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Effectiveness and Impacts of FHWA's Implementation of the 49 CFR 24.102(c)(2) Appraisal Waiver

IV. Summary of Key Findings

This section summarizes the key findings from the research study as identified through the stakeholder meeting, the web-based survey, the follow-up telephone interviews, and the review of a sampling of State laws and procedures related to the appraisal waiver process. This section initially provides an overview of the extent of the use of the appraisal waiver by the States, followed by a review of study findings organized by the investigative questions.

A. Extent of State Use of the Appraisal Waiver

Forty-seven of the 52 acquisition agencies surveyed reported the appraisal waiver process had been included in their operations and that the low-value thresholds currently in use exceeded the original threshold level of $2,500. Exhibit IV-1 below outlines the extent of the use of the appraisal waiver provision by State Departments of Transportation. The exhibit indicates the low-value threshold that States had been approved to use prior to the January 5, 2005 final rule and the current amount in use as reported by responses to the survey.

Three States indicated they do not currently use the appraisal waiver. Massachusetts indicated their State law prevents them from adopting the process, while New York and Louisiana indicate they have administratively decided not to use the process. Louisiana had used the process at one time, but opted out during the last procedural update according to information provided during the follow-up interview phase of this research. Of the States that responded to the survey, 13 have adjusted their low-value threshold since the final rule of January 2005 gave them more flexibility to set amounts up to $10,000. Only two States (Ohio and New Mexico) revised their previously approved threshold level downward. Two additional States (Kentucky and Utah) had requested an increased level above the original $2,500 prior to January 2005 and may still use the appraisal waiver process.

In terms of the low-value threshold adopted by the 47 States using the appraisal waiver, four States define low-value up to $5,000 and 28 others define low-value up to $10,000. The remaining 12 use $20,000, $25,000 or $50,000 as their low-value threshold. The two States (Arizona and Delaware) indicating State legislative authority to waive appraisals on property valued up to $50,000 recognize the Federal limitations included in the final rule that set the upper limit at $25,000.

As an administrative option, the appraisal waiver process has been adopted by approximately 85% of the State Departments of Transportation. The survey results indicated that 12 States based their use of appraisal waivers on State statutes, whereas the remaining States, 32 in all, responded that their use was based on an administrative determination. A comparison of State statutes to determine how the specific provision is interpreted was not a part of this research. For those States that have adopted the appraisal waiver within their right-of-way acquisition program, the following subsections discuss the implementation practices, effectiveness, issues, and opportunities related to the use of appraisal waivers.

Exhibit IV-1: Past and Present Threshold Limits by State

State January
2005 Value
Threshold
Limits
Effective
Date
Current
Value
Threshold
Limits
 
AK $10,000 3/18/1996 $10,000  
AL $5,000 8/15/2002 $10,000 +
AR $10,000 2/16/2000 $10,000  
AZ $25,000 7/3/2003 $50,000 +
CA $10,000 1/7/1999 $10,000  
CO $5,000 9/11/1995 $5,000  
CT $2,500 - $5,000 +
DC $2,500 -    
DE $2,500 - $50,000 +
FL $10,000 11/29/1995 $25,000 +
GA $2,500 - $10,000 +
HI $10,000 2/18/1997 $10,000  
IA $10,000 11/14/1995 $10,000  
ID $10,000 3/7/2002 $10,000  
IL $10,000 7/25/1996 $10,000  
IN $10,000 1/29/1999 $10,000  
KS $10,000 11/30/1998 $10,000  
KY $10,000 3/25/1999    
LA $10,000 11/18/1997    
MA $2,500 -    
MD $2,500 - $10,000 +
ME $5,000 6/10/1999 $10,000 +
MI $25,000 3/29/2002 $25,000  
MN $10,000 4/30/1999 $10,000  
MO $10,000 1/15/1998 $10,000  
MS $10,000 8/20/1998 $10,000  
MT $10,000 5/13/1999 $25,000 +
NC $25,000 12/18/2003 $25,000  
ND $25,000 6/25/2004 $25,000  
NE $10,000 4/10/2001 $10,000  
NH $2,500 -    
NJ $25,000 10/7/2004 $25,000  
NM $25,000 7/29/2004 $10,000 -
NV $10,000 7/12/1996 $10,000  
NY $2,5000 -    
OH $10,000 1/16/1996 $5,000 -
OK $10,000 7/30/1996 $10,000  
OR $20,000 10/17/2002 $20,000  
PA $25,000 1/25/2003 $25,000  
PR $2,500 -    
RI $10,000 3/25/1999 $10,000  
SC $20,000 5/3/2002 $20,000  
SD $10,000 11/29/1995 $10,000  
TN $10,000 8/20/2001 $10,000  
TX $10,000 8/20/2001 $10,000  
UT $10,000 6/4/1998    
VA $10,000 7/30/2001 $10,000  
VT $10,000 3/27/2000 $10,000  
WA $25,000 6/1/2004 $25,000  
WI $5,000 4/2/1997 $10,000 +
WV $10,000 4/3/1998 $10,000  
WY $2,500 - $5,000 +

 

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B. Implementation Practices

This subsection highlights the basic findings from the survey related to the operational procedures that State Departments of Transportation are applying to implement the appraisal waiver provisions. The content is organized to address the investigative questions developed earlier in the research study.

These findings include the practices employed to address those provisions relating to the Federal rule covering the use of the appraisal waiver option. This includes in particular how States make the determination that the valuation problem is “uncomplicated” and then on what available data do they base their finding that the fair market value of the acquisition is low-value based on the value threshold adopted for use by the SDOT. Likewise, the additional criteria in the January 2005 final rule is also covered. This includes the definition of “waiver valuation” as both a process and the product produced by the agency, and the requirement that the preparer has “...sufficient understanding of the local real estate market to be qualified to ... prepare such a product.”

Other areas of analysis include the effect of the provision in the rule requiring that property owners be offered the option to have the agency prepare an appraisal whenever waiver valuations exceed $10,000. A review of how reported use of the appraisal waiver contributes to avoiding the cost and time delay associated with appraisal requirements, and how non-appraisers may be utilized to make the waiver valuations.

1. Does the State use the waiver provisions in 49 CFR 24.102(c) (2)?

The appraisal waiver has been widely accepted by State Departments of Transportation. Based on the survey results, less than 15% of the organizations surveyed indicated they have chosen not to include the practice in their operating procedures. Although most States have included the appraisal waiver in their procedures manual, there are varying degrees of use being made of the provision. Considering all States, on average slightly over 33% of all parcels are being valued using a waiver valuation. Based on reported percentages of parcels within certain value ranges, there are on average 60% of parcels that would qualify as low-value based on the State defined thresholds. Some of these low-value parcels may not have qualified for the waiver because the effects of the highway taking involved appraisal issues that were more complex. The survey findings indicate that States have applied discretion to selecting properties appropriate for applying the waiver provisions.

Even in States that have statutory authority, and/or a higher low-value threshold, the use of the waiver provision is not universally applied to all uncomplicated, low-value properties. Exhibit IV-2 indicates the relationship between the average reported percentage of parcels acquired under the low-value threshold and the average percentage of parcel valued using the appraisal waiver provisions.

Exhibit IV-2: Relationship Between Parcels Below State Low-Value Threshold and Properties Actually Being Acquired Using An Appraisal Waiver

Threshold Levels Percentage of Parcels below the State Threshold Percentage of Parcels using a waiver valuation
12 State over $10,000 65 40
28 States at $10,000 50 33
4 States below $10,000 65 50

Although on average, the indication is that the waiver is routinely used, individual State reports indicate the process is more restrictively applied regardless of the low-value threshold the State has set. In both the high and mid level threshold categories above, individual State reported use of the waiver ranged from a high of 85% to a low of 5%. Some decentralized States indicated that some offices within their State opt out of using the provisions even though it is being applied successfully by other offices within the State. Other States indicated they do not extend the use of the waiver provisions to Local Public Agencies involved in acquisition activities for transportation projects.

2. When used what criteria was considered in setting up the procedures including selection of the appropriate low-value threshold?

Prior to the most recent rule revision that increased the low-value threshold, a part of the application process to increase the $2,500 threshold level included an assessment of the number of parcels that would be subject to the application of a waiver. This continues to be a consideration that States use to determine the low-value amount appropriate to their program. Some States indicated that the level might be different for localities within their State, especially where resort and urban settings are taken into account. As reflected by the general usage levels, all States interviewed indicated that the use of waiver provisions must not become a universally applied solution. Study participants viewed a mixture of valuation products on all projects and throughout the State as the best approach.

In addition to the incidence of potential use the waiver might be given based on past and anticipated workload other factors individual States also considered other factors in setting up their procedures. These factors include:

Each of the above factors, individually and in combination, account for the range of procedural differences noted between the States in developing implementing procedures for the appraisal waiver provision.

3. What percentage of total acquisitions made during the past 12 months were acquired at a price below the low-value threshold?

Exhibit IV-3 indicates that 40 States reported that 50% or more of their parcel acquisition activity falls below the $25,000 threshold level. This indicates the changing nature of the highway program now that the interstate era is over. Highway widening and reconstruction comprises the main acquisition workload rather than new location projects and these generally involve lower valued acquisitions.

Exhibit IV-3: Percentage of Acquisitions by State Under Various Threshold Levels

Percentage
Range
Number of States Reporting
Parcels Acquired Under
$2,500 $10,000 $25,000
0 - 9 6 -- --
10 - 19 8 3 --
20 - 29 11 5 2
30 - 39 7 3 3
40 - 49 5 4 2
50 - 59 3 7 3
60 - 69 6 11 5
70 - 79 1 8 11
80 - 89 -- 4 11
90 - 100 -- 2 10

4. What decision making process is utilized to determine when to use the appraisal waiver?

Almost all States use a process that begins during an early field review of preliminary right-of-way plans. During this review, usually a supervisory level appraiser or review appraiser evaluates the complexity of the appraisal problem associated with each proposed parcel acquisition. The supervisory appraiser or review appraiser identifies the anticipated value of parcels and designates those that are anticipated to be uncomplicated based on per unit land values and other compensable items, utilizing available market information. For those parcels where this process produces an indication, the value will fall under the State's low-value threshold and initial determination of eligibility for a waiver valuation is noted.

Items that are included in the valuation beyond the value of the land are limited but fencing (42 States), cost-to-cure damages (37 States), minor site improvements (21 States), and minor severance damages (14 States) can be included according to the survey responses.

Many States prepare a spreadsheet type form documenting the cost estimates developed during this field review activity. At least one State uses the cost estimate document to serve as the waiver valuation product and includes an approval box on the estimate form to indicate parcels estimated below the State's low-value threshold are approved for negotiation. The use of the approved estimated amount to initiate negotiations on any particular parcel is not automatic however, and will depend on other factors related to planned project acquisition activity.

In most States, the decision to waive appraising any particular parcel is made based on more factors than the complexity of the appraisal problem and the estimated valuation. Especially for those States that cannot file for condemnation until after an appraisal is prepared there is a level of risk analysis done to determine if negotiation success is probable. This can include an evaluation of general project acceptance based on the public hearing process, or an individual property owner's demeanor gained through project development contacts. Where adversarial situations may be encountered, the use of waiver valuations may be reduced or eliminated.

Since the appraisal waiver is an option, even where State procedures for using the waiver exist, some field office managers choose not to use it at all. While only two States responding to the survey indicated they absolutely did not use the waiver process at all, seven States reported limited utilization, with 10% or less of parcels acquired based on waiver valuations. As one of the States that had chosen not to use the appraisal waiver provisions stated in their reply, their simple appraisal format (Value Finding) works well.

5. Who prepares the waiver valuations and when are they prepared?

While the procedure for determining when a State utilizes an appraisal waiver is relatively uniform nationally, the preparer of waiver, the product of the process and when a waiver valuation is prepared varies considerably. With the stated intent in the Federal rule indicating the waiver provision was to provide a technique to save cost and have non-appraisers make the waiver valuations, it was surprising to the research team to note the number of States that use only their appraisal staff, including contract appraisers, to prepare them. Of the 47 States reporting use of the appraisal waiver, 18 States use appraisers exclusively to prepare the waiver, while 14 States use only acquisition managers or agents. The other 13 States have procedures that provide maximum flexibility and provide that either acquisition agents or appraisal staff can prepare the valuations.

Twenty-nine States reported that appraisers have been used to prepare waiver valuations, and 24 States indicate they have used right-of-way contractors/consultants. Only four of the 14 States that indicated they use acquisition agents to prepare valuations indicated they have used consultants. It was noted during the interviews that use of consultants to prepare the waiver was usually the result of situations where the consultants had been hired as an acquisition agent for the State or was performing a turn-key right-of-way function.

The use of appraisal staff to handle all valuation activities including waiver valuations was cited as being preferred by some States in order to maintain consistency. State laws also were a consideration especially in those States where appraisal information must be shared with the property owner. Some States even retain the owner contact relating to property inspection as a way to provide similar treatment to all owners affected by the project.

The use of acquisition staff exclusively does not negate providing attention to concerns for valuation and owner treatment consistency. Several States that use acquisition staff to prepare waiver valuations have developed practices that provide for coordination with the project review appraiser before the State finalizes the just compensation offer based on that valuation. While this is not a detailed review function, it is a check to determine if unit values being offered conform to those being reported in appraisals on the project.

Regardless of whom the State has charged with the preparation of the waiver valuation, project management usually selects when they are approved and released for negotiation. The general consensus among the States from the interviews conducted was that negotiating on waiver valuations was more appropriate after some appraisals had been completed and reviewed to confirm value levels in the project area.

6. What market evidence is used as a basis for a waiver valuation and who makes the decision on the amount to be offered as just compensation?

State appraisal documentation practices influence the way some States have implemented the waiver process. While a few States utilize an early cost estimate approval approach, a number prepare formalized data brochures with some degree of market analysis included that receive a review and concurrence for unit values appropriate for use on lands affected by the project. Some of these brochures also include basic cost information to support fencing and other minor land improvement costs.

Such information can then be applied to each parcel designated as eligible for use of the waiver provision using whatever form the State adopted to document the waiver valuation. As indicated previously the documentation used has much variation, ranging from a spreadsheet presentation to a multi-page document complete with photographs and a description of the property.

The norm for the appraisal waiver documentation is a one-page document that itemizes the value items being acquired. Exhibit IV-4 summarizes some of the key items based on the survey responses that are routinely considered when preparing a waiver valuation.

Exhibit IV-4: Survey Responses on Typical Valuation Items Being Utilized by States

Valuation Items State
Responses
Fencing 42
Cost-to-cure damages 37
Minor site improvements 21
Minor severance damages 14

A few States indicated they believe all factors should be included and that the sole determinant is that the final estimate falls below the State's low-value threshold level. Most States, however, have the view that when items that are more complex are involved, the appraisal problem no longer meets the “uncomplicated” standard in the rule that applies to use of the appraisal waiver provision.

When data brochures are not prepared, the valuations are usually based on a current courthouse or multi-list search of sale information within the local area. Sales information from recently completed or active adjacent projects have also been used to provide support for the basic unit values of land affected by the current project.

Whether the appraisal or acquisition staff or a contractor prepares the documentation required by the State waiver valuation procedure, the approval is almost exclusively assigned to a managerial level supervisor within the State Department of Transportation. Often the approval follows an in house check of the value information and receipt of a recommendation or concurrence from the State's appraisal review staff.

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C. Effectiveness of the Appraisal Waiver

This subsection covers the impact of appraisal waivers on the negotiation process and how offers based on waiver valuations are perceived by the State staff involved in appraising, negotiating, and handling condemnations for right-of-way acquisition.

1. How do negotiations based on an appraisal waiver valuation differ from those based on an appraisal?

States were asked if there was any difference in the way an offer was presented to the owner if the basis for the just compensation was a waiver valuation. Twelve (12) States indicated that there was a difference in how the offer was presented if it is based on an appraisal waiver. The primary difference was to provide notice to the owner that the offer was not based on an appraisal. In some States the offer and settlement form are combined so that if the owner agrees to the amount of the offer, a single document can be used to indicate his/her agreement to waive the appraisal and settle based on the offered amount.

Only four of the 12 States had threshold levels above $10,000. Above that level, the Federal rule requires advising the owner that the offer was not based on an appraisal. A number of the States interviewed also indicated that even if their forms did not provide a notice regarding the basis for the offer, the agents would routinely go over the fact that the offered amount was not based on an appraisal. This was particularly evident in those States that faced the prospect of having to obtain an appraisal in order to file condemnation if an amicable settlement could not be reached. The rationale for this approach is that it is best to find out as early in the process as possible if an actual appraisal will be required. In one State, the owner is requested to sign a waiver of appraisal form before an offer is made. Once a property owner signs the waiver of appraisal form, the State tenders the offer immediately and negotiations commence.

Only a few States responded to the survey question about whether once an offer was made, how negotiations were pursued any differently than on an offer based on a waiver valuation. Most of the eight replies to this question again addressed the need for the owner to understand he could request an appraisal. One State mentioned the fact that the negotiation could be conducted by the person who prepared the valuation. The general tone was that waiver based negotiations had to determine early in the process if the owner was comfortable with the lack of an appraisal. To maintain acquisition schedules the necessity to prepare an appraisal cannot be deferred too long.

One State indicated that for some projects with a high number of waiver valuations, they have used a “blitz meeting” to conduct negotiations. All property owners are invited to the meeting and a number of agents are available to discuss and present offers. The State reported that these sessions have been extremely successful in securing signed agreements and deeds with some cases having as many as 95% of parcels completed during the meeting.

In general, States reported that settlement rates based on waiver valuations occur in the same or somewhat shorter timeframe than those based on an appraisal. In the survey responses and interviews, States attributed this outcome more to the uncomplicated nature of the taking, making it easier to explain issues to property owners than on the method of valuation the State utilized.

2. Does an appraisal need to be prepared if a settlement cannot be reached and condemnation becomes necessary to gain possession?

As mentioned in a prior section of the report, there are a number of States that have to prepare appraisals prior to requesting condemnation. This fact is one of the reasons some States have included a form of risk analysis in their determination process when selecting appropriate parcels for use of the appraisal waiver provisions. The need to prepare an appraisal if condemnation becomes necessary was also one of the primary concerns about the use of appraisal waivers mentioned by survey respondents and interviewees.

State survey responses indicated that the need to prepare appraisal reports following the use of an appraisal waiver is an infrequent occurrence. When an appraisal was required, condemnation was the primary reason for the need for the appraisal. Other factors were new value evidence and an owners request for the appraisal.

3. What form of quality assurance is in place to assure owners receive just compensation when properties are acquired based on a waiver valuation?

The quality assurance or control issue was cited as a concern about the use of the waiver provision by several survey respondents and interviewees. The use of waivers has the potential to be misused, and lead to owner perceptions of receiving different treatment from the State than others affected by the project.

In evaluating the various approaches that States have taken to implement their waiver programs, it is apparent that a number of steps have been taken to ensure consistency and fairness in the acquisition of parcels based on appraisal waivers. These techniques to ensure consistency and fairness include owner contact, review of all waiver valuations by the appraisal reviewer assigned to the project, and holding offers based on waivers until at least some appraisals required for other parcels on the project have been completed to provide a better basis of comparison. In using these various techniques, some of the recognized time advantages of using appraisal waivers have been tempered.

The general view is that owner contact is encouraged because critical improvements can be missed when using only a quick viewing of the area during plan-in-hand inspections. In addition, such contacts with property owners open the dialogue with the owner, allowing for a better understanding about how the project will affect his property.

State practices of having all prepared valuations evaluated by the appraisal reviewer working the project also provides an opportunity for ensuring consistency in the values being offered for acquisitions related to the project. Initially deferring offers on properties where the offers are based on waiver valuations is another way States have chosen to operate to initially assess how affected owners are reacting to appraised value offers. Several States during the interviews indicated they have used various methods to check and correct valuations during the active acquisition phase of a project. The ability to adapt and respond to owner-raised concerns is fully recognized by Stases and the willingness to use all administrative settlement options is what keeps the condemnation rate low on parcel acquisitions based on waiver valuations.

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D. Organizational Impact of the Appraisal Waiver

This subsection addresses the potential impacts that the use of appraisal waivers may have on a States' appraisal function, and outlines a number of issues that were identified through the web-based survey and the follow-up telephone interviews. This includes how staffing of appraisal and appraisal review functions has transitioned over the past five years and how the use of contract fee appraisers and consultants has or has not changed during the same period. It also includes an evaluation of the recruitment and training options available for developing appraisers, both within the State organization and within the fee appraisal community, and to what extent, if any, this training process has been impacted by the use of the appraisal waiver.

1. How has your staff appraisal function changed over the past five years?

For the majority of States completing the survey, the number of appraisal and appraisal review staff employed by the States either remained stable or declined somewhat over the past five years. However, 11 States indicated their staffing level for appraisers had greatly decreased during that period and a similar decline was noted in five States in their appraisal review function. Four States noted greatly decreased staffing levels for both appraisal and appraisal review staff positions. Of the 11 States that experienced a great decrease in staff appraisal positions, only three of these States reported that they had an active recruitment program in place.

The overall decrease in staffing for the appraisal function, while at the same time the highway program was continuing to grow, contributed to a reported increase in use of contract fee appraisers. The same finding was evident in the replies relating to the appraisal review function where 30 States indicated they used contract fee appraisers to conduct reviews and that the necessity to outsource the review function was increasing. The reported loss of staff positions indicated by many of the States and the increased outsourcing of agency functions mirrors the overall trend in government operations. Factors relating to the age of experienced staff, which has increased the rate of retirement, and noncompetitive pay structures for appraisal positions, contributed to the decreased retention of staff. The low number of active recruitment programs noted by many of the States reflected the general belief by those interviewed that current pay scales were too inadequate to attract entry level and journeyman appraisers. It was also perceived that the agency had become more comfortable with their ability to outsource the appraisal and appraisal review function and still meet program objectives.

Several States in their reply to the survey request for positive and negative aspects of the appraisal waiver provisions indicated that the use of the waiver provided fewer training opportunities for appraisal staff. One reply indicated the waiver provision limits the ability of States to provide adequate training for staff and fee appraisers pertaining to the complexities of eminent domain appraising and contributes to a loss of skill sets by appraisal staff. As one person interviewed put it, the waiver valuation process was “dumbing down” the valuation process.

2. Does the State rely on staff or contract fee appraisers for the bulk of their appraisal workload? Has this changed much over the last five years? Why?

Contract fee appraisers have been used by the majority of States for years. Based on the increases in acquisition activity and the decreases in the number of staff positions, the reported increase in outsourcing shown in the survey was expected. The increased use of turn-key acquisition consultants, and to a lesser degree the use of design-build contracting, has distributed the workload associated with acquiring project right-of-way. The use of appraisal waivers, at least for those States that do not outsource the preparation of waiver valuations, may have decreased the need to contract out the low-value parcels. Overall, the States responding to the survey reported that about 40% of appraisal activity is being contracted out. For most States, the use of contracts to address appraisal and appraisal review needs has not been a major concern.

3. What types of training programs for appraisal staff are in use?

For those States that retain an active recruitment program, the novice appraiser is provided both on-the-job and classroom opportunities. Many States require their appraisers be certified under the provisions of their State Appraisal Board. There were concerns expressed during the interviews that the work involved in preparing waiver valuations, especially the market research to develop unit cost indicators, was not a creditable activity that could be utilized for appraiser certification. This could have a detrimental effect on staff appraisers that need certain experience credits to meet residential or general certification requirements of their State Appraisal Board. With the high incidence of using appraisal staff to prepare valuations, and a problem in developing appraisal staff reported by some States, a long-term impact of the increased use of the waiver process may be a further loss of in-house appraisal expertise for State Departments of Transportation.

Former State employees are a frequent source of contract fee appraisers familiar with eminent domain issues. Experience with appraisal issues relating to before and after considerations, unit rule, and damages within the context of State law, has often come from initial training opportunities received while being employed by a State organization. In the long run if the number and experience level of State staff are reduced and training opportunities for these staff are reduced because of the use of the appraisal waiver, this could be an impact on the availability of contract employees familiar with the unique skill set needed to handle eminent domain appraisal assignments.

To provide Feedback, Suggestions or Comments for this page contact John Turpin at john.turpin@dot.gov.

Updated: 04/02/2013
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