The Guide suggests that plant appraisals be reasonable. Usually this 'reasonable test' is tied to property value. Arborists are often eager to promote the claim that trees and shrubs add value to real estate, yet as the 'value' of the collective landscaping approaches some percentage of the defined propety value, some threshold is crossed and the value of the plants becomes unreasonable.

There must be other industries that cap, or attempt to cap, value based on what is deemed reasonable (athough I cannot think of any right now). Is the value of GE stock determined by some 'reasonableness test'? What about Calvin Klein underwear? or real estate? The notion of what is reasonable might enter into the pricing of many goods and sevcies, but I think supply and demand are larger factors.

I wonder as I look at an appraisal's figures: $38,000 for replacement of a large oak tree v. $12,500 for a Trunk Formula value. Am I merely scared by the high figure and cliam that it is unreasonable? And perhaps I have been undervaluing plants, as evidenced by the actual costs for their replacement v. a TF value.

I also wonder that perhaps the TF method is becoming obsolete. Are not actual costs for replacement more accurate that an extrapolation?

Reply to post by Favero Greenforest, on November 21, 1998 at 23:02:57:

We just can't get too far away from the fact that the trees are tied to the land. They are by legal definition "a part of the land". It simply is difficult to justify a value for the trees, that is seperable from the land, that is higher in value than the land. The only way to discuss that seperable value is to discuss it in terms of a commodity which has value in and of itself.

If the land contains a gold mine, the gold itself may have a value that is seperable from the land, which is more valuable than the land. That seperable value must also consider and deduct the cost of extraction of the commodity from the land.

We have some difficulty with the value of trees credibly exceeding a portion of the value of the land. Unlike gold, trees are not rare. They must be planted on land in order to survive (if we're talking about the benefits of a living tree), and so become a part of land again once they have been transplanted.

We could talk about the value of trees in terms of air pollution mitigation. We've got a little bit of data (although insufficient to be solid), upon which we can base a monetary contribution to the tree owner and society as a whole. That factor in and of itself is not likely to exceed amenity value as a whole.

We could look at privacy issues and screening functions of the tree, and compare those benefits with the cost of a solid fence which provides the same benefits. We would probably be disappointed with the fact that a tree only provides partial coverage, and the appraiser would have to fractionalize the bid quote from the fence man.

Favaro brings up a key issue in all of this discussion, which is supply and demand. We have to face the fact that supply is high, and demand is low for the expense of moving very large trees. Until that changes dramatically, in my opinion, the trunk formula offers a very useful alternative for assigning value to a large shade tree. Sure, large trees are being moved on a more routine basis, but not enough to be common and commonly available in all areas in the country or world.

For those of you who care, I define "amenity" as having to do with "human health and comfort". That definition encompasses all of the functional issues mentioned in the guide, not the least of which is SHELTER. Back up and look at the human animal, and how it behaves. People like to have trees present where they live.

Nuf for now,
Best regards,
KWK

Reply to post by Favero Greenforest, on November 21, 1998 at 23:02:57:

The 8th Edition, Chapter 13, p. 70 suggests that tree values should 'usually' be reasonable in relation to the value of the real estate, but does not explain what usually is or why.

Supply and Demand influence the value of market goods. Market value. What buyers and sellers are willing to pay and accept in exchange. Irreplaceably large trees are by definition non-market goods. If the facts and circumstances of a case (statute, case law, judicial ruling, custom) limit tree value to the contribution of the tree to the market value of the real estate, then the reasonablesness test of tree value must be against the market value of the real estate (which is a market good and affeted by supply and demand).

Is the market value of GE stock similarly tested? See Fuerbringer, Jonathan. 'Valuing the Market,' The New York Times, Sunday August 16, 1998, p.BU 4. (Sould be on microfilm at most libraries.) The rules are pretty fuzzy!

The ultimate fact of value and what is reasonable is determined by the market in the case of market goods, by an individual in the case of their own individual purchase or sale, or by the court in the case of litigation. The court may be constrained to make tree value reasonable in relation to real estate value or may find differently, based on facts presented. There are such cases. So in my opinion, tree value does not ALWAYS have to meet that reasonableness test. Unless the court has instructed that value is to be limited (or counsel believes it will so instruct) the most professional course for appraisers may be to provide the range of possible values, perhaps with certain benchmarks such as contribution to real estate values, to assist the court in reaching its decision.

As to TF vs. Replacement: In theory the result of the two methods should be the same. They are both replacment cost approaches to value. The unit cost calculated in TF is supposed to represent the actual cost (which is unavailable or difficult to obtain) through extrapolation. If you obtain actual costs and they are higher than TF costs then maybe the unit costs plugged into TF are too low. Or perhpas the extrapolation curve does not accurately represent the actual increase over size. In any case, in my opinion actual costs are always superior to hypothetical or extrapolated ones (which are surrogates). All this is before depreciation. Any deductions (Species, Condition, Location) made in TF should also be made in Replacement cost for the analyses to be comparable. Maybe you are scared to give the court the full range and let it decide or maybe you've been instructed to provide a reasonable result. Maybe the whole industry is scared the same way and presumes that reasonable is what will be palatable and won't be embarassing to defend. Maybe that's why conservative unit costs are often advocated for TF.

Scott

Reply to post by Kerry, on November 21, 1998 at 23:02:57:

See response to Favero 11/23.

There are cases in which the courts have found amenity tree values to exceed their contribution to the fair market value of the land. I referenced one as cited by Steve Day somwhere back in these threads.

I'm not sure that the only way to describe that separable value is as a commodity. By commodity do you mean something which is harvestable and saleable, leaving the land largely intact?

I agree that Trunk Formula provides a useful surrogate for actual replacement cost data which are not available. Availability of such data will not change the reasonableness issue. They are unlikely to change the relationship of tree replacement cost to FMV of real estate. They might, however, make separate values in excess of FMV more commonly acceptable.

Reply to post by Scott Cullen, on November 21, 1998 at 23:02:57:

Tree appraisals in the State of Washington are limited by statutory law (RCW 64.12.030), that states replacement and restoration costs are an appropriate measure of damage.

The briefs of this case indicate several native trees removed through trespass. The landscaping company who appraised the trees did so using replacement costs. The casualty trees ranged from 4 to around 18 inches in diameter. It does not indicate if the experts were arborists, certified or registered, or if the Guide was used. I presume no to all the above.

The statute claims replacement costs are appropriate. This could also mean reasonable. It does no preclude other appraisal methods. However, attorneys prefer the higher figures from an appraisal based on replacement costs over Trunk formula. Especially when treble damages can be awarded.

If replacement costs are appropriate, does it matter if they are unreasonable? As an appraiser, do I decide what is reasonable? Or do I present values from the method I have used, or was directed to use by an attorney, and let the court decide if it is reasonable?

Favero

Reply to post by Favero, on November 22, 1998 at 19:54:16:

As a non-lawyer, I would think that statute "that states replacement and restoration costs are an appropriate measure of damage" means that such measures are admissable and that the court may determine what is reasonable. I do not see that replacement or restoration measures must be capped by the appraiser in relation to property value or other measures of damage.

If I was retained to develop a replacement cost estimate, then that is what I would present. It may be appropriate to note how the result differs from a result that is capped or differs between or among methods (TF vs actual replacement). Two reasons: 1) to provide the court with the fullest understanding of facts, 2) to demonstrate your rationale and avoid having it characterized as not meeting a 'standard of care' or accepted practice if tree appraisers typically apply the reasonableness test in this jurisdiction.

The ethically tricky part is following attorney's instructions with regard to law and how it applies without skewing results in a manner which distorts facts so as to benefit the attorney's case. I believe that's why real estate appraisers submit a standard form narrative report which lays out the entire analysis and range of approaches rather than allowing clients to pick and choose what gets admitted.

I hope that's helpful.

Scott

Reply to post by Scott Cullen, on November 21, 1998 at 23:02:57:

Regarding the theory that TF and replacement should come out the same, I don't think it's that simple.

1) The TF is based on the largest COMMONLY available stock. We plug numbers in based on what is commonly available, but if we get to watching the market, we notice that every once in a while a larger individual or group of plants of a particular species or batch comes through. The increase in price for that material is based on the nursery's operating budget. The increase in price for the TF formula is based on square inches. The growth rate isn't the same.

Should it be? That nurseryman is growing the tree for sale. The buyer is growing the tree for use of it's benefits. The nurseryman wants the tree to grow fast and gives it lots of fertilizer. The buyer wants the tree to achieve it's service size, and stay there. Apples and Oranges.

2) Because demand for transplanting large trees is not common place, fees are high. If we're talking about Disneyland, it is reasonable to expect that they would seriously contemplate paying the fees to move a large tree, and if they are damaged/injured it would be reasonable to expect to be justified in using replacement costs. Arny's house in Humbleville, where the lawn gets mowed twice a year because they have to move the debris to do the job, probably would not justify a replacement value unless you can show that Arny would normally move a large tree onto the site at his expense.

Granted, there are some problems for the appraiser when dealing with the grey area between the two obvious extremes, but in my opinion, a part of the job is to make those distinctions. Is it reasonable to expect that Arny would as a normal course of life transplant a tree onto his property, and pay more than the value of the property to do it?

Reply to post by Kerry, on November 22, 1998 at 19:54:16:

It's not always simple. That's why I said 'in theory.'

RE your #1: TF is a replacement cost approach to value. It is a surrogate for replacement cost data which either are not actually available or are not easily obtainable for a particular appraisal. The unit cost (in this case per sq.in.) is calculated so that it can be extrapolated to the size of the appraised plant. The result is supposed to represent the replacement cost of the appraised plant if we could actually obtain a plant that size.

The 8th Edition (p.57) allows for wholesale, retail or installed cost as the basis for unit cost. Regional groups may establish averages or establish by survey the most commonly transplanted size. In my opinion, the cost should reflect the cost that would be incurred by the damaged party to effect replacement. I don't think that it is necessarily limited to the most commonly transplanted size. If the cost is the prevailing nursery cost then taht is what would be incurred.

The presumption in replacement cost methods is that whatever the benefits are they are replaced by replacement of the beneficial object so replacement cost = value.

Actual replacement costs are superior (as indications of value) to TF costs. If we have actual costs they are preferable. If we can adjust TF inputs to most accurately reflect actual costs then we should make such adjustments. The problem is 'how do we know?' If we had the actual data we would use them rather than the TF surrogate. So we must recognize limitations on the precision and reliability of TF vs actual.

All this cost calculation is pre-depreciation, which will bring us to you #2. Remember cost is not the same as value, though they may be equal under certain circumstances.

RE your #2: The first step is calculating replacment cost, as accurately as possible. That was accomplished in #1. Now we must adjust cost to reflect value (benefits). The assumption in replacment cost approaches is that value will not exceed cost, so all adjustments are downward. These downward adjustments are called depreciation. If the appraised tree is in poor condition or has undesireable characteristics it will not provide as many benefits as a new, desireable replacement so we adjust Condition and Species factors. If the definition of value is replacement cost we may make no Location adjustments. If the definition of value is contribution to real estate value, we may adjust Location (particularly site) to reflect that contribution. If the definition of value considers liklihood of replacement we may likewise adjust Location (the Humbleville / Disney comparision which is indeed a real consideration).

It might be argued that beyond very specific limitations imposed by clear definitions of value, that adjustments from replace,ment cost should really be made by the appraisal user (court or whomever) rather than the appraiser.

In any event, the calculation of replacement cost (inputs and methods) are distinguished from depreciation to reflect value or benefits (apples and oranges).

For more on depreciation see 'Tree Appraisal: What is the Trunk Formula Method?' in Arboricultural Consultant, Oct. 1997.

Scott

Reply to post by Favero, on November 22, 1998 at 19:54:16:

I think that, by definition, "reasonable" is up to the court. I think that practitioners give their opinions of what reasonable is, and the court decides. Peter