[Title 32 CFR 644.41]
[Code of Federal Regulations (annual edition) - July 1, 2002 Edition]
[Title 32 - NATIONAL DEFENSE]
[Subtitle A - Department of Defense (Continued)]
[Chapter V - DEPARTMENT OF THE ARMY (CONTINUED)]
[Subchapter J - REAL PROPERTY]
[Part 644 - REAL ESTATE HANDBOOK]
[Subpart B - Appraisal]
[Sec. 644.41 - General.]
[From the U.S. Government Printing Office]


32NATIONAL DEFENSE42002-07-012002-07-01false644.41Sec. 644.41NATIONAL DEFENSEDepartment of Defense (Continued)DEPARTMENT OF THE ARMY (CONTINUED)REAL PROPERTYREAL ESTATE HANDBOOKAppraisal
Sec. 644.41  General.

    (a) Purpose. (1) Subpart B describes the general procedures and 
standards governing all appraisal work undertaken in connection with the 
real estate responsibilities of the Corps of Engineers.
    (2) These guidelines are to promote and encourage the utilization of 
uniform appraisal methods, standards, and techniques. Their use should 
result in the most effective solutions to the many appraisal problems 
with which the Corps of Engineers is confronted in the implementation of 
its real estate programs involving acquisition, disposal, and management 
of all kinds of real property. They are to encourage the appraiser to 
include in his appraisal process sufficient factual data and other 
supporting information to develop sound, unbiased, and independent 
market value estimates; promote appraisal reporting techniques that 
reflect acceptable judicial concepts, intelligent and convincing 
reasoning; and provide a sound basis for negotiations and valid 
testimony in court.
    (b) Applicability. Provisions of this subpart are applicable to the 
Office of the Chief of Engineers and all field operating agencies having 
real estate responsibilities.
    (c) Procedures and Standards. (1) In acquiring, disposing, and 
managing real estate, or any interest therein, it is the practice of the 
Department of the Army to impartially protect the interests of all 
concerned.
    (2) The fair market value of the pertinent real estate interest in 
each parcel or tract of real property being acquired, disposed of or 
managed will be developed by a competent appraiser preparing an adequate 
appraisal report indicating sound estimates of values of each estate 
required. The appraisal may be prepared by either a staff employee or by 
a self-employed contract appraiser; however, each must have demonstrated 
the ability to exercise good judgment and must have had adequate 
experience in estimating the market value of the particular type of 
property involved. The qualifications and selection of staff appraisers 
will be based on the Civil Service Standards for the GS-1171 Series. A 
contract appraiser must also meet the experience requirements set forth 
in the Civil Service Standards.
    (3) It is the practice of the Chief of Engineers to engage the 
services of competent appraisers and consultants to augment staff 
capabilities in the appraisal of various real estate interests to be 
acquired, disposed of or managed by the Corps. Preference will be given 
to local appraisers and consultants, if qualified, and the costs of 
their services will be paid by the Government. Any appraiser having an 
interest in the property being appraised or any relationship, family or 
business, to the owner thereof, will be disqualified from appraising 
that particular tract.
    (4) Normally, only one appraisal per ownership or tract will be 
obtained. However, in cases involving controversial appraisal problems 
or precedent setting patterns of value in first priority areas of large 
projects, more than one appraisal of the same property may be obtained 
if considered necessary by the Division or District Engineer. If 
negotiations with the owners have reached an impasse and it appears that 
the filing of condemnation proceedings will be necessary to acquire the 
land or interest therein, the joint Corps of Engineers-Department of 
Justice policy provides that in fee takings, where the value of the 
property is between $50,000 and $100,000 only one appraisal need be 
provided to the Department of Justice so long as it is a contract 
appraisal; two appraisals will be provided for values exceeding 
$100,000. In the filing of condemnation proceedings for easement takings 
in excess of $50,000 two appraisals will be required. At least one of 
the two appraisals must be made by a contract appraiser. More often than 
not, both will be by contract appraisers.
    (5) Each appraisal report will be carefully reviewed and acted upon 
by a qualified reviewing appraiser.
    (6) It is essential that negotiations for any required real estate 
interests be conducted on the basis of an approved appraisal that 
reflects current fair market value. Any appraisal report with an 
effective date of six months or more prior to initiation of negotiations

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with the landowner or the date of filing of a condemnation action is 
considered outdated and should be reviewed and brought up to date to 
reflect current market conditions.
    (7) The appraiser may be called upon, in condemnation proceedings or 
otherwise, to establish the validity and competence of his estimates. He 
must familiarize himself with basic rules of trial evidence so that his 
testimony will be admissible and of probative value. Since, as a 
witness, he must be prepared to offer convincing testimony, his report 
should contain an analysis of all factual data upon which his estimates 
are based.
    (8) Local representatives of the Department of Justice are available 
for consultation in matters pertaining to acquisitions and legal 
principles involved in valuation problems.
    (9) Appraised valuations and the supporting appraisal reports, for 
acquisition or disposal purposes, are privileged information and the 
appraiser should not divulge his findings and opinions to anyone except 
authorized officials of the Government. Section 301(3), Pub. L. 91-646, 
January 2, 1971, dictates that written statement of, and summary of the 
basis for, the amount of the estimate of just compensation, shall be 
furnished the property owner. This does not mean that the appraisal 
report or any part of it should be given to the landowner, but only a 
summary of the amount and methods of appraisal.
    (10) The appraiser is usually the first personal contact the owner 
has with a representative of the Government. The owner is generally the 
prime source of information pertaining to the history, condition, 
management, and operation of the property. It has always been the Corps' 
practice for the appraiser to contact and consult with the owner of a 
property prior to and during the inspection of the tract. Section 
301(2), Pub. L. 91-646, January 2, 1971, dictates that ``* * * the owner 
shall be given an opportunity to accompany the appraiser during his 
inspection of the property.'' Before the appraiser makes his first visit 
to the property, he must make every effort to contact the owner and 
invite him or his designated agent or representative to accompany him on 
his actual field inspection. If personal contact is not possible, a 
registered letter should be sent to the owner. The appraisal report 
should reflect when and how the owner or his representative was 
contacted, whether or not he accompanied the appraiser, and any other 
pertinent comments.
    (d) Definition of Market Value. ``Under established law the 
criterion for just compensation is the fair market value of the property 
at the time of the taking. `Fair market value' is defined as the amount 
in cash, or on terms reasonably equivalent to cash, for which in all 
probability the property would be sold by a knowledgeable owner willing 
but not obligated to sell to a knowledgeable purchaser who desired but 
is not obligated to buy. In ascertaining that figure, consideration 
should be given to all matters that might be brought forward and 
reasonably be given substantial weight in bargaining by persons of 
ordinary prudence, but no consideration whatever should be given to 
matters not affecting market value. The cash or on terms reasonably 
equivalent to cash, requirement is important and numerous courts have 
noted this factor.'' (Source: ``Uniform Appraisal Standards For Federal 
Land Acquisitions,'' Interagency Land Acquisition Conference, 
Washington, DC, 1973.) This definition is considered to be consistent 
with another definition approved by the American Institute of Real 
Estate Appraisers which sets out market value ``as the highest price 
estimated in terms of money which a property will bring if exposed for 
sale in the open market, allowing a reasonable time to find a purchaser 
who buys with knowledge of all the uses to which it is adapted and for 
which it is capable of being used.''
    (e) Use of Appraisal Procedures. (1) The appraisal of real estate is 
the estimation of the fair market value of a specified interest in a 
particular ownership of property, and the appraisal profession has 
developed certain basic appraisal techniques and procedures. There are 
three approaches to value which have become standardized--the cost 
approach; the market approach; and the income approach.

[[Page 130]]

    (2) In the COST APPROACH, the appraiser estimates the cost of 
reproduction of the buildings and land improvements. A deduction is made 
for depreciation due to physical deterioration, and also for functional 
and economic obsolescence. The value of the land is then estimated by 
comparison with sales of similar unimproved tracts and added to the 
depreciated value of the improvements. This procedure is also referred 
to as the Summation Approach. This approach is always applicable in the 
valuation of publicly owned structures such as schools, fire houses, 
etc.
    (3) In the MARKET APPROACH, the appraiser compares the subject 
property on an overall basis with similar properties which have recently 
sold. Adjustments are made for all factors of dissimilarity. All known 
sales are considered, but the appraiser selects only those which are 
verified to be good ``arms length transactions'' and considered to be 
most similar to the property appraised. After these sales are analyzed 
and adjusted to the subject, this data is then correlated into a final 
estimate of value as indicated by the market.
    (4) In the INCOME APPROACH, the appraiser estimates the probable 
gross and net income to be expected from the rental of the property, 
adjusts for the quality and durability of this income stream, and 
processes this income into a value estimate by use of an appropriate 
capitalization rate.
    (5) The appraiser then correlates the indicated value estimates from 
the three approaches into a final estimated market value. Consideration 
is given to the relative strengths and weaknesses of each approach. 
Normally, the most weight is given to the approach commonly used by the 
typical purchasers of the type of property appraised. In almost all 
routine appraisals the market approach is most applicable.
    (f) Importance of the Appraisal Function. The measure of success or 
failure in any real estate transaction is inseparably bound up in the 
matter of price. The heart of the real estate business is the price 
estimate or appraisal. The importance of sound appraisals for the 
Department of the Army cannot be over-emphasized. The courts have 
established basic rules governing exercise of the power of eminent 
domain.
    (g) Appraisal is an ``Estimate.'' The market value of any real 
estate interest is not a matter of exact determination, and the 
appraiser does not ``establish'' or ``determine'' the value. An 
appraisal is an ``estimate'' of current value based upon and supported 
by an analysis of all the factors, physical, economic, and social which 
influence the present and future benefits to be derived from the 
ownership of the property appraised.
    (h) The Appraisal Format. In order to establish a degree of 
uniformity throughout the Corps as to an appraisal format, all staff 
appraisers and contract appraisers will follow the outline as set forth 
in the ``Uniform Appraisal Standards For Federal Land Acquisition'' and 
Sec. 644.42.