Effectiveness and Impacts of FHWA's Implementation of the 49 CFR 24.102(c)(2) Appraisal Waiver
This report provides a summary of the research project, findings and recommendations of the study of the effectiveness and impacts of FHWA's Implementation of the 49 CFR 24.102(c) (2) Appraisal Waiver. Dye Management Group, Inc. conducted this research project for FHWA under Task Order DTFH61-05-T-27009.
The Federal Highway Administration (FHWA) has the delegated responsibility as the lead agency to issue regulations necessary to implement the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended (Uniform Act). The Uniform Act provides both relocation benefits for persons displaced due to Federally funded land acquisition, and the Federal policy statement on how acquisitions are to be conducted.
To promote credibility in the Federal acquisition program the Uniform Act, first enacted in 1971, required that property would be appraised, the appraisals reviewed, and an amount established that would provide the owner just compensation prior to initiating negotiations. In the Uniform Relocation Act Amendments of 1987 an amendment was made to the Uniform Act that would permit acquiring agencies to waive appraisals “...in cases involving the acquisition by sale or donation of property with a low fair market value.” The 1987 Act also designated FHWA as the lead agency to develop a unified rule to implement the Uniform Act. The rule was issued by the FHWA in 1989 and is located in the Code of Federal Regulations at 49 CFR Part 24.
The original appraisal waiver rule adopted by the FHWA defined low-value as $2,500 or less. The rule required that the individual making the determination to waive an appraisal and estimate the value for low-value acquisitions would be a qualified person, and that, although not a regulatory requirement, the value calculation be in writing and be retained. Under the rule, agencies were allowed to determine when an appraisal was not needed if they first determined that the valuation problem was uncomplicated and had an estimated value less than the low-value defined in the rule.
Beginning in 1995, based on State requests, FHWA has approved increases on a State-by-State basis for increasing the low-value definition up to $10,000. Beginning in 2002 some States had requested and received approval for use of $25,000 as the low-value threshold when applying the appraisal waiver provisions of the rule. In January 2005, FHWA issued an updated rule (effective February 3, 2005) that acknowledged the trend toward increasing the low-value definition. The current final rule contained in 49 CFR 24.102(c) (2) (ii) provides agencies the latitude to define low-value up to $10,000. It also permits an increase in the low-value amount up to $25,000 provided the Federal funding agency approves, and the acquiring agency agrees, to provide the owner the option to request an appraisal.
The purpose of this research was to provide FHWA with an assessment of the effects and potential impacts regarding the use of the appraisal waiver provision based on the changes that have been made over the past 20 years to see if the intent for the waiver was being achieved.
Within the latest rule, the purpose and intent behind the waiver provisions were outlined in the appendix to the rule. This objective included the following items.
- Avoid the costs and time delay associated with appraisal requirements for uncomplicated, low-value valuation problems.
- Non-appraisers can be used to make the waiver valuations; thereby freeing appraisers to do work that is more sophisticated.
- Determination to waive appraisals made by an agency employee qualified to understand the proposed acquisition is both uncomplicated and of low value.
The appraisal waiver provisions are an option available for use in conducting an acquisition program subject to the provisions of the Uniform Act. The research sought the extent of use each State, the District of Columbia, and Puerto Rico had made of the waiver option. The following steps were taken to develop and complete the information collection required for this research.
- Developing draft investigative questions and survey instruments.
- Conducting a stakeholder meeting to review the investigative and survey questions and revise based on the input received.
- Obtaining Office of Management and Budget (OMB) approval for the information collection involving 52 non-Federal agencies.
- Conducting web-based survey of the 52 State right-of-way managers following OMB approval of the information collection.
- Analyzing survey responses and recommended 16 States for follow-up interviews.
- Conducting follow-up telephone interviews of select State right-of-way managers to clarify and obtain more detail on appraisal waiver program operations.
- Collecting and analyzing a sample of State statutes, procedures, and forms related to the waiver valuation process.
The major activities under this research began with the stakeholder meeting in July 2005. Following OMB approval of the information collection in June 2006, the team conducted the web-based survey and the follow-up interviews. Ninety percent (90%) of State right-of-way managers responded to the web-based survey.
The web-based survey, follow-up interviews, and analysis of State procedures present a clear picture; that all but a few State Departments of Transportation consider the appraisal waiver option valuable enough to develop procedures and apply the waiver provision in at least some situations within their acquisition program. Only two of 47 survey responses indicated that their State did not use the appraisal waiver option. One of these States indicated that it was because of State law, and the other indicated it was due to satisfaction with their existing low-value appraisal process. During the course of this study one other State later indicated they had recently dropped the waiver provisions from their operating manual as their experience, within the context of their State law, had been unsatisfactory. For the remaining States, the ability to waive appraisals on uncomplicated, low-value parcels is considered advantageous in certain situations and appears to save some time and money.
The survey and follow-up interviews addressed how the States set up their waiver process and applied it during project operations. The survey and interviews also assessed the effectiveness of the waiver program and its impact on a State's organization and the public.
In setting up their program, each State considered their past and anticipated workload in selecting the low-value amount they would use as the threshold for their waiver program. The level selected was determined so that only a percentage of parcels would be covered. Some of the other factors that typically influence States in setting up procedures for their waiver program include:
- The flexibility provided in State law to waive appraisals.
- Property owner rights to value information included in State law.
- Eminent domain appraisal requirements necessitating appraisals.
- Pre-existing appraisal procedures relating to development of pre-appraisal market data analysis reports, sometimes called data brochures, sales books, market studies, etc.
- The size of the State's acquisition program and current staffing levels and experience.
- The interpretation applied to appraisal standards and the exceptions permitted by the State Appraisal Board in implementing USPAP.
Each of the above factors, individually and in combination, accounted for the differences noted between States in their implementing procedures of the appraisal waiver provision.
The procedures, and how States applied them in preparing waiver valuations, resulted in the following findings.
- The determination of parcels that are uncomplicated and low-value is made by manager level appraiser or review appraisers during a field review of preliminary right-of-way plans. The field review covers potential waiver candidates but also defines the appropriate appraisal format for each parcel on the project.
- The decision to use waivers on any particular parcel or project is a managerial option. Selection of parcels was reported to involve a risk assessment (the potential delay to prepare an appraisal if condemnation is required) which consider a number of other factors relating to public acceptance of the project, individual owners, and/or availability of good sales information.
- Sales data support for waiver valuations varied between States and depend on how market documentation is developed under State appraisal procedures. Use of sale brochures is preferable since then both waiver valuations and appraisals will be based on the same market indicators.
- The waiver valuation form varies considerably from State to State. The range is from a simple spreadsheet presentation covering multiple parcels to multi-page documents that mirror the information required in conventional value finding or short-form appraisals.
- A high percentage of States use appraisal staff to prepare waiver valuations.
- Consultants and fee appraisers have been used to prepare waiver valuations. Fees charged are somewhat lower than for short-form or value finding appraisals. State staffing and increased reliance on outsourcing of acquisition activities are factors involved in such practices.
- Informal review of waiver valuations by appraisal staff prior to State approval of just compensation is included in the procedures of many States in order to achieve valuation consistency.
When waivers were used as the basis for just compensation offers the general findings reflect a high success rate in reaching an amicable settlement with the owners. The findings relating to the negotiation process when offers are based on a waiver valuation included the following items.
- Forms used to present an offer based on a waiver valuation usually indicated an appraisal was not prepared. Most States advised the owner that an appraisal would be prepared at his option, even in those States with low-value defined at or below $10,000.
- Negotiations based on a waiver valuation were typically not conducted differently from those based on an appraisal. Administrative settlements and early decisions were preferred outcomes since many States had to have an appraisal prepared should filing a condemnation action become necessary.
- Timing of negotiations based on waiver valuations can vary from very early in the project acquisition schedule to very late. The consensus seems to prefer that waiver valuation offers be timed to fall after negotiations based on appraised properties. This provides confirmation that estimated values are generally acceptable and promotes valuation consistency.
Although many States have embraced the waiver valuation provision and included its use in their operations, the following potential impacts were noted:
- The number of appraisal resources especially within the State agencies are declining. This may be why the waiver process has been so widely accepted.
- Use of the waiver, especially when assigned to appraisal staff, detracts from the appraisal process.
- Use of the appraisal waiver reduces training opportunities for appraisers and inhibits them in gaining creditable experience credits for State certification programs.
- Both USPAP and public perception regarding use of a lesser process to value property is subject to interpretation and recurring questions.
Based on the findings, the research team developed a number of recommendations for consideration at both the State and the national levels. These recommendations were principally based on the initial objective of the appraisal waiver provision as an option intended to reduce time, cost, and redistribute workload so that appraisers could do a better job on more complex issues.
1. State-Level Recommendations
There are a number of best practices associated with State implementation of the appraisal waiver provisions. The following comments highlight practices that in the researchers' view, achieve the best result within the context of the Federal rule.
- States should be selective when determining if a waiver valuation is appropriate. Considering only complexity of the valuation problem and a parcel's estimated value do not assure both time and cost can be saved by using the waiver provisions.
- Market information used to support unit values in waiver valuations needs to be well supported and current. Use of documented market data reports, data brochures, or sales books is preferred over courthouse or multi-list searches.
- Use of knowledgeable, non-appraisers to prepare the waiver valuation is preferred to assigning staff or fee appraisers. Appraisers have a role in the determinations regarding the complexity of the appraisal problem and could have a role in compiling and evaluating market sales information and project level analysis, but not in the preparation of waiver valuations.
- Except in unusual situations, outsourcing the preparation of waiver valuations does not fit the intent behind the provision, especially if appraisal personnel are involved in the preparation of the waiver valuation.
- Although waivers do not require owner contact, State procedures should provide for early contact with each owner to establish an understanding prior to valuation of the effects of the proposed acquisition and assure that all owners on the project receive equal treatment. Pre-offer contacts can assure that all factors are considered in determining the initial just compensation offer, and provide an early opportunity to assess the owners position relating to the project and how it is affecting his property.
- Some State waiver valuation procedures produce products that are very similar to the documentation standards for value finding or nominal value appraisals. States should fully review the work process, assure that the waiver provisions fit their needs, and actually save time, cost, and free appraisal staff of some of their responsibilities.
- Where the procedures implementing the appraisal waiver provision are based on an administrative decision, a State should assess the feasibility of revising their State statutes to permit filing condemnation without having to revise the valuation document to conform to State appraisal standards.
2. National Recommendations
Because the updated final rule granting States greater flexibility in the administration of the waiver provision has only been in effect for two years, it was not possible to measure the full effect of the new provision within the timeline of this research. However, based on the findings of the study, there are several items for consideration by FHWA as the lead agency for the Uniform Act regarding the option to use appraisal waivers. These include:
- Current State practices resulting in use of appraisers to prepare waiver valuations and the incidence of use of contract personnel needs to be considered in relation to the expressed intent of the waiver provisions. Guidance and promotion of best practices should emphasize the use of non-appraisers to prepare waiver valuations.
- The current guidance that owner contact is not required based on the position that a waiver valuation is not an appraisal should be reconsidered. All owners should be provided the same deference without regard to the impact the project may have on their property. While owners may not have to be offered the same right to accompany the valuation preparer as is in place for an appraisal, an alternative process needs to be in place to assure communication is achieved prior to completing the valuation process.
- Documentation standards for waiver valuations should be sufficient to support the value conclusion and maintain consistency in the treatment of owners affected by the project.
- Action should be considered to assess the cause of the reported decline in the number of in-house appraisers within State agencies and the related problems of recruitment. State support for training and promotion of appraiser certification needs to be encouraged.
- Continued effort needs to be applied to work with the Appraisal Foundation and the State Appraisal Boards to conform USPAP with the appraisal requirements being applied to projects under the Uniform Act. Use of appraisal staff should be devoted exclusively to assignments that provide creditable service for maintaining or attaining State appraiser certification.