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Section 5: Procedures on Appraisals of Specific Types & Situations

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Advertising Sign Interests

Please read the detailed discussion in the ROW Acquisition Manual, Chapter 7, Procedures Regarding Advertising Sign Interests before beginning an appraisal of a parcel that includes an outdoor advertising sign structure.

The sign structure itself is to be treated and valued as a real property fixture unless it is movable and portable in accordance with State v. Clear Channel Outdoor, Inc., 463 S.W.3d 488 (Tex. 2015). At the initial site visit, the appraiser should provide the property owner with form ROW-N-120 Affidavit and Disclaimer - Owner if it has been determined that the property owner does not own the sign structure. Appraisals involving advertising signs should be prepared on form ROW-A-5-OAS Real Estate Appraisal Report - OAS.

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Advertising Sign Sites

Sign sites for off-premise advertising signs shall be valued for the present value of the land lease or by the analysis of comparable sign site sales. An advertising sign site becomes damaged as a property interest only if a legal advertising sign is unable to be relocated to the remaining property under the procedures discussed in the ROW Acquisition Manual, Chapter 7, Procedures Regarding Advertising Sign Interests. The present value of the sign site may be found by the appraiser by discounting the remaining lease payments to the date of the appraisal using market-derived data. If TxDOT ROW PD has been able to verify that there is a valid ground lease associated with the sign structure currently in effect with a remaining term of more than a month to month time period, the lease document should be provided to the appraiser.

The valuation of sign sites utilizing discounted cash flow must be based on the economic or market rent derived from comparable sign site rentals. Discounting factors such as vacancy rates, expenses and discount rates are to be derived from market-derived data. As a guide and check, the value of a sign site should not exceed the capitalized value of the site. The above information and observations apply to how such a ground lease may affect the overall valuation of the parcel itself, relating to the value for owner of such parcel.

When an off-premise advertising sign structure is acquired by the State prior to the valuation date of the land on which it is located (whether the signed is owned by the fee owner or a sign site lessee or easement holder), any resulting changes in highest and best use or value of the land should be ignored, because they are a result of project influence. For example, to the extent the sign site contributes to the value of the land, the State's acquisition of the sign for the same project cannot be the sole basis of any change in highest and best use or value of the land.

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Americans with Disabilities Act (ADA)

Appraisers and review appraisers must remember that existing improvements on a parcel may not comply with ADA requirements, which could affect their market value. Appraisal reports contain statements on “Basic Assumptions” and/or “Contingent and Limiting Conditions” such as:

“It is assumed that there is full compliance with all applicable federal, state, and local land use laws and environmental regulations and unless non-compliance is noted, described , and considered herein.”

Some appraisers may comment:

“The Americans with Disabilities Act (ADA) became effective January 26, 1992. The appraiser has not made a specific compliance survey and /or analysis of this property to determine whether it is in conformity with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property does not comply with one or more elements of the ADA. If so, this fact could have a negative effect upon the value of the property. Since the appraiser has no direct evidence relating to this issue, the appraiser did not consider possible noncompliance with the requirements of the ADA in estimating the value of the subject property.”

Though the above-noted statements may be made in appraisal reports, if an improvement is being “Category II” bisected, and depending on local requirements, older improvements may need “cost to cure” measures to add ramps, elevators, and/or other special equipment to comply with ADA requirements. A technical expert’s report could be secured to help determine the adequate measures and costs for the improvement’s compliance with ADA.

For further information and study, a special federal website lists various publications and regulations on ADA.

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Bisected Improvements

A bisected improvement is a building or structure severed by the proposed right of way line. Special consideration must be given to bisected improvements in the appraisal process and in recommending values.

In order to classify each bisected improvement properly, as acquired in its entirety, (Category I), or partially acquired, (Category II), one of the following should be determined:

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  • Category I: If the part of the bisected improvement remaining outside of the right of way cannot be reconstructed to restore its use economically or if there is nothing but salvage left, the entire structure may be acquired by purchase or condemnation.
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  • Category II: If the part of the bisected improvement outside of the right of way can be reconstructed to restore its use economically, then it cannot be acquired by purchase or condemnation.

If the right of way line bisects an improvement, the appraiser should be instructed to make the appraisal on the basis that the bisection will occur. A technical expert may be contracted to assist the appraiser in determining if the use of the improvement has been destroyed and/or determine the costs that would have to be incurred in restoring its use to the bisected improvement.

The appraisal report will then include the information necessary for ROW PD in its review to determine if the use of the improvement has been destroyed. The appraisal report will include the information needed to arrive at a value based on acquiring either the entire improvement or only the part located within the right of way. If it becomes necessary later to acquire the parcel by eminent domain proceedings, and the whole improvement is to be acquired, the appraiser should be instructed to appraise the bisected improvement as a whole unit and as being located in the right of way acquisition.

The appraiser should also be instructed that TxDOT usually bears the demolition cost of a Category I bisected improvement within the state’s right of way (unless it is retained/removed by the property owner). If a bisected improvement is Category II, TxDOT bears the demolition costs to remove the bisected portion within the state’s right of way and the appraiser should include restorative costs as damages to the remainder.

ROW PD will review the appraisal reports and inspect the bisected improvement to make such determination and specifically recommend the Category into which the structure falls, (either I or II). This recommendation should be made in the reviewing appraiser’s review comments for the parcel involved. This recommendation must identify the improvement and include a discussion of the appraisal data. If the structure is classified as Category II bisection in TxC, a supplemental paragraph will need to be added to the ROW-A-10 Tabulation of Values. It will be signed by responsible engineering personnel stating that the “cutting of the building is a design and location requirement and that any reduction in right of way would adversely affect requirements for transportation purposes.” This recommendation will then bear the signature of the district engineer; however, the designated representative must be a Texas Licensed Professional Engineer.

If it is determined that the improvement is properly classified as Category I and therefore to be acquired in its entirety, the recommended value on the ROW-A-10 Tabulation of Values will show the value of the improvement as determined in the appraisal report, and no appraised damages will be shown to the remainder of the improvement. The indicated value for the whole improvement will be supported within the appraisal reports.

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Canals or Irrigation Lines in Private Ownership

If a privately owned irrigation line, irrigation canal, or drainage canal crosses the entire width of the proposed right of way, any adjustment or relocation will be considered as a construction item at state expense. This shall include required adjustment or relocation of any minor laterals and pumps, etc., leading off the main line or canal crossing being adjusted. Any costs for replacement property for the line or canal relocation shall be an appraisal item. The appraiser should be informed that this is a construction responsibility.

If the privately owned line or canal will not cross the right of way but is to be relocated as an improvement out of the way of the highway project, the relocation work will be handled as a right of way acquisition item. Such adjustments should be handled in the appraisal process as a part of the right of way parcel. In the appraisal process, it will be necessary to consider the size and general value of the remainder before making a decision about the irrigation line or canal. It will be necessary to estimate the value of the line or canal restored and unrestored in order to ascertain if restoration is the most economical procedure. After this determination, the appraiser should determine the estimated restored and unrestored cost rather than a value for the improvement plus damages, if any, to the remaining facility, since the state does not desire to take title to a line or canal facility as a part of the right of way parcel. The owner will be paid accordingly and will perform the adjustment work himself; refer to Chapter 8, Section 1, General.

If a property remainder is of such a size and apparent value that the adjustment of the irrigation facility is unwarranted, the parcel should be appraised in the normal manner. This amount would be paid to the property owner. Refer to Irrigated Land for information on the appraisal of such property.

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Cemeteries

Under provisions of Transportation Code, Section 203.051(e), the Commission cannot condemn property used for or dedicated for cemetery purposes, as defined in Health and Safety Code, Sections 711.034 and 711.035. In some situations, through cooperation of local officials, a dedication may be set aside, but generally, this will not be possible.

There are certain cemeteries such as private ones and those maintained by fraternal and religious organizations to which the provisions of Health and Safety Code, Sections 711.034 and 711.035, apparently do not apply. It is suggested, however, that the acquisition of any cemetery be undertaken only if it is definitely impractical to avoid such an acquisition.

For more information on TxDOT’s acquisition policy on cemeteries, refer to the ROW Acquisition Manual, Chapter 5, Section 26, Cemeteries (For State).

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Channel, Private, and Temporary Easements

The appraisal of an easement constitutes a valuation of only part of the property rights of the fee interest. The appraisal process and support documentation are the same as for other types of property. However, since there is only a partial acquisition of property rights, there are five issues, rather than the normal three issues of valuation [State v. Carpenter, 55 S.W.2d 219 (1932)].

If the acquisition of an easement will apparently cause no resultant damage to the remainder of the parent tract, the appraisal should supply information to establish the following items 1 and 2. If it is possible that there will be damages or enhancements to the property remainder, form ROW-A-5 Real Estate Appraisal Report should be used with narrative support not only establishing the answers to items 1 & 2 below, but also establishing items 3, 4, and 5:

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  1. value of the fee interest of the easement area before the imposition of the easement;
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  2. value of the fee interest of the easement area after the imposition of the easement;
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  3. value of the remainder before the acquisition;
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  4. value of the remainder after the acquisition; and
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  5. value of the whole property before imposition of the easement.

Comparable sales may be limited and difficult to obtain. Sales of properties subject to easements having effects similar to those occurring in the appraised property should be used.

When a temporary easement secured by form ROW-N-83 Temporary Easement will deny the owner the use of the easement area for a given length of time, items 2 and 4 above may be the difference between the value of items 1 & 3 above and the present worth of the land value at the termination of the easement. This should be the same amount as the present worth of the annual rent value of the land for the term of the easement.

When an existing easement is privately owned by a third party and is to be acquired (extinguished) along with the property it crosses, a separate value should not be itemized on form ROW-A-10 Tabulation of Values; however, the ownership of the easement should be noted on the form. Should the fee owner not be able to work out a release of the third party private easement and/or requests that TxDOT directly negotiate the release of the easement, a separate value should be determined for the private easement by the appraiser. This value would then be offered to the private easement holder for the easement’s release by form ROW-N-17 Release of Easement. If this offer is rejected, condemnation proceedings would be requested to secure both the fee and easement rights.

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Convenience Stores

Texas courts recognize the three traditional approaches to determining market value: the Sales Comparison Approach, the Cost Approach, and the Income Approach. State v. Cent. Expressway Sign Assocs., 302 S.W.3d 866, 871 (Tex. 2009) (CESA); City of Harlingen v. Estate of Sharnoneau, 48 S.W.3d 177, 182 (Tex. 2001). The traditional Income Approach involves the capitalization of the net operating income of properties that produce rental income to arrive at a present value. CESA, 302 S.W.3d at 871; Sharboneau, 48 S.W.3d at 183.

Texas courts recognize that “income from a business operated on the property is not recoverable and should not be included in a condemnation award.” CESA, 302, S.W.3d at 871. This is true even when there is evidence that the business’s location is crucial to its success. Id. In CESA, the property owners argued that because revenue was derived from the intrinsic value of the land, the business revenue should be treated like rental income for purposes of the Income Approach. Id. The Supreme Court of Texas rejected this argument. Id. at 871-73.

Thus, TxDOT will not approve any appraisal of convenience stores or retail fuel properties that uses business income or revenue to value real property.

Appraisals that utilize the following methods to value a convenience store and/or retail fuel store will not be approved because of their reliance on business income:

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  • a Comparison Approach that utilizes a gross profit multiplier;
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  • an Income Approach that capitalizes Earnings Before Interest, Depreciation, Taxes, and Amortization (EBIDTA);
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  • any method that compares gallons sold or in-store merchandise sold.

Appraisals of convenience store properties should be carefully examined for methodologies that appear on the surface to be acceptable, but may still include noncompensable business income, goodwill, intangible assets, or furniture, fixtures and equipment (FF&E).

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County, City, State, or Federal Property

When county, city, state or federal lands that were acquired for other than highway, street, road or alley purposes are needed for the construction or operation of the State Highway System, such lands should be appraised in the same manner as lands under private ownership. For property adjustment work in the acquisition of Federal lands and in the acquisition of property from U.S. Forest Service, Corps of Engineers, Bureau of Land Management, U.S. Fish and Wildlife Service see the ROW Acquisition Manual, Chapter 11, ROW Acquisition of Federal Lands.

For all the parcels to be purchased from a county or city, a note should be made on the form ROW-A-10 Tabulation of Values and right of way map stating that the parcel was not acquired by the county or city for public road purposes.

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Crop Allotments

The federal government, through county committees, grants crop allotments to farmers on such crops as cotton, peanuts, and soybeans. The farmer is allowed to grow only his allotment in order to qualify for federal loans on these crops. The allotments are granted to the farmer and do not necessarily attach to the land. The owner, usually, can transfer his allotment to other land. In addition, he may be able to sell or lease the allotment.

Land appraised for right of way should be valued at its market value without an allotment, even though it is currently being farmed with a crop grown under an allotment. To appraise it considering its earnings under an allotment would produce a value for both the land and the allotment. Since the owner will retain the allotment, such a value is improper. The appraiser should use comparable sales that have been sold without the allotment being transferred as part of the purchase price, or the value of the allotment should be adjusted out of the sale price, such adjustment being supported by market data.

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Crops, Timber, Orchards, and Nursery Stock

Before appraisal assignments, it should be determined if the time schedule for right of way acquisition will allow harvesting of crops and nursery stock in the ground. If not, the appraiser should be instructed to consider the crops or nursery stock in the ground as improvements. If the factual situation changes during negotiation, and the appraisals and approved values do not reflect the true situation, they should be revised accordingly. Letters from the appraisers together with a ROW PD analysis and the proper recommended value forms may accomplish such changes.

When considering timberlands where marketable timber is grown for commercial purposes, the value of the timber should be established just as it is for any other improvements. Thus, a retention value may be established if the owner desires to retain the timber.

Orchard stock and cultivated trees should be treated as realty, and should not be valued separate and apart from the land but are to be valued insofar as they can be shown to contribute to the value of the land. Retention value may be ascribed to orchard stock and cultivated trees, assuming that they can be retained in a viable condition, economically feasible to the landowner.

Due to the specialized nature of appraising timber, orchard stock and cultivated trees it might be desirable for ROW PD to employ a technical expert for determining retention value.

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Donated Parcels

All parcels donated to the state must be appraised by acceptable appraisal standards. Forms ROW-A-7 Real Estate Value Finding and ROW-A-8 Memorandum of Value Determination may be used by qualified staff for uncomplicated parcels, and forms ROW-A-5 Real Estate Appraisal Report and ROW-A-6 Real Estate Appraisal Report for all other parcels. Parcels whose value is estimated in excess of $10,000.00 must be appraised by a state-certified fee appraiser, unless the landowner waives his/her right, in writing, to an appraisal.

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Driveways and Entrances

With the increased volume of traffic on all traveled ways, entrances, and exits of adequate design must be provided for abutting properties, especially commercial properties, that make ingress and egress as safe as possible to the traveling public and to those who patronize roadside commercial establishments.

Under the provisions and policies of Texas Administrative Code, Title 43, Chapter 11, Subchapter C, TxDOT issues access driveway permits to owners of property abutting state highways. The permitting process on highways on the state highway system within the jurisdiction of a municipality or eligible county (as defined in the Texas Administrative Code) may be transferred to the municipality or eligible county at their request and with approval by TxDOT. Issuance of permits, construction, and maintenance of these driveways should be in accordance with the Design Division’s Access Management Manual and Maintenance Division’s Use of Right of Way by Others Manual. The purpose of the rules and regulations is to accomplish a coordinated development between the highway and the abutting property it serves, rather than to restrict, unreasonably, access to abutting property.

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Environmental and Hazardous Material Issues

Anyone who has knowledge of any environmental hazards within the vicinity of the subject property should disclose such information to ROW PD so that proper acquisition may be made.

When the appraiser inspects the property to be acquired, he/she should report any conditions observed during inspection or discovered through appraisal research leading the appraiser/reviewer to believe that adverse environmental conditions affect the subject property, or is contrary with information or descriptions provided by others.

If the district and/or the appraiser are not qualified to determine the extent or impact suspected contamination might have on the parcel, the ROW Program Office should be notified in order that a professional consultant may be obtained to render an environmental evaluation. Environmental concerns include hazardous wastes/storage/materials, or manufacturing processes that pose a threat to the environment or human health and natural resources, such as wetlands, which may ultimately affect the appraisal process and the amount of compensation paid.

It must be noted that an environmental evaluation of a parcel is only possible when the property owner gives consent.

The Appraisals Standards Board has issued Advisory Opinion A09, which addresses this issue.

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Exempt Damages (Cost to Cure)

Exempt damages are estimates of damages for the remainder property that the appraiser and reviewer determine should not be offset by enhancements or benefits. Typically, exempt damages are cost to cure estimates for curative work the appraiser believes to be necessary for the remainder property to function.

The following situations are especially applicable in the consideration and determination of exempt damages:

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  • where remainder properties must have curative work performed to restore functionality and the offsetting of enhancements will leave the property owner without the financial resources to perform the cure.
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  • for the state to avoid the exposure of greater claims for damages if the cost to cure cannot be performed by the owner due to offsetting of enhancements.
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  • to address safety and health issues that must be resolved for remainder properties.
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  • to comply with Minute Order 0872 of the Texas Transportation Commission that requires adequate compensation be paid to property owners to re-fence their remainder properties.

It is emphasized that appraisers and reviewers should consider each situation individually to decide if certain damages or curative values qualify as exempt damages, and therefore must be exempted from the offsetting of values found for enhancements and benefits.

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Fencing

Fencing falls into two categories: access fencing and property fencing. The first type is state-owned control of access fencing, which is a design and construction responsibility. Access fencing is built along or immediately inside the control of access lines as needed to act as a physical barrier to the through lanes. It may also be built along the right of way line as a necessary safeguard against traffic hazards caused by the intrusion of people, animals, vehicles, machines, etc. from outside the right of way. If control of access fences are to be provided, the appraiser should be advised about location and type of fence. Control of access fences may, as a secondary function, afford the property owner the benefits of a property fence. In this case, the appraiser should be instructed to recognize the benefits of the fence to eliminate damages otherwise resulting from an unfenced condition. The appraiser should consider the fencing in the acquisition as part of the land value. When parcels are submitted for condemnation, complete details regarding fencing plans should be included for the information of the OAG.

The second type is privately owned property fencing placed immediately outside and along the right of way line to serve the abutting property needs and will be provided by the owner. If the appraisal report(s) includes information on the estimated cost to re-fence, and such amount is considered adequate, this amount would be the extent of reduced value due to an unfenced condition. TxDOT’s formal finding of value will be based upon this appraisal procedure; refer to Chapter 8, Section 1, General.

A sketch showing fence and gate locations together with the specifications and a letter size reduction of the fence and gate plans showing the design to be used may also be submitted with the appraisal report. Cattle guards located on public roads will be handled as construction items as a part of the highway facility; however, any relocation or construction of new cattle guards at private entrances will be considered a part of the property fence as a right of way item. The cost will be borne by the property owner and should be included as a part of the fencing plans and estimate. It is to be understood that these instructions concerning private entrances relate only to the portion that is an incremental part of the right of way line fence. TxDOT will not perform other entrance work on the property remainder. In addition, policy is not changed as to the property owner’s and state’s responsibilities in replacing existing entrances or building new entrances from the right of way line to connect with the highway facility.

When appraising a rural type property that is fenced, the value of the fencing normally should be included in the value of the land. Comparable sales that have fencing should be used to support the value of the subject without special reference to or adjustment for fences unless they are not comparable. For record purposes, when fencing is included in the land value, it will be necessary for the reviewer to subtract the fencing from the land value. Normally, the amount subtracted and shown as fencing value on form ROW-A-10 Tabulation of Values will be salvage value. When the subtracted value for fencing is salvage value, the retention value should be a like amount.

Particular attention should be directed to the highest and best use of the property and whether such usage is dependent upon a fenced condition. If the appraisal reports establish a different highest and best use, such as subdivision or commercial use, for fenced land being used for farm or ranch purposes, the appraiser should make allowance for the contributory value of the fence considering the highest and best use. In a partial acquisition from a property of this nature, normally the appraisal of the remainder will indicate no damage due to an unfenced condition. If the highest and best use is an interim use requiring fences, the appraisal of the remainder may indicate damages due to unfenced conditions depending on the fact situation in each case.

By Minute Order Number 80872, the Commission authorized the release of procedures whereby offers of payments in negotiated settlements for highway right of way would include amounts sufficient for the cost of adequately re-fencing of owners’ property along the proposed right of way line. This actually affects only those properties for which the appraisal of the remainder indicates a reduction in value or for which at least some portion of the reduction in value due to an unfenced condition is offset by enhancements due to the remaining land after the acquisition. Therefore, the recommended value for a partial acquisition from property in this category should include a re-fencing adjustment in an amount to provide adequate re-fencing along the right of way. Fencing in kind will normally meet the requirement of being adequate re-fencing. It should be noted that cattle guards, ornate entrances, electric gates, etc. are not included in TxDOT’s re-fencing policies and are considered improvements.

In rural areas, a determination cannot be made before the appraisals are completed as to whether a particular acquisition will have enhancements offsetting damages due to an unfenced condition. If, after the review of the appraisals, it is determined that a re-fencing adjustment is appropriate, an entry for the adjustment should be made under “Special Damages” when entering appraisal values into TxC. The source of the re-fencing costs should be shown in the reviewing appraiser’s review comments. The purpose of this procedure is to encourage and expedite acquisition by agreement with owners and to avoid litigation. If it becomes necessary to acquire a parcel through eminent domain, the appraisal process must support value testimony.

Federal regulations regarding compensation may be found in 23 CFR 710.203.

This procedure of including an adjustment to compensate for re-fencing properties when damages due to an unfenced condition are offset by land enhancement is applicable to all right of way projects having state participation in the acquisition costs. It also applies to right of way acquired with federal assistance, even though any amount greater than the approved values will be non-participating for federal reimbursement.

Abutting owners often jointly own fences between their properties and the value of the fractional interest held by each must be determined and included in the appraised value of the parcels. The ownership of fences on property lines usually cannot be determined without personal contact with the owners involved. The appraiser and ROW PD personnel should make careful investigations to establish correct ownership so that the proper party or parties will be compensated for the interests involved. The state cannot acquire the partial interest held by one owner and allow retention of the interest held by the other. To avoid complications, it is preferred procedure to negotiate simultaneously for both parcels, handling both interests in the jointly owned improvement in the same manner, either through total acquisition by the state or through total retention by the owners. In the exceptional instance requiring acquisition of one parcel in advance of the other, it will be the district’s responsibility to avoid putting the state in the indefensible position of having acquired only a fractional interest in the improvement.

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Irrigated Land

Land may be irrigated by a sprinkler system through a system of pipes or through a surface program of ditches or pipes. The source of water may be a well, spring, or pond located on the property or the water may be purchased from a source outside the property. Besides the soil, the value of irrigated land is affected by the cost to grade or bench level the surface and to provide a source for water. The cost of grading the surface for irrigation purposes may exceed the cost of acquiring water; therefore, land that is properly graded, thus irrigable, is usually more valuable than ungraded land even though water is available to both.

When appraising irrigated land, the value of the irrigation facilities, such as a well, pump, pipe, etc., should be appraised as improvements.

Regardless of whether a source of water or other irrigation facilities are on the part acquired, the remainder should be appraised as it stands, i.e., as irrigable land without regard to irrigation improvements. It will be appraised as ordinary dry land only if it is not possible to obtain water and if the land is comparable to the dry land comparables in other respects.

Refer to other subsections of Chapter 3, Section 5, Procedures on Appraisals of Specific Types and Situations for information on private ownership considerations.

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Lessee-Owned Improvements

In appraising properties under lease, the general practice is to offer the approved value to the fee owner, if the owner will secure a release from the lessee on terms mutually acceptable to both parties. Necessary appraisal information and recommendation for revision in the total approved value will be submitted to determine a separate approved value for each interest and separate offers will be made accordingly. Values for tenant-owned improvements shall be consistent with 49 CFR 24.105. If acceptable to the parties, both interests must ordinarily be closed simultaneously.

When the property is subject to a lease, the appraiser should make inquiry as to whether a lessee owns any of the improvements. If possible, the appraiser should obtain, or be furnished with, a copy of the lease under which the lessee occupies the property being appraised. In all cases, the appraiser should review the lease so that he/she is familiar with the terms and conditions contained therein. The findings of the inquiry should be indicated in the appraisal report.

On parcels with lessee-owned real property improvements where a valid lease exists, a separation of owner-lessee interests will be necessary, if the landowner will execute a form ROW-N-120 Affidavit and Disclaimer - Owner to the leasehold interests in such improvements. If none of the above conditions is met, the property will be appraised in the usual manner and the approved value will be offered to the fee owner if he will secure a release from his lessee. Additional information may be found in the ROW Acquisition Manual, Chapter 5, Section 21, Acquisition of Leasehold Interest (for State).

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Lessor-Lessee Interests (Estates)

The appraisal and negotiation of leased property should follow the prescribed procedure of offering the approved value to the fee owner with the requirement that the owner secure a release from the lessee. However, in the situation where the lessee has an ownership interest in the real estate that is being acquired or damaged in an acquisition project, the acquiring agency may separately negotiate and close with the fee owner and lessee.

The appraiser should inquire if the lessee owns any of the improvements of the leased property. If possible, the appraiser should obtain a copy of the lease for the property being appraised. In all cases, the appraiser will review the terms and conditions of the lease and disclose this information in the appraisal report. In the situation when the lessee is seeking compensation for owned improvements, the owner must execute a disclaimer regarding the lessee’s improvements. If the above requirements are not met, all the property will be appraised and the total value will be offered to the fee owner.

The situation of leased estates such as a leased fee estate and leasehold estate may exist in leased property and be compensable in the acquisition of property. These estates are created by favorable rent requirements in lease agreements that benefit the lessor or lessee. The leased fee estate may exist when the lessor has a lease that provides for contract rent that is greater than the market rent of a property. The leasehold estate is the opposite situation, when a lessee has a lease with contract rent that is less than the market rent for the leased property. If the acquisition of a property extinguishes or damages these estates, the fee owner or lessor, or the lessee may be entitled to compensation for their loss.

The valuation of lease estates of a property is a procedure of separating the market value of the real estate into a value for the leased fee estate and a value for the leasehold estate. As the appraisal of lease estates is a common procedure for appraisers, the appraisal should utilize recognized methods and techniques that meet industry standards. However, the total value for the real estate and lease estates must not exceed the market value of the parcel being appraised.

For additional information on lessor-lessee interests, please refer to the ROW Acquisition Manual, Chapter 5, Section 21, Acquisition of Leasehold Interest (for State).

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Minerals

The appraiser should be advised that in eminent domain proceedings TxDOT, by law, is limited to acquisition of fee title excluding oil, gas and sulfur, and that the limitation of this law has been applied by TxDOT policy to acquisition of rights of way by negotiation.

On a partial acquisition involving a separate ownership of minerals which includes hard minerals, special handling is required if the hard minerals have or appear to have some economic value and if production thereof would require surface operations. Gravel, sand, caliche, and iron ore gravel, useful only for building and road construction purposes, are not regarded as minerals within the generally accepted meaning of that word. When the grantor reserves title to minerals, the reservation does not include these road-building items unless the grantor has expressly indicated such intent by specific reference to these items in the reservation.

Whenever possible the appraiser should use comparable sales that have transferred only the surface rights, rather than adjusting sales that include minerals. However, if it is necessary to use sales that require such adjustments, the appraiser should compare sales that included minerals with sales that excluded minerals in order to measure the adjustment by market data.

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Mobile Homes as Realty

In addition to the guidelines for determining whether improvements are personal or realty in Chapter 3, Section 2, Legal Instructions - Personalty and Realty, the appraiser and reviewer may also consider requirements established in the mobile home industry to determine if mobile and manufactured homes are personal property or real estate. Typical requirements of lending institutions and mobile home industry for manufactured and mobile homes to qualify as realty are that the:

The appraiser or reviewer may also consider if the mobile home has permanent underpinning or attached to a permanent foundation in addition to the above requirements.

In situations where a manufactured or mobile home may be unable to qualify for relocation benefits due to its age and structural deterioration, or be unable to relocate to a mobile home park because of age restrictions, the home may be designated as realty for compensation purposes.

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Multiple Remainders

In some instances, the acquisition of a portion of a tract of land will cause the remaining property to be left in two or more parts. This may be because of a special feature in the design of the highway or because the original tract was already divided into two or more parts by existing roads but is being used as one property.

If the property is already divided before the acquisition, this fact may indicate a highest and best use, both before and after the acquisition, as separate tracts indicating no loss in value due to additional selling expenses. The fact that the parts are being used together in the operation of one business does not mean that the parts have plottage value, unless the value of each part is greater when used with the other parts than its value would be as a separate tract with no relationship to any other property.

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Oil Wells

In right of way acquisition, the state does not acquire oil, gas, or sulfur. However, it may be necessary to purchase the improvements used to remove such minerals from under the surface, such as an oil well, pumping equipment, gathering lines, etc.

If a parcel acquisition will impact active mineral production, the key challenge becomes estimating the value of the remaining oil reserves. This usually involves the services of a technical expert.

In some instances, it will be found that the market value of the remaining oil reserve is less than the cost to re-drill a well. Since oil reserves are gradually depleted, an older field may have little value in comparison to the cost to drill a similar well. If the value of the remaining oil is less than the cost to drill a new well, the approved value will be limited to the lower amount. If the oil reserves indicate a value more than the cost of a new well, then the approved value will usually be limited to the cost to drill a new well.

While it is not the most appropriate way of estimating value, some technical experts may use the method of estimating overall net value by estimating total production and total expenses. If this method is used, the appraiser should be careful to discount the net income for the remaining life of the well located within the acquisition. Included in the expenses should be the cost to plug the well at the end of production and an investment management expense in addition to an expense for supervising the pumping facilities.

In most cases, oil well pumping equipment is considered personal property and has a definite value when removed from the site. Whether it is classified as personal property or realty will depend on what is done in the subject’s market area. If it were customary for a well to be sold with the pumping equipment left in place, then it would probably be considered as a realty item.

Since it is necessary for a portion of the well casing to remain in place for plugging the well, the seller should not be permitted to retain this part of the casing, in conformance with Texas Railroad Commission regulations.

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Partial Acquisitions

A partial acquisition will always be considered as severed land and appraised with the same basis as the whole property or as a separate economic unit. The appraiser shall ascertain in the appraisal of the property if the part to be acquired constitutes a separate economic unit or whether the acquisition area should be appraised in conjunction with the parent tract. The conclusion of the appraiser in this process must be supported with market and sales data.

When the part to be acquired is not considered as a separate tract or as an economic unit, it will be valued with the same basis of value as the whole property, or parent tract. The basis of value is the value per square foot or acre that was used to value the whole property.

However, the appraiser may conclude that the part to be acquired may be considered an economic unit or part of a larger economic unit. An economic unit may be defined as the smallest, marketable, and sustainable portion of a property. The existence of an economic unit should be justified by market sales of similar properties that defines the size and shape of the subject parcel and have the same highest and best use. The existence of economic units may also be justified by the presence of similar tracts in the market area and by physical divisions in the property such as roads, streets, creeks, rivers, and topographical differences. It must be remembered that in the valuation of a property with separate economic units, that the sum of the values of the parts of a property cannot exceed the market value of the whole property.

With the exception of the appraisal of small and vacant uncomplicated parcels that are valued with abbreviated appraisal report forms other than ROW-A-5 Real Estate Appraisal Report, the value of the remainder after the acquisition must be found by the appraisal process. The valuation of the remainder after the acquisition cannot be valued by a mathematical process of deducting the value of the part acquired from the whole property. In the valuation of the remainder property, the appraiser should consider the remainder in the most probable circumstances in accordance with the highest and best use analysis of the remainder tract. The difference in value between the remainder before the acquisition and remainder after the acquisition is the amount of damages or enhancements.

The improvements in the part to be acquired are to be valued by accepted appraisal methods and techniques. The appraiser will value only the improvements in the acquisition area for the part to be acquired in the initial appraisal report. This is also applicable to the valuation of bisected improvements such as buildings and structures. If the parcel should proceed to eminent domain, ROW PD will provide instructions to the appraiser on the valuation of bisected improvements; refer to that subsection of Chapter 3, Section 5, Procedures on Appraisals of Specific Types and Situations.

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Passes

There are three principal types of passes constructed and maintained by TxDOT:

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  • the stock pass, usually used to permit livestock to cross under the traveled lanes of traffic;
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  • the vehicular pass, sometimes needed to permit trucks, farm machinery, etc., to cross a controlled access highway; and
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  • the pedestrian pass, needed over an access-controlled highway such as the Interstate System.

The Commission policy for passes on controlled access highways is 43 TAC 21.81.

If the transportation project will create large severance damages by splitting the owner’s land, Design Division should be consulted for possible design changes to create a pass, thereby reducing right of way costs.

Assumption of pass facilities should be offered to the landowner before any appraisal of the property.

Prior to appraisal, various division and district offices (Construction, Design, and Maintenance Divisions) will provide appraiser instructions regarding passes on a project.

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Potential Subdivision

A subdivision that has received final plat approval but has not been developed physically, (i.e. utilities, streets, etc.), should be valued by comparable sales of similar subdivisions. However, undeveloped subdivisions should not be appraised for acquisition purposes by the use of the Developmental or Subdivision appraisal method, as these approaches may not provide credible results.

The lots within a subdivision that have been physically developed with their infrastructure in place should be appraised individually.

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Project Influence

Appraisals should attempt to factor out any increase or decrease in value caused by project influence. Since the property to be acquired basically will no longer exist after the new facility has been provided, any increase in value which would have accrued to the property were it not a part of the facility should not be reflected in the estimate of value for the property. In other words, any increase in value because of the new facility should be disregarded in valuing the property before the acquisition, whether the whole or only a part is to be acquired. Likewise, except for the owner’s neglect, any decrease in value because the property is to be acquired for public use should be disregarded. The appraisers should be specifically instructed regarding such circumstances at the time the assignment is made.

This concept should also be applied to comparable sales. A number of sales on or near the project may occur which may include the influence of the project as reflected by an increase or decrease in value. The sale properties may have been comparable and may still “appear” to be comparable before construction; however, if the value has changed significantly, this is usually an indication that the highest and best use has changed because of the project. If this is true, the subject and the sales may not be truly comparable, even though they are physically similar, since they are or will be influenced by different outside factors.

The market before and after the project influenced the sales will need to be researched to estimate the extent of the adjustment. It should be noted, however, that it is very undesirable to use this type of sale in a condemnation trial to establish the value of the part being acquired. Therefore, every effort should be made to support the appraisal by sales not been influenced by the highway project.

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Public Roads, Streets, and Alleyways

Where an existing public way abuts or passes through a proposed right of way parcel and the existing public way is held in fee by the governmental unit, it should not be appraised as a part of the new acquisition. Since the state intends to continue the road use, payment should not be made for a right already existing in law.

However, if the existing public way is held as an easement, and an abutting parcel is being acquired in fee, the State's parcel should include the area encumbered by existing right of way so that the easement can be converted into fee. In most cases this is calculated as a nominal percentage of the fee value, reflecting the almost complete loss of utility to the realty resulting from the public way.

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Public Utility Easements

It is the customary practice to request the appraiser to appraise the value of fee simple title excluding oil, gas, and sulfur; however, in many instances there may be easements for public utility purposes on the property acquired. In such cases, TxDOT will acquire fee title subject to whatever public utility easements are in the area acquired. The appraiser should receive complete instructions regarding easements not to be acquired in the purchase of the fee title.

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School Properties

Every acquisition from public school properties can represent an entirely different challenge with possibly a different solution in each case. Therefore, when the proposed right of way affects a public school property, the appraiser should inspect the property and determine whether the acquisition causes a loss in utility to the public school facility. If there is only a minor acquisition and it appears obvious there will be no loss in use, appraisals will be obtained in the usual manner. If a loss of use appears likely, ROW PD should obtain a technical expert report.

The technical expert employed should be an architect or other expert in the field of public school requirements qualified to determine the loss of use that the public school may suffer due to the right of way acquisition. TxDOT will contract with the technical expert to determine if the public school facility suffers a loss of use because of the acquisition.

If the finding is in the affirmative, the technical expert shall submit a narrative report to establish what is required to restore the public school facility to the same or reasonably equal use that it enjoyed prior to right of way acquisition. It should be noted that the substitute facility must be a building that the public school district is legally required to construct and maintain, regardless of whether this facility is more expensive or efficient than the one acquired. If replacement land is required, the report should establish the amount needed and the general area in which such land must be acquired. If reconstruction and/or replacement of the public school facilities are necessary, the extent of the required work should be described. The report should explain the basis for the expert’s conclusions, and the approximate cost data should be included for the guidance of the appraiser. If replacement land is required, the appraiser can supply approximate cost information. Of course, if the expert finds that the public school has not suffered a loss in use, the report should establish the basis for this conclusion.

If there is no loss of use to the public school or no need for replacement land, the matter resolves to simply appraising the value of the land acquired with no damages allowed to the remainder.

No further acquisition work should be performed until the expert’s report has been received and analyzed by ROW PD and a course of action has been determined.

In preparing for condemnation of any public school property, regardless of whether loss of use is involved, both the usual appraisals and the alternate appraisals are to be obtained as discussed in Chapter 8, Section 1, Subsection on Values for School Properties on 90-10 Projects. If both types of appraisals are required, they may be obtained concurrently when justified.

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Utility Lines Having a Private Function

Private utility lines shall be valued by accepted appraisal techniques by the appraiser with the assistance of ROW PD upon request. Upon the discovery of utilities that are acquired or impacted by the acquisition of property, the appraiser’s initial task is to determine whether the utilities are privately or publicly utilized. A public utility is a publicly, or cooperatively functioning line, facility, or system for producing, transmitting, or distributing products or services directly or indirectly for public use. Private utilities do not provide products or services for the use of the public, but rather serve or benefit the private use of a small selected group. The acquisition and/or adjustment of publicly or privately utilized utilities will be addressed in the following process:

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  • Public utilities impacted by the acquisition of property will be adjusted by TxDOT’s utility adjustment/accommodation program.
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  • The owners of privately utilized utilities acquired or impacted by the acquisition of right of way will be compensated by the acquisition policy of TxDOT.

The valuation of private utilities should follow the typical appraisal process of appraising the contributory value of the improvements in the part to be acquired and the cost to cure adjustment value as damages to the remainder property. However, in the situation of a parcel that requires an adjustment value for further curative work outside of a parcel that does not have a remainder property, such as a whole acquisition, the cost to cure of adjusting the private lines may be included as an improvement value. Privately utilized lines that are owned by parties other than the fee owner of a parcel may be appraised by typical methods with the appropriate values distributed to the different ownership interests of the property.

In the consideration of damages to the remainder property for utility issues, the appraiser should remember the legal requirement the potential damages of remainder properties should be compared as cured and uncured. The appraiser is to use the valuation of the remainder property that will produce the least amount of damages. However, the appraiser and ROW PD are advised to exercise discretion in the consideration of offsetting the damages of remainder properties with utility curative work by the enhancements of the remainder property. It is not the policy of TxDOT to leave remainder properties without the resources to reconnect their utilities. If health and safety issues are involved, cost to cure values for the adjustments of private utility lines are normally a special damage and should not be offset by enhancements for the remainder property.

ROW PD will assist the appraiser and provide information concerning the location and reconnection of private utility lines. This assistance will be especially helpful to the appraiser when permits and licenses are issued for utilities that may identify or restrict a new location for private utilities. If a curative adjustment is complicated, or if the appraiser requests assistance, it may be necessary to obtain the services of a technical expert.

If a parcel has been acquired and there is an overlooked private utility line requiring adjustment, the overlooked improvement shall be designated as a new X-parcel and added to TxC by the ROW Program Office. A new appraisal will be performed for the missed improvement, and the owner of the improvement will be compensated. Form ROW-N-30 Quitclaim Deed is executed to eliminate any property interest on the parcel being acquired. ROW PD should contact the ROW Program Office to have an X-parcel added to TxC.

However, if the original parcel has not been acquired and there is an overlooked private utility line requiring adjustment, the appraisal will be updated to reflect the missed improvement at no cost to TxDOT.

The cost to adjust the utility may be determined by staff appraisals, bids, estimates, or actual costs incurred, and/or with concurrence of the ROW Program Office.

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Utility- and Railroad- Owned Land

Occasionally the proposed right of way will cross land owned in fee by a utility or railroad company. Utility-owned fee property may be vacant or it may be used for a pipeline, power poles, etc., or for an equipment-building site. When TxDOT is acquiring a portion of the real property and the utility is retaining an interest in the property for its continued joint use, the part to be acquired may be valued by the "Carve Out Method" whereby the value of the interest in land necessary to accommodate the utility's facility is determined. The balance of the land not being used or that land which would normally not be used for the company’s facilities should be appraised like any other property.

Railroad parcels at crossings should be investigated to determine if the railroad possesses fee title or only an easement interest. If the railroad is active and owns the land in fee, only a license will be executed as specified in agreements between the railroad companies and TxDOT. This license is processed through TxDOT’s Traffic Operations Division. If the active railroad possesses only an easement interest, TxDOT must execute a license agreement with the railroad, and then, if possible, acquire the fee from the record title owner or adjacent landowner through the acquisition process. The railroad easement would be an encumbrance and considered in the appraised value of the parcel.

Where parallel right of way is being acquired from an active railroad, the railroad’s interest, whether fee or easement, should be acquired. Exceptions to acquiring fee title may be considered on a case-by-case basis for reasons such as environmental problems, economic, or other extenuating circumstances. Moreover, if there are lessee-owned improvements on railroad-owned land that are to be removed off of the state’s proposed right of way, these should also be acquired as discussed above in Chapter 3, Section 5, Subsection on Lessee-Owned Improvements.

A railroad parcel may have an overlooked improvement, which shall be handled in the same manner as discussed above in Chapter 3, Section 5, Subsection on Utility Lines Having a Private Function.

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Water Wells

There are three types of water wells encountered in right of way appraising:

Irrigation wells are discussed above in Chapter 3, Section 5, Subsection on Irrigated Land.

Stock wells and their equipment may be appraised as improvements. The land value should reflect that water is available. When the watering facilities are on the part acquired, the remainder should be appraised as it will be after the acquisition, which will probably be as grazing land. Any watering facilities are appraised as improvements.

Domestic wells are valued as improvements. In partial acquisitions, the domestic well is acquired like any other improvement.

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