Property appraisals are an art:
Land appraisals can be subjective
By Elizabeth Pezzullo
The Free Lance-Star (Fredericksburg, VA), August 5, 2004

When Fredericksburg officials negotiated with the Silver Cos. last year to buy a chunk of land to dump silt, the two groups got independent appraisals.

The city's appraiser—William Johnson of Johnson Commercial Real Estate in Fredericksburg—determined the land was worth $1.6 million.

The Silver Cos.' appraiser, Thorne Consultants of Kensington, Md., put the figure at $4.3 million.

How two appraisal companies, reviewing the same piece of property, arrived at such wildly different numbers is all part of the mystery of land appraisals.

"It's considered part science, part art," according to a brochure distributed by the Piedmont Environmental Council, a conservation group that preserves land.

"Appraisals are only an estimate of value [based] on the appraiser and his or her methodology."

Appraisals on typical land issues--such as the silt deal--are often disputed and sometimes end up in court.

That outcome was narrowly avoided in the Fredericksburg silt case when both sides agreed that the city would pay $2.5 million for the tract.

How appraisals are conducted surfaced as an issue recently when state tax officials confirmed they were looking into conservation-easement tax credits, which are based on private appraisals.

Appraisals for conservation easements are different from those for a mortgage loan or an estate settlement.

The issue being reviewed now involves a 437-acre conservation easement on land running along the Rappahannock River in Fredericksburg and Stafford County.

Conservation easements are placed on land to restrict development.

At the same time, landowners can make big bucks by collecting hefty tax credits, which are based on the land's appraised value.

Although the landowner can use only up to $100,000 of the tax credits each year, the remainder can be sold for profit.

Though the practice is only a few years old in Virginia, the windfall enjoyed by some landowners has the Virginia Department of Taxation taking a harder look at the policy.

A subject of the inquiry is the Silver Cos. and perhaps $27 million made available to the company in tax credits.

Chris Kaila, president of Christian P. Kaila & Associates, an appraisal firm in Fredericksburg, said he was approached about six months ago by a local businessman considering buying some of the Celebrate Virginia tax credits.

"What I told him was that I didn't want anything to do with it because I didn't have a good feeling that the appraisal would hold up," Kaila said. "There was something funny about it. It seemed like it was based on monopoly money."

Also at issue is how a Silver Cos.-hired appraiser determined the worth of the 129-acre swath of land in its Celebrate Virginia tourism complex on the Fredericksburg side of the river.

The easement on the land is held by both the Virginia Outdoors Foundation and the city of Fredericksburg.

Appraisers must determine a parcel's value based on its highest and best use, and on the value of nearby comparable properties.

But when dealing with conservation easements, appraisers must also factor in restrictions on the land, several appraisers said.

And, according to the environmental council, conservation-easement appraisals must be done within 60 days of the date the gift is turned over. That prevents any previous appraisals on the land from being used.

In July 2003, the city's commissioner of revenue assessed the Fredericksburg land under easement at $310 dollars per acre, or $40,000 for the whole slice.

Assessments, however, are generally low and not as detailed as appraisals.

But according to at least three city sources, the Silver Cos.' appraisal valued the same tract at more than $30 million. The Silver Cos. would not comment on the appraisal.

"There could not have been that much of a spread," Kaila said. "It shouldn't be more than a 10 [percent] to 15 percent difference."

Kaila said he hasn't seen the appraisal done on the Celebrate Virginia easement, but is familiar with the site.

"If there's steep topography, and it's in the flood plain, well, you know it's not suitable for a Wal-Mart or a Lowe's," he said. "I would love to see the comparables used in that report."

It's mandatory in Virginia for every appraiser to be certified and licensed by the Virginia State Appraisers Board.

According to Don Kelly of the Appraisal Institute in Chicago, appraisers don't operate in a vacuum.

"Appraisers are bound by a code of ethics, standards and practices," Kelly said. "And violations can get them removed from the association, and can even result in charges brought by the state and loss of certification."

But the real problem may be getting appraisers to turn in those they view as unethical.

Kelly said the Appraisal Institute encourages people to complain.

"Bankers, lenders, consumers and localities, as well as other appraisers, should turn in those who may doing something unethical or inappropriate," Kelly said.

©2004 The Free Lance-Star Publishing Co. of Fredericksburg, Va.

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