STATE AGRICULTURE STATE AGRICULTURE DEVELOPMENT DEVELOPMENT

COMMITTEECOMMITTEE2010 Annual Appraisal 2010 Annual Appraisal

ConferenceConference

Program reviewProgram reviewSusan E. Craft – Executive DirectorSusan E. Craft – Executive Director

Robert Baumley – Deputy Executive DirectorRobert Baumley – Deputy Executive Director

Program ReviewProgram ReviewSusan Craft Executive Director - SADCSusan Craft Executive Director - SADC

Appraisal Handbook Appraisal Handbook AmendmentsAmendments

Paul Burns, Chief Review Appraiser - SADCPaul Burns, Chief Review Appraiser - SADChttp://www.state.nj.us/agriculture/sadchttp://www.state.nj.us/agriculture/sadc

Click Farmland Preservation ProgramClick Farmland Preservation ProgramClick AppraisalsClick Appraisals

Click Farmland Appraisal ResourcesClick Farmland Appraisal Resources2010 SADC Appraiser Handbook2010 SADC Appraiser Handbook

ZONING AS A VALUATION ZONING AS A VALUATION FACTORFACTOR

DUAL APPRAISAL PROVISION OF THE DUAL APPRAISAL PROVISION OF THE HIGHLANDS ACT ALLOWING HYPOTHETICAL HIGHLANDS ACT ALLOWING HYPOTHETICAL APPRAISALS OF PROPERTIES UNDER APPRAISALS OF PROPERTIES UNDER ZONING AND ENVIRONMENTAL ZONING AND ENVIRONMENTAL REGULATIONS AS OF 1/1/04 HAS EXPIRED AS REGULATIONS AS OF 1/1/04 HAS EXPIRED AS OF 6/30/09.OF 6/30/09.

APPRAISALS MAY BE ORDERED UNDER THE APPRAISALS MAY BE ORDERED UNDER THE PROVISION, BUT WILL NOT BE CERTIFIED BY PROVISION, BUT WILL NOT BE CERTIFIED BY THE COMMITTEE UNTIL THE PROVISION IS THE COMMITTEE UNTIL THE PROVISION IS EXTENDED – IF EXTENDED AT ALL.EXTENDED – IF EXTENDED AT ALL.

RESIDENTIAL RESIDENTIAL OPPORTUNITIES/EXCEPTIONSOPPORTUNITIES/EXCEPTIONS

CLARIFICATION ADDED – CLARIFICATION ADDED – WITH EXCEPTIONS - COMMERCIAL, WITH EXCEPTIONS - COMMERCIAL,

INDUSTRIAL OR OTHER ALLOWABLE OR INDUSTRIAL OR OTHER ALLOWABLE OR SPECIFIED USE MUST BE CONSIDERED.SPECIFIED USE MUST BE CONSIDERED.

IMPACT OF EXISTING USES MUST IMPACT OF EXISTING USES MUST ALWAYS BE CONSIDERED.ALWAYS BE CONSIDERED.

Appraisal FormatAppraisal Format

All copies must be bound at the spine (we All copies must be bound at the spine (we prefer the plastic spiral binder)prefer the plastic spiral binder)

All copies must have color exhibitsAll copies must have color exhibits

Appraisal Order ChecklistAppraisal Order Checklist

III.III. Federal Farm and Ranch Land Protection FundingFederal Farm and Ranch Land Protection Funding A.A. Will Federal Funding be used in the preservation Will Federal Funding be used in the preservation

of this farm: of this farm: Yes___ No ___Yes___ No ___Impervious cover limitation ____ Acres or ______% Impervious cover limitation ____ Acres or ______% of premisesof premises

Yellow Book Compliant or USPAPYellow Book Compliant or USPAP Yellow Book___ USPAP___Yellow Book___ USPAP___ If “Yellow Book”, only appraisers on list of qualified Federal If “Yellow Book”, only appraisers on list of qualified Federal

Farmland Appraisers and have had Yellow Book Training Farmland Appraisers and have had Yellow Book Training will be permitted to appraise the property. Valuation under will be permitted to appraise the property. Valuation under current existing zoning and environmental regulations shall current existing zoning and environmental regulations shall be conducted strictly to Yellow Book Standards. be conducted strictly to Yellow Book Standards.

ContinuedContinued

Under both Yellow Book and USPAP, the Under both Yellow Book and USPAP, the appraiser should identify the USDA appraiser should identify the USDA NRCS NRCS (Natural (Natural Resource Conservation Service) as a Resource Conservation Service) as a user of the user of the appraisalappraisal, identify the appraisal as being of , identify the appraisal as being of surface rights onlysurface rights only, and identify the , and identify the impervious impervious cover restrictioncover restriction on the preserved farm and impact on the preserved farm and impact on value if any. on value if any. All adjustments should be market All adjustments should be market based and explained completelybased and explained completely. The appraisal of . The appraisal of the the farm as preserved (After Value)farm as preserved (After Value) must be must be identified as a identified as a hypothetical conditionhypothetical condition..

Checklist Change #2 – Dual ZoningChecklist Change #2 – Dual Zoning

The dual appraisal provision of the Highlands Act The dual appraisal provision of the Highlands Act sunset on June 30, 2009. Whereas the provision sunset on June 30, 2009. Whereas the provision is not currently applicable, this does not preclude is not currently applicable, this does not preclude the ordering entity (County, Municipality, Non-the ordering entity (County, Municipality, Non-Profit, SADC) from appraising the application Profit, SADC) from appraising the application under both “current” and “1/1/04” zoning in the under both “current” and “1/1/04” zoning in the event the Legislature makes this provision event the Legislature makes this provision available again in the future. available again in the future.

Restricted Farmland SalesRestricted Farmland Sales

23 NEW SALES FOUND23 NEW SALES FOUND 10 WERE SADC AUCTIONS10 WERE SADC AUCTIONS

– MINIMUM BIDS WERE RESET LOWER ON MINIMUM BIDS WERE RESET LOWER ON MOSTMOST

– LIMITATIONS ON HOUSE SIZE – 3,500SFLIMITATIONS ON HOUSE SIZE – 3,500SF– 1 SALE WITH NO RESIDENTIAL OPP.1 SALE WITH NO RESIDENTIAL OPP.

3 OTHERS OFFERED WITH NO RES. OPP. – NO 3 OTHERS OFFERED WITH NO RES. OPP. – NO TAKERSTAKERS

2 OTHER AUCTIONS WERE UNSUCCESSFUL2 OTHER AUCTIONS WERE UNSUCCESSFUL

9 PRIVATE PARTY SALES9 PRIVATE PARTY SALES 4 MUNICIPAL OR NON-PROFIT SALES4 MUNICIPAL OR NON-PROFIT SALES

RESTRICTED SALESRESTRICTED SALES2007 - 20102007 - 2010

Burlington 13 sales - $6,728/ac avg. Burlington 13 sales - $6,728/ac avg. – 121 acre average farm size121 acre average farm size

Hunterdon 15 sales - $16,500/ac. avg.Hunterdon 15 sales - $16,500/ac. avg.– 92.6 ac. average farm size92.6 ac. average farm size

Salem – 9 sales - **$9,146/ac. avg. Salem – 9 sales - **$9,146/ac. avg. (impacted by small acreage (impacted by small acreage sale)sale)

– 113 ac. average farm size113 ac. average farm size Warren – 7 sales - $6,591/ac. avg. 111 ac. Warren – 7 sales - $6,591/ac. avg. 111 ac.

average farm sizeaverage farm size Improvements contributed to all above averagesImprovements contributed to all above averages

Department of Community AffairsDepartment of Community AffairsRSIS StandardsRSIS Standards

Michael Ticktin – Chief of Michael Ticktin – Chief of Legislative AffairsLegislative Affairs

http://www.state.nj.us/dca/codes/nj-rsis/http://www.state.nj.us/dca/codes/nj-rsis/index.shtmlindex.shtml

Break 15minutesBreak 15minutes

State Board of Real Estate State Board of Real Estate AppraisersAppraisers

Barry Krauser, MAI, CREBarry Krauser, MAI, CRE

Residential Opportunities and Residential Opportunities and ExceptionsExceptions

Paul Burns – SADC Chief Review AppraiserPaul Burns – SADC Chief Review Appraiser

Residential Opportunities and Exceptions – Recommended Adjustment Directions

Subject Sale has RDSO

Sale has Existing

Sale has Non-Severable Exception

Sale has Severable Exception

RDSO = - (neg) - (neg) - (neg)

Existing + (pos) = - (neg) - (neg)

Non-Severable Exception

+ (pos) + (pos) = - (neg)

Severable Exception

+ (pos) + (pos) + (pos) =

An appraiser always has the right to adjust as they deem appropriate but should explain why if the adjustment is contrary to what appears logical. Often appraisers consider all residential opps. to be equal. The question for the appraiser is what does the market reflect.

Residential Opportunities - RDSOResidential Opportunities - RDSO

RDSO means RDSO means ResidualResidual Dwelling Site Opportunity Dwelling Site Opportunity Resident of House – Must be engaged in the day Resident of House – Must be engaged in the day

to day to day agricultural productionagricultural production of the premises of the premises Restriction on House Size – SADC usually 3,500 Restriction on House Size – SADC usually 3,500

SF, Counties vary or have no restrictionSF, Counties vary or have no restriction Location to be approved by CADB/SADCLocation to be approved by CADB/SADC ProofProof is required that operation is going to have a is required that operation is going to have a

production component managed by at least one production component managed by at least one resident of the house.resident of the house.

Residential Opportunity – Existing Residential Opportunity – Existing DwellingDwelling

Can be relocated on farm with CADB/SADC Can be relocated on farm with CADB/SADC ApprovalApproval

Recently – Replacement house size Recently – Replacement house size limitations have been placed in Deed of limitations have been placed in Deed of Easement, Otherwise size is not restrictedEasement, Otherwise size is not restricted

No restriction on who can live in the houseNo restriction on who can live in the house

Residential Opportunity – Non-Residential Opportunity – Non-Severable ExceptionSeverable Exception

Defined parcel of land not subject to the Defined parcel of land not subject to the preservation easementpreservation easement

May Have limitations – see application (one house May Have limitations – see application (one house etc.)etc.)

Usually has no limitation of house size or who can Usually has no limitation of house size or who can residereside

It’s potential must be associated with the It’s potential must be associated with the preserved farmpreserved farm

Can never be sold apart from the preserved Can never be sold apart from the preserved premisespremises

Application Page D• BLOCK, LOT & ACREAGE Page ___ of ___• (One and Only One Lot and/or Exception per Page) Duplicate this sheet as necessary to indicate EACH LOT,

ACREAGE and EXCEPTION SEPARATELY.• County / Municipal Code: ______ Block: _______ Lot: _________ Acres: ______• NJ State Development and Redevelopment Code: (check one)• ( ) (PA1) Metropolitan ( ) (PA4) Rural• ( ) (PA2) Suburban ( ) (PA4b) Rural & Environmentally Sensitive• ( ) (PA3) Fringe ( ) (PA5) Environmentally Sensitive• ( ) (P10) Pinelands ( ) Other .• EXCEPTION ** (Specific to above Lot)• 1. Acreage of exception: ________________________________________• 2. Site Specific Local Zoning Regulations:________________________________________• 3. Applicant’s reason for exception: ________________________________________• (Describe activities) ________________________________________•• 4. General Location of exception as depicted _________________________________________• on attached tax map: _________________________________________•• 5. Is the exception for county and/or municipal farmland preservation YES NO• and/or open space programs?• 6. Can the exception be severed from the premises? YES NO• (Refer to General Directions for definition of “severable” and “non-severable”)• 7. Does the size of the individual exception exceed local zoning requirements to • construct one single family residential dwelling? YES NO•• a. How many building lots or portions thereof are there in excess of the local • zoning requirements for one single family residential dwelling? _________• b. Is the landowner willing to restrict the exception to only one residential unit? YES NO• c. Will there be any Right To Farm language required in the deed of easement? YES NO• 8. Will the exception be used solely for non-agricultural uses? YES NO • ** Contact the SADC if you have any questions in regards to• clarification of exceptions.

Severable ExceptionSeverable Exception

Defined parcel of land not subject to the Defined parcel of land not subject to the preservation easementpreservation easement

May have limitations – see application (one house May have limitations – see application (one house etc.)etc.)

Usually has no limitation of house size or who can Usually has no limitation of house size or who can residereside

It’s potential must be associated with the It’s potential must be associated with the preserved farm in your appraisal.preserved farm in your appraisal.

Can be sold apart from the preserved premises Can be sold apart from the preserved premises but is not required to.but is not required to.

Must have its own independent accessMust have its own independent access

Deed of Easement – Paragraph 13Deed of Easement – Paragraph 13

Paragraph 13 or 13a deals with number Paragraph 13 or 13a deals with number of existing residential buildings on the of existing residential buildings on the preserved premises and also number of preserved premises and also number of residential buildings for agricultural residential buildings for agricultural labor purposeslabor purposes

Paragraph 13b deals with severable Paragraph 13b deals with severable and non-severable exceptionsand non-severable exceptions

Paragraph 14 iii deals with RDSOsParagraph 14 iii deals with RDSOs

Residential Opportunities

• Subject has – 1 RDSO, 1 Non-severable exception with an existing house in exception.

• Sale sold with 1 severable exception - vacant• = 2 residential opportunities for the subject• Subject has a superior number of opportunities

and positive adjustment is likely warranted

Subject Sale

nsx sx

RDSO

Grid Adjustment• Category Subject Sale 1 adj. Sale 2 adj. Sale 3 adj. Sale 4 adj.

•Res. Opp. 1 RDSO RDSO + Non-Sev + Sev. + 2 Non-Sev -/=

1 Non-Sev

The appraiser may have other opinions on the direction or amount of adjustment required based on his/her knowledge of the market or of the quality of a particular exception/residential opportunity used in the sales array, but the appraiser is required to accurately reflect the factual number and types of residential opportunities and clearly explain the adjustment or lack of adjustment made.

Residential Opportunities

• Subject has one vacant non-severable exception and one vacant severable exception = 2 residential opportunities

• Sale has one existing dwelling• Subject is likely superior for # of residential

opportunities, possibly type of opportunities

subject sale

nsx sx

EXISTING HOUSE

Divisions of Premises – Farmland Divisions of Premises – Farmland StewardshipStewardship

Deed Of Easement LanguageDeed Of Easement Language

-”…no subdivision of the land shall be -”…no subdivision of the land shall be permitted without the joint approval in writing permitted without the joint approval in writing of the Grantee and the Committee. In order of the Grantee and the Committee. In order to give approval, the Grantee and the to give approval, the Grantee and the Committee must find that the subdivision Committee must find that the subdivision shall be for an shall be for an agricultural purposeagricultural purpose and and result in result in agriculturally viableagriculturally viable parcels.” parcels.”

Divisions of Premises – Farmland Divisions of Premises – Farmland StewardshipStewardship

Agricultural Purpose TestAgricultural Purpose Test-Defined by the SADC as meaning that agricultural -Defined by the SADC as meaning that agricultural productionproduction activities will be expanded, diversified, activities will be expanded, diversified, and/or intensified as a result of the division.and/or intensified as a result of the division.

Agricultural Viability TestAgricultural Viability Test-Defined as each new parcel being capable of -Defined as each new parcel being capable of sustaining a sustaining a varietyvariety of agricultural operations that of agricultural operations that yield a reasonable economic return under normal yield a reasonable economic return under normal conditions, solely from the parcel’s agricultural conditions, solely from the parcel’s agricultural output.output.

Divisions of Premises – Farmland Divisions of Premises – Farmland StewardshipStewardship

Policy P-30-A Policy P-30-A (Available on SADC website)(Available on SADC website)

-Effective Date – April 28, 1994-Effective Date – April 28, 1994-Sets forth criteria, procedure and -Sets forth criteria, procedure and application form for Division requestsapplication form for Division requestsProcedureProcedure

1) Application filed with CADB1) Application filed with CADB 2) CADB review2) CADB review 3) (If approved) Sent to SADC for review3) (If approved) Sent to SADC for review

Divisions of Premises – Farmland Divisions of Premises – Farmland StewardshipStewardship

Major ConsiderationsMajor Considerations-Total Tillable Acreage-Total Tillable Acreage-Quality of Soils-Quality of Soils-Configuration of New Parcels-Configuration of New Parcels-Historical Agricultural Uses -Historical Agricultural Uses -Existing Agricultural Infrastructure-Existing Agricultural Infrastructure-Proximity to Other Farms/Preserved Farms-Proximity to Other Farms/Preserved Farms-Benefit to Production Agriculture-Benefit to Production Agriculture

Condemnation and Preserved FarmsCondemnation and Preserved Farms

Approval of Governor is needed for Approval of Governor is needed for condemnation absent federal authoritycondemnation absent federal authority

Deed of Easement - paragraph 23Deed of Easement - paragraph 23 Hypothetical Appraisal – as not preservedHypothetical Appraisal – as not preserved Highest and Best UseHighest and Best Use Unity of UseUnity of Use

Paragraph 23 – Deed of Easement• 23. That portion of the net proceeds, representing the value of the

land only (and not the value of the improvements), of a condemnation award or other disposition of the Premises following termination of this Deed of Easement, as permitted pursuant to N.J.S.A. 4:1C-11 et seq., P.L. 1983, c.32, shall be distributed among the Grantor and the Grantee in shares in proportion to the fair market value of their interests in the Premises on the date of execution of this Deed of Easement. For this purpose, the Grantee’s allocable share of the proceeds shall be the net proceeds multiplied by a fraction, the numerator of which is the fair market value of the development easement as certified by the Grantee at the time of the initial acquisition and the denominator of which is the full fair market value of the unrestricted Premises as certified by the Grantee at the time of the initial acquisition, which is identified as ( / ).

Paragraph 23 cont’d

• Furthermore, in the event that this Deed of Easement is enrolled in the New Jersey Agriculture Retention and Development Program by the Committee providing the Grantee with a cost share grant for the acquisition of this Deed of Easement, the Grantee’s proceeds shall be distributed among the Grantee and the Committee in shares in proportion to their respective cost share grants as set forth in the aforementioned cost sharing grant agreement. The Grantee shall use its share of the proceeds in a manner consistent with the provisions of N.J.S.A. 4:1C-11 et seq., P.L. 1983, c.32

Sample Partial Taking

Lot 1

Road

ROAD

Lot 2

Taking

10 acresTaking 1 acreRA = 9 acres

20 acres

Total Preserved Farm 30 AcresAfter Taking 29 Acres

ProblemProblem

Condemnor represents that taking is from Condemnor represents that taking is from Lot 2 only and Lot 1 is not included in their Lot 2 only and Lot 1 is not included in their Remaining area.Remaining area.

Does the appraiser value only lot 2 or lot 1 Does the appraiser value only lot 2 or lot 1 and 2 to determine the value of the and 2 to determine the value of the property? property?

Answer is not necessarily, but the appraiser Answer is not necessarily, but the appraiser must establish that highest and best use is must establish that highest and best use is not tied to the unaffected lot.not tied to the unaffected lot.

Unity of Use• Generally, when two or more properties are to be valued in one appraisal report, the• appraiser will be so advised at the time he/she is retained. However, additional• information may come to the appraiser’s attention during the research for the• assignment, which could affect whether two or more properties should be valued• together. Two or more properties should be valued together, regardless of whether

they are contiguous if: (a) the properties are functionally integrated, each being reasonably

• necessary to the use and enjoyment of the other; and (b) the properties are under• substantially the same ownership. Two separate properties with the same ownership

but with different highest and best uses can still be appraised in one appraisal provided that

• two separate values are determined by the appraiser.

• Source – NJDOT Right of Way manual (page 20)

Practical Version• Generally, when two or more properties are to be valued in one appraisal report, the• appraiser will be so advised at the time he/she is retained. However, additional• information may come to the appraiser’s attention during the research for the• assignment, which could affect whether two or more properties should be valued• together. Two or more properties should be valued together, regardless of whether

they are contiguous if: (a) the properties are functionally integrated, each being reasonably

• necessary to the use and enjoyment of the other; and (b) the properties are under• substantially the same ownership. Two separate properties with the same ownership

but with different highest and best uses can still be appraised in one appraisal provided that

• two separate values are determined by the appraiser.

• Source – NJDOT Right of Way manual (page 20)

Sample Taking

Lot 1

Road

ROAD

Lot 2

Taking

10 acresTaking 1 acreRA = 9 acres

20 acres

Total Preserved Farm 30 AcresAfter Taking 29 Acres

wetlands

Non-wetlands

Valuation ProblemValuation Problem

In most cases - Lot 2 unit value is higher In most cases - Lot 2 unit value is higher when integrated with Lot 1when integrated with Lot 1

Highest and Best Use is a merged Lot 1 and Highest and Best Use is a merged Lot 1 and 2 2

An independently appraised Lot 2 would be An independently appraised Lot 2 would be a wetland parcel, possibly not even as a wetland parcel, possibly not even as valuable as farmlandvaluable as farmland

Sample Partial Taking

• Farm preserved on both sides of road by one easement

Block 1 Lot 1

Taking

300’ Power line Easement

Road

Bl 2 L 1

Valuation ProblemValuation Problem

If Block 2 Lot 1 (Lot of taking) can be If Block 2 Lot 1 (Lot of taking) can be developed unto itself can it be appraised developed unto itself can it be appraised separately from Block 1 Lot 1?separately from Block 1 Lot 1?

Answer Yes, but damages to the remainder Answer Yes, but damages to the remainder need to be considered to Block 2 Lot 1 only.need to be considered to Block 2 Lot 1 only.

Would the per acre/per square foot value of Would the per acre/per square foot value of Block 2 Lot 1 be higher if merged with Block Block 2 Lot 1 be higher if merged with Block 1 lot 1?1 lot 1?