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Section 5: Appraisal and Negotiation Requirements

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Informational Notice to Owners Required

Federal regulations require that property owners be notified of the LPA’s interest in acquiring ROW. Property owners must also be informed of basic protections provided to them by law, and of TxDOT regulations and procedures.

Provide notice after the project is released for acquisition, and schedule delivery of notice to provide favorable relations with property owners. The notice may be given before or at pre-appraisal contact. An Informational Notice is available.

The notice should be understandable and should include the name and telephone number of a LPA representative. Property owners unable to read or understand the notice must be given appropriate translation and counseling. Furnish TxDOT’s booklet, “Right of Way Purchase by Counties and Cities” (for LPAs), which briefly explain the ROW acquisition process to property owners, with this informational notice.

Give the property owner or his designated representative an opportunity to accompany the appraiser during inspection of the property.

This notice is not the same as the relocation assistance notice discussed in General Information Notice (Notice of Displacement), in TxDOT’s Right of Way Manual Volume 3, Chapter 9, Section 1).

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Pre-appraisal Contact

The pre-appraisal contact should be a personal meeting. During this meeting, give the property owner information on the overall timing of ROW acquisition, the general type of facility to be constructed, and the appraisal procedure that will follow. However, do not make a commitment to value or make an offer before receiving approved values. Use this contact to initially determine existence of the following items:

  • property improvements
  • leasehold interests in improvements on the property
  • known hazardous materials affecting the property
  • known or evident underground improvements
  • known liens against the property
  • advertising signs on the property

During pre-appraisal contact, resolve any possible controversy with the property owner by distinguishing between realty being acquired and personalty not being acquired.

Pre-appraisal contact is discussed in TxDOT’s Appraisal and Review Manual. LPA’s may use TxDOT’s Form ROW-A-PAC, Pre-Appraisal Contact with Property Owners, during the pre-appraisal contact. Form ROW-A-PACs is available.

NOTE: LPAs should make every effort to identify potential on-site hazardous materials during the acquisition process.

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Establishment of Just Compensation Required

Before initiation of negotiations, appraise the real property, and have the values reviewed by a qualified reviewing appraiser, to establish just compensation. Samples of contracts for fee appraisers and fee reviewers are available. An exception to this requirement is when a parcel will be donated and the property owner waives the establishment of just compensation through the appraisal process. Refer to Procedures for Receiving Donations in this Guide, as well as ROW Donations and Exchanges in TxDOT’s Right of Way Manual, Volume 2, Chapter 6, Section 1 for more information on donations.

If the State is participating in the cost of acquisition, the LPA must use TxDOT forms. Just compensation will not be approved until the appraisals are reviewed and accepted by TxDOT personnel.

The amount of just compensation will not be less than the approved appraisal, taking into account the value of allowable damages or enhancements to any remaining property. For acquisition by negotiation, just compensation is the amount established as the approved value through the appraisal process and shown on ROW-A-10, Tabulation of Values. This form is available from TxDOT. For more information on the use of this form, refer to TxDOT’s Appraisal and Review Manual.

In accordance with the agreement, either the County Judge, City Mayor, or their appointed designees shall approve all appraisal reports, thereby approving the values.

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Policies on Use of Appraisers

The LPA shall establish criteria for determining the minimum qualifications of appraisers. Appraiser qualifications shall be consistent with the level of difficulty of the appraisal assignment. Rather than establish its own qualifications of appraisers, the LPA may, as its standard procedure, elect to use fee appraisers approved by the Department.

Effective January 1, 1993, appraisal assignments to independent fee appraisers on projects where there is Federal-aid in right of way and/or construction of the project may only be made to fee appraisers who are certified or licensed by the Texas Appraiser Licensing and Certification Board. The Board maintains a roster of certified/licensed appraisers and the roster is available in the Right of Way Section of each District office. Also, TxDOT’s list of approved fee appraisers contains the certification/license information for each appraiser and may be used by the LPA for reference and verification.

No appraiser or review appraiser shall have any interest, direct or indirect, in the real property being appraised for the LPA that would lead to a conflict with the preparation or review of the appraisal. Compensation for making an appraisal shall not be based on the amount of the valuation.

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Appraisal Standards

A detailed appraisal shall reflect nationally recognized appraisal standards, including, to the extent appropriate, the Uniform Appraisal Standards for Federal Land Acquisition and Uniform Standard Practices for Appraisal Professionals (USPAP). An appraisal must contain sufficient documentation, including valuation data and the appraiser's analysis of that data, to support his or her opinion of value. LPAs are encouraged to consult with TxDOT Right of Way personnel regarding acquisitions that require a detailed appraisal as well as those presenting uncomplicated valuations. As a minimum, the appraisal shall contain the following items:

  • The purpose and/or the function of the appraisal, a definition of the real estate being appraised, and a statement of the assumptions and limiting conditions affecting the appraisal.
  • An adequate description of the physical characteristics of the property being appraised (and, in the case of a partial acquisition, an adequate description of the remaining property); a statement of the known and observed encumbrances, if any; title information; location; zoning; present use; an analysis of highest and best use; and at least a five‑year sales history of the property.
  • All relevant and reliable approaches to value consistent with commonly accepted professional appraisal practices.
  • A description of comparable sales, including a description of all relevant physical, legal, and economic factors such as parties to the transaction, source and method of financing, and verification by a party involved in the transaction.
  • A statement of the value of the real property to be acquired and, for a partial acquisition, a statement of damages and enhancements, if any, to the remaining real property.
  • The effective date of valuation, date of appraisal, signature, and certification of the appraiser.
  • The condition of the property in regards to environmental conditions.

The LPA shall develop minimum standards for appraisals consistent with established and commonly accepted appraisal practice for those acquisitions which, by virtue of low value or simplicity, do not require the in‑depth analysis and presentation necessary in a detailed appraisal.

An appraisal is not required if the owner is donating the property and releases the LPA from this obligation.

If LPA determines that an formal appraisal is unnecessary because the valuation problem is uncomplicated and the fair market value is estimated at $10,000.00 or less, based on a review of available data, and there is no State cost participation involved, it shall use the ROW-A-PVD, Parcel Value Determination for LPAs. If State cost participation is involved, the LPA must use a State-approved appraiser and shall submit TxDOT’s Form ROW-A-7, Real Estate Value Finding Report (TxDOT) with supporting documentation, to TxDOT for its review and acceptance. Should TxDOT disapprove the value, either additional documentation or a formal appraisal will be required.

An administrative settlement may be made on a parcel value determination, even if the total settlement may exceed $10,000.00. For more information on administrative settlements, refer to Administrative Settlements in this Guide.

The Uniform Act requires that the property owner, or the owner's designated representative, be given an opportunity to accompany the appraiser during the appraiser's inspection of the property. The invitation to the property owner may be given either by the acquiring agency or by the appraiser. The invitation should be made in writing, with sufficient lead time for the owner to arrange to be present or to request an alternative time. If the owner declines the invitation to accompany the appraiser, the declination should also be in writing and be retained in the agency's file. A form type of letter may be used for this purpose. TxDOT personnel should be consulted if additional information regarding owner accompaniment is desired.

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Appraisal Review Requirements

The LPA shall have an appraisal review process which includes as a minimum:

  • A qualified reviewing appraiser shall examine all appraisals to assure that they meet TxDOT appraisal requirements and shall, prior to acceptance, seek correction or revision of those which do not.
  • If the reviewing appraiser is unable to approve or recommend approval of an appraisal as adequate support for compensation, the reviewing appraiser may develop appraisal documentation in accordance with the procedures entitled Appraisal Standards to support an approved or recommended value if it is determined that it is not practical to obtain additional appraisals.
  • The reviewing appraiser's certification and the recommended or approved value of the property shall be set forth in a signed written statement which identifies the appraisal reports reviewed and explains the basis for such determination. Any damages or enhancements to any remaining property shall also be identified in the statement.
  • The environmental condition of the property.

The review appraiser plays an important role in the acquisition process and is charged with a great deal of responsibility. Persons assigned this responsibility should be thoroughly qualified by education and experience to review appraisal and specialty reports to ensure that the approved estimate of fair market value is reasonably supported. Reviewers are also responsible for obtaining corrections and/or revisions to reports when necessary. For details concerning specific educational and experience qualifications and for assistance in selecting qualified review appraisers, LPAs are encouraged to contact TxDOT Right of Way personnel.

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Policies on Appraisal and State Acquisition of Improvements

Include all buildings, structures, or other improvements located on ROW parcels in appraisals, whether owned by landowner or lessees, when determined to be real property under State law.

The LPA may make payments to the property owner, acquiring all improvements in the name of the State on State program system projects. Alternately, the LPA may allow the property owner to retain improvements. Make appropriate reductions in the parcel price if the property owner retains improvements.

If an improvement is classified as a Category II bisection, a supplemental paragraph will be sub-mitted on the Tabulation of Values, signed by responsible engineering personnel stating that the cutting of the building is a design and location requirement and that any reduc-tion in right of way would adversely affect requirements for highway purposes. This recommendation will then bear the signature of the District Engineer or designated representative.

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Written Offer to Purchase Required

Make a prompt written offer for the full just compensation amount to the property owner. Delivery of the offer constitutes initiation of negotiations and is the principal date for determination of relocation assistance entitlements. Include the following items in written offers:

  • A statement of the amount offered as just compensation. In the case of partial acquisition, state compensation for real property and compensation for damages, if any, separately.
  • A description and location of the ROW parcel and of the type of interest to be acquired. The description and location of the parcel can be in general terms.
  • A copy of the appraisal (excluding the review document) on which the offer is based.

Retain copies of all signed letters in LPA files and promptly forward one copy of the offer letter to the District.

Sample offer letters for a parcel with improvements and a parcel with no improvements are available. These sample offer letters contain supplemental wording for use in those cases where a Petroleum Storage Tank Removal Agreement is required.

In accordance with the agreement, either the County Judge, City Mayor, or their appointed designees shall sign all offer letters.

When delivering final offer letters, include an explanation of the administrative settlement process for the property owner’s (s’) information.

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Owner Retention of Improvements

The property owner may retain some or all of the real property improvements located on an improved parcel if the parcel is acquired through negotiation. When improvements are retained by the owner, just compensation for the real property interest acquired will not be less than the difference between (1) the approved value for the owner’s entire interest and (2) the established retention values of all improvement(s). The amount deducted from just compensation for a parcel when any improvement is retained is referred to as “retention value.”

Form ROW-A-10, or similar form, shows improvements to consider in negotiations and retention values. When a ROW taking bisects an improvement, identify the improvement as either a Category I bisection or Category II bisection on form utilized. TxDOT’s Form ROW-A-10 and retention value determination are discussed in TxDOT’s Appraisal and Review Manual.

If improvements are retained, the property owner’s deed to TxDOT must properly indicate all retention. Deed clauses required for retention of improvements and bisections are discussed in TxDOT’s Right of Way Manual, Volume 2, Chapter 14.

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Negotiation Contacts and Reports

Negotiations are usually conducted through personal contacts with the property owner. Due to constraints of staff or travel, negotiations may be conducted via electronic means or by postal service mail, with a follow-up telephone call. If the owner is available in the local area, they should be offered the option of a personal contact.

The negotiation contact usually consists of more than one meeting with a property owner. During negotiation contact:

  • present the offer letter;
  • fully discuss the offer;
  • answer any questions the owner has regarding the offer and acquisition;
  • explain the administrative settlement process to the property owner;
  • give the owner a ROW acquisition brochure;
  • give the owner a relocation brochure;
  • deliver a copy of the appraisal upon which the offer is based; and
  • have property owner sign ROW-A-RA, Acknowledgement of Receipt of Appraisal Report, which is available from TxDOT, or use a similar form. Should the property owner refuse to sign an acknowledgement of receipt of appraisal report, the agency may send the appraisal report to the property owner via certified mail, return receipt requested.

No specific negotiation report is required; however, all owner contacts should be documented in the file.

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Updating Offer of Just Compensation

Have an appraisal updated or obtain a new appraisal if any of the following conditions occur:

  • Information provided by the property owner indicates a need for a new or updated appraisal, such as the owner locating an overlooked improvement.
  • A material change in the property’s condition indicates a need for a new or updated appraisal.
  • Significant time passes since the last appraisal.
  • Real estate market conditions change significantly.

If the updated appraisal report or new appraisal indicates a need to change the just compensation purchase offer, then submit a revised written offer to the property owner. The revised written offer must rescind the original offer.

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Negotiations after Condemnation Proceedings Have Been Initiated

When a revised approved value of just compensation indicating an increase in value is established before the Special Commissioners’ hearing, deliver a written revised final offer for the value. Do not terminate condemnation proceedings until the parcel is completely closed by negotiation.

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Control of Access Rights

Per Transportation Code, §203.031, the Texas Transportation Commission may designate the entire interstate highway system and portions of the State Highway System as controlled access highways. Consequently, along these highways, it is necessary to either limit or completely deny abutting owner access rights. These access rights include right of ingress and egress and right of direct access to and from the abutting property.

For further information, refer to TxDOT’s Right of Way Manual, Volume 2, Chapter 5, Section 15.

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Policy on “Uneconomic Remainders” (With State Participation)

Refer to TxDOT’s Right of Way Manual, Volume 2, Chapter 5, Section 16 for TxDOT policy on uneconomic remainders.

TxDOT will not participate in acquiring property in excess of ROW required for the project, unless a parcel is being acquired in the name of the State, and has been designated by the Texas Transportation Commission as an uneconomic remainder.

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Excess Takings (With State Participation)

The LPA, however, may choose to acquire a whole property when only a portion of the property is in the required ROW. In this case, TxDOT’s reimbursement is based only on the predetermined value of the portion required for ROW purposes, plus damages to the remainder. In no case will this amount exceed the total paid by the LPA. For excess takings, title will be vested in TxDOT only for the parcel required for ROW purposes.

If an excess taking involves an Category I bisected improvement and not retained by the property owner, TxDOT reimbursement for the improvement depends on the LPA conveying title to TxDOT for the improvement and for the tract of land needed for ROW purposes. The deed from the LPA must include the approved proper clause for conveyance of bisected improvements found TxDOT’s Right of Way Manual, Volume 2, Chapter 14. TxDOT then sells the improvement through the Texas Building and Procurement Commission (TBPC) and gives the LPA appropriate credit.

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Information for Income Tax Purposes for Property Owners

Generally, the State’s policy also applies where LPA’s are acquiring ROW under contractual agreement with TxDOT. Refer to TxDOT’s Right of Way Manual, Volume 2, Chapter 5, Section 25. However, the responsibility for and the method of furnishing such information will be as follows:

  • Any breakdown of the total consideration paid between compensation for property acquired and compensation for damages to the owner’s remaining property is not to be documented in the deed but may be documented in a separate agreement or contract of sale. This separate agreement with the property owner is strictly a responsibility of the LPA.
  • TxDOT’s approved value is for the sole purpose of establishing the maximum amount in which TxDOT will participate. This does not in any way restrict the LPA in negotiations or in what they consider damages. Therefore, TxDOT will not be party to any agreement or contract of sale between a property owner and the LPA. Thus, TxDOT will not be involved in any monetary breakdown made for tax purposes.
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