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This section introduces the research project. It provides a definition and description of the current appraisal waiver process, summarizes the purpose for the research study and provides an overview of the research scope and objectives.
The original Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (Uniform Act) did not contain any provision to waive making an appraisal. The ability to waive preparing an appraisal was added by the Uniform Relocation Act Amendments of 1987 (Title IV, Pub.L. 100-17, 101 Stat. 246) which amended Sec. 4651 of 24 U.S.C. Section 4651 by adding the exception to the law.
Sec. 4651. Uniform policy on real property acquisition practices
(2) Real property shall be appraised before the initiation of negotiations, and the owner or his designated representative shall be given an opportunity to accompany the appraiser during his inspection of the property, except that the head of the lead agency may prescribe a procedure to waive the appraisal in cases involving the acquisition by sale or donation of property with a low fair market value.
The theory behind the legislative revision to waive an appraisal was based on an opinion that administrative costs, particularly appraisal costs, should not be a high proportion of, or even exceed, the value of the actual real property to be acquired. In the original unified rule published in 1989 to implement the Uniform Act, the procedure to waive the appraisal was specified in 49 CFR 24.102(c) to allow agencies acquiring real property to “. . . determine that an appraisal is unnecessary because the valuation problem is uncomplicated and the fair market value is estimated at $2,500 or less, based on a review of available data.” The foundation for the value limitation selected was based on the potential cost to obtain an appraisal including the administrative time involved in completing the owner accompaniment provision associated with an appraisal. Other Uniform Act provisions that required a review of appraisals were also taken into account.
The original provision included in the final rule issued March 2, 1989 (54 FR 8928) included comments in the preamble to the rule that comments received on the matter of establishing the dollar threshold at $2,500, were supportive of the amount although four comments indicated it was too high, and seven indicated it was too low. The original appraisal waiver rule adopted by the FHWA retained the proposed threshold at $2,500 and indicated that establishing the valuation would be by a qualified person, and that although not a regulatory requirement, the value calculation be in writing and be retained.
The preamble also indicated in response to some comments regarding appraisal review that since the agency is required to make a written offer, and that offer letters are generally signed by someone at the management level, that it would remain general FHWA policy to have not less than two people involved in setting the amount of an offer of just compensation. The signing of the offer letter would constitute a review where no appraisal is made. Precisely how such matters will be handled was left within each agency's discretion.
Over time and in response to State Departments of Transportation (SDOT) requests to raise the appraisal waiver threshold, the Federal Highway Administration (FHWA) expanded the policy through 49 CFR 24.7, Federal agency waiver of regulations. Starting in 1995, FHWA allowed SDOTs, upon their request to FHWA, to raise the appraisal waiver threshold to a maximum of $10,000, and then in 2002, to a maximum of $25,000. Each of the approval actions were based on a State application that itemized both the incidence and the application that would be made of the increased appraisal waiver threshold. Often the application included a request to increase the conflict of interest valuation amount to coincide with the increased level of the appraisal waiver threshold. This streamlined the acquisition process by allowing the same person who prepared a valuation to negotiate the acquisition.1
By the time the latest rule revision was proposed in the Notice of Proposed Rulemaking (NPRM) issued on December 17, 2003, (68 FR 70342) almost three-quarters of the States had raised their waiver threshold. The NPRM preamble indicated that the changes proposed to raise the limit reflected the general increase in property values since the $2,500 threshold was established. Further, the experience to date, primarily for those States that had worked under the raised limits, gave no indication of administrative abuse or property owner objection. Broad SDOT support was noted for having a higher threshold included within the regulation.
On January 4, 2005, (70 FR 590), FHWA published a final rule increasing the waiver threshold to $10,000, with provision that up to $25,000 could be approved under certain conditions. As of the date the final rule was issued, revising 49 CFR Part 24, all but eight States had already requested and received approval to increase their low-value threshold above the $2,500 limit. Over half (28) of the States were authorized to use $10,000. Ten other States had received approval to use an amount in excess of $10,000. The latest rule, therefore, only codified the higher thresholds that had been authorized. The only change was to require States approved to use waiver valuations exceeding $10,000 to offer the owner a right to have the agency appraise the property being acquired.
The preamble to the latest rule contained a summary of the comments received regarding the increases to the threshold amount and some indication of FHWA's policies. As in the original rule making, the majority of comments received supported the increased waiver threshold. Some objected to the two-tier provision whereby threshold approvals in excess of $10,000 would require the agency to provide the property owner with an option to have an appraisal prepared by the agency. The thought was that this type of approach would be confusing. Some of the other comments received included the following:
The appendix to the final rule provided insight into the purpose and intent behind the revisions made to the appraisal waiver process, specifically the introduction of a definition for a waiver valuation in § 24.2(a)(33). The main components of the appraisal waiver process as outlined in the appendix to the rule include the following.
The appendix to the rule also clarified that both the definition of ‘‘appraisal'' in the Uniform Act and the appraisal waiver provisions of the Uniform Act under the regulations are Federal law and public policy and should be considered as such when determining the impact of appraisal requirements levied by others. Therefore, waiver valuations are not appraisals as defined by the Uniform Act and these regulations, and are not subject to appraisal performance requirements or standards, regardless of their source. This was designed to clarify the issue that had been raised by State Appraisal Boards (USPAP) and that were mentioned during the comment period referenced above.
With the legislative and regulatory foundation, the use of appraisal waivers is left to the Federal and State agencies that operate under the provisions of the Uniform Act. It is not a required practice but an option. When used, it is expected that use will be established and become part of the operational procedures of the organization. During the past two years since the latest final rule was issued, SDOTs have been updating their right-of-way manuals. These manuals reflect how the appraisal waiver process has been included or excluded from the valuation process they employ. Knowledge of the intent behind the appraisal waiver provision, and the various methods employed to implement it, set the foundation for this study.
The FHWA Office of Real Estate Services (HEPR) within the United States Department of Transportation (USDOT) has the delegated responsibility to issue regulations and establish procedures determined to be necessary to assure that the payments and assistance authorized by the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended (Uniform Act) is administered in a manner which is fair and reasonable and as uniform as practicable. In January 2005, the regulations implementing the Uniform Act were updated. One provision included in the revised rule clarified and expanded the capability of an acquiring agency to waive making an appraisal on certain types of property acquisitions. The revised rule adjusted the low-value threshold definition that had been established in the original unified rule issued in 1989 and added clarifications regarding how the appraisal waiver was to be implemented.
An increase in the threshold level had been implemented on a State-by-State basis over a period of years. Almost two-thirds of SDOTs had applied for and received an approval from FHWA to increase their low-value threshold by the time the new rule went into effect.
The purpose of this research study is to provide HEPR with an assessment of the effects and potential impacts from the use of the appraisal waiver provision. This includes identifying both best practices and ways HEPR might improve the appraisal waiver guidance to support the primary objectives of the Uniform Act.
Dye Management Group, Inc. conducted this research project for FHWA under Task Order DTFH61-05-T-27009. Dye Management Group Inc.'s scope of work for this research effort consisted of a number of tasks that identified best management practices required for effective implementation of the appraisal waiver provision. Based on the recent revision to the rule, this research effort aimed to validate how the use of the appraisal waiver provisions can complement the goals of the Uniform Act to assure consistent treatment of owners and provide just compensation. The study effort looked at whether the use of appraisal waivers encouraged and expedited the acquisition of real property by agreements with owners, thereby limiting litigation. The study also explored if the use of appraisal waivers is accomplishing the intended goals of minimizing administrative costs and expediting the acquisition of real property without affecting public confidence in Federal land acquisition practices. The tasks completed during this research project also assessed if the use of appraisal waivers are contributing to short or long-term organizational problems for State Departments of Transportation.
This research study was accomplished through:
The goal of this report is to provide a brief overview of our methodology and approach for performing this research study, describe our primary investigative questions, identify the key findings from the web-based survey and follow-up interviews, and outline any recommendations for potential adoption by FHWA and State Departments of Transportation for improving implementation of the appraisal waiver program.
The remainder of this report consists of: