Chapter 3: Valuation - Legal Aspects & Policy


Section 1: General

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The legal appraising instructions set forth in this chapter represent federal laws and regulations, laws of the State of Texas and legal instructions by the OAG. These interpretations of the law must be understood and followed in all appraisal reports. The appraiser must not substitute his/her own interpretation of these laws, since this would place him or her in the position of acting as both judge and appraiser. The appraiser must exercise the type of thinking necessary to produce an objective opinion of value, not an attorney’s opinion.

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Purpose of Appraisals

The Texas Constitution permits the acquisition of private property for public use, but it requires that any such acquisition entitles the owner to adequate compensation. The Legislature has prescribed the judicial procedure to be followed when private property is acquired for a public purpose.

The purpose of appraising land needed for transportation purposes is to establish with reasonable certainty the amount of money the property owner is entitled to receive. While the property owner should receive all of the money he/she is entitled to receive, the state should not pay more than it is obligated to pay under the law.

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Market Value Defined

The generally accepted opinion of market value as defined by the courts of Texas may be stated as follows:

“Market Value is the price which the property would bring when it is offered for sale by one who desires, but is not obliged to sell, and is bought by one who is under no necessity of buying it, taking into consideration all of the uses to which it is reasonably adaptable and for which it either is or in all reasonable probability will become available within the reasonable future.”

[City of Austin v. Cannizzo, 267 S.W.2d 808 (Tex. 1954)]

This definition of “market value” is based on both the buyer and seller being willing, but not obliged to buy or sell. While this is not always the situation in right of way transactions, the courts have stated that this must be assumed in making right of way appraisals. An appraisal made on any other assumption will not be correct.

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Appraisal and Appraisal Review Standards

The authorities for appraisal and appraisal review standards and requirements are found in state and federal laws, the Code of Federal Regulations, TxDOT Appraisal and Review Manual, Uniform Appraisal Standards for Federal Land Acquisition (UASFLA) and Uniform Appraisal Standards for Professional Appraisal Practice (USPAP). With the exception of state and federal laws and differences between the above authorities, it is the intention of 49 CFR 24.103(a)(a) that the appraisal and appraisal review standards be consistent as much as possible with the requirements of USPAP.

However, 49 CFR 24.103 (a) requires that the federal requirements, which have the standing of standards, cannot be supplanted by USPAP. The relationship of federal standards and USPAP was addressed in OMB Bulletin 92-06 and is further explained in the 2005 changes to the Uniform Act:

“While these requirements (49 CFR 24.103(a)) are considered consistent with USPAP, neither can supplant the other, nor interchangeable. Appraisals performed for federal and federally-assisted real property acquisition must follow the requirements in this regulation.”

Fortunately, USPAP has provisions to permit it to be flexible and interact with other appraisal standards. By the use of the Jurisdictional Exception Rule and the Scope of Work Rule in USPAP, appraisers should be able to perform appraisal and review services and comply with the various appraisal and review standards and requirements. In the situations where the appraiser and reviewer are required to follow standards other than USPAP and which are established by law or public policy and require a lesser standard, the appraiser or reviewer can comply by invoking the Jurisdictional Exception Rule. The appraiser or reviewer can also comply with appraisal standards which are authorized by law or public policy and exceed the requirements of USPAP by expanding the extent of research performed, or the assistance that was provided by an expert under the Scope of Work Rule.

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