Timberland Appraisal Overview 2011
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Timberland Appraisal Overview 2011 Document Transcript

  • 1. Timberland Appraisal Overview University of Maine, Orono April 11, 2011 Don MacKay, Ph.D., CFAForest Economist & Appraiser don@forestresearchllc.com www.forestresearchllc.com 207.866.6566
  • 2. Contents • What do we mean by an appraisal? • Examples • Why would you want an appraisal? • Some history • Process steps • Appraisal approachesApril 11, 2011 Forest Research, LLC 2
  • 3. What is an Appraisal?• The act or process of estimating value• An analysis, opinion, or conclusion related to real estate• Valuation, consulting, or reviewApril 11, 2011 Forest Research, LLC 3
  • 4. Types of Real Estate Appraisal Specialties • Residential appraisers – Houses • Commercial appraisers – Office buildings – Warehouses – Retail – Golf courses – Lodging – Timberland – FarmsApril 11, 2011 Forest Research, LLC 4
  • 5. Timberland Assignment Examples• 50,000+ acre timberland property – Timber, leases, road tolls• 20,000+ acres with conservation easement purchase option• Blueberry and forestland property• Mountain summits• Timberland and development property• Riverfront land with endangered species• Camp lotsApril 11, 2011 Forest Research, LLC 5
  • 6. Examples of Reasons to Obtain a Timberland Appraisal • Estimate a potential sale price • Asset valuation for financial statements • Value a conservation easement – Sale – Donation • Casualty loss • Divorce/estate • Hypothetical analysisApril 11, 2011 Forest Research, LLC 6
  • 7. Appraisal History• FIRREA – Financial Institutions Reform, Recovery, and Enforcement Act (1989) – Appraisal industry under federal regulation – Mandate states to license and certify appraisers• Office of Management and Budget Circular A-129 (1991) – Required use of state certified or licensed appraisers by federal agenciesApril 11, 2011 Forest Research, LLC 7
  • 8. Timberland Valuation• History – A variety of approaches – Cost approach • Add components together – Size discounts • Straightforward and understandable – Sales comparison • Evaluate what others have paid for similar properties – Income approach • Value of future benefits • Net present valueApril 11, 2011 Forest Research, LLC 8
  • 9. Process Steps • Identify – the real estate to be valued – the property rights to be valued • Understand use of appraisal • Determine – date of value estimate – scope of the appraisal • Other limiting conditions – Extraordinary assumption • Presume as fact otherwise uncertain information – Hypothetical condition • Contrary to what existsApril 11, 2011 Forest Research, LLC 9
  • 10. Process Steps (Cont.) • Gather data on property • Typically inspect property • Gather other data – Timber prices – Market information – Regulations/zoning – Tax statusApril 11, 2011 Forest Research, LLC 10
  • 11. Highest and Best Use• Evaluate the highest and best use – That use which results in the highest value• Must consider – What is legally permissible? – What is physically possible? – What is financially feasible? – What is maximally productive?April 11, 2011 Forest Research, LLC 11
  • 12. Appraisal Approaches• Three approaches – Sales Comparison – Income Approach – Cost ApproachApril 11, 2011 Forest Research, LLC 12
  • 13. Cost Approach• Estimate the current cost to construct a reproduction of, or replacement for, the existing property• Benefits – Easy to understand – Commonly used in some areas• General technique – Estimate value of timber – Estimate value of landApril 11, 2011 Forest Research, LLC 13
  • 14. Cost Approach• Need a land and timber inventory – Species – Products • sawtimber • pulpwood – Land classifications – Units can be problematic – Premerchantable timber – Estimate value of land and timber • discounts for large amountsApril 11, 2011 Forest Research, LLC 14
  • 15. Sales Comparison• Compare the property being appraised to similar properties that have been sold recently• Example: – 500+ acres of timberland in western Maine – Seek sales of other properties with similar characteristics • Timber stocking • Amenities (lakes, rivers) • Zoning – Use the comparable sales to estimate a reasonable valueApril 11, 2011 Forest Research, LLC 15
  • 16. Sales Comparison• Types of adjustments – Interest conveyed – Financing – Conditions of sale – Market conditions – Location – Size – Land attributes – Timber attributesApril 11, 2011 Forest Research, LLC 16
  • 17. Income Approach• Income Capitalization Approach• Usually discounted cash flow• Derive a value for an income- producing property by converting its anticipated benefits (cash flows and reversion) into property value• Net present value• Many inputs• Subjectivity?April 11, 2011 Forest Research, LLC 17
  • 18. Income Approach• Model investment horizon (may be 10 to 30 years) – Timber cash flows – Land values – Management costs – Discount rate• Can be very complicated, but this is how investors buy larger properties• SoftwareApril 11, 2011 Forest Research, LLC 18
  • 19. Reconciliation• Typically need to come up with one value or a range• May have three estimates• Use judgment to come up with one value or a rangeApril 11, 2011 Forest Research, LLC 19
  • 20. Issues • Hard to get timber and land data – Need cooperation from realtors & other appraisers • Complexity increasing • Appraisal pressureApril 11, 2011 Forest Research, LLC 20
  • 21. Conclusion• Appraisal is the act or process of estimating value• Needed in a variety of situations• Properties and assignments are increasingly complex• The appraisal profession is highly regulatedApril 11, 2011 Forest Research, LLC 21
  • 22. References• Appraisal Institute. 2008. The appraisal of real estate. Thirteenth edition. 742 pp.• Appraisal Institute. 1993. The dictionary of real estate appraisal. Third edition. 527 pp.• The Appraisal Foundation. Uniform standards of professional appraisal practice, 2010-2011 edition.April 11, 2011 Forest Research, LLC 22