90 cm). They provide benefits to the complex, including a pleasant view, shade, and a place for residents to picnic, stroll, and relax. The trees lie along the west property boundary. The complex has ten units with a very low vacancy rate. Individual apartments command an additional $25 per month compared to similar units in the area. An adjoining property owner breaks ground on a new development. A construction company cut crosses the property line and removes all of the oak trees. The owner of the adjacent property is found at fault for damaging the apartment property. Two plant appraisers are called in to investigate and estimate property damages. The plaintiff s appraiser estimates damages using the Reproduction Cost method at $50,000. The defendant's appraiser uses similar Cost approaches and arrives at Reproduction Cost estimate of $45,000. The second appraiser, however, also considers the value of the loss in income stream. He investigates the rent history and concludes that the value of the oaks has contributed $25 per month for each unit. The total annual loss in rent is $3,000 ($25 per month at 10 units for 12 months). Recent sales of similar properties indicate that the average owner/investor holds an apartment building for ten years. Most owners seek a 10 percent rate of return for the investment. Rent increases are keeping pace with inflation. Using this information, the appraiser estimates the value of the oaks in the following way: Value= NOI/Cap rate Value= $3,000 (annual income) / 10% cap rate == $30,000 The second appraiser weighs all the evidence and concludes that the income estimate of $30,000 is more reliable damage estimate. Both appraisals are presented in court. The plaintiff seeks damages of $50,000. The defendant responds with a damage estimate of $30,

193 Chapter 6. The Income Approach Page 11 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction Example 3: Fire Kills Maple Trees in Commercial Sugar Bush (adapted from Steigerwaldt and Steigerwaldt 2012) A brush fire spread from a neighbor s property to an adjacent stand of sugar maple (Acer saccharum) trees. The stand had a history of sugar production and was insured. Based on the terms of the insurance policy, the insurance company asked an appraiser to estimate the economic loss to the owner. The appraiser found that 86 trees had more than 75% of the trunk circumference seriously damaged. She concludes that these trees will either die or become non-productive. The appraiser s analysis produces the following information: Syrup producers pay $0.60 to $0.80 per tap annually for collection rights. The sugar lease allows a maximum of 120 taps in the 86 trees. Typical cap rates for maple syrup operations this area are 4% to 8%. The landowner asserts that he earns $28 per tree annually, based on retail maple syrup sales. The appraiser also recognizes that the trees could be used for commercial timber and develops the following information for a Sales Comparison market value: Each tree has an average volume of 100 board feet of saw timber plus 1/10th cord of pulpwood. Average maple stumpage is $300/1000 board feet and pulpwood stumpage is $20/cord. As summarized below, the appraiser must select between two indications of value: one based on maple syrup tap leases, and one based on timber income. Value as tap lease: 120 taps at $0.70/ tap = $84 income per year Mean Cap rate is 6% Value= Income/Cap rate Value = $84/ 0.06 = $1,400. Value per tree = $1,400/86= $16.28/tree Value as timber: 100 board feet saw timber per tree * 86 trees= 8,600 board feet $125/1000 board feet * 8,600= $ 1,075 $20/cord * 8.6 cords= $172 Total $1,247 Value per tree $1,247/86= $14.50

194 Chapter 6. The Income Approach Page 12 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction The syrup-based income yields a higher estimate and may suggest that this is the HBU (i.e., most profitable) of the land.

195 Chapter 6. The Income Approach Page 13 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction Example 4. Buying a Developing Tree Nursery The owner of a small farm is retiring and wants to sell two acres of land that he has planted to trees. The trees are young. There is also space available to plant more trees. The farmer s goal was to sell 2 diameter trees. He planned to dig the trees with a tree spade attached to his medium size tractor and sell them to a local landscape contractor. In his area, a planted liner can grow a half inch per year, so it will take 4 years to grow 2 trees. He currently has year old trees, year old trees and year old trees. The retiring farmer is asking $60,000 for the land and trees. A potential buyer wants an appraisal so that he can consider purchasing the land and business in the current year. The appraiser looks at bare land sales in the local area to determine the market value. She finds that land sells for $10,000 per acre. She also discusses the business plan with the potential buyer. He would like to operate the business for five years then sell the bare land to a real estate developer. Table 6-2. Nursery purchase: projected income and expenses. Year Category Expenses Income NOI Discount Present rate Value 1 Land $20,000 $0 ($29,500) 5% ($28,095) Liners (1000@$1) $1,000 Planting (1000@$2) 2000 Maintenance $5,000 Property tax $1,000 Insurance $200 Other $300 Year total $9,500 2 Same as above plus 3% Sell 1000@ $85 $85,000 $63,500 5% $57,596 No new plantings (-$3000) Harvesting (1000@$15) Year total $21,500 $85,000 3 Same as above plus 3% Sell 1000@ $88 $88,000 $65,855 6% $55,294 Year total $22,145 $88,000 4 Same as above plus 4% $23,031 6% $53,838 Sell 1000@ 91 $91,000 $67,969 Year total $23,031 $91,000 5 Same as above plus 5% $24,182 $95,000 7% $64,752 Sell 1000@$95 Sell land 25,000

196 Chapter 6. The Income Approach Page 14 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction Costs associated with sale $5,000 Year total $29,182 $120,000 $90,818 5 year total 203, DCF = CF 1 + CF CF n Where CF= net annual income, n= number of years and r= discount rate (1+r) 1 (1+r) 2 (1+r) n

197 Chapter 6. The Income Approach Page 15 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction Example 5. Appraising the Economic Impact of Damage The appraiser was contacted by a home owner whose tree was damaged by a motorist who ran off the road. The tree was in good health. Based on the appraiser s assessment, it had a remaining useful life expectancy of 10 years rather than the 60 years that could have normally been expected. The expected replacement cost would be $600 in today s dollars. One way to measure the economic impact of the damage is to compute the difference in present value of the expected replacement cost. The reasoning is that the damage has placed the homeowner in the position of having to replace the tree in 10 years instead of 50 years, and the time value of money measures the economic loss or opportunity cost of having to invest $600 sooner than needed prior to the accident. The table below shows the formula for the present value of the expected replacement cost. FVn PV where, ( 1 i) PV = present value FV = future value at year n i = discount (interest) rate n = number of years Using a home mortgage rate of 7.0 percent, the present value of replacing the tree in 50 years is computed as follows: PV = $600/( ) 50 =$600/(29.457) = $20.37 Therefore, the present value of $600 to be paid in year 50 is only 1/29th or 3.3% of $600. The present value of replacing the tree in 10 years is: PV = $600/( ) 10 = 600/1.967 = $ Therefore, the damages amount to $305 - $20 = $285. To this point, this example assumes that the replacement cost of tree is stable over time. However, replacement costs will increase over time. For example, if the cost to replace the tree is expected to rise by 3% per year, the future value of the replacement costs are as follows: Future Value = n FV PV ( 1 i) n Cost to replace in 50 years (V 50 ) = 600(1.03)50 = 600(4.384) = $2,630 Cost to replace in 10 years (V 10 ) = 600(1.03)10 = 600(1.344) = $806

198 Chapter 6. The Income Approach Page 16 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction Inflating costs cause the difference between these two figures to increase, so we would expect the economic damages to be greater than in the case of stable costs. The present value of replacing the tree in 50 years is: V 0 = 2630/(1.0750) = 2630/ = $89.29 The present value of replacing the tree in 10 years is: V 0 = 806/(1.0710) = 806/1.967 = $ Therefore, the damages amount to $410 - $89 = $321.

199 Chapter 6. The Income Approach Page 17 Guide for Plant Appraisal, 10th edition DRAFT Not for Duplication or Reproduction References Steigerwaldt, E. and L. Steigerwaldt A Practical Guide to Tree Appraisal. Steigerwaldt Land Services. Tomahawk WI.

200 CHAPTER 7. SALES COMPARISON APPROACH Overview... 1 Component Analysis Method... 4 Hedonic Regression Analysis Technique... Paired Sales Analysis Technique... Extraction Technique... Strengths and Weaknesses of SCA... 8 Strengths of the SCA:... Weaknesses of SCA:... Examples using the Sales Comparison approach Example 1 Hedonic Regression... Example 2 Paired Sales Analysis:... Example 3 Paired Sales Analysis:... Example 4 The Extraction Technique... OVERVIEW The Sales Comparison Approach (SCA, syn. market data approach, sales approach) estimates market value using transaction data (sales history, comparable sales, prices, etc.). The SCA is founded on the principal of substitution: prudent and knowledgeable buyers acting in their own self-interest will not pay more than the price of an equivalent substitute. Applied to plant appraisal, the SCA also hinges on the principle of contribution: the value of a particular component of a property can be measured in terms of its contribution to the value of the whole property, or the amount by which its absence would detract from the value of the whole. In this case, individual trees and landscaping may add to the overall value of a property (Figure 7-1).

201 Chapter 7. Sales Comparison Approach Page 2 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Figure 7-1. Houses with trees and high quality landscapes (right) typically sell for more than houses without landscapes (left) Landscape appraisal assignments that typically call for the SCA include: Estimating the value of materials and services used in the Cost or Income approaches. Analyzing the contribution of plants to overall property value. Estimating current or diminished market value for insurance, condemnation actions, litigation, and for income tax, gift tax, and inheritance tax purposes. Testing the reasonableness of a cost estimate by relating it to the overall value of the real estate. Valuing commercial timber crop in the context of transaction analysis, timber trespass, and other situations (see Chapter 9. Additional considerations). The general concept of the SCA is that the appraiser identifies actual sale transactions (comparable sales) and analyzes these transactions to develop an opinion of value. Tree and landscape appraisers can use information from real estate transactions, tax assessments, and third-party real estate appraisals as the basis for estimating the market value of landscape items or individual trees. Since this approach uses empirical (verifiable by observation) data, it gives the SCA widespread credibility and makes it the most common approach in real estate appraisals. In addition, the cost and income approaches require the appraiser to estimate the market value (sales comparisons) for inputs like nursery trees and shrubs, and services like installation, repair, and aftercare. In apprising trees or other landscape item using the SCA the appraiser estimates the market value of a tree or other landscape item based on its contribution to overall

202 Chapter 7. Sales Comparison Approach Page 3 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction property value, or by estimating how much its absence would detract from the value of the property (Figure 7-2). As simple as this sounds, developing a reliable analysis can be challenging. Ideally, there would be records of comparable sales of properties with and without the item, where the appraiser can separate the contribution made by a single tree or other landscape feature. In practice, it may be difficult to find comparable sales that provide clear evidence of this contributory value. Buyer and sellers of real property tend to think about the property as a whole, as opposed to considering the sum of individual parts. The situation is further complicated because buyer preferences vary greatly. The presence or absence of a tree may not always affect the market value of a property. These challenges for the most part do not apply to trees whose highest and best use is for commercial timber. There is a unique market for such trees. They can be sold on the stump, in which case the buyer cuts them and delivers them to a mill(s). Here, the appraiser identifies comparable stumpage sales and applies unit rates by species and product to the timber. Alternatively, the logs can be sold to a mill, and the appraiser can analyzes mill-delivered prices less costs to cut and haul the logs. This topic is discussed in Chapter 9 Additional Considerations. For residential and commercial landscape applications, there are usually no records of tree or landscape value. Therefore, component analysis is a fundamental method in SCA. Three component analysis techniques are available to landscape appraisers: 1) hedonic regression, 2) direct or paired comparison, and 3) extraction. In addition, some of these techniques can be paired with the cost approach to develop an estimate of market value.

203 Chapter 7. Sales Comparison Approach Page 4 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Figure 7-2. Flow chart of the Sales Comparison Approach and its use to determine a market value COMPONENT ANALYSIS METHOD The SCA commonly uses the component analysis method when estimating the value of property, tree, and other landscape items. The principle of contribution is the basis for this method. That is, you can estimate the value of a component (e.g., a tree in a landscape) by comparing similar sales of whole properties, with and without the component and infer that the differences in sales price are due to the value of the component. This process becomes difficult if the property contains multiple features that could affect the sales price such as various lot sizes, house sizes, driveway pavement, views or landscape features. Hedonic Regression Analysis Technique Hedonic regression uses statistical analysis to quantify buyer preferences for various characteristics of a property. Regression analysis identifies which characteristics are significant to buyers, and how much they will pay for them.

204 Chapter 7. Sales Comparison Approach Page 5 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Regression analysis is common in mass appraisal of residential property for tax valuation. Data can be based on either a small number of local real estate transactions or thousands of transactions spread across a city or region. To gain more significance, an appraiser may be able to develop a project-specific regression analysis for the assignment at hand. Most commonly used in tree appraisal are generalized equations used to predict or isolate the influence of trees on property value (Table 7-1). Overall, these studies infer that a single tree rarely contributes more than 2% to the value of developed residential property and a high quality landscape, in total, may contribute 4% to 10%. Because hedonic regression analysis tends to generalize over many properties, it may not apply well to the appraisal of an individual tree. Most of these studies do not distinguish among tree size, condition or location in their analyses, or even whether the local market makes these distinctions. However, they can be valuable for the reconciliation or reasonableness testing to verify estimates derived from other approaches, methods or techniques. TEXT BOX. Sources for property value include: (a) municipal tax records, which separate land and building components; (b) on-line automated valuation applications (e.g. zillow.com, relator.com, trulia.com) ; (c) local brokers and real estate appraisers; and, (c) information obtained from the property owner. The context of the assignment will determine what degree of diligence is required

205 Chapter 7. Sales Comparison Approach Page 6 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Table 7-1. Hedonic Studies of the Contribution of Trees to Property Value in Urban Residential Areas.. Value Factors considered Research citation Contribution Mean canopy cover % Diminishing returns past a certain level of cover. 2% Single mature landscape tree (>9 DBH) 2% Street trees contribution to adjacent 2.4% 6.4% property value Single street trees Two street trees % Trees in front yard landscape 4-7% 8-10% 5-15% Mean 7% Total landscape contribution: Difference from good to excellent Difference from poor to excellent Additional value from trees to the price of a lot Netusil, N.R., S.Chattopadhyay and K.F. Kovacs Estimating the demand for tree canopy: A second stage Hedonic price analysis in Portland Oregon. Land Economics 86(2): Dombrow, J., M. Rodriguez, and C.F. Sirmans The Market Value of Mature Trees in Single-Family Housing Markets. Appraisal Journal 68, 1: Baton Rouge LA Wachter, S.M. and G.W. Bucchianeri What is a tree worth? Green-city strategies and housing prices. Real Estate Economics 36(2). Donovan, G.H., and D.T. Butry Trees in the City: Valuing Street Trees in Portland, Oregon. Landscape and Urban Planning 94, 1: Anderson, L.M., and H.K. Cordell Influence of Trees on Residential Property Values. Landscape and Urban Planning 15: Eastern US. Henry, Mark S The contribution of landscaping to the price of single family houses: a study of home sales in Greenville, South Carolina. Journal of EnvironmentalHorticulture. 12(2): Henry 1999 Landscape Quality and the Price of Single Family Houses: Further Evidence from Home Sales in Greenville, South Carolina. Journal of EnvironmentalHorticulture. 17(1): Payne, B.R The twenty nine tree home improvement plan. Natural History 82(9): Payne, B.R. and S. Strom The contribution of trees to the appraised value of unimproved residential land. Valuation 22(2):36-45 Massachusetts <6% Good tree cover Morales, D.J The contribution of trees to residential property value. Journal of Arboriculture 6(11): Mean 7% 10-15% Home sales on wooded lots vs. non-treed Mature trees in highincome neighborhoods Seila, A.F. and L.M. Anderson Estimating cost of tree preservation on residential lots. Journal of Arboriculture 8: Seila, A.F. and L.M. Anderson Estimating tree preservation cost on urban residential lots in metropolitan Atlanta, Macon GA. GA For Comm. For. Res Paper No. 48 6pp. Theriault, M., Y. Kestens, and F. Des Rosiers The Impact of Mature Trees on House Values and on Residential Location Choices in Quebec City. In Rizzoli, A.E. and A.J. Jakeman (eds.), Integrated Assessment and Decision Support, Proceedings of the First Biennial Meeting of the International Environmental Modeling and Software Society, Volume 2:

206 Chapter 7. Sales Comparison Approach Page 7 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Paired Sales Analysis Technique Paired sales analysis is common in the real estate appraisal industry. The appraiser identifies a series of comparable sales that are alike except in one characteristic. In the context of plant appraisal, comparisons may involve undeveloped properties with and without trees; or developed properties with varying amounts or quality of landscaping. This type of analysis is particularly useful if there are a number of nearby houses all of similar size and on similar sized lots so that the main difference among properties are the trees or landscaping. The appraised value of each property with and without the landscape feature can be averaged and compared. For example, a well-treed residential lot with no house or other improvements can be compared to a nearby lot with no trees. Here the difference in the unit price (dollars per acre or square foot) of the two lots and the contributory value of the trees. The primary weakness of this method is the limitation in sample size (in this case, a single pair of sales), and the inference that the difference in price reflects the buyers preference for trees versus some other factor. It is often impossible to verify the inference without interviewing the buyers to determine whether trees, or the lack of them, influenced price. Where appraising a single shade tree that dominates the landscape, the appraiser may be able to find two residential property sales, alike in almost every aspect, but differing in the presence of one large shade tree. For example, if the value of the property with the tree is $400,000 and the value of the property without the tree is $395,000, the appraiser might deduce that the contributory value of the tree is $5,000. Where the building improvements on the property differ, the appraiser can deduct the contributory value of the building improvements by consulting with tax records or some other source, leaving a residual lot value, and thus simplifying the paired analysis. Landscape appraisers can conduct simple direct comparisons to estimate tree or landscape contribution to property in their area on their own. However, it may be expedient to collaborate with an experienced local broker or a real estate appraiser when doing paired sales analysis. Situations where a property owner seeks a casualty loss claim for insurance or federal income tax purposes provide excellent opportunities for skilled plant appraisers to collaborate with real estate appraisers.

207 Chapter 7. Sales Comparison Approach Page 8 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Extraction Technique The extraction technique subtracts land value and all known improvements (house, out-building, utilities, driveway, etc.) from the overall property value leaving the market value of the landscape as the remainder. This can be further refined by subtracting the market value (not cost) of any landscape components where the value is known. The Sales Comparison Approach can be combined with the cost approach to provide a tree value. The important concept is that the contributory value of the landscape components are based on the overall property value as estimated by transactions analysis. Estimates developed in this fashion may be somewhat subjective, but should be reasonable, credible and produce a market value. STRENGTHS AND WEAKNESSES OF SCA Strengths of the SCA: 1) Sales comparisons use observations of actual sales and therefore provide a credible foundation for estimating the market value of individual landscape components. 2) Provides a logical, defined process where the sum of the parts equals the whole. 3) Accounts for some forms of depreciation. 4) Ties landscape value to overall property value. 5) Can be used with the cost approach to develop market value or add credibility to a cost estimate. Weaknesses of SCA: 1) Can be difficult to extract information about a single tree or landscape feature 2) Regression studies using data outside the subject neighborhood provide only generalized information, not information about a specific tree or landscape item. 3) Distributing landscape value among a range of landscape features may be subjective. 4) May require using outside data from real estate appraisers, brokers, assessors, tax records, or online sources.

208 Chapter 7. Sales Comparison Approach Page 9 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction ) Assumes that landscape items contribute positive value to a property (despite, for instance, superadequate planting or susceptibility to fire). 193

209 Chapter 7. Sales Comparison Approach Page 10 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction EXAMPLES USING THE SALES COMPARISON APPROACH Example 1 Hedonic Regression Jane was asked to estimate the market value of a single tree that is 12 dbh and located in the front yard of a single family residential property. F rom tax records and an online real estate search, she finds that the property is appraised at $375,000. Jane checks the literature (Table 7-2) to determine if there are studies that have looked at trees in similar situations. Dombrow et al. (2000) is most similar to her situation. Results indicated that a single tree greater than 9 dbh would typically contribute 2% to the market value. In this case, $7,500. Inputs Property value $375,000 Tree contribution 2% (0.02) Result $7,500 ($375,000 x 0.02) If instead the property had five healthy trees in the front yard, the typical contributory value based on Henry (1994) could be estimated to be between $15,000 (0.04 x$375,000) and $26,250 (0.07 x $375,000) Example 2 Paired Sales Analysis: A fire destroys all of the trees on several undeveloped (forested) lots in a new subdivision. The owner of the lots hires James to estimate the decrease in market value in order to make an insurance or tax claim. James inspects the site and determines that the highest and best use of the forested land is residential development. He reviews online records of lot sales in nearby development. After finding 10 properties that have sold recently, he goes to recent photographic records (google earth) to determine if the lots were forested at the time they were sold. He discovers that there were three levels of vegetation on the sold lots: 1) no trees, 2) forested like the lot in question, and 3) few trees (could not be considered forested). An analysis of sales prices for lots with and without trees indicates there was an average price difference of $15,000 per lot: Average price of lots with trees: $75,000

210 Chapter 7. Sales Comparison Approach Page 11 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Average price of lots without trees: $60,000 Difference in lot prices: $15,000 From this data, James estimates that forested lots are selling for $15,000 more than bare lots, a 20% difference in value. This is the per lot estimate of value lost to the fire. Example 3 Paired Sales Analysis: A natural gas leak kills all of the landscape trees on Mr. Brewer s property located in a modest residential neighborhood of a major sunbelt city. His lawyer suggests that he hire a landscape appraiser to determine the loss in market value so that they can document a claim with the gas utility. Mr. Brewer hires Denise to conduct the appraisal. She compares two nearby, very similar quarter acre properties that sold before the gas leak occurred. Property A was a three-bedroom ranch with a well-maintained landscape and sold for $200,000. Property tax assessment records indicate that the building was worth about $125,000 and the land had a value of $75,000. Property B was a twobedroom ranch on a similar size lot with virtually no shrubs, trees or evidence of professional landscaping. It sold for $165,000. Property tax assessment records indicate that the building on property B was worth $100,000 the land had a value of $65,000. The paired sales indicate that landscaping contributed about $10,000 ($75,000 - $65,000 land value) to sale A, or roughly 5 percent of its total value. Mr. Brewer s two-bedroom house on the same size property has a published tax value of $180,000 with $110,000 attributed to the house and $70,000 to the land. Denise multiplies the land value by the paired sales comparison data to estimate the contributory value of the landscape plants at $3,500 ($70,000 x 0.05= $3,500). Example 4 The Extraction Technique Consider a residential property which contains, among other assets, six large shade trees. The total value of the property is estimated by a real estate appraiser to be $200,000, including $190,000 for the land and all other improvements (outside of the landscape components), leaving a residual value of $10,000 for the landscaping. The

211 Chapter 7. Sales Comparison Approach Page 12 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction plant appraiser uses the cost approach to conclude a value of $3,000 for hardscape, lawn, and shrubs. This infers a value of $7,000 for the six trees. The final step is to allocate the $7,000 among the trees. The analysis is: Property Value (from real estate appraiser) $200,000 Improvements (buildings, utilities, driveway, etc.)- $175,000 Land (from real estate appraiser) $15,000 Market value attributed to all landscaping $10,000 Contribution of lawn, shrubs (from landscape contractor) $3,000 Remainder attributed to trees $7,000 Per tree allocation ($7000/6) $1,167 This computation assumes that each tree contributed equally to property value. If the six trees differed in condition, functional or external limitations, then the plant appraiser could assign a contribution value for each tree. If two trees were located in the rear, side, and front yards, the plant appraiser might conclude contributory values of 20%, 30%, and 50%, respectively. This produces the following contributory values: Trees in front yard (50% x $7,000 = $3,500 for 2 trees) or $1,750 per tree Trees in side yard (30% x $7,000 = $2,100 for 2 trees) or $1,050 per tree Trees in rear yard (20% x $7,000 = $1,400 for 2 trees) or $700 per tree. Alternatively, the plant appraiser may elect to apply reproduction or functional replacement cost to develop more refined estimates of contributory value for the six trees (Table 7-2). The plant appraiser estimates depreciated reproduction costs, and then computes market value by multiplying each cost estimate by its relative percentage of total reproduction cost.

212 Chapter 7. Sales Comparison Approach Page 13 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction Table 7-2. Market Value from Percent of Reproduction Cost Depreciated Contributory totals by yard: Tree No. Placement Repro. Cost Percent Value front $3,390 1 Front $9,600 29% $2,009 side $2,187 2 Front $6,600 20% $1,381 rear $1,423 3 Side $5,500 16% $1,151 all $7,000 4 Side $4,950 15% $1,036 5 Rear $3,850 12% $806 6 Rear $2,950 9% $617 Total $33, % $7,000 This example illustrates the doctrine of economic waste, where the cost to repair (or install) is grossly disproportionate to the additive property value (The Appraisal Institute 2015) (see also Concepts, Chapter 2 for a discussion of the principles of substitution, contribution, and diminishing returns, and on the doctrine economic waste)

213 Chapter 7. Sales Comparison Approach Page 14 Guide for Plant Appraisal, 10 th edition DRAFT Not for Duplication or Reproduction References The Appraisal Institute The Dictionary of Real Estate Appraisal/. 6 th edition. The Appraisal Institute. Chicago IL.

214 Chapter 8. Reconciliation, Reasonableness, and Reporting Contents Summary Example 1 Reconciliation 5 Reasonableness 10 Reporting 18 Example using all Approaches: Fining a property owner for the illegal removal of a City-owned street tree. The urban forester responsible for street trees in your community contacts you regarding a tree removal incident. A homeowner contracted with a tree care company to remove a city-owned street tree. The urban forester plans to fine the property owner for the illegal removal. The city tree ordinance cites the Guide for Plant Appraisal as the source to establish the amount of the fine. You are asked to estimate the value of the tree using the methods in the Guide. The subject tree was a 15 diameter red oak (Quercus rubra) located in a 5 wide planting strip between curb and sidewalk. The adjacent sidewalk was displaced 0.5 on the tree side. The tree was in good condition and had been pruned the year prior to its removal. Red oaks of similar age and size were present on both sides of the street. The Guide offers at least 4 ways to address the assignment: 1. Cost Approach, replacement method, trunk formula technique. 2. Cost Approach, replacement method, cost compounding technique.

215 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 2 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction 3. Sales Approach, component analysis. 4. Income Approach, present value of future benefits. You cannot obtain costs for installing the same size tree. In your area, red oaks 15 in diameter are neither available from commercial nurseries nor transplanted. Even if such trees were available, it is impractical to expect to put a 15 tree in a 5 wide planting strip. 1. Cost Approach, replacement method, trunk formula technique. The Regional Plant Appraisal Committee (RPAC) in your area recently updated costs associated with growing and installing nursery trees. For hardwoods such as red oak, the largest commonly available nursery-grown tree is 4 caliper (trunk cross-sectional area = 13 sq. in.). The cost to purchase such a 4 tree is $400; to install, $600. Inputs Trunk diameter Trunk area Unit cost ($400 / 13 sq. in.) 15 in. 177 sq. in. $30.77 / sq. in. Basic cost Basic cost $5,446 Depreciation Physical deterioration 80% Functional limitations 80% External limitations 100% Depreciated cost $3,485

216 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 3 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Cost of installation $600 Reproduction cost $4, Cost Approach, replacement method, cost compounding technique. You believe that a 4 caliper tree could be installed in the 5 wide planting space. Such a tree would be approximately 11 tall at planting. You estimate that it would take 25 years for a newly planted tree to achieve the 15 diameter and overall size of the removed tree. The cost to purchase such a 4 tree is $400; to install, $600. You select an interest rate of prime plus 2% which is 5.5%. Inputs Present cost of nursery tree $400 Depreciated cost due to condition $320 ($400 x 80%) Years to equivalent size & function 25 Interest rate 5.5% Depreciated compounded cost $320 ( ) 25 $8, Sales Approach, component analysis The property was purchased by the owner 6 months ago for $325,000. You determine that market values have increased an average of 1% since that time, making the current market value approximately $328,250. You recently read a journal article indicating that a mature street tree in a residential area contributes an average of 2.5% to market value. The red oak was the only street tree in front of the subject property. The subject property

217 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 4 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction and nearby homes were landscaped in a similar manner: street trees, front lawn with small trees and shrubs. At 15 in diameter, the red oak was just reaching maturity. Inputs Estimated property value $328,250 Estimated contribution of street tree to market value 2.5% Estimated tree value $8, Income Approach, present value of future benefits. The 15 could be expected to provide the same function and utility for another 40 years. A recent itree ECO analysis of the city s urban estimated the value of ecosystem services (benefits) provided by street trees as $92 per year. Inputs Annual benefits $92 Years of lost benefits 40 Discount 3.0% Present value of future benefits $92 ( ) 40 $3,790 You have employed 4 different ways to estimate the value of the removed tree. Each has its own strengths and weaknesses, based on assumptions and the availability of data. Cost Approach, replacement method, trunk formula technique. $4,085 Cost Approach, replacement method, cost compounding technique. $8,440

218 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 5 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Sales Approach, component analysis. $8,206 Income Approach, present value of future benefits. $3,790 You report the results of your appraisal to the urban forester who thanks you for a thoughtful comprehensive use of the 10 th edition. RECONCILLIATION In its common usage, reconciliation is defined as bringing together people or ideas to produce agreement, consensus, or compromise. Finance managers reconcile accounts, i.e., making them consistent. In appraisal work, reconciliation brings together and resolves disparate indications of value or cost into a conclusion. As noted in Chapter 3, the Uniform Standards of Professional Appraisal Practice (USPAP) require the appraiser to address final reconciliation in every appraisal, even where only one of the three valuation approaches is employed (The Appraisal Foundation 2016). Although reconciliation has not been discussed in previous editions of the Guide, plant appraisers may find it useful tool in some assignments. The Reconciliation Process When reporting reconciliation, it is typical to include the following steps: 1 Review the valuation approaches used, and the reasons using them. 2 Summarize the cost or value conclusions for each of the approaches used. 3 Explain the strengths and weaknesses of each approach used.

219 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 6 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction 4 Describe the rationale for reconciling the approaches into a final conclusion of cost or value. Step 4 is where the appraiser uses sound defensible judgement to either select one approach to the exclusion of any others or develops a weighted conclusion. Doing so involves the following criteria: 1. The appropriateness of the approaches, methods, or techniques. 2. The accuracy of the data and calculations. 3. The quantity, reliability, or sufficiency of evidence presented relative to the specific appraisal problem. Appropriateness The appraiser evaluates the appropriateness of each approach, method, or technique by assessing: 1) pertinence to the appraisal problem and 2) applicability to the type of property being appraised. For example, an assignment requires estimating value loss due to a fire destroying some shade trees on an apartment rental property. The client plans to use the appraisal to substantiate a casualty loss claim for federal income tax purposes. The appraiser has applied the Cost, Sales Comparison, and Income Approaches. The Internal Revenue Service (IRS) requires diminution in market value as the measure of loss. Because this is an income-based property, the Cost Approach will probably be less pertinent than the other two approaches. Where a large tree has been destroyed by trespass, a replacement cost estimate may be more reasonable than a reproduction cost estimate, particularly if the benefits can be restored by planting several commonly available specimens.

220 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 7 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Accuracy The appraiser evaluates accuracy based on the correctness of information employed and the reliability of the analysis used. For example, an appraiser applies the Sales Comparison Approach to extract the contributory value of landscaping. Relying solely on interviews with one or two real estate professionals would have limited precision and reliability. In contrast, using data from five comparable property sales, then consulting a real estate appraiser and/or building contractor is more likely to be both verifiable and accurate. When estimating the cost to reproduce a large tree, an appraiser can compare cost estimates from contractors who move large trees with an extrapolation method such as TFT. The first technique is more accurate because it does not require the theoretical extrapolation that is inherent in the second technique. Applying a reproduction cost method to large trees where market value is sought will likely produce an estimate that inaccurately represents contributory market value. However, a process that takes the result of this analysis and essentially calibrates it to overall property value can produce a credible conclusion. Quantity of Evidence Other factors equal, the more supporting evidence, the more reliable the result. The purpose and use of the appraisal also influences the weight afforded to each of the approaches.

221 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 8 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Where restoration costs are of primary concern, cost-based estimates may be most relevant. Where superadequacy is a factor, a replacement cost estimate may warrant more weight than a reproduction cost estimate because it focuses on the concept of utility or benefits provided. Where market value estimates are sought, the Sales Comparison Approach may be strongest where transaction evidence is prevalent and it is important to tie the valuation to overall property value. Where the client requests both market value and the cost to restore the site to its pre-damage condition, then it would be reasonable to present both estimates. Where the appraisal results in both cost and value estimates, it is generally not appropriate to attempt to reconcile costs with values, though it may be appropriate to compare and contrast them. It may also be appropriate for the appraiser to comment upon the reasonableness or applicability of cost and value estimates, based on the context of the assignment, the reliability or relevance of the analyses, and other factors. It is often the case in plant appraisal that only the cost approach is used. The appraiser may choose to apply multiple methods and techniques within the cost approach, and either reconcile them into a final result or simply report the different results. When market value is being estimated, the appraiser should consider what a buyer and seller would likely agree on as a final selling price, and weigh employed approaches, methods, and techniques accordingly. When a cost is being estimated, the appraiser should consider what a consumer might actually have to expend to reasonably replace a

222 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 9 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction landscape item, and weight employed approaches, methods, and techniques accordingly. When income is considered, the appraiser should establish a reasonable expectation of future benefits. In the example that opened this Chapter, it would have been reasonable for the appraiser to reconcile the results as part of their analysis. Four estimates of value were developed: Cost Approach, replacement method, trunk formula technique. $4,085 Cost Approach, replacement method, cost compounding technique. $8,440 Sales Approach, component analysis. $8,206 Income Approach, present value of future benefits. $3,790 Assuming that the report described the assumptions and inputs to each result, how might these four be reconciled? A first question is: are there significant differences in accuracy, appropriateness or quantity of data among the four results? Depending upon the answer, the appraiser has several options: 1. Select one result on the basis of professional judgement. 2. Average the four results. 3. Assign a weighting to each result based on the confidence the appraiser has in each method. 4. Compare the cost results with the value results. Cost average = $6,263 vs. value average = $5,998. There is no single, correct answer in this example.

223 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 10 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction To illustrate the benefits of using multiple approaches, an example combining the Sales Comparison Approach, component analysis with the Cost Approach, reproduction method is found at the end of this Chapter. This is not strictly reconciliation but illustrates how two approaches can be used together. THE REASONABLE AND CREDIBLE APPRAISAL The 9 th edition (CTLA, 2000) introduced the topic of reasonable as follows: The Guide advocates that methods be used in a reasonable manner. It gives the plant appraiser information about balancing plant appraisals against actual property values in the marketplace. Tests of reasonable may be used to compare appraised plant values to total property value. In this section, aspects of reasonableness and credibility in appraisal are discussed. Reasonable can be viewed as logical, empirical, objective and sensible. Credible is believable, trustworthy and/or supported by relevant data and sound analyses. All plant appraisers should strive to have their work described as both reasonable and credible. They should be expected to conduct their work in the absence of bias or advocacy, and to meet high professional standards. They must take proper steps to ensure that their work is credible in the eyes of their clients, their peers, the courts, and the general public. The appraiser who walks the narrow path of objectivity and competence will produce reasonable and credible estimates of value or cost and will communicate the results accurately and without ambiguity. The appraisal problem and the context of the assignment should determine whether a particular

224 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 11 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction appraisal methodology or conclusion is reasonable (see Chapter 3). The most common indicator of reasonableness is market value. As described in Chapter 2, definitions and concepts that are critical to the issue of reasonableness include the principles of contribution, balance, and consistence use; highest and best use (HBU), and the law of diminishing returns. When estimating the market value of any item of real property or personal property, the appraiser should be prepared to answer one of the following two questions: What price would the item command if sold on the open market? How much less would the property be worth in the absence of the item (or after it was damaged)? The challenge with estimating the market value of landscape plants is that, once they are installed, there is normally no market for their sale apart from the land on which they sit. Plant appraisers routinely opine on the value of vegetation related personal or public benefits such as recreation, shade, aesthetics, wildlife habitat, clean water, carbon sequestration, and soil stabilization. Several of these benefits, but not all, can be estimated using i-tree software. Others must be regarded as intangible. However important they may be to a tree owner or damaged party, there is no simple or comprehensive technique to estimate a value. Taskmasters May Influence Reasonableness and Credibility The appraiser has a responsibility to remain independent and objective throughout the appraisal process, conducting their work in an unbiased manner. This is the ethical side of

225 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 12 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction being reasonable. Conducting work to acceptable professional standards is the technical side of being reasonable. If the appraiser is ethical and competent, and applies sound judgment, then the resulting appraisal conclusions are likely to be reasonable. A breakdown of ethical standards, technical competence, or judgment can compromise the quality or reasonableness of the appraisal. Bias can be introduced in many ways. The client can provide the appraiser selective information about the property, the marketplace, or the case itself. The client can pressure the appraiser. Errors of both omission and commission may arise. A series of small errors that operate in a single direction can have a large impact on the appraiser s conclusions. USPAP standards do not allow an appraiser to be an advocate for any party to the assignment. The American Society of Consulting Arborists (ASCA) and the Appraisal Institute both have codes of ethics prohibiting the appraiser from being an advocate. When individuals act as an advocate, they must not represent themselves as appraisers. While this advice was specifically written for real estate appraisers, it is sound and the CTLA promotes a similar standard for plant appraisers. The client is always one of the appraiser s taskmasters. Where conflicts over the scope, method, or result arise, the appraiser should first attempt to reconcile the difference with the client. If the client refuses to allow the appraiser to be independent and objective, then the appraiser should refuse the assignment (or terminate the appraiser-client relationship). Attorneys are common taskmaster. The American judicial system is adversarial and attorneys are obliged to advocate for their clients. But as with any other client, the appraiser is obliged to

226 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 13 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction be independent and objective in all aspects of the valuation assignment. Appraisers may advocate only for their opinion of cost or value. Appraisers should be prepared to establish their independence if they sense that the attorney is pushing them to consider assumptions, data, methods, or analyses that favor the cause of the attorney s client. Appraisers owe the duty of independence and credibility to themselves, to users of their work product, and to the appraisal profession. Other taskmasters may include: Professional association codes of ethics and/or appraisal standards. Local, state and federal statutes and/or regulations. Courts of law. Appraiser s employer. Who Determines What Is Reasonable? Appraisers should have a good sense of what is reasonable and what is not. If the appraiser is not confident about his or her conclusion, then this may signal that missteps have occurred somewhere in the appraisal process. Lack of confidence can also stem from a lack of relevant data and other factors. Confidence by itself, however, does not ensure credible results. The Courts Court cases provide legal precedent and may offer insight into appraisal methods and results. CTLA cautions, however, against relying too heavily on case results. Court decisions are often based on factors quite distinct from appraisal.

227 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 14 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Damages to property are the most common context for issues surrounding reasonableness. The litigants or parties are likely to disagree about the most appropriate way to make the injured party whole as well as the cost to achieve that goal. Courts have recognized various methods for measuring damages including timber stumpage value, loss in overall property value, restoration costs, and extrapolated costs. Court cases on tree valuation issues vary widely. Appraisers should be careful not to limit their consideration of case law to one or two cases. Some courts have settled on market valuebased conclusions that show little or no diminution in property value. Other courts have awarded huge sums based on cost-based estimates that have little to do with value. To demonstrate the dilemma faced by the courts, consider the following excerpt from Wisconsin State Bar Association: It is difficult to value the amount of damages sustained by the owner of shade trees or other ornamental trees and shrubbery because such trees are not grown for economic reasons, but rather for aesthetic reasons. In most cases, such trees and shrubbery have no significant fair market value after they have been cut [unlike timber trees]. A person who sustains a loss of shade trees and ornamental shrubs is not limited to a recovery of the diminished fair market value of his or her property. Even though there may be no probable loss of market value of the property, the court has recognized that such trees and shrubs may have a real value to the owner for certain purposes, and in such instances, cost of replacement is the proper measure of damages. But if brush or wild trees are damaged, the court is more inclined to use the diminished value rule.

228 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 15 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction When the age and sizes of the shade trees and shrubbery lost or other circumstances are such that it is practical to restore the premises, the owner is entitled to recover in damages the amount reasonably necessary to do so. When this cannot be done (e.g., in cases involving mature shade trees and ornamental shrubs), the owner is entitled to recover the value that the things destroyed contributed to the real property, given the particular purpose of the owner s occupancy. Thus, it is necessary to evaluate the extent to which this destruction has interfered with the use of the land and with the owner s comfort and convenience. Law and Statutes Law and statutes differ across jurisdictions. Courts, statutes, and regulations may limit the appraiser to certain appraisal methods. The USPAP allows the appraiser to cite jurisdictional exceptions where local statutes or regulations contradict USPAP provisions. For example, many states have timber trespass laws designed to protect landowners from unauthorized timber harvesting. These statutes may state that the landowner is entitled to double stumpage damages if the logger mistakenly cut merchantable timber on the wrong property, and treble damages if the logger maliciously cut on the wrong property. The appraiser is normally expected to estimate stumpage (standing timber) value. Note that it is the duty of the court to determine whether double or treble damages are in order. The appraiser s role is confined to estimating value, whereas the court s job is to award punitive damages. The courts have occasionally applied timber trespass law to shade trees because state statutes call for it. In such situation, it may be reasonable for the appraiser to augment the valuation by estimating the replacement cost.

229 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 16 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction If an applicable statute requires the appraiser to estimate economic damages to the property, the appraiser may conclude that the appropriate way to measure such damage loss is to estimate the extent to which the market value of the property has been diminished. On the other hand, this may be a statutory directive. In this case, it would be inappropriate to rely exclusively on formulaic tree appraisal methods or other forms of the Cost Approach, unless they clearly result in reasonable indications of market value. The appraiser s principal task is to simulate the marketplace and look for empirical evidence of what active buyers would pay for a property before and after the damage occurred. The Internal Revenue Service The Internal Revenue Service (IRS) offers insight into the issue of reasonableness. IRS Publication 547 Casualties, Disasters, and Thefts presents commentary on the regulations around appraising loss in value (Internal Revenue Service, 2015): In figuring a casualty loss on personal-use real property, the entire property (including any improvements, such as buildings, trees, and shrubs) is treated as one item. Important factors in evaluating the accuracy of an appraisal, include the appraiser s knowledge of sales of comparable property in the area and the appraiser s method of appraisal. The cost of restoring landscaping to its original condition after a casualty may indicate the decrease in FMV [fair market value]. You may be able to measure your

230 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 17 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction loss by what you spend on the following: 1) removing destroyed or damaged trees and shrubs, minus any salvage you receive, 2) pruning and other measures taken to preserve damaged trees and shrubs and 3) replanting necessary to restore the property to its approximate value before the casualty. There are two important, empirical aspects to a credible IRS casualty valuation. First, the results must be anchored in market transaction value. Second, in cases where the taxpayer bases the claim on costs of repairs or planting, these costs must not only be necessary to restore value, but they must actually be paid by the taxpayer. The Attorney A good attorney will be aware of legal precedent and relevant statutes and regulations, and may direct the appraiser to use certain assumptions, methods, or analyses. The appraiser must guard against blindly accepting the directives of an attorney or potentially inappropriate or irrelevant court decisions. The appraiser may want to review the case law upon which the attorney is relying. Should the appraiser disagree with the valuation methods suggested by case law or the attorney, it may be appropriate to suggest alternative valuation methods or even withdraw from the assignment. Once again, the appraiser should keep in mind that the attorney is obliged to advocate for his or her client, but the appraiser is allowed advocate only for his or her own opinions. Industry Standards The USPAP requires appraisers to produce credible appraisals and cites one of the measures of credibility as the opinions and methods used by the appraiser s peers in the industry. This may work better for the highly developed real estate appraisal profession than for other

231 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 18 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction professions where there is less standardization, accountability, and regulation. While the plant appraisal profession may not be highly developed in this area, the plant appraiser should maintain relationships with competent professionals who afford opportunities for mentoring and accountability. REPORTING As noted in the Process Chapter, a report communicates the assignment result and supporting information to the client. Its form depends on the nature and scope of the assignment. The American Society of Consulting Arborists A Consultant s Guide to Writing Effective Reports (Keefer, 2004) describes report preparation from initial planning through final production. A companion publication Example Reports for Consulting Arborists (ASCA 2013) provides examples of consulting reports. Report Types The Appraisal Foundation s Uniform Standards of Professional Appraisal Practice (USPAP) provides a useful framework for appraisal analysis (Standard 1) and reporting (Standard 2). It describes three types of written reports self-contained, summary, and restricted use. Self-contained reports are thorough, descriptive, and generally considered the most useful to the client, particularly in more complex appraisal assignments. Summary reports are similar to self-contained reports but provide less detail and is shorter in length. Where self-contained reports describe, summary reports summarize (see Figure 9-1). Restricted use reports provide a minimum amount of content and are typically provided as a letter.

232 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 19 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Figure 9-1. Comparison of the three types of reports described in USPAP (Appraisal Foundation edition. Advisory Opinion AO-11). Note that the contents of each style vary in the use of the terms, state, describe and summarize. Self-Contained Summary Restricted Use Format of document Format of document Format of document narrative booklet narrative booklet letter or form Report contents Report contents Report contents State identity of client, intended users, & intended use of the appraisal. Describe information identifying the subject property, including relevant physical & economic features. Describe ownership interest & current use of the property appraised, and whether it is real estate or personal property. State the type & definition of value or cost being appraised, and the source of the definition. Where market value is not appraised, state this fact. State the effective date of appraisal & date of the report. Describe the scope of work used to develop the appraisal. State the highest & best use conclusion & describe the rationale for it. Describe information analyzed; appraisal approaches, methods, & techniques used; and rationale for using or excluding each of the three valuation approaches. Describe the reconciliation process & reasoning leading to the conclusion. State assumptions & limiting conditions; call particular attention to extraordinary assumptions hypothetical conditions. State identity of client, intended users, & intended use of the appraisal. Summarize information identifying the subject property, including relevant physical & economic features. Summarize ownership interest & current use of the property appraised, and whether it is real estate or personal property. State the type & definition of value or cost being appraised, and the source of the definition. Where market value is not appraised, state this fact. State the effective date of appraisal & date of the report. Summarize the scope of work used to develop the appraisal. State the highest & best use conclusion & summarize the rationale for it. Summarize information analyzed; appraisal approaches, methods, & techniques used; and rationale for using or excluding each of the three valuation approaches. Summarize the reconciliation process & reasoning leading to the conclusion. State assumptions & limiting conditions; call particular attention to extraordinary assumptions hypothetical conditions. State identity of client, intended users, & intended use of the appraisal. State information identifying the subject property. State ownership interest & current use of the property appraised, and whether it is real estate or personal property. State the type & definition of value or cost being appraised, and the source of the definition. Where market value is not appraised, state this fact. State the effective date of appraisal & date of the report. State the scope of work used to develop the appraisal. State the highest & best use conclusion & describe the state the rationale for it. State appraisal approaches, methods, & techniques used, and whether any of the three approaches was excluded. State the conclusion. State assumptions & limiting conditions; call particular attention to extraordinary assumptions hypothetical conditions. Include a signed certification. Include a signed certification. Include a signed certification. Adapted from USPAP , Advisory Opinion 11, p. A-24.

233 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 20 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction The appraiser presents the same basic information in each of these reports, but the manner and depth of information varies (Figure 9-1). As the USPAP explains: The essential difference among the three options is in the use and application of the terms describe, summarize, and state for selfcontained, summary, and restricted use report, respectively. Describe is used to connote a comprehensive level of detail in the presentation of information. Summarize is used to connote a more concise presentation of information. State is used to connote the minimal presentation of information. (Appraisal Foundation, 2012). Oral reports may also be provided to the client. These should be no less comprehensive and rigorous than a written report. Not all reports need follow the USPAP standards. But all appraisal reports should clearly articulate the following: Name of the client and intended users Intended use of the appraisal Identification of the asset being appraised, its ownership, its current use, and whether it is real estate or personal property Definition of the type of value or cost being estimated, and the source for the definition Effective date of appraisal valuation, date of the inspection, and the date of the report Scope of work Where estimating market value, highest and best use (HBU) of the asset appraised and the property on which it sits. Appraisal approaches, methods, and techniques employed

234 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 21 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Where more than one valuation method is used, a well-argued rationale for the reconciliation process. Appraisal conclusions Where the appraiser is an expert witness, reports prepared for ligation may need to include additional information. Federal Rule of Civil Procedure 26(a)(2)(b) requires that the report include 1) all opinions and the basis and reasoning behind them, 2) the supporting data, facts and information used in forming those opinions (including exhibits), 3) statement of qualifications, 4) statement of compensation, and 5) a list of cases in which the author has testified in the past four years. Rules in state courts may vary from the federal standard. The appraisal report should also contain a statement of Assumptions and Limiting Conditions which may affect the scope or nature of the appraisal. According to the USPAP, appraisers should identify: All extraordinary assumptions; that is, assumptions which, if omitted or altered, could have a significant impact on the appraisal value or cost conclusion. All hypothetical conditions; that is, conditions that may be contrary to what exists but are supposed for the purpose of analysis. For example, extraordinary assumptions and hypothetical conditions might include the following: It would be infeasible to reproduce the lost tree with a substitute of the same species, size and condition. Where data was insufficient or missing, the following steps were taken. Information (e.g., acres, survey plats, plant inventory, pre-existing conditions)

235 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 22 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction provided by the client is assumed to be reliable, and the scope of the assignment did not include data verification. No plants of the species/cultivars being appraised are readily available, so substitute species/cultivars are used in the valuation. The appraiser has estimated replacement value and makes no representation as to what the market value of the plant might be. The appraiser had to visit the site two years after the damage occurred and has had no opportunity to verify whether the conditions immediately following the damage subsequently changed. The cost estimate is based on the extraordinary assumption that the condition of the property did not change between the date of damage and the date of inspection. A full risk assessment has not been included in the scope of this assignment. The client is advised to seek a risk assessment before conducting any remedial work. While the property s HBU is for conversion to an industrial site, our analysis is based on the hypothetic condition that the property s HBU is for single-family residential use. Setting forth assumptions, limiting conditions, and hypothetical conditions provides the appraiser with the opportunity to clearly disclose to the users of the appraisal report what sorts of assumptions, limitations, or caveats frame the valuation and to explain the context within which reasonableness should be measured.

236 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 23 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Literature Cited American Society of Consulting Arborists Example Reports for Consulting Arborists. 3 rd edition. Rockville MD. Appraisal Foundation Uniform Standards of Professional Appraisal Practice Edition. Washington D.C. Council of Tree and Landscape Appraisers Guide for Plant Appraisal. 9 th edition. International Society of Arboriculture. Champaign IL. Internal Revenue Service Publication 547 Casualties, Disasters, and Thefts. Washington D.C. Keefer, C A Consultant s Guide to Writing Effective Reports. 2nd edition. American Society of Consulting Arborists. Rockville MD.

237 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 24 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction Example: Combining Component Analysis and the Cost Approach to Estimate Market Value If it is not practical to derive the value of an individual plant directly from the comparison of sales, the appraiser may combine the SCA component analysis method with the reproduction cost method to estimate the market value of each component. The appraiser must first estimate the total value of the landscape from a sales comparison analysis. Then the appraiser applies the depreciated reproduction cost methodology to each landscape component and totals these values to estimate the total depreciated reproduction cost. The appraiser divides the cost of each component by the total cost for the entire landscape to provide a percentage value for each component. The total value of the landscape from the SCA is then multiplied by the percentage value of each component to estimate its market value. For example, in an eminent domain condemnation proceeding for a highway widening project, an appraiser is hired to estimate the economic loss from the removal of three shade trees, loss of a driveway, a portion of a lawn, and some shrubs and perennials. The plant appraiser works with a real estate appraiser assigned to the case. The real estate appraiser estimates that the entire property has a value of $310,000 and estimates the landscape component to be $15,000. The plant appraiser confirms that the landscape comprises 4.8% ($15,000/$310,000) of the property value by talking with an independent real estate appraiser. The plant appraiser applies the cost approach to derive the depreciated reproduction cost estimates for each component of the landscape, in this example $19,000. These values are divided by the total cost of the entire landscape to get a percentage value for each component. The percentage is then multiplied by the $15,000 (total value derived by the real estate appraiser) to estimate the component contribution to the landscape. This value is then adjusted for the degree of loss of each component. The percentage loss is multiplied by the value of the component to determine the dollar loss of each component. These values are totaled to estimate the total loss.

238 Chapter 8. Reconciliation, Reasonableness, and Reporting. Page 25 Guide for Plant Appraisal, 10th edition. DRAFT Not for Duplication or Reproduction The appraiser estimates the amount of loss for each of several landscape components (Table 9-2). The highway widening is taking 15% of the lawn area, three of the shade trees from the front yard, is closing the entrance to the driveway (100% loss), and is removing half (50%) of the shrubs and perennial beds. The three shade trees provide an attractive setting for the front of the house and important shade in the summer, whereas two remaining trees were on the side and back of the house. The plant appraiser therefore concludes that the three trees taken comprise 90% of the total tree value, despite the fact that all five are similar in size and condition. Table 9-2. Estimate of loss combining Sales and Cost Approaches. Category Cost estimate Sales Landscape Amount Cost % Comparison Loss of Loss % Lawn $3, $2, $356 Driveway $2, $1, $1,575 Patio, retaining wall, fencing $4, $3, $0 Hedges, shrubs, perennial flower beds $2, $1, $990 Shade trees (5) $7, $5, $5,333 Total $19, $15, $8,253 The estimated reduction in property value due to landscaping damage is $8,253. In the example, the appraiser calculated a dollar value for each component of the landscape. Alternatively, assigning a percentage value to each component and multiplying the total landscape value can achieve similar results.

239 1 2 Chapter 9. Additional Considerations: Wooded and Forested Areas, Trees near Utilities, Historic Trees, Casualty Loss Contents Wooded and Forested Areas 1 Trees near Utility Corridors, Easements, Rights-of-Way 13 Historic Trees and Landscapes 17 Casualty Claims and Damage Loss WOODED AND FORESTED AREAS One of the most challenging situations for plant appraisers involves wooded and forested areas, particularly those that are not managed for timber or other wood products. CTLA generally recommends using replacement cost over reproduction cost in locations that are wooded and not being managed for timber. Consider the following example Example: View Clearance The owner of a home in a high-end subdivision hired a tree care contractor to remove trees in an adjacent county park, in order to enhance the view from her home. The trees in question were part of a native forest, ranging in size from saplings to large, over-mature specimens. The affected area was approximately one acre, encompassing a relatively small portion of the total area of park.

240 Chapter 9. Additional Considerations Page 2 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction The county sued the residential owner for trespass and hired Appraiser A, a local plant appraiser. The county wanted to establish the cost to reproduce the damaged area as it existed the day before the trees were removed. Appraiser A provided a TFT analysis and concluded that the value of the destroyed trees is $500,000. In this application of TFT, no depreciation for physical deterioration or functional limitations was applied. Appraiser A determined that because the trees were natural, no depreciation for health, structure and form was appropriate. Appraiser A also described the stand conditions as natural and chose not to depreciate for functional limitations The defendant (the landowner) hired Appraiser B, another local appraiser, to develop an estimate of the market value of the trees. Specifically, the appraiser was asked to estimate the extent to which the market value of the county property was diminished by the act of cutting the trees in question Appraiser B s report provided an opinion of the park property s market value. The local tax assessor offered that if area of cut trees were placed on the open market, it would be bought for residential use similar to the rest of the subdivision. The assessor provided data for adjacent properties and affirmed a market value of one acre as approximately $250,000. Appraiser B also hired a local real estate appraiser who provided a market value of $265,000 for the one acre in its pre-damage condition. The appraiser concluded that development of

241 Chapter 9. Additional Considerations Page 3 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction the property would remove most of the trees on the one acre. In the local area, the average contribution of landscaping to total land value is 15%. This would suggest that the value of some trees preserved during development of the one acre would be below the range of $37,000 and $39,750 ($250,000 x 0.15 and $265,000 x 0.15) for the entire property. Appraiser B estimated that a few well-placed native trees in a typical landscape should contribute about 30% to the overall landscaping value, or approximately $11,500. Appraiser B concluded that the value of the removed trees was $11, Appraiser B also noted that the impact of the one acre removal in the overall context of the park was minor. Tree canopy remained largely intact. No trails passed through the cut area. Views from perspectives other than the property owner were largely unaffected In reviewing Appraiser A s report, Appraiser B noted: 1. The assignment result was represented as a value. TFT, however, produces a cost estimate. Appraiser A made no attempt to tie the cost estimate to market value or any other type of value. 2. No depreciation was applied. While TFT does not require depreciation, considerations of tree condition, stand development, and planting density are typical when using this technique In reviewing Appraiser B s report, Appraiser A noted:

242 Chapter 9. Additional Considerations Page 4 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction An analysis of HBU provided a market value. Yet the property in question is unlikely to ever be placed on the open market. As a county park, it is owned and managed in the public s interest. Trespass and cutting trees to improve a view violated that interest. 2. That the rest of the park remained intact does not diminish the extent of damage for the one acre At mediation, the property owner who hired the tree care company acknowledged that the purpose of the removal was to improve a view. The property owner had been told by the realtor who sold the property that a view would increase the market value of the property 30%. County officials acknowledged that use of the park was not affected by the tree removal. They also acknowledged that it would not spend $500,000 to install and care for large trees in the cut area The mediator observed that Appraiser A prepared an estimate of the cost to reproduce the one acre of trees while Appraiser B produced an estimate of the market value of the property and the trees contribution to it. The mediator expressed wonder that Appraiser A s result was twice the market value of nearby residential properties. The mediator questioned Appraiser B about market value estimates of the cut area based on HBU. Appraiser B acknowledged that the value of the trespasser s property had increased as a result of the cutting and the resulting view. After questioning the appraisers, the mediator asked Appraiser A to 1) incorporate depreciation into TFT analysis and 2) develop a second estimate

243 Chapter 9. Additional Considerations Page 5 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction using another methodology such as cost forwarding. The mediator asked Appraiser B to determine the change in value of the property adjacent to the park as a result in the cutting, calling it an unjust enhancement of the residential property The mediation continued at a later date, pending completion of the above requests The outcome of the mediation is unknown. The mediator, like a judge, arbitrator, and jury, had to evaluate diverse ideas about how to appraise this one acre of woodland. In addition to the testimony of the two appraisers, the mediator considered a wide range of factors including the details of the situation, the demeanor and attitude of the parties involved, culture of the region and legal requirements. Similar cases have awarded damages based on stumpage value, cord wood, market value, reproduction cost and restoration cost. Double and treble damages have been awarded, based on the trespasser s intention Historical Perspective: Previous Editions of the Guide The Guide has long viewed trees in landscape settings as distinct from those in forests. Trees growing in unimproved or natural wooded areas have a different value than trees on improved property, such as locations where they have been professional planted and maintained as a part of the landscape

244 Chapter 9. Additional Considerations Page 6 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction design. Street trees, park trees and trees in recreational areas have a completely different set of values than those growing on improved residential property. (Shade Tree Evaluation Committee, 1975) In the 3 rd to the 7 th editions of the Guide, depreciation for location was framed in terms of land use (Table 9-1). Note how the terminology changed from 1975 (3 rd edition) to 1988 (7 th edition). Trees on developed land were consistently rated higher than those on unimproved / undeveloped land. Trees in wooded and forest areas received the lowest rating. Table 9-1. Determining location values. Guide editions III through VII. Site % depreciation for location III, IV VI VII Feature or historical trees Average residential Street & boulevard trees Recreation & picnic area trees Native open woods trees Dense forest trees Park & wildlife preserves to to 60 Woods: managed or open 20 to to 60 Woods: unmanaged dense forest 10 to to 30 Authors of early editions of the Guide were not professional foresters and had little understanding of how timber is appraised. Their perspective was simply that all other things being equal, trees in wooded areas and forests would be less valuable than those in developed areas. This view was based on the context that

245 Chapter 9. Additional Considerations Page 7 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction the cost approach resulted in an estimate of value. These editions of the Guide also recognized that employing cost methods such as TFT were not appropriate for every situation and a professional forester should be consulted With publication of the 8 th edition (Council of Tree and Landscape Appraisers, 1992), depreciation for location shifted from land use to considerations of site, placement and contribution. Values for these three sub-components were then averaged. Specific discussion of wooded areas was eliminated Some plant appraisers rely on the TFT in forest settings, applying low location values (high depreciation). Doing so reflects the general thinking found in early editions of the Guide. Others have used TFT without depreciating for location, arguing that trees in natural settings need not be depreciated Appraisal Considerations for Wooded Areas Fundamentally, the cost of producing a tree in a production landscape nursery has nothing to do with the value of naturally occurring trees in a forest setting. Where trees are being grown for timber and other wood products, they should be appraised as such Where trees in wooded areas are not being grown for timber, cost approaches such as the trunk formula technique and cost compounding have been successfully employed. Consider two situations.

246 Chapter 9. Additional Considerations Page 8 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction A utility needs to widen its wooded right-of-way in a rural residential area. The utility argues that trees on residential properties are forest remnants left over from the previous working forest and are most appropriately valued as timber or cordwood. The property owner argues that when the land was converted from forest to single-family housing, most of the trees were harvested. Therefore, any remaining trees were converted from timber to landscape. 2. A couple purchase acres of forest land where they build their retirement home. Some years later, a neighbor logs his land. The logger inadvertently removes several trees from the retirement property. Is this land residential or forest? How does a plant appraiser identify if appraisal methods described in this Guide are appropriate for a particular situation? The following questions may be helpful? What is the nature of the appraisal problem? Is a cost or value desired? What is the intended use of the property? Does is differ from the actual use? What is the management history of the property? Are the trees naturally occurring or planted? Is a management plan in place? Have any silvicultural treatments been applied? Are the trees at issue part of the near landscape or are they in the far landscape or not visible at all?

247 Chapter 9. Additional Considerations Page 9 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction What is the intended use of the trees? Is the location urban, suburban, rural or at the interface between urban and rural? What functions and benefits do the trees provide? How do people interact with the trees? Answering these questions should assist a plant appraiser in selecting an approach, method and technique most appropriate for the setting In summary, where trees are part of natural forest cover, CTLA recommends using methods and techniques that are relevant to the historic, current, and prospective use of the property. Here value is viewed through the eyes of owners, their investment in the property, their use of the property, and what they do to perpetuate their enjoyment and use of the property. Which is forest. For this reason, reproduction methods such as trunk formula technique are not appropriate. Value is more a function of service potential or utility than it is a function of size and the cost to produce a tree in a nursery CTLA also recommends using replacement cost over reproduction cost in cases where public benefits are to be restored as in the example that opens this section. Just as with market value, CTLA s thinking arises from the principal of substitution. Would any public agency spend several hundred thousand dollars to restore the trees and public benefits in a natural woodland? Very unlikely at best.

248 Chapter 9. Additional Considerations Page 10 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Appraising Trees in Woodlands as Timber Plant appraisers are likely to encounter situations where forest product values should be considered as the most reasonable approach. Timber differs from street, landscape and shade trees in that it is a severable interest; that is, its value is a function of anticipated harvest revenues after it has been severed from the stump. Identifying situations where a timber or product approach is appropriate should weigh the highest and best use of the land and its contents. Appraising a tree or trees on a heavily wooded lot as timber or cordwood, may yield a reasonable result Timber is wood, other than fuelwood, potentially usable for lumber (Helms 1998). It includes the standing trees usable for lumber, pulpwood, veneer, poles, crossties, piling, and other wood products. Timber and stumpage are used interchangeably. Fuelwood is timber that will be used to provide energy. Cordwood is wood that has been cut into short lengths, generally used for pulp for fuel. Once trees are cut, they cease to be timber for income tax purposes. The simple act of cutting standing trees converts timber from real property to wood products and personal property In the example that opens this section, the wooded area was adjacent to a subdivision. It was held as a public resource by the county. If this land was

249 Chapter 9. Additional Considerations Page 11 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction privately owned, with development potential, the HBU may have been residential housing. But in a rural area where timber harvesting is a common activity, the HBU would likely be growing trees for harvest Assignments that require timber appraisals arise from various situations, such as: Timber investing Estate planning Taxation issues (e.g., estate taxes, purchase price allocations, depletion accounting, casualty loss) Timber sale analysis for buyers and sellers Timber trespass (theft or other illegal harvesting) Charitable contributions Conservation easements Timber lease and timber deed valuation Timberland valuation Most of the situations listed above call for estimating either the market value of timber or the contribution that timber makes to the market value of the property. Therefore, a timber appraisal may require the appraiser to estimate the commercial value of the timber without regard to the property value or HBU of the underlying land. This may seem like a violation of the principle of consistent use. However, if the assignment calls for estimating the market value of standing

250 Chapter 9. Additional Considerations Page 12 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction timber, it really calls for appraising a specific legal interest in the property: the right to harvest and sell trees Experts are often called on to appraise stumpage value or the value of standing trees. Stumpage refers to the value of uncut timber in terms of units per area (Helms 1998). Unit stumpage values (often called stumpage rates) are generally expressed in terms of either volume or weight ($ per cord, $ per thousand board feet, $ per cubic meter, $ per green ton) Stumpage value is a function of the volume or weight can be realized from the tree, the cost to get it to market, and the price the most lucrative market will pay. Markets range from sawmills, pulp mills, and paper mills to oriented strand board plants, chip plants, biomass generation plants, pellet mills, and fuel wood producers as well as log export markets. Specialty mills like shingle and shake mills, fencing mills, and other forest product facilities also procure timber products. In some cases timber brokers serve as wholesale middlemen, buying stumpage or delivered products and re-merchandising them to assorted mills Timber and forestland valuation also encompasses non-timber revenues such as: Maple syrup tap leases Pine straw sales Ecosystem services (e.g., wetlands mitigation credits and carbon credits) Land rental income from cabin leases and recreational uses

251 Chapter 9. Additional Considerations Page 13 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction 285 Conservation easement sales Appraising commercial timber requires special expertise. It is normally performed by professional foresters. Some states have forestry license laws; in these states, it is generally the case that one must be licensed as a forester to appraise timber for someone other than yourself or your employer. Licensed real estate appraisers may also be allowed to appraise timber in these states, provided they meet USPAP competency requirements. Regardless of whether forestry licensing is required, plant appraisers delving into timber appraisal should be competent or affiliate with an expert who is TREES NEAR UTILITY CORRIDORS, EASEMENTS, RIGHTS-OF-WAY Utilities and public agencies secure access to land for the purpose of transmitting and distributing water, hydrocarbons, electrical energy, and telecommunication services. Facilities such as pipelines, poles, towers, wire, or cable is normally owned by a utility or agency but the land rarely is. More commonly, both above- and below-ground facilities are located within easements. The location of the facility is commonly referred to as a right-of-way (ROW) or utility corridor Electric companies are responsible for providing reliable electrical power with a minimum of interruptions and outages in a manner that is as safe as reasonably possible. Providing this service requires pruning, regulating, or removing trees that have the potential to strike, grow into or otherwise interfere with energized conductors or other facilities. Utilities and their contractors have the right to perform this work as long as it is reasonable and within industry

252 Chapter 9. Additional Considerations Page 14 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction 309 accepted standards Appraisal of plants within and adjacent to utility rights-of-way requires an understanding of the rights and responsibilities of the property owner, the utility, and their contractors, as well as knowledge of appraisal and arboriculture. Although utility corridors are commonly called rights-of-way, they can be established by easement, prescriptive rights or owned by the utility Easements An easement is the right to use of another person s real property for a specific purpose. An easement does not convey ownership or a right to possess or sell the land. Three common easements are: 1. Express easements are described in written documents that are recorded in local land records. They are in deeds of the affected parcels and remain with the property when it is sold. 2. Implied or Prescriptive easements are not recorded, or not recorded on a parcel-byparcel basis. Electric utility distribution systems often have this type of easement. 3. Franchise easements are created by a state or local government granting a utility the right to provide service to or through one or more communities or subdivisions. These easements may affect many parcels but may not be recorded on a parcel-byparcel basis One of the basic functions of an easement is to permit access to another person s land. Easements may be private (restricted to the easement holder or particular individuals) or public (unrestricted and open to the general public). Easement rights are also created to allow access to sunlight or water; allow views from nearby property; allow support of adjoining land (e.g.

253 Chapter 9. Additional Considerations Page 15 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction retaining walls) or building foundations; allow construction or maintenance of facilities on another person s land; or conserve or preserve the appearance of natural features or existing use of another person s land or buildings. In the case of utilities, the easement provides the right to construct, operate and maintain the facility Most easements are affirmative; that is, they give the easement holder the right to enter or use the property. Other easements are negative in that they control or limit certain activities. As examples, a view easement might prevent an owner from allowing trees to grow and obstruct a view while a conservation or scenic easement might prevent an owner from cutting trees or altering the natural character of the land. Conservation easements are typically designed to preserve the natural character of the property Easements are generally difficult to terminate and typically last forever. However, there are some exceptions. Temporary easements (or temporary takings in an eminent domain context) have an explicitly limited term, and some conservation easements have a defined term, after which they terminate Most of the work that utility crews or utility contractors do is within an easement. They have the expressed right to prune or remove trees that will affect their facilities and to maintain a minimum vegetation clearance. The right to perform vegetation maintenance work, including tree removals, may extend beyond the defined ROW. Utilities may have the right to mitigate risk to facilities posed by off-row trees, whether along a city street or in a wooded area Rights-of-Way A ROW is one type of easement, typically a land use agreement that allows passage from one

254 Chapter 9. Additional Considerations Page 16 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction point to another. Common examples of rights-of-ways include a private ROW that allows access to a land-locked parcel across an adjoining parcel, or a public ROW that allows access to a beach across a private parcel. Public streets and sidewalks are some of the most common ROW. These are generally owned by the public which has the right to travel over them. In some states, however, adjoining private parcels may own to the middle of the street and grant easements to the public to travel over them. Utilities may have easements within specific portions of these ROW Utility ROWs include electric, communication, or pipeline corridors. These may comprise easements over private parcels or owned by the utility Appraisal Considerations for Easements and Rights-of-Way When working on utility easements and/or ROWs, the appraiser must understand the rights and responsibilities of both the land owner and the utility. Utilities are responsible only for the management of the tree as it relates to the energized conductor or related facilities. Specifications for clearance and system safety define the scope of tree management. For these reasons, line clearance operations may result in a tree that is less than ideal in health, structural integrity or form. Utilities and their contractors are obligated to meet contract specifications for minimum vegetation clearance. For these reasons, the tree appraiser must understand the contract and its specifications in order to determine what is reasonable and appropriate for each situation. 381

255 Chapter 9. Additional Considerations Page 17 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction How does a plant appraiser identify if appraisal methods described in this Guide are appropriate for a particular situation? The following questions may be helpful? What are the rights and obligations of the utility within the specified easement? What are the applicable industry standards and best management practices? Are they in the contract? Applied in the field? Are the trees at issue part of the near landscape or are they in the far landscape or not visible at all? What is the management history of the easement? Are decisions about tree management (e.g. pruning, removal) consistent within the system? The CTLA believes it would be unreasonable for the plant appraiser to establish loss for tree work that was performed in a manner consistent with easement rights government requirements for clearance and industry standards HISTORIC TREES & LANDSCAPES Heritage, ancient, veteran, landmark, legacy and historic are terms applied to trees that are deemed significant because of their size, form, shape, age, rarity, association with a historic event, or other feature. In this discussion, historic encompasses all of the above. Regulations that designate a historic plant or landscape will vary widely from one location to another, and from one public agency to another.

256 Chapter 9. Additional Considerations Page 18 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Citizens, groups and agencies seek to maintain their cultural resources by preserving historic properties or trees. Historic status can be applied to buildings, neighborhoods and/or landscapes. Historic landscapes may have been designed by an historic figure (e.g., Thomas Jefferson, Fredrick Olmstead) or may be naturally occurring. The landscape can be a key component of a site s designation as historic The act of designating a building, site, or landscape as historic is not an appraisal function. Moreover, with plant material, features such as extraordinary size or age do not necessarily indicate or confer historic status. The official designation is generally conferred to sites and landscaping subject to meeting certain criteria. For example, the National Park Service (NPS) criteria for granting historic status to sites and landscaping include: Association with an historic figure, event, or use Age related to the site s history Botanical rarity or unique characteristics (e.g., exceptional size) Design effect related to the site Ecological significance related to habitat or endangered status Site-specific considerations such as signature or memorial plants where signature means a plant or landscape that is unique and may incorporate many of the other criteria in a particularly striking way The evaluation of landscapes for historical significance can performed using NPS guidelines. The product of this evaluation is typically a cultural landscape report (CLR). The process of preparing a CLR is extensive and requires special expertise in historic preservation. 429

257 Chapter 9. Additional Considerations Page 19 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Not all jurisdictions have local agencies or commissions for historic preservation, but all states have a state historic preservation office (SHPO) that coordinates activities across the state. At the federal level, the NPS administers the National Register of Historic Places, the highest designation of historic status in the United States (National Park Service, a). At the global level, the United Nations Educational, Scientific and Cultural Organization (UNESCO) designates heritage sites (e.g., Yellowstone National Park). Each of these levels carries unique criteria for its review process. This typically involves a thorough review and documentation of the site, including its specific history, inventory of the current conditions, and plans for preservation Appraisers should recognize situations where landscapes or plants may be historic. These situations include historic districts, historic sites, or on other sites that may fit other relevant criteria above. It is generally accepted that historic designation increases the market value of sites, buildings, and landscapes. However, designation often limits legal uses or requires additional expenditures, which may reduce the site s market value The value of, or valuation methods for, appraising historic or heritage plants may be set by statute, ordinance, or other binding language such as an insurance policy. In such cases, the appraiser should comply with the provisions set forth Estimates of the values of historic trees and landscapes can be prepared using the Cost, Sales or Income Approaches. Such estimates are unlikely to represent the public interest value of the trees and landscapes. Appraisal approaches that can address public interest value are beyond the scope of this publication. 454

258 Chapter 9. Additional Considerations Page 20 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Some plant appraisers advocate adding premiums to estimates of value produced by the Cost, Sales or Income Approaches. The CTLA does not support highly subjective methods such as adding arbitrary or unsupportable premiums simply because they invariably prove impossible to objectively apply or evaluate in terms of their credibility. CASUALTY CLAIMS AND DAMAGE LOSS A casualty is the damage, destruction, or loss of property due to an event that is sudden, unexpected, or unusual (Internal Revenue Service, 2015). The event must be atypical, that is, not a common occurrence. They include: earthquakes, hurricanes, tornadoes, floods, storms, volcanic eruptions, ship-wrecks, mine cave-ins, sonic booms, vandalism, fire, smog, and car accidents that were not caused by the owner s willful negligence or action Owners may receive partial or full remuneration for the value of plants that were casualties. Three methods for recovery are: 1) insurance coverage, 2) income-tax deductions, and 3) civil damage claims Trees, shrubs, and other plants on a residential property that are damaged or destroyed by a casualty may be a deductible casualty loss. However, to claim a deduction, a decrease in the total value of the real estate must be established The following information is intended to be a general overview. The examples of law and insurance coverage pertain only to the United States. Laws and insurance coverage regulations are constantly changing. The client should be advised to consult the appropriate authority for guidance. 479

259 Chapter 9. Additional Considerations Page 21 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction The term sudden loss is ambiguous, especially in the horticultural world, and may include winter injury, rodent girdling, lightning damage, freeze damage, and certain insect and disease attacks. Typical exceptions to damage losses include: Insects and Diseases. The damage or destruction of trees, shrubs, or other plants by fungi, diseases, insects, worms, or similar pests is not a deductible casualty loss. Progressive Deterioration and Drought. Because drought causes damage through progressive deterioration, it is not considered a sudden event. Further, damage by drought can usually be controlled by providing water through artificial means. Loss of Future Profits. For example, ice-storm damages to standing timber that reduce the rate of growth or the quality of future timber are not deductible. To qualify as a casualty, existing timber must be rendered unfit for use Insurance Coverage Many residential (homeowner) insurance carriers use a standard insurance form developed by the Insurance Services Office (ISO, subsidiary of Verisk Analytics, Inc). The ISO standard form, HO 3, states that trees, shrubs, and lawns are covered for loss caused by fire, lightning, explosion, a riot or civil commotion, aircraft, vehicles not owned or operated by the resident, vandalism, malicious mischief, and theft. The limit of insurance (liability) of this coverage for all trees, shrubs, plants, and lawns may not exceed 5% of the limit of liability that applies to the dwelling, or more than $525 for any one tree, shrub, or plant. This is intended to cover the removal and replacement of the plant. Some insurance companies may provide additional coverage, or a separate policy, for individual trees or plants covering all risks (including wind) and with limits much higher than what is included in ISO s HO 3 Form. 504

260 Chapter 9. Additional Considerations Page 22 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction In general, damage to trees from wind, tornado, or hurricane is not covered unless the tree damages the home or other insured structure (e.g. shed, deck, fence, etc.). In such cases, insurance policies generally cover only the cost to remove the tree from the structure and the hauling away of debris. There is generally no limit to what policies will cover to remove the tree from a structure. Debris removal from the yard however, is limited to generally $500 or $1000. Clients should check their individual insurance policies Plants on commercial properties (including nurseries, orchards, etc.) are covered under a different Form and those policies may provide more comprehensive coverage. For example, golf course policies regularly provide coverage to replace destroyed trees at per tree limits of $5,000 to $10,000 or higher Civil and Criminal Damage Claims If the damage cannot be satisfied through routine insurance coverage, the plaintiff has recourse through the courts, at which time the services of an attorney, as well as a plant appraiser, are needed. A civil or criminal damage claim is a legal means by which a person can take action to recover losses resulting from negligence, intentional or unintentional acts that result in damage Double and Treble Damage Double and treble damage are legal terms that describe the amount one may claim for injury to person or damage to property, typically as a result of a tort a wrongful act or failure to act. The amount of this punitive damage varies from state to state. A fixed formula is established by law for certain torts and provides that the claimant who is awarded damages receives twice (or three times) the amount of the value of the damages awarded. The appraiser, therefore,

261 Chapter 9. Additional Considerations Page 23 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction must find the actual value of the damage. The appraiser should not suggest double or treble damages in his or her appraisal; this is the responsibility of the attorney or court Income-Tax Deductions Some trees involved in a casualty loss are deductible on Federal or state taxes (Internal Revenue Service, 2015). The CTLA recommends that tree appraisers work with a professional tax accountants or legal counsel when developing estimates of cost or value for the purposes of tax deductions The US Federal tax code accepts a loss of fair market value or the cost of repairs to damaged property as acceptable evidence of the loss. Repair costs must be: 1) necessary to restore the property to its pre-casualty condition; 2) not excessive; 3) not improve the conditions beyond pre-existing condition and; 4) after the repairs, the value of the property, as a result of the repairs, does not exceed the value it had immediately before the casualty Tax deductions for losses in excess of 10 percent over the adjusted gross income sustained during the taxable year that are not compensated for by insurance or other means, providing that dollars were actually spent for the restoration (emphasis added). Limitations on deductions differ for casualty or theft losses in connection with property held for the production of income or property used in a trade or business, and for casualty or theft losses in connection with nonbusiness property If a loss is covered by insurance, an insurance claim must be filed. The deductible amount is reduced by the amount of any reimbursement. The amount of a casualty loss is the lesser of this amount or the taxpayer s adjusted basis in the property. In the case of any casualty loss

262 Chapter 9. Additional Considerations Page 24 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction involving any nonbusiness real property and improvements thereon, such improvements as buildings and landscape plants are considered an integral part of the property Losses that occur in a federally declared disaster may be covered under modified rules (Federal Emergency Management Agency, 2013) Casualty loss deductions are for actual expenses. The IRS does not accept the Trunk Formula Technique, or any formula, as an appraisal of loss. Some variations of cost approach such as functional replacement and repair, as well as the market approach more closely follow the IRS criteria and standards Nonbusiness or Personal Property The sales comparison approach can be used to show a change in fair market value for tree loss. Appraising the property value before and after the loss can provide evidence of value lost Property Held for Production of Income In the case of casualty or loss from theft of plants owned to produce income, the amount of the loss may be deductible in full. For a property to be considered a trade or business, it must be used for livelihood or profit. A profit motive must be present; it distinguishes the activity from those activities engaged in primarily for personal satisfaction. This may include forest land, nursery production, orchards, bonsai production, sugar bush, or other property that is owned or rented. Business property, if owned by a taxpaying entity, can also include arboreta, public gardens and cemeteries where admission is charged. 579

263 Chapter 9. Additional Considerations Page 25 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction A casualty loss on a business property requires a single event identified with the property damaged or destruction. Loss or damage to plants on business property is determined based on the value in the plants, without regard to any change in the value of the entire property Other IRS Considerations The following excerpts were taken from the 2015 revision of Tax Information on Disasters, Casualties and Thefts (IRS Publication 547). They serve as a guide in determining casualty losses when dealing with the IRS and other agencies Proof of Loss The claimant must establish that a casualty or theft occurred and support the amount taken as a deduction. Sentimental value is not considered when determining the amount of loss; only actual market value is considered. The claimant should be able to document 1) the type of casualty and when it occurred; 2) that the loss was a direct result of the casualty; 3) that he or she was the owner of the property or contractually liable as a leaseholder to the owner for damage; 4) the cost or other basis of the property as evidenced by a purchase contract, deed, etc. (improvements to the property should be supported by evidence, such as checks or repairs); 5) depreciation allowed or allowable, if any; 6) fair market value before and after the casualty; and 7) the amount of insurance or other compensation received or recoverable, including the value of repairs, restoration, and cleanup provided without cost by disaster relief agencies or others Photographs Photographs of the property before and after it was damaged are helpful in establishing its condition and value before and after the casualty. Photographs showing the condition of the

264 Chapter 9. Additional Considerations Page 26 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction property after it was repaired, restored, or replaced may also be helpful. Each photograph should include the name of the photographer, date taken, location, and photo log number Real-Estate Appraisals The difference between the fair market value of the property immediately before the casualty and immediately afterward should be determined by a competent appraiser. Several factors are important in evaluating the accuracy of an appraiser: 1) the appraiser s familiarity with the property before and after the casualty; 2) the appraiser s knowledge of sales or comparable property in the area; 3) the appraiser s knowledge of conditions in the area of the casualty; and 4) the method(s) used in making the appraisal Appraisal Fees Fees for appraisal may be deducted in Schedule A (IRS Form 1040) as an expense in determining the tax liability. Fees are not a part of the casualty loss deduction Amount of Loss Rules for computing a casualty loss deduction on property used for personal purposes differ from those applied to property used for business purposes. Personal Casualty Losses. A casualty or theft loss of property used solely for personal purposes is deductible to the extent that: 1) the loss exceeds $100 for each casualty or theft; and 2) the aggregate amount of all such losses sustained by one individual during the taxable year exceeds 10 percent of the adjusted income of the individual. A husband and wife making a joint return for the taxable year are treated as one individual. (Ruling effective January 1, 1983.) Business Casualty Losses. A casualty or theft loss of business property held for the

265 Chapter 9. Additional Considerations Page 27 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction 630 production of income is deductible in full Three factors are important when computing the amount of casualty loss: 1) the decrease in fair market value of the property as a result of the casualty; 2) the adjusted basis of the property; and 3) the amount of insurance or other compensation that the claimant received or expected to receive as a result of the casualty Appraisal Procedure for Casualty Loss When dealing with casualty loss claims, plant appraisers should follow this procedure: 1. Advise the property owners of present rules and regulations and advise them to retain professional assistance. 2. Examine the tree and site, take photographs, and collect data and other computations. 3. Coordinate the plant appraisal report with the property owner and/or with the realestate appraiser; make sure that this joint effort is detailed and accurate. 4. Prepare and submit this report according to standards set by the appropriate consulting industry. Set an appraisal fee commensurate with time involved and not contingent on amount of appraisal or settlement. 5. Be prepared and have the back-up material to support the appraisal under the scrutiny of the courts or by the IRS

266 Chapter 9. Additional Considerations Page 28 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction 651 Literature Cited American National Standards Institute American Standard for Nursery Stock. ANSI Z60.1. AmericanHort. Columbus OH American National Standards Institute ANSI A300. Part 1. Pruning. Tree Care Industry Association. Londonderry NH American National Standards Institute ANSI Z133. Safety Requirements for Arboriculture Operations. Tree Care Industry Association. Londonderry NH Council of Tree and Landscape Appraisers Guide for Establishing Values of Trees and Other Plants. Revision IV. International Society of Arboriculture. Urbana IL Council of Tree and Landscape Appraisers Guide for Establishing Values of Trees and Other Plants. 6th edition. International Society of Arboriculture. Urbana IL Council of Tree and Landscape Appraisers Guide for Establishing Values of Trees and Other Plants. 7th edition. International Society of Arboriculture. Urbana IL. 673

267 Chapter 9. Additional Considerations Page 29 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Council of Tree and Landscape Appraisers Guide for Plant Appraisal. 8th edition. International Society of Arboriculture. Urbana IL Federal Emergency Management Agency Robert T. Stafford Disaster Relief and Emergency Assistance Act, as amended, and Related Authorities as of April (accessed December 21, 2016) Helms, J The Dictionary of Forestry. Society of American Foresters. Washington D.C Internal Revenue Service Publication 547 Casualties, Disasters, and Thefts. Washington D.C National Park Service, a. National Register of Historic Places. (accessed December 21, 2016) National Park Service, b. National Register Bulletin: Guidelines for Evaluating and Documenting Rural Historic Landscapes. (accessed December 21, 2016). 696

268 Chapter 9. Additional Considerations Page 30 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Shade Tree Evaluation Committee A Guide to the Professional Evaluation of Landscape Trees, Specimen Shrubs and Evergreens. Revision III. International Society of Arboriculture. Urbana IL. 700

269 Chapter 9. Additional Considerations Page 31 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Example 1. Timber Harvest Mrs. Smith decides to sell the timber on her 20-acre woodlot. She contacts her arborist who refers her to a forest appraiser. The appraiser uses the following process: 1. Sample the woodlot to determine the species, size and quality of the timber. 2. Results indicate 4,000 board feet (bf) of white pine, 1,000 bf of hemlock, 10,000 bf of red maple and 15,000 bf of yellow poplar and 20 cords of red pine suitable for pulp. 3. Consult the local stumpage survey (following page) to determine recent timber sales prices. Species Volume Unit price ($) Value ($) White pine 4 MBF Hemlock 11 MBF Red maple 10 MBF Yellow poplar 15 MBF Red pine 20 cords Total $8, The value of the timber is $8,756.

270 Chapter 9. Additional Considerations Page 32 Guide for Plant Appraisal, 10 th edition. DRAFT Not for Duplication or Reproduction Sample Stumpage Survey - May 2016 Northwest PA May 2016 Doyle Log Rule Sawtimber ($/MBF) Pulpwood ($/Cord) Species / Product Low Mean Median High Low Mean Median High Softwood White Pine $50 $78 $73 $110 $3 $5 $5 $7 Red Pine $50 $67 $67 $85 $7 $7 $7 $7 Jack Pine $0 $0 $0 $0 $0 $0 $0 $0 Hemlock $50 $69 $73 $88 $3 $5 $5 $7 Other Swd. $0 $0 $0 $0 $4 $4 $4 $4 Hardwood Sugar Maple $550 $615 $600 $731 Red Maple $350 $447 $415 $651 White Birch $73 $73 $73 $73 Sweet Birch $0 $0 $0 $0 Yellow Birch $0 $0 $0 $0 Hickory $50 $109 $110 $170 Yellow Poplar $145 $205 $210 $300 Scarlet Oak $250 $323 $330 $402 Chestnut Oak $250 $323 $330 $402 Black Oak $350 $485 $400 $923 Northern Red Oak $600 $697 $655 $923 White Oak $300 $542 $531 $810 Mixed Oak $449 $449 $449 $449 White Ash $350 $499 $490 $727 Black Cherry $960 $1,190 $1,100 $1,780 Beech $25 $43 $48 $50 Misc. Hdwds $42 $68 $62 $114 $2.00 $3.49 $3.00 $5.00 NOTE: Reported log rules vary; International & Scribner converted to Doyle. Saw timber is w oods-run. 712

271 Appendix 1. Plant Nomenclature (Adapted from Matheny and Clark, 2008) Plant appraisers should learn at least two names for a plant: a common name and a scientific name. There may be several common names for each plant but there is only one unique scientific name. While an Italian stone pine in California is an umbrella pine in Italy, both are Pinus pinea. The system of binomial nomenclature was established by Carolus Linnaeus in Species Plantarum published in 1753 (in Latin). The European and American nomenclature codes were merged into the International Code of Botanical Nomenclature (ICBM) in The ICBM was superseded by the International Code of Nomenclature for algae, fungi and plants in Cultivated plant names are regulated by the International Code of Nomenclature for Cultivated Plants (ICNCP). Plant appraisers must learn and use plant nomenclature correctly. The species name consists of the genus name and species epithet, both in Latin or Latinized. That is followed by the authority, the full or abbreviated name of the first person to assign the name to the plant, and the date of publication. For example, Pinus pinea L indicates Linneaus published the name in In common practice, however, the authority is rarely included with the binomial.

272 Species is both singular and plural. An undefined species within a genus is written as the genus name followed by sp. (singular) or spp. (plural), no italics. Example: Pinus sp. or Pinus spp. Where the plant is known in the trade by another name, or the plant has been reclassified and the name changed, the incorrect name may be identified as a synonym and placed in parentheses following the correct name. Example: Lophostemon confertus (syn. Tristania conferta). Hybrids between species are designated with an x. The genus remains the same, followed by x, then the species name. For hybrids between genera, the X is first, followed by the genus and species names. The x is not italicized. Example: Platanus x hispanica is a hybrid between P. occidentalis and P. orientalis. X Cupressocyparis leylandii is a hybrid between Chamaecyparis nootkatensis and Cupressus macrocarpa Below the species level are several classifications whose designation depends in part on the whether the plant type occurred naturally (variety), is confined to a geographic region (subspecies), or was cultivated (cultivar) (see table). The USDA Forest Service produced a list of tree species found in the United States as well as standardized four-letter codes for each.

273

274 Summary of plant nomenclature. Designation Description Notation Example genus (pl. A group of plants within a First letter capitalized, entire Quercus genera) family that are word italicized or underlined morphologically similar and (e.g. Quercus); may be contain one or more species abbreviated by first initial once written a single time. species A group of plants within a No capitalization, entire Quercus garryana genus having characteristic word italicized or that are distinct from other underlined. groups, and can interbreed. An undefined species within Quercus sp.; Quercus a genus may be written as spp. the genus name followed by sp. (singular) or spp. (plural), no italics. subspecies A group of plants within a Lower case, italicized or Quercus ilex ssp. species having distinct underlined, preceded by ssp. ballota differences that occur (abbreviation, not italicized) naturally and usually within a specific geographic region. variety A group of plants within a Lower case, italicized or Quercus garryana var.

275 species having distinct underlined, preceded by var. breweri differences that occur (abbreviation, not italicized) naturally, not limited to one geographic region. forma A group of plants within a Lower case, italicized or Cornus florida f. rubra species having distinct underlined, preceded by f. variations that occur (abbreviation, not italicized) sporadically and naturally cultivar A group of cultivated plants First letter capitalized, not Fraxinus uhdei within a species having italicized or underlined, in 'Majestic Beauty' or distinct characteristics and single quotes. If preceded by Fraxinus uhdei cv. which retain those cv. no quotation marks are Majestic Beauty characteristics when used reproduced sexually or asexually Patented A cultivar for which a First letter capitalized, not Betula nigra Heritage cultivar patent has been given. Only italicized or underlined, the patent holder may followed by ; cultivar may commercially propagate or be identified by a different sell cultivar. A cultivar may name or a string of numbers not be patented and and/or letters before patent is trademarked under the same granted and plant released to name. trade. Patent number may

276 follow name. Trademarked A name for a cultivar that is First letter capitalized, not Betula nigra Dura- cultivar trademarked and cannot be italicized or underlined, Heat (Actual used to identify any other followed by. A trademark cultivar name is Betula similar plant. Plant must may be registered, and then nigra 'Cully') also be given a cultivar the symbol is used. name approved by the International Cultivar Registration Authorities (ICRA). The trademark may be registered with the U.S. Patent and Trademark Office, and then the symbol is used. Matheny, N. and J. Clark Municipal Specialist Certification Study Guide. International Society of Arboriculture. Champaign IL.

277 Appendix 2. Calculating Area & Volume Area Area is a basic measurement used in most appraisals. It may be an area of land, as in a planting bed or forest track, it may be the cross sectional area of a tree trunk, or the projection of crown area. Area calculations are usually based on measurements from rectangles, circles, or ellipses. Area of a Rectangle Calculate the area of a rectangle using the formula: Area = Length X Width Width Length For example, the lawn area in the front yard of a house is 10 feet wide and 50 feet long, so it contains 500 square feet (10 x 50=500). Area of a Circle Calculate the area of a circle by using either of two formulas: (1) Area = π x r x (d/2) 2 or 3.14 X r 2 (2) Area = x d 2 Where radius (r) is half the diameter (d), and pi (π) is a constant equal to 3.14

278 For example, the cross-sectional area of a tree with a diameter of 19.7 (50 cm) is sq inches ( cm 2), which can be computed as either 3.14 x 9.85 (3.14 x 25 2 cm), or x (0.785 x 50 2 cm). Area of an Ellipse The more a tree s cross section deviates from a circle, the smaller its true area will be for a given circumference. The area of an ellipse will more accurately estimate the cross section of a tree using the formula: 1. Area = = 3.14 X (r 1 X r 2 ) ; or 2. Area = x (d 1 x d 2 ) Comment [TS1]: Change A and B ro d1, d2, add r1, r2 where d1 and d2 are the short and long diameters and r 1 and r 2, are the short and long radii For a tree with diameter measurements of 8.3 and 9.1 inches, these two formulas yield a cross-sectional area of 59.3 square inches. 1. Area = 3.14 x (4.15 x 4.55) = Area = x (8.3 x 9.1) = 59.3

279 Quadratic Mean Diameter (QMD) of Multiple Trees For a stand of trees, QMD is the square root of the mean of squared diameters for n trees, or: QMD = = ( d d d... d n ) n 1 2 Where d i = the diameter at breast height of an individual tree, and n = the total number of trees measured. The sign represents the summation of a group of data, in this case the sum of the squared diameters for n trees. For example, suppose there are 5 trees with diameters of 13, 11, 9, 8, and 9 inches. The sum of squares is 516 sq. in. and the mean of the summed squares is sq. in. The QMD is the square root of the mean, or 10.2 inches. The mathematical average is 10. Volume Volume is a three dimensional measurement resulting in cubic inches, cubic feet, or cubic meters. The simplest volume calculation is for a cube with a width (w), height (h), and depth (d). Volume of a cube: Volume= width x height x depth h w d

280 Crown Volume The footprint of the crown represents the ground shadow it would cast if the sun were directly overhead. If the crown is roughly circular in cross section, its footprint can be estimated by measuring the average diameter of the crown (e.g., by averaging two measurements taken at right angles) and multiplying pi (3.14) by the square of the radius Area of circle = π x r x r 2 or x d 2 When estimating the three-dimensional volume of the crown, techniques will vary according to its shape. It may be helpful to record two width measurements at right angles to each other at the base of the crown and at intermediate points to the top of the tree. Unless highly accurate estimates are required, the appraiser can simply record the average width. Multiply the average widths by crown height to estimate volume. Crown volumes can be calculated based upon simple geometric shapes (Coder 2000). For instance, the volume of a conical crown (most conifers) is 1/3 x (π x r 2 x h), where r = radius and h = crown height.

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282 Appendix 3. Missing Plants Appraisers will encounter situation where the subject plants have been completely removed or cut to the ground. Being able to reconstruct the pre-removal condition requires both quantitative and qualitative data. At a minimum it is necessary to obtain a count (or estimate) of the number of plants removed and their size. In addition, assessing plant health, structure and form, as well as planting density will likely be necessary. There are several potential sources of information: Photographs and plans from the client will inform what the area looked like prior to the loss. Aerial photographs can provide information about site and plants prior to the removal. If stumps are present, it is usually possible to identify the species, measure the diameter and assess the health and structure of the stump. Map the stump locations and key reference points such as property corners, fences, remaining trees, etc. Nearby trees (both on- and off-site) can be used as models of what was present. For example, a property owner removes 2 street trees located in front of their home. Street trees in the immediate neighbor may the same species, planted at the same time, and managed in a similar manner. For timber stands, publications provide estimates of volume based on diameter of cut stumps (need reference). Such tables are most useful in situations similar to forested timber settings: unmanaged woodlands, utility rights-of-way, and park preserves. They are less reliable in urban and suburban settings and where trees have been planted.

283 Data Availability Some data may be difficult to obtain. There may be no records, a property owner may not share information or even permit a site inspection. Information about predamage condition may also be lacking. There may be no direct evidence in the form of stumps. For these situations, aerial images/photographs, internet-based mapping, and satellite imagery may be useful. Where vegetation has been cut, it may be feasible to draw inferences about species, size, distribution, and quality from standing trees that remain on or adjacent to the damaged area. The appraiser should be wary of sampling adjacent areas without first verifying that the sample area is similar in character to the pre-damage condition of the subject property. Estimating DBH from Stumps The diameter of stumps will be larger than DBH due to the root flare. It is possible to develop a relationship between stump diameter and DBH by collecting measurements from nearby trees of the same age and species. The accuracy of these estimates is a function of how many sample trees or sample plots are measured, variation in how close to the ground the trees were cut, and the method of calculation. The more trees of the same size and species, the more reliable the estimate. Once a representative population of standing trees has been identified, a sampling protocol must be developed. This may range from systematically measuring either as many trees as possible or a sample of trees in selected plots. In either case, the appraiser measures the diameters and cut heights of the subject stumps, then samples standing trees by measuring both diameter at the mean cut stump height and DBH. It is usually not necessary to measure more than 20 trees of the same species and diameter to obtain good estimates. As variability increases, the required sample size increases.

284 In the example below, two ways to estimate the DBH of a missing black oak are shown. Only the very basic statistics, commonly employed in forestry, are presented. More complicated sampling procedures are beyond the scope of the Guide. When confronted with situations that require complex sampling procedures, the plant appraiser should enlist the services of a professional forester skilled in forest inventory and sampling design. When collecting tree data on sample plots over a large area, foresters commonly use multiple circular plots of fixed or variable radii to sample hundreds or thousands of trees. Here, it suffices to take a single caliper diameter measurement for each tree (e.g., across the face of the bole facing the plot center) (Husch et al. 2003). With multiple trees, this will produce unbiased diameter measurements. In situations such as timber trespass, where many thousands of trees have been cut, it may be appropriate to collect sample measurements from hundreds, if not thousands, of sample trees, to obtain sufficient data for predicting DBH across the full range of species and diameters represented. If the harvested area is large enough, it may be impractical to measure all of the stumps, in which case the appraiser measures a sample of the subject trees. Mathematical or Data Collection Introduced Errors Many plant appraisers and foresters are aware of the pitfalls of data and analyzed data. Appraisers that are not familiar with significant figures, measures of central tendency (mean, median, mode, and range), sampling variability, bias, accuracy, and precision may wish to get a brief overview of these topics in Appendix B.5.

285 Example 1. Predicting DBH Using Ratio Analysis. The subject tree was cut at 6 above ground and was inches in diameter at that point. The DBH can be estimated by measuring the diameter of nearby trees of the same species at both 6 and DBH. A diameter ratio (DBH / 6 ) for each sample tree is developed. Tree # Stump Diameter DBH DBH/Stump Diameter at 6 Ratio Total Mean DBH/Stump Diameter Ratio:

286 Mean Ratio Standard deviation Coefficient of variation 7.61% Applying the mean diameter ratio of the sampled trees to the subject tree, the DBH of the subject tree is calculated as: Subject stump diameter X mean ratio = predicted DBH x = 8.79

287 Example 2 Predicting DBH Using Regression Analysis. Another technique is to formulate a simple linear regression equation that will predict DBH across a range of stump diameters including that of the subject tree. Using the 20 trees in the previous example, diameter at 6 inches (the independent variable) is plotted against DBH (the dependent variable). All spreadsheet programs will perform these calculations. Regression (OLS) Analysis Y-intercept Slope Regression equation: Y = (X) Predicted Y (DBH) = 8.83 inches Correlation coefficient (R 2 ) = The Y-intercept is the point where the regression line intercepts the Y axis. The slope is the average change in Y (DBH) divided by the average change in X (stump diameter). For example, as stump diameter increases by 1 inch, the predicted change in DBH is inches. The Y-intercept and slope define the regression equation and, thus, the relationship between stump diameter and DBH. The resulting regression line is the best possible fit describing this relationship, or the fit that results in the lowest sum of squares of the differences between observed and predicted FBH.