Effectiveness and Impacts of FHWA's Implementation of the 49 CFR 24.102(c)(2) Appraisal Waiver
This section contains a summary of the main issues identified regarding the implementation of the appraisal waiver provisions based on an analysis of survey information and the follow-up interviews. Recommendations for both State level and National consideration are provided to address these issues and promote adoption of best practices observed during this review.
The main issues are presented within the context of the research covering implementing practices, effectiveness, and organizational consideration surrounding the use of the appraisal waiver provisions. There is broad acceptance by the States to use the option provided by the Federal rule to waive appraisals on uncomplicated, low-value parcels. Within the three focus areas of the study, our recommendations will address each of the following observations:
- Implementing Practices:
- Uncomplicated and low-value criteria are not the only factors considered when applying the appraisal waiver provision.
- Market data resources used in support of waiver valuations varies from State to State.
- Appraisers are preparing waiver valuations.
- Waiver valuations are outsourced to consultants and fee appraisers.
- Many States have continued to promote owner contact and review of waiver valuations.
- Documentation requirements vary considerably between States and in some cases approach the level of detail included in value finding or short-form appraisal reports.
- There are both cost and time savings associated with the use of waiver valuations.
- State practices vary regarding how much value information must be shared.
- Necessity to obtain appraisals prior to filing condemnation inhibits use of the waiver provision.
- Using waiver valuations to expedite negotiations is not always successful.
- Quality assurance when waiver valuations are outsourced is a concern of some stakeholders.
- Organizational Considerations
Hiring and development of appraisers is becoming more difficult.
- Work involved in conducting market research and in preparing waiver valuations does not contribute to professional certification.
- USPAP interpretation varies between States.
The appraisal waiver provision is an option available to the States under the Federal rule that had attached to it a limited set of goals and objectives. The stated intent was to reduce time, reduce cost, and redistribute valuation workload. The State recommendations that follow concentrate on identifying those practices that come closest to achieving the Federal goals and objectives associated with the waiver provision. The national recommendations are directed to the Office of Real Estate Services and address the main purpose for this research study, which is to identify the effectiveness of the Federal policy in implementing appraisal waivers.
There are a number of best practices associated with State implementation of the appraisal waiver provisions. For all States who are using appraisal waivers, the adopted waiver valuation procedures were developed and are appropriate to the particular circumstances surrounding State law, available personnel, and pre-existing procedures related to appraisal and negotiation. The following comments highlight practices that in the researchers' view achieve the best result within the context of the Federal rule.
- States should be very selective when determining if a waiver valuation is appropriate. The risk analysis some States use considering area or owner specific concerns is one way to improve chances that a settlement can be achieved. The availability of good market data in the project area also enhances success in selling offers based a waiver valuation. Relying solely on an evaluation of the complexity of the appraisal problem and the low-value criteria can produce too broad of an application of the appraisal waiver provision.
- The type of market information used to support unit values in waiver valuations needs to be well supported and current. The compilation of market data reports, data brochures, or sales books as part of the project appraisal process provides a structured approach to documenting and establishing land values for the types of properties affected by the project. The advantage in assembling sales data as part of the project appraisal process is that there is an opportunity to verify, compare, and analyze the sales information and validate the value indications before being applied to parcel valuations or appraisal. This promotes a higher degree of consistency for the offers made to owners affected by the project. If prepared and analyzed by the appraisal staff, these macro reports provide a documented foundation on which waiver valuations can be based and provide a resource to share with owners if they wish to assess the legitimacy of the State's offer.
- Procedures should provide for the preparation of the waiver valuation by knowledgeable, non-appraisers. The appraisal section should be involved in the initial determination regarding the complexity of the appraisal problem and identifying which parcels are appropriate for use of the waiver provisions. The appraisal section staff should also be responsible for compiling and/or evaluating the local sales information and preparing the project level analysis of the assembled sales. Cost studies could also be developed by the appraisal staff and included with the sales analysis to support some of the cost-to-cure items that may be included as part of a valuation.
- The use of consultants to handle appraisal and acquisition activities is wide spread. However, outsourcing the preparation of waiver valuations does not fit the intent behind the provision. Having waiver valuations prepared by fee appraisers especially seems to run counter to the primary objectives of the waiver provisions. Only in cases where acquisition activities are part of a design-build process or other turn-key contract should non-State staff be used to prepare waiver valuations. In turn-key situations, contractual protections also need to be in place to assure the individuals assigned to prepare the valuations are knowledgeable. Most States that have used acquisition consultants indicate that they require their contractors to be pre-qualified and then use contract specifications to limit the individuals that can be used to prepare waiver valuations.
- State procedures that promote early contact with owners are an advisable step to assure that all impacts of the proposed acquisition becomes known prior to completing the valuation. This does not mean the contact has to be by the valuation preparer but some State contact is advisable to identify all improvements that may be affected by the taking. A number of survey respondents and interviewees, for example, indicated that early contact with owners helped to identify the existence of underground facilities among other issues. The other reason such early contacts with property owners are considered necessary is to provide equal attention to all owners affected by the project.
- With States including owner contact and informal review processes into the procedures for preparing and approving waiver valuations, there is limited difference in the time and effort expended for an appraisal waiver from that required to complete a lower level appraisal format. Documentation standards adopted in a number of States also incorporate completion of multi-page forms and use of photographs of the property being acquired. These documentation standards are so similar to the value finding or nominal value appraisal that the use of the waiver provision may not be an essential element of these States' valuation program. States should fully review the work process for appraisal waivers and assure that the waiver provisions actually fit their needs and actually saves time, cost, and frees appraisal staff of some of their responsibilities.
- Almost all States indicated the waiver provision was an effective practice and provided a benefit in managing their acquisition program. However, the lack of acceptance of offers based on the waiver provisions under State eminent domain laws and requirements to prepare an appraisal before filing a condemnation action to gain possession is an impediment. Some State laws are worded such that just compensation offers are sufficient for filing and obtaining possession of property. Since many of the procedures implementing the appraisal waiver provision within the States are based on an administrative decision, that decision should include an assessment of how State statutes could be updated to permit filing based on all just compensation offers made, without having to delay the process and upgrade the valuation document to conform to State appraisal standards.
Although there are ways individual States could strengthen their procedures used to implement the appraisal waiver provisions, there is recognition that State procedures and practices have just completed an update cycle and the current State practices have been accepted by the FHWA. The updated final rule issued in January 2005 granting States greater flexibility in the administration of the waiver provision has only been in effect for two years and thus it was not possible to measure the full effect of the new provision within the timeline of this research.
At the national level, the research findings indicating use of appraisers to prepare waiver valuations and the incidence of use of contract personnel to perform waiver valuations should be considered in relation to the expressed intent of the waiver provisions. While it is perhaps too early after revising the rule to take action to curtail such activities, FHWA should closely monitor these practices and attempts should be made to promote revision of State procedures to place responsibilities in the hands of non-appraisers.
Those States that have adopted procedures that promote owner contact prior to valuation are correct in seeking to establish early on in the acquisition process a dialogue with each owner and avoid the potential to miss the owners' insights into how the proposed taking may affect their property. FHWA should reconsider the current guidance that owner contact is not required. Doing so will assure that all owners are provided the same deference without regard to the impact the project may have on their property.
Waiver valuation documentation is quite variable from State to State. These differences in waiver documentation are based mainly on the variation between State laws regarding the rights of owners to be provided with valuation information and the requisites for filing a condemnation action. The higher documentation requirements observed during this review were related to these factors and were an attempt to provide all owners with comparable information. The necessity to maintain consistency in the treatment of owners is an essential component of the Uniform Act.
The decreases in staffing levels for appraisers and review appraisers within the State Department of Transportation organization reported by the survey respondents are a point of concern. The inability to hire staff appraisers will likely reduce the pool of talent available to fill appraisal manager and reviewing appraiser positions in the future. Further action to assess the impact of the decrease in internal State staffing and encourage active recruitment of new appraisers by States needs to be considered. State support for training and promotion of appraiser certification also needs to be encouraged.
Appraisal standards under USPAP and the appraisal requirements being used on Federal projects need to be conformed to avoid conflicts. Implementing the appraisal waiver provision using non-appraisers is the preferred way to avoid a conflict. When States use appraisers to prepare waiver valuation reports, it dilutes the development process of both staff and fee appraisers. Appraisers generally cannot use work activities related to preparing waiver valuations as creditable service for maintaining or attaining certification.