Does anyone have any information on the following questions:

1. Has the tree formula method (TFM) been tested.

2. What is the known or potential rate of error in appraisals using TFM?

Thanks for your help.

Mike

Reply to post by Mike Bowman, on September 05, 1999 at 00:49:51:

Hi Mike.

A very important question which goes right to the heart of the applicability and reliability of the method. I don't understand that TFM is even testable -- that is for accuarcy or against some standard. That does not discredit the method, it merely puts it in context, UNLESS you advance it as a measurement technique. Unfortunately, over the years TFM has been attacked as "subjective" meaning not "objective" and has evolved more and more in the direction of physically measuring tree attributes like, trunk dia, leaf area, wood density... you know all that arboricultural stuff. There is nothing wrong with appropriate precision in these measurements, but they must NOT be confused with a) measuring value, nor b) precision in results.

Value is not a physical characteristic and is not directly measureable. It is not amenable to precision. If we talk about market value as indicated by actual market transactions (timber, nursery stock, forest lands, etc.) we can estimate or forecast with reasonable, statistical reliability. But there, by definition, is no market for "trees beyond replaceable size." With no market there are no transaction data. TFM is a surrogate or substitute for those data. (See article reprint "Tree Appraisal: What is the Trunk Formula Method" linked here on Knothole) We can reliably say a) the damaged tree was size X; b) we cannot replace it; c) we can replace with tree size $Y. We use TFM to estimate or forecast how much >$Y by a mathematical extrapolation of size units. (Whether sq.in. of trunk cross section is the most appropriate or representative size unit is another question, but that's a data input not a basic element of the formula.)

Because we have no actual data for the replacement of the large trees we have no standard to test against. We are gathering the facts that exist and forecasting another "fact," i.e. value. But the appraiser, unless authorized or delegated to make a final determination, does not determine the "fact" of value. The person experiencing value makes that determination and makes it fact. If two parties are in dispute over value, a court or an arbitrator decides the fact. The determination may = one appraisal or another or it may vary, say the average of appraisals, or the best prepared and explained appraisal.

This is all complicated by any definition of value which vaires from pure, 100% replacement cost. Say we could accurately measure or sample the replacement cost of a 30" tree. $R. If the tree is in a high use location or if it can be otherwise be converted to net revenue = $R then value (V) = $R. If it is a low use location or cost of transport and conversion make net revenue $R. When we depreciate by the location factor we are considering use value which may not be measureable in the way commodity value can be. We simply can say, reliably, replacement =$R but the tree is out of site at the back side of the 40 acres 1/2 mile from the house, behind a hill, across the crockagator infested swamp, so V<$R because of low use, enjoyment or benefit. How much <$R is indicated, using judgment by the appraiser but is determined by some other decision maker.

Lawyers, I sense from the experiences recounted by the industry, will attempt to discredit an appraiser or an appraisal because it is "subjective" or not "testable" or not "repeatable" or not "standardized." And if the appraisal has been represented as hard, empirical, "objective", physically measureable fact, it is not defensible. Something can always be picked apart.

The point is a TFM result is not a physically testable fact. It is an indication of value based on certain physical facts, certain "social" facts and an amount of judgment. It is in the best nautue of expert testimony intended to help the decision maker(s) understand facts and decide the fact at issue, i.e. VALUE.

While TFM is not testable for precision or error against a standard, it is testable for "reasonableness" against other indications, for particular definitions of value. (Note that the Uniform Standards of Professional Appraisal Practice REQUIRE a specific definition of value and a clear statement of the Purpose and the Use of the appraisal; reasonableness can only be stated in a defined context). 9th Edition will go into some detail on testing for reasonableness against contribution to real property value. Basically, the few studies in the literature show a range of landscape contribution of 4-25%. So say it's 10%. And an appraised tree is 10% of the landscape, so 1% of total. So on a $500,000 property the tree might be in the range of 1% or $5,000.

(That is not to say that tree $V must be limited to R.E. contribution if the definition (law, custom, facts) of value differs. I think a good analogy is wetlands. Restoration of damaged protected wetlands can greatly exceed property value and is often enforced by regulatory agencies or the courts. In concept, why should a tree be any different?)

With some pretty big plant material being moved around right now, particularly on big sites (as contrasted to over the road) you might accumulate some cost figures for big material and test a TFM result against them to see if they are in a reasonable range, frame them so to speak. My gut says transport to typical residential sites with narrow streets, overhead utilities, etc would be even more costly even if you assume there's enough space to dig a whole for the giant root ball.


I hope that helps.

Reply to post by Scott Culen, on September 05, 1999 at 00:49:51:

"We can reliably say a) the damaged tree was size X; b) we cannot replace it; c) we can replace with tree size $Y.

Reply to post by Mike Bowman, on September 05, 1999 at 00:49:51:

I take your question to be has TFM been tested in court. the answer is yes, and some courts of law will accept it, and some will not. There are probably others where it may or may not be accepted. IRS does not recognize it, but many have gone through the IRS process anyway.

There is no margin of error, as it is a subjective procedure as Scott points out. The appraiser is the main part of the appraisal puzzle, and it is up to him or her to apply the procedure, and justify it.

Remember, the guide is only a guide!!!

verytreelylew

Reply to post by lewbloch, on September 05, 1999 at 00:49:51:

Lew, some comment is warranted here on "objective" vs. "subjective."

If you take Objective to mean hard, physical measurements then the value conclusion (TFM or otherwise) cannot be objective because value is not a physical characteristic.

If you take Subjective to mean coming from the subject of the appraisal (here meaning the appraised object & the entity experienceing value taken together) then appraisal is subjective, it varies by subject. I would suggest that in an appraisal context there is no such thing as "Intrinsic" value.

If you take Subjective to mean that the appraiser estimates value to him/herself then that should not be true. The appraiser should be independent and exclude all personal bias.

If you take Objective to mean based on facts and reasonable assumptions (ASCA SPP p.8 & 3.6(A) )the TFM is or should be objective. Note that the experts reasonable and informed assumptions fall within this definition. ASCA did not make this up, but relied on common sources.

If you look up Objective and Subjective in Black's Law Dictionary (6th Ed. 1990 p. 1073) the only definition you'll find is of "objective symptom" referring to a physician's being able to discern it by examination and distinguishing it from "subjective symptoms" which the patient tells the physician... "my head hurts."

I sense that lawyers will attempt to discredit expert opinion by characterizing it as "subjective" or not "objective" but as I understand the Federal Rules of Evidence expert testimony including or based on opinion is explicitly allowed.

In summary, appraisal should be fact based, i.e. Objective. The facts include many things including human behavior. Appaiser's personal preference or bias is excluded. Client's representations must be supported by the other facts. "You knocked down my tree I want a gazillion dollars" probably won't stand much scrutiny. That said, there is no big list kept by the great Druid in the Sky with the "right" value. Value is variable. That is one of the facts.

Reply to post by Scott, on September 05, 1999 at 18:04:13:

Scott & Lew:

Thank you for your input. All of your comments have been a big help.

Mike