I could use some advice on appraising field grown trees. Suppose you have a large site where an owner has grown oaks and pines to sell to a company that transplants trees. The transplanting company helped the land owner obtain an agricultural exemption for the property and has a signed contract allowing the tree transpalnting company to buy the trees from the landowner, which are to be moved with a tree spade and planted on other properties. There is a thirty day cancellation clause which allows either party to cancel the contract. Assume that the landowner sells the property to another entity that bulldozes all of the trees without properly excercising the 30 day clause resulting in a lawsuit.

Assume that the tree farm (now bulldozed) was in a prime location in a large city where there is a severe shortage of oaks due to the recent construction boom. Also imagine that the only information at your disposal is pictures of the trees prior to demolition (and the trees appear to be in good condition). What is the best way to appraise the trees?

Loss of trees results in loss of income for the tree transplanting company. All of the trees are replaceable size (2"-8" caliper). Wholesale nursery prices from three nurseries for B&B or container grown oaks (4" caliper) is $345, $495, and $585 (average = $475). The cost of moving, planting, and guaranteeing the tree would be added to this cost.

The wholesale cost of moving 6" caliper oaks with a tree spade (which includes moving, planting, and guaranteeing) from 3 transplanting companies is $900, $1000, and $1200. The retail prices range from $1500 to $1850. A price for just the tree alone cannot be determined.

Assume that the tree transplanting company knows the number of trees (or approximate number of trees per acre) and the diameters of trees. All of the trees appear to be in good condition, and although their current location substantially lowers their value (which is obvious from the bulldozer), their intended location greatly increases their value.

Should the value be based on the nursery prices ($475) adjusted by the species (80%-90%) and their condition (80%-90%)??? Since this is based on 4" stock ($37.82/sq. in. before adjustment), can I extrapolate this price per sq. in. across all sizes? Or should the value be based on the wholesale amount the company would have received (now lost income) for planting the tree minus the cost paid to the landowner? Any help would be appreciated.

W. Todd Watson

Reply to post by W Todd Watson, on January 22, 2001 at 22:14:48:

Man that's annoying! I had 5 paragraphs written, hit the wrong key and it's all gone. I'll rewrite in Word and paste it back in here.

The main point seems to be that the appraisal problem is less generic than simply appraising "nursery trees." This is a contractual situation.

Was there an agreed purcahse price? per tree? per inch? per acre harvested? Whatever. If so this would guide. If it would be market based you'd look to other in the ground prices. Maybe historical between these two parties. Would there be a big change between recent past and the end of the 30 days?

That 30 days is also important. If this was a long term, no out contract the transplanter might have controlled supply in the market (and perhaps price and profit to him) and also ensured supply. It would be particularly valuable if he had similar long term contractual obligations to deliver the stock. But, he knew he had a 30 day trigger. And he had not prepaid for these trees (had he?). He would have had a 30 day window in which to get stock out, then look elsewhere. The lost benefit would be the differenc on that amount of stock between what he'd have paid the owner and what he'd pay on the open market, his cost saving. How much stock could he get out and into permanent loactions in 30 days? If he incurred additional costs to store and double handle stock maybe the cost saving would be gone. Maybe he'd walk and go eslewhere and still have better margins.

Looking at the wholesale transplanter prices you have to back into tree cost to the transplanter. Back out direct labor and labor burden, machine cost, incidentals, overhead, profit. That's what the transplanter market would incur as tree cost. Again was there a real advantage here? Remember it's cost in the ground, different from what we often describe as "wholesale."

I don't think the usual depreciation factors apply. SPECIES. An oak is an oak. The transplanter pays x for an oak wherever he gets it. Why would you make the value of the oaks here 0.8-0.9 x? Remember you are appraising the replacment stock, not using 100% replacment stock to appraise a lower rated plant somewhere else. CONDITION. Was there a contractual agreemnet to vary pricing? If so apply it on average. And if there was a reduction, would the transplanter have passed it on to the consumer or would it in fact have become extra profit? If no discount for condition in contract or custom the cost would be what it would be for stock assumed to be merchantable. LOCATION. If the issue is cost to the transplanter from this loaction then that's 100% Cost would not have been reduced. If the alternate sources have higher costs to the transplanter because of loaction then that's already in the cost incremnent you identified above (inverse of the cost advantage here). Don't double count. The locations where they are going might influence the ultimate consumer price but that's a revenue not cost function.

If the transplanter is claiming lost revenue in this critical 30 day period it is a separate argument and up to him to make. The effect of cost on revenue should be identified as the lost cost advantage. If there are damages that result from lost contrcats, penalties or extra costs in addition to the plant cost difference that's probably outside the scope of your assignment.

Another issue is just how many trees could have been harvested and installed in this 30 day period. The paper cost advantage per tree is only damage if the harvest could have been accomplished in this period anyway. What if it was off-season?

Go back to the definition of the appraisal problem. Define value (or damage). Value to whom? Value when?

Reply to post by Scott Cullen, on January 22, 2001 at 22:14:48:

Scott,

Thanks for the advice. I've got many of the same questions you have. Especially regarding the contractual agreement, but I didn't know if that would affect the appraisal according to the Guide. I'll find out more about the contract. I do know that it was renewed annually.

Because oaks are so scarce, every transplanting company has some type of agreement with a grower, so it becomes difficult (if not impossible) to find "in the ground" prices. The main problem with determining value is that the transplanter has few (or fewer) other options to turn to because of tree scarcity. This farm was strategically located in a prime area, so the cost of bringing in trees from another area will be substantially increased (I don't know how much). It's also difficult to determine what future demand will be, but this affects price. Because of demand and low supplies, tree prices have nearly doubled the last ten years.

As far as prepayment, I'm not sure. I'm not even sure of the amount paid for the trees, but I can find out. It seems like the value of the trees would be the "in the ground" cost of the trees that can be moved in 30 days (how do I prove that?) plus the added cost to move trees in from another location (which would have to be supplied from the transplanter). But aren't these items outside the scope of my appraisal?

I feel uneasy appraising trees based on photos and information supplied by another party. As you said, the lost revenue arguement is up to them to make. I'm just trying to develop a reasonable appraisal from the myriad of options that I have to work with.

Thanks again for your help.

W. Todd Watson

Reply to post by W Todd Watson, on January 23, 2001 at 07:44:25:

I think this appraisal is in a lot of ways outside the scope of the Guide. You're not valuing the trees per se, as if say the grower intended to stay in business and the trees were killed by off target herbicides.

You are appraising the value of the trees to the transplanter and only within the 30 day period. More technically you are valuing the rights to the trees granted by the 30 day agreement. I wonder what other options the transplanter might have. Did he really put all his eggs in one basket with a 30 day trigger? If this was a good opportunity to get a better deal becasue of location and pre-agreement so he used it when he could that's the value to look at. But there must be other sources.

Whether or not there was pre-payment is the key. If pre-paid then you're right he's out the value already paid for x trees plus the incremental travel costs to get others. If not pre-paid he's out only the difference in in-ground cost between locations and probably the extra travel. Again limited by how many x is in 30 days.

I'd think if these facts are determinants of value or damage then learning them or estimating them is within the scope of assignment.

I think since all you have is photos you must state that as a limiting condition. Assume a number of trees (total, 30 days or both), some weighted size groups, a 100% condition and a range of lesser condition. Can you identify any trees moved out earlier to provide some indication of condition. Agin look to agreement the price paid or to be paid might be for condition "as is" and therefor would be 100%.

I think future demand is not a big factor since the 30 day period is all that seems valuable.

Good luck

Scott