THE WAIVER OF APPRAISAL

THE WAIVER OF APPRAISAL

Succinct Explanation of the RW Process When rights of way are needed for a highway project, the owner of the property needed for the project is offered compensation (FMVE). Then there are negotiations, Once agreement on price is obtained: the owner is paid compensation the owner signs the instrument and the acquiring agency obtains control of the property needed for the project. If agreement cannot be reached, the agency exercises its right of eminent domain by filing appropriation action and depositing the Fair Market Value Estimate (FMVE) with the court. 2 The Waiver of Appraisal

Succinct Explanation of Compensation Compensation is based on an appraisal process At ODOT this process is known as the "FMVE Delivery Process - Parcel Impact Notes are created Describes the valuation problem caused by the taking Recommends the valuation format - Appraiser is engaged/creates a written report - That report is reviewed by a review appraiser - The reviewer recommends the written report - The agency establishes FMVE - An offer of compensation can now be made to the owner RW Appraisal Report (Narrative) The Value Finding (VF) Report The Value Analysis (VA) 3 The Waiver of Appraisal

ODOT Uses 3 Valuation Formats The Right of Way Appraisal Report It s a before and after narrative appraisal report proving or disproving the existence of damages to the residue property It s Uniform Standards of Professional Appraisal Practice (USPAP) compliant Offer of owner accompaniment is mandated It s expensive and time consuming The Value Finding Appraisal Report (VF) It s an appraisal of the whole that allocates to the part taken Damages are not considered - so before and after are not necessary It s USPAP compliant Offer of owner accompaniment is mandated The Value Analysis (VA) It is a waiver of the appraisal It s quick, simplistic and should be not expensive to the agency 4 The Waiver of Appraisal

The Waiver of Appraisal At ODOT: Parcels acquired using waiver of appraisal 65% Parcels acquired using Value Finding appraisals +15% ODOT embraces and uses waiver of appraisals for most of its acquisition parcels. Subtotal 80% Parcels acquired with narrative before and after appraisals + 20% Total 100% 5 The Waiver of Appraisal

Why the Waiver of Appraisal was Developed Before waivers were allowed, agencies could only create narrative appraisal reports. Narrative appraisals require a valuation of the property before the taking, and then another valuation of the residue after the taking to determine damages + an allocation to the part taken. - This requires a skilled appraiser who is a known expert in eminent domain valuation - The narrative appraisal report is large (50 200 pages) - Its time consuming to create (4-8 weeks) - They re expensive ($5,000 - $15,000) The Waiver of Appraisal 6

Why the Waiver of Appraisal was Developed As they are appraisals, a review of the narrative appraisal is required, which is expensive and time consuming - Cost of a review ($2,500 - $7,500) - Time for a review (4 to 6 weeks) - Propensity to find problems creating more time delays The negotiator (who is not an appraiser) is required to explain the report to the owner Owners have a difficulties understanding the lengthy before and after narrative appraisal reports 7 The Waiver of Appraisal

Why the Waiver of Appraisal was Developed Narrative appraisals are certainly needed for complex valuation assignments - But narrative-style appraisals are overkill for simplistic, non-complicated valuation problems caused by small strip takes that represent the majority of acquisitions for road projects. 8 The Waiver of Appraisal

Why the Waiver of Appraisal was Developed Budgets are tight and it is a waste of tax payer money to pay for expensive narrative appraisal reports by credentialed appraisal experts to estimate compensation when a trained, non-credentialed staff person can estimate compensation that is not significantly different - Using simplified forms - Following explicit procedures - At a much reduced cost/fee ($500-$750) - And producing a compensation estimate in a matter of days/weeks 9 The Waiver of Appraisal

Why the Waiver of Appraisal was Developed That is why FHWA allows the use of waiver of appraisals. - Waivers allow agencies to move faster at less cost - Estimate compensation that is not significantly different than full before and after narrative appraisal reports. 10 The Waiver of Appraisal

What is a waiver of appraisal? It is permitted by laws and regulations - 49 CFR 24.102(c) - OAC 5501:2-5-06(B)(3) - ORC 163.59(C) - ORC 163.04(C) 11 The Waiver of Appraisal

Before negotiations, real property to be acquired shall be appraised, except as provided in 24.102(c)(2) An appraisal is not required if: The agency determines an appraisal unnecessary because: The valuation problem is uncomplicated and The anticipated value of the proposed acquisition is estimated at $10,000 or less, based on a review of available data When an appraisal is determined unnecessary, the agency shall prepare a waiver valuation. The person performing the waiver valuation must have sufficient understanding of the local real estate market to be qualified to make the waiver valuation.

What is a waiver of appraisal? Based in regulation, the conditions for an agency to waive the appraisal are: The agency must determine: The valuation problem is uncomplicated, and The FMVE is estimated at $10,000 or less. The preparer of the waiver must be qualified 13 The Waiver of Appraisal

What is a waiver of appraisal? ODOT has implemented this regulation: The waiver is on a standardized form called the Value Analysis (VA) The VA is signed, dated and retained in acquisition files and provided to the property owner at the time of the offer. ODOT s process requires an agency determines that an appraisal is unnecessary, that the valuation problem is uncomplicated and compensation is less than $10,000 on a form called Parcel Impact Notes. ODOT requires a review of the VA by a review appraiser with a recommendation by the reviewer that the VA should be the basis of FMVE. ODOT requires an official from the agency to establish FMVE. 14 The Waiver of Appraisal

Condition 1: The Valuation Problem is Uncomplicated Defining Uncomplicated 1. It has to be obvious the affect of the taking causes no damages to the residue property. - Because there are no damages to the residue There is no need to value the residue so No before and after valuation is required. 15 The Waiver of Appraisal

Condition 1: The Valuation Problem is Uncomplicated Defining Uncomplicated 2. Its obvious the taking does not adversely affect the residue. - This means the highest and best use (HBU) does not change - Whatever potential the property had before the taking, it has after the taking. - Therefore the taking/acquisition creates a simplistic, uncomplicated valuation problem. 16 The Waiver of Appraisal

Condition 1: The Valuation Problem is Uncomplicated Defining Uncomplicated 3. The highest and best use of the whole property is obvious. - No analysis is required for a reasonable person to arrive at the same conclusion of HBU. - It is obvious the HBU is the same as stated in the zoning code 17 The Waiver of Appraisal

Condition 1: The Valuation Problem is Uncomplicated Defining Uncomplicated 4. Its obvious that the estimated compensation from a full before and after narrative appraisal would not result in compensation being significantly different from that produced in a waiver of appraisal. - It would be a waste of taxpayer money to do a full before and after analysis of the property to disprove the existence of damages or to determine the property s HBU. 18 The Waiver of Appraisal

Condition 1: The Valuation Problem is Uncomplicated Defining Uncomplicated 5. The waiver of appraisal process is only used for partial take acquisitions. 6. There can be no buildings in the take area. - Minor site improvements or old structures having no contributory value can be within the take area. 19 The Waiver of Appraisal

1,650 SF highway easement/ 0.038 acres 10 acres reduced to 9.962 acres 1,320 ft. 10 acres Use of property still functions as single family residential No apparent damages Land value in the area is $8,000 per acre A rough preliminary estimate of compensation is: $8,000/A x 0.038 acres = $304 Compensation $10,000 330 ft Road 5 foot SH taking House situated on rural residential home site Conclusion is the valuation problem is simplistic / no apparent damages The estimated compensation is less than $10,000 The scope of work for this simplistic valuation problem is The Value Analysis - Can implement the waiver of appraisal provisions in regulations From a project management perspective: Turn around time for preparing and reviewing the VA should be short Cost should not be too expensive Good chance of settling the parcel without appropriation

140 Commercial retail building Zoning is GB / General Business Minimum site size is 14,000 SF 120 25 FT WD take WD Take is 25 x 140 = 3,500 SF Impact to residue: Site reduced from 16,800 SF to 13,300 SF; no longer conforms to zoning Parking reduced from 22 spaces to 11 spaces There is apparent loss in value to the residue: - Insufficient parking may affect occupancy, type of tenant - Nonconforming site size may affect ability to expand, rebuild Road Conclusion is the valuation problem is complex / damages are apparent The scope of work for this complex valuation problem is The Right of Way Appraisal Report - Narrative appraisal that values the property before the taking and after the taking From a project management perspective: Turn around time for preparing the appraisal and reviewing will be several months It will be expensive Increased chance of appropriation Possible relocation of occupant(s)

Condition 2: Value of Proposed Acquisition $10,000 Compensation in the State of Ohio is can be for 3 things: The Part Taken + Damages to the Part Not Taken + Temporary Easements for Construction Compensation An uncomplicated valuation problem cannot have damages to the residue Therefore the $10,000 threshold is limited to the Part Taken and Temporary Easements 22 The Waiver of Appraisal

Condition 2: Value of Proposed Acquisition $10,000 Valuation Assumptions and Process 1. Determine the whole property 2. Determine the highest and best use of the whole 3. Value the whole property as a vacant site using the Sales Comparison Approach - Ignore any improvements outside the take area - Determine the unit price of the whole Price/Acre or Price/SF 4. Allocate the unit price to the area taken 5. Add to this the value of any minor site improvements in the take area 6. Add to this the estimated rental amount for any Temporary Easements 23 The Waiver of Appraisal

Condition 3: Agency determines This form an is completed appraisal before is the unnecessary person does the appraisal or the Value Analysis Discuss the valuation problem caused by the taking Conclude if the valuation problem is Simplistic/Uncomplicated or Complex Recommend the valuation format to use based on the valuation problems previously discussed 24 The Waiver of Appraisal Have the parties representing agency sign off on this form agreeing that this appears to be the problem and that the VA is the correct valuation template to use. - The Review Appraiser - The Agency Official - The Appraiser

1WD 0.115 A $7,500/A None None $863 0.115 a X $7,500/a = $862.50 Rounded to: $863 5 x 1,000 = 5,000 SF 5,000 SF 43,560 SF = 0.115 acres WD Take is: 0.115 acres 25

Sale History of Whole Property ID the Whole Property Zoning of Whole Property Utility Availability of Whole Property HBU of Whole Property Sales Comparable to the Whole Property - No adjustments are required Estimating the value of the 120 acre whole property - $7,500/acre Allocating that value to the part taken $7,500/A x 0.115 acres = $863 26

The Waiver of Appraisal Requirements for the Value Analysis Pages 1 and 2 of the VA form Photographs of the subject Attachments: Sale Data Sheets Sales Location Map Parcel Impact Notes Sketch of the property 27 The Waiver of Appraisal

The Waiver of Appraisal Requirements for the Value Analysis The preparer must physically inspect the subject property/the take area The preparer does not have to offer the owner the right of accompaniment The preparer must be qualified - Consultants and LPA staff must be listed as approved to do VAs on the website for Consultant Services 28

Condition 4: Becoming Prequalified to do Waiver of Appraisals 29 The Waiver of Appraisal

Condition 4: Becoming Prequalified to do Waiver of Appraisals Basic appraisal knowledge Knowledge of VA procedures Ability to read plans Must be a certified or licensed appraiser If not certified, then must satisfactory complete the following ODOT classes: - Highway Plan Reading - Appraisal 101 - Laws - Appraisal 102 - Valuation of Simplistic Acquisitions - Appraisal 105 - Appraisal Review 30 Federal Funded Early Acquisition

Condition 4: Becoming Prequalified to do Waiver of Appraisals Provide a resume detailing: - Work history - Appraisal experience - Experience with the Value Analysis - ODOT RW courses successfully completed - Samples of VA demonstrating competency Your resume along with any pertinent attachments - Such as course certificates - Work samples Are submitted to the Office of Consultant Services. They refer the information to the Office of Real Estate who review the information submitted. The Office of Real Estate makes a recommendation to Consultant Services. CS makes the determination if someone is added to the list. 31 Federal Funded Early Acquisition

Certified Appraisers vs. USPAP vs.waiver of Appraisals Certified appraisers are certified because they have appraisal licenses/certifications issued to them by the Ohio Department of Commerce. Certified appraisers must comply with USPAP (ORC 4763.13) - USPAP governs the standards for appraisal in the United States - USPAP defines appraisal as: The act or process of developing an opinion of value; an opinion of value USPAP 2018-2109. The end product of a waiver valuation is an opinion of compensation - This meets the definition of appraisal under USPAP 32 The Waiver of Appraisal

Certified Appraisers : USPAP: Waiver of Appraisals As the waiver is declared not an appraisal in 49 CFR Part 24 and OAC, it does not comply with USPAP standards. There is an obvious conflict in law, regulation and USPAP. - The result is a certified appraiser who prepares a waiver valuation is subject to disciplinary action by the Ohio Department of Commerce for not complying with USPAP (a violation of ORC 4763.13) when they do a waiver valuation. 33 The Waiver of Appraisal

Certified Appraisers : USPAP: Waiver of Appraisals If the appraiser adds whatever is necessary to the VA to turn it into appraisal in an attempt to comply with USPAP, the agency must now comply with all the requirements for an appraisal defeating the purpose of the waiver of appraisal. To avoid the conundrum 34 The Waiver of Appraisal

The Ohio Administrative Code 5501:2-5-06 (B)(3)(b)(ii)(a) The language added into the OAC complies with the Jurisdictional Exception Rule in USPAP. This addition to the OAC precludes the person preparing or reviewing the VA from compliance to USPAP Therefore a certified appraiser only needs to properly invoke the Jurisdictional Exception Rule in USPAP when preparing the Value Analysis and the appraiser will not be in violation of USPAP.

FAQs Why does ODOT require the Value Analysis to be reviewed? The requirement of review does not add significant time or cost. The review helps to assure that: - Procedures have been followed, - Compensation is reasonable, and - Assists the agency legal counsel to argue in an appropriation that the agency has completed a proper valuation of the property. 36 The Waiver of Appraisal

FAQs Can 1 person estimate compensation and also negotiate? Yes, so long as FMVE is $10,000 or less Further, its possible on a group of parcels having simplistic ownerships and valuations that the same person can do: - An Abbreviated Title Report - Prepare the Value Analysis - Negotiate with the Owner - Do the Closing 37 The Waiver of Appraisal

END OF PRESENTATION 38 The Waiver of Appraisal