Deconstructing Elements Key to Valuing Defunct Railroad Corridors: The Appraisal Journal
September 18, 2014 08:00 AM
CHICAGO (Sept. 18, 2014) –When appraising obsolete railroadcorridors, each element of the land’s value as-is must be deconstructed in order to develop a credible opinion of value for the land, according to an article published this week in The Appraisal Journal.
The Appraisal Journal is the quarterly technical and academic publication of the Appraisal Institute, the nation’s largest professional association of real estate appraisers. The materials presented in the publication represent the opinions and views of the authors and not necessarily those of the Appraisal Institute.
“Appraising Railroad Corridors for Recreational Trail Use,” by Jeffrey K. Jones, MAI, looks at how to deconstruct an appraisal assignment when developing an opinion of value for land that is no longer in use as a railroad line, but could be repurposed for recreational use within a community, when there is no longer an economic demand for the corridor in that area. This deconstruction, or close examination of each element of value, is necessary because these properties and transactions are not part of the usual real estate market — there is only one buyer, and the purchase price is subsidized by the government.
Because of these factors, the author suggests that the appraiser needs to look at the basic elements — including the bundle of rights, highest and best use, and supply and demand — for the defunct railroad corridor. The author argues that a net liquidation value approach should be used because there is no market demand for the land as a functioning railroad corridor.
The author concludes that the preservation of these nonfunctional railroads and converting them to recreational trails canprovideboth social and economic benefits to the communities where they are located, but that it is the appraiser’s role is to form a fundamentally sound opinion of market value of the old railroad as it currently stands that is consistent with a proper scope of work.
Jeffrey K. Jones, MAI, is the chief appraiser for the Alabama Department of Transportation in Montgomery, Ala. He began his career as a county tax appraiser in the 1980s, and went on to do eminent domain appraising/review/court testimony; commercial appraisal review for regional/national banks (both as an employee and later as a contractor); and spent several years as an independent commercial appraiser affiliated with Real Estate Appraisers, LLC, before returning to ALDOT. He has a bachelor’s degree with an emphasis in real estate from the University of Southern Mississippi.
Read “Appraising Railroad Corridors for Recreational Trail Use” in the Summer 2014 issue of The Appraisal Journal.
Also in The Appraisal Journal’s Summer 2014 issue:
“The Appraisal of Power Plants,” by Mark Pomykacz, MAI, and Chris Olmsted, looks at the issues, methodologies and practice of power plant appraisal and how the uses of these appraisals range from acquisitions, financing, regulation, litigation or property tax purposes, to Internal Revenue Service or Securities and Exchange Commission reporting.
“A Valuation Framework for Rent-to-Own Housing Contracts,” by Sanjiv Jaggia, Ph.D., Hervé Roche, Ph.D., and Satish Thosar, Ph.D., presents a valuation framework for rent-to-own housing contracts, treating these arrangements as option contracts with and without abandonment options that affect the contract outcome.
“A Transparent Two-Step Categorization of Valuation Methods,” by Hans Lind, Ph.D., and Bo Nordlund, Ph.D., proposes a new way to view valuation methodologies, where the starting point is the way methods like the sales comparison, income capitalization and cost approaches can be connected to the market –either through information on comparable sales or through knowledge about actors in the market.
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The Appraisal Institute is a global professional association of real estate appraisers, with nearly 22,000 professionals in almost 60 countries throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Individuals of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA, SRA, AI-GRS and AI-RRS designations. Learn more at www.appraisalinstitute.org.