I had an interesting case recently, and would like your comments.

I was retained by counsel for a community association. They have deed covenants (restrictions) that prevent removal of trees on the individual lots without association permission. The community is still under construction, the first houses occupied about 1 to 2 years ago. It is mostly built in a wooded area, upland forest of oak, maple, beech and tuliptree. The association is intent on maintaining the natural wooded nature of the community, as far as possible.

A homeowner conttracted to have about a dozen and a half trees cut down, without permission, and the association wishes to pursue legal action. They have asked for a valuation of the cut trees.

The question: What is the relative site rating in this case? Does the value of these trees differ for the homeowner and for the community in general?

Reply to post by Russ Carlson, on February 11, 1999 at 21:33:41:

Russ,

I'll give this some additional thought as I have time but my initial reaction is:

RE:VALUE Yes value differs. Clearly the homeowner placed no value on them. You cannot force a value on the homeowner. The initial step in any appraisal process is to define the purpose and use of the appraisal, value, and "value to whom." If you were valuing these trees, say as part of a total tree population, for the homeowner you'd make a threshold determination that these trees already marked for removal have no value so why go through a detailed appraisal and assigning of any factors.

Since you are valuing for the association you must estimate value to the association.

RE: SITE How you apply the site rating (or any of the other depreciation factors) will depend on the definition of value. If the covenants call for retention, period maybe site is 100%. If market value is considered then site must adjust to contribution to improved land value.
The tricky part is whether the contribution is to the aggregate value of all lots in the association or only the fee simple parcel where the trees were. I'll have to work on that. Maybe you analyze both to see the difference if any.

Scott

Reply to post by Scott, on February 11, 1999 at 21:33:41:

Scott,

Just a quick note to let you know what a great expert you have been debating with in the form of Kevin H.

Okay Kevin, did I do good? I had the pleasure of meeting Kevin this past week in Bismarck North Dakota at the North Dakota Urban and Community Forestry Assn. Workshop. My students picked up immeadiatly on his example of the 2 white oaks threatening Scott and his Lexus'. Now he knows for sure that anything you say can and will be used in a class of mine. In talking about that particular thread, he commented on the discussions that Scott and he had had and we decided I should comment in some form. As always, it is great to finally put a face to someone you have known for over a year.

Keep up the good work fellows. The youth of America are listening.

Bob Underwood

Reply to post by Russ Carlson, on February 11, 1999 at 21:33:41:

When considering a site rating for a wooded homesite I would first look into what the association has done towards managing or maintaining the "woods". Does the association have a mangement plan for maintaining the trees. Have they hired a forester or arborist. The level of management at the site could be used to justify a site rating. Their management plan should indicate what benefits are desired from the wooded lots. Cutting of the trees may have been in violation of association rules but without a management plan it could be difficult to prove how the benefits have been altered by the cutting.

James Scarlata

Reply to post by Scott, on February 11, 1999 at 21:33:41:

The last paragraph is the whole crux of my dilemma. Where in the process does the value to the whole community get considered? Site may be part, and I think contribution would be another major factor. If this is a fairly heavily wooded community, do those few trees have much individual contribution? The gap in canopy cover might have a significant visual impact on the local area, when combined with the openings already made for houses and roads.

RE: forcing the value on the homeowner- Where does advocacy enter in here? If I am to appraise impartially, the homeowner's opinion should not really be a consideration. I have no use for a fur coat, and may choose to through it out. Does that mean it is worthless? The value I place on those trees on that property is not affected by the current owner's likes and dislikes. Just as I cannot increase the value if they happen to be the most treasured things in his life, I cannot devalue them if he doesn't like them. It is his choice keep or destroy, despite the stated value.

Reply to post by Russ Carlson, on February 12, 1999 at 06:55:33:

Russ,

There are a lot of issues bundled up here: technical appraisal; legal; philosophical; ethical. This is why, in my opinion, there is such an appetite for a "one size fits all" appraisal method; for some notion of "intrinsic" value that somehow escapes all the externalities. But the facts are indeed variable and an effort to make them go away is really artifical or aribtrary.

Some situations impose artificial order for the parties and the appraiser by making such arbitrary judgments. There may be an "intrinsic" value for that particular situation. This may be imposed by law (as apparently in UK where there is a fixed penalty per tree) or by agreement (such as a homeowners' covenant). Sounds like this situation was more open ended, with no arbitrary method of valuation imposed.

An organized and rational appraisal model allows you to proceed in an impartial fashion and without being an advocate, but that does not mean that you must estimate an "intrinsic" or balanced (between the parties) value. You must look at the facts.

If the facts include that the homeowner was a party to the covenant, violated the covenant and the covenant recognizes value to the association, then your assignment seems to be to estimate value to the association.

(To use your fur coat anology, if you own a fur coat but join the preservation of old fur coat society and sign a covenant that you won't throw it away, then even if you don't like or want it anymore - it has no value to you - you can't throw it away without violating the covenant.)

So, value to the association:

1) Does the covenant support a definition of value which is something like full replacement (size or function)? If so the entire location factor (site, contribution, placement) may be 100% - no depreciation is appropriate. There may be a 'spirit of the agreement' loop back here even with other definitions of value.

2) Contribution to property value definition. (NOTE this is not the Contribution sub-factor of location. It refers to the portion of total proerty value represented - or contributed - by the trees. Value of property with trees - value of property without trees = value of trees.)

a) Add up all the market values of the individual parcels. Figure out the contribution of all the trees. Figure out how much the 6 removed trees contributed to that. Mybe the most logical at first brush. But does it support the spirit of the covenant or benefit the association? The overall picture would probably be little affected, so the homeowner would like this one; see it's only .01%, insignificant!

b) Look at the impact on the individual owner's parcel. It might have a greater impact and result in a higher value than a. Or it might even increase value of the individual parcel. 'Isn't this a nice sunny deck. Not all dark and gloomy like the other units.' But is the value preserved by the presence of trees on all the other individual lots? So if everybody exercised their rights to cut down their own trees (held in fee) would the value of both the individual parcels and the whole association fall? That's the reason they create covenants.

c) a and b in a traditional real estate valuation model (what you'd need to estimate market value of the parcels) consider "marginal" value. Does the presence of that one tree (or those 6 trees) make any difference? Maybe no. What about the next one? and the next? and the next? For a while you get no marginal difference. But then, all of a sudden the next one makes a big difference. Does that mean all the ones before had no value? Does it mean the remaining ones have higher value? What if the margin kicks in at the last two trees? That leaves you on pretty shaky ground in terms of protecting your value, risk is higher. So those earlier, non-marginal value trees were in some sense your insurance policy. So maybe they did have a value not revealed by the margin. So maybe that brings you back to some interpretation of #1 to support the spririt of the covenant which was to "insure" or protect value.

This brings in the idea of a management plan which was posted by someone else (good observation). The presence of a good management plan may help the appraiser look at the relative contribution to value and Contribution to Location (capital "C" is a factor). Maybe the plan allows for periodic removal or thinning of stands. Maybe it creates succession plans. Maybe it designates key significant trees. Maybe it creates classes of trees that are given greater protection or classifies them as problems or nuisances. Maybe it sets up an application procedure for removal.

Or maybe there is no plan. Does that mean there is less value in all the trees or individual trees? Maybe, if that lack has limited overall value. Does that mean the violator did not do such a bad thing? Maybe not. Maybe the appraiser needs to estimate value "as if" there was a management plan.

I think you need a well articulated opinion of value within the spirit of the agreement and reflecting the physical facts. You may be able to move to a relatively clear position or you may have more than one alternative which is justifiable and may need to present the range of opinions to the decision makers to remain impartial.

Scott

Reply to post by Bob Underwood, on February 12, 1999 at 06:55:33:

Bob,

Thanks for the endorsement. I'm glad you enjoyed my presentations. North Dakota has a superior quality of life - protect it.

Credit should really go to Russ, however. In a field dominated by the mundane, Russ has managed to put together a tree site with a cerebral orientation, without missing the need for the practical application of theoretical ideas.

Good work Russ.

Now for the fun;

I would suggest that this thread be shut down, before it leads us into an intellectual quagmire. Scott is correct, in that Russ's dilemma involves fundamental assumptions about value theory, ethics and the legal system. And we know we don't want to get too close to challenging the dominant Lockian value theory paradigm!

Russ's situation points out one of the primary weaknesses of traditional arboriculture - it's reductionistic focus. Treating each plant as merely a subset of the total "real estate" value results in severely underestimating the benefits supplied by that organism. Along with that nasty environmental justice issue which Bob referred to.

What Russ is dealing with has long been a problem in natural resource economics. The cumulative impact of hundreds (or thousands, or millions) of individual landowner decisions concerning resource utilization results in the destruction or degradation of the resource itself. A landowner fills in 5 acres of wetlands - "so what? No big deal". The marginal impact of his activity is minimal on the larger system. Unfortunately, the next thing you know several hundred other landowners have followed suit in order to "maximize their net utility from their property". A good rain comes and OOPS, the community downstream gets flooded as the natural wetland system can no longer absorb the overflow.

In certain biotic systems a theoretical "threshold", below which sustainable utilization is possible, exists. The problem lies in determining this level of activity in systems which are dynamic matrices involving a complex number of variables.

The MARKET FAILS in these circumstances since it can not internalize the true external costs involved in the transaction. As per Garret Hardings classic work, a true "tragedy of the commons" occurs.

Since the landowner in Russ's situation considered the trees a liability or hindrance to his enjoyment of his property, valuation from this perspective is meaningless. Russ needs to focus on the value that the community places on the preservation of their forest cover. As such, the marginal contribution of several trees to the total market value of the forest is not an appropriate measure of their worth. Replacement cost or restoration of functional benefits cost would be the most accurate tool to utilize in this circumstance.

Ideally, the community should place a system of penalties into their covenants for non-compliance. I am currently working on a similar situation for a homeowners association in an upper-scale wooded community. Fortunately, the parcel owner has not logged his property yet. I will be assisting the community in determining their goals and objectives for forest cover and we will be clearly addressing forest management activities which are in compliance with these goals.

Kevin - H

PS - Definitions;

The terms "intrinsic value" and "extrinsic value" have been utilized in an attempt to delineate what it appears to me is primarily "market" and "non-market" value. It should be noted that this is not a correct use of the term "intrinsic value" from a philosophical standpoint. Intrinsic value is value independent of the benefits supplied by that entity. For instance, as a culture we tend to place intrinsic value on all human life regardless of the productivity or contribution of that individual to society as a whole. Intrinsic value is outside of the realm of appraisal.

Things like "existence value" (the benefit received just by knowing something exists - for instance, a wilderness area) is NOT an intrinsic value. A benefit is still being supplied even if it is just a "warm and cozy feeling". When appraisers attempt to place a value on something they are actually measuring "instrumental value" - the value of the benefits received by the beneficiary. They are attempting to create a preference ranking regardless if a traditional market exists for the benefit received. The real problem with tree appraisal lies in determining the scope of beneficiaries and the preference ranking of the benefits received.

OK Bob, feel free to use this info to overload the neural networks of your students.

Reply to post by Kevin - H, on February 12, 1999 at 09:21:43:

Kevin,

Your summary is very good. I agree that "intrinsic" is a meaningless (or at best not very meaningful) term in appraisal. Appraisal does indeed focus on benefits (or if you wish "instrumental" values).

The problem is not so much with appraisal technique, the methodologies can be adjusted to consider whatever range of values (market, non-market, economic, non-economic, whatever) the analysis calls for, but the appraiser can only work within the legal and cultural framework accepted or imposed by society. Moving beyond that the appraiser becomes a an academic or philosopher, not that that's bad it's just not appraisal anymore. There is a tendancy toward narrow mindedness within appraisal groups which refuses to recognize the full range of possible values or preferences.

For the individual appraiser, it all goes back to understanding what value is, recognizing the range of values that are possible and defining the appraisal assignment according to the facts not according to pre-conceived notions. (Russ will be teaching all about assignments at the ASCA Academy next month).

Some months back I tried to research the source of the value definition as 'present worth of future benefits' to answer your critique. I'm still searching. One source I found was the History of Economics mail-list. The last few days have had a lot of traffic on 'externalities' which you mentioned above. I'm afraid if I go look for the address now I'll trash this long post, so I'll add it in another post.

Scott

Reply to post by Scott, on February 19, 1999 at 16:58:27:

Kevin you might want to review recent traffic on externalities.

Reply to post by Scott, on February 19, 1999 at 16:58:27:

>>Scott wrote: I agree that "intrinsic" is a meaningless (or at best not very meaningful) term in appraisal. Appraisal does indeed focus on benefits (or if you wish "instrumental" values).

Yesterday a colleague asked me where we can find reference in the appraisal literature, either specific to arboriculture or generic, regarding the focus on value of benefits derived. Where is it written that we are appraising the benefits, perceived or real?

Reply to post by Kevin - H, on February 12, 1999 at 09:21:43:

Thanks for the kudos, Kevin. But I remind you that this site is not so much of my doing, any more than Mr. Weyerhaeuser can take credit for what you write on paper. The quality of this site is attributable directly to the participants who frequent it. I've never had to remove a post due to language or content, and only issued a cautioniary statement once, in the past year. A great bunch of people here.

Reply to post by Kevin - H, on February 12, 1999 at 09:21:43:

RE: "Treating each plant as merely a subset of the total "real estate" value results in severely underestimating the benefits supplied by that organism."

Oh, Kevin! Your bias is showing here. How do you know we are "underestimating" the value? That in itself is placing parameters and opinion on the process.

As Scott mentioned in his reply (2/19/99 #442), the assignment is key. We MUST work within the framework society presents us, and to do this we must fully understand the assignment. That includes understanding the acceptable parameters, and the range of benefits that are applicable under those parameters. This was the subject of the prior lengthy discussion in which you and Julain Dunster argued for a more inclusive range, accounting for the benefits to the greater society of the environment, in addition to the human society. But that's been hashed over already.

Suffice to say, we have to know for whom the appraisal is being done, and what the objectives and purpose if its use are. In the case I stated, I had a clear idea of where I was going with it before I started. In a case like this, however, there can be more than one right answer to "what is the value". The community's value is different from the homeowner's value. But since the community is the injured party in this case, perhaps that is the value that should prevail.

>>When appraisers attempt to place a value on something they are actually measuring "instrumental value" - the value of the benefits received by the beneficiary.

This is the heart of appraisal, and the source of our contention/confusion. Once the benefits are determined, and the beneficiaries, the rest is easy.

Reply to post by Russ Carlson, on February 19, 1999 at 16:58:27:

Russ,

You have miss-quoted me, "Oh, Kevin! Your bias is showing here. How do you know we are "underestimating" the value?".

I said it underestimates the "benefits" which is a different animal than "value". I don't think there is any disagreement on this board that current valuation practices fail to account for the full range of benefits received from tree cover. So as to avoid any confusion, I am referring only to the human beneficiaries here. (Geez, biocentric ethics really does get you guys flustered!).

You have also stated,

"As Scott mentioned in his reply (2/19/99 #442), the assignment is key. We MUST work within the framework society presents us, and to do this we must fully understand the assignment. That includes understanding the acceptable parameters, and the range of benefits that are applicable under those parameters. This was the subject of the prior lengthy discussion in which you and Julain Dunster argued for a more inclusive range, accounting for the benefits to the greater society of the environment, in addition to the human society. But that's been hashed over already."

Hashed over, yes, but never resolved.

The assignment is indeed the key, but in my experience the parameters are usually vague. Clients rarely understand the full benefits supplied by woody vegetation and tend to believe that the appraiser has some kind of cryptic formula that will figure it all out. As such, the tree appraiser is a de-facto advocate in that it is his decision as to which benefits he will apply in performing his modern alchemy. The idea of a tree appraisal as an objective analysis is an illusion.

What is the "framework that society presents us?" Isn't this just a euphamism for the "status quo?" By claiming that an appraisal must fall within this hypothetical framework you are in essence acting as an advocate for that system. Sounds like a tree appraiser is as much a sociologist as a plant specialist.

Bob, are you writing this down? This stuff should fill at least three class periods.

Reply to post by Russ Carlson, on February 19, 1999 at 21:51:42:

You'll find references in the long thread "what is value?" A couple probably include:

"Value is the present worth of future benefits."
Appraisal Institute, 1993, Dictionary of Real Estate Appraisal. Chicago: Appraisal Institute. P.384.

"...value is commonly perceived as the anticipation of benefits to be obtained in the future." P. 18, 422. Appraisal Institue, 1992, The Appraisal of Real Estate. Chicago: Appraisal Institute.

The proposition is attributed to economist Irving Fisher who may have been influenced by Karl Menger.

Market value is only one form of value and is not universally applied. It depends on the definition of value which applies to the ASSIGNMENT.

Reply to post by Kevin - H, on February 19, 1999 at 22:49:29:

Kevin, this is a little rushed so may not be as logically tight as could be but...

The underestimating of benefits as you put it is out of the entire range of benefits, however they might be defined to a range of beneficiaries. So in a relative sense it's true. But appraisal, properly practiced, states an opinion of value ONLY to a specified beneficiary (or beneficiaries), and for a specific definition of value and at a specified point in time. So assuming the definitions and specifications are properly made and the analysis is so focused the estimation should be complete (within the technical limits of methodology).

Those specifications and definitions may be supplied by the beneficiary in a self serving fashion or may be imposed by legal and cultural system, within which the appraiser works.

Value is not a physical characteristic and cannot be directly measured. Valuation is not hard, physical science. In that sense it is not objective. It is in many ways social science. But social science can be very quantitative, it's not all just feelings and emotions. If you accept "objective" as being based on facts and reasonable assumptions, then the appraiser can be objective and filter out the personal bias of the parties. The 'bias' if that's what you want to call it, of the leagl and cultural system or status quo, is what it is. The beliefs of a system of environmental ethics or justice is just as much a 'bias' under that definitions, it's just not the prevailing bias yet. Is it any more than a re-ordering or re-ranking of preferences to consider benefits or beneficiaries differently?

To say that the appraiser cannot participate without being an advocate for the status quo may be true, but the alternative is nihilism, paralysis, a suggestion that since nothing is knowable nothing is doable.

There is indeed a failure among tree appraisers to understand that value is not simply and only replacement cost. Or more recently, may be more than a contribution to real estate market value. That beneficiaries are the key and must be defined. That's why we started this whole discussion: to get that out on the table and see it reflected in the literature and training. I think we're making progress.

Reply to post by Kevin - H, on February 19, 1999 at 22:49:29:

Kevin, I'm writing it down and getting ready to add my 2 cents (3 Canadian).

When you discuss the value "down stream" and the problems of putting a dollar number on that, I keep thinking back to an article in JoA written by my major professor for my master's work, Dr. John Reeves. It is in the October 88 issue on page 255. I have used this successfully in at least one appraisal. The following is the abstract from the article.

"Formulas have been in general use to establish the dollar value of a tr ee when used in landscaping, or when used for pulp or timber. But none has been developed that recognizes that trees have a real value to the functioning of an ecosyste, unrelated to their value for landscaping or the the lumber or pulp industries. This paper suggests a way to establish a dollar value for any given tree based on the significance of its effects on soil, nutrient and water conservation, animal usage and habitat characteristics. Judgements of ecological effects are converted to simple arithmetic steps to produce a numeric dollar value for the ecological contributions of the tree."

If anyone has read this or can get a copy, I'd like to hear some comments, since most of our appraisals deal with shelterbelts and wildlife plantings. I'f you can not find a copy and would like one, I can probably fax you a copy.

Keep up the good work and look spiffy, you were the lab reading assignment for the past week on the topic of tree evaluation.

Bob

Reply to post by Kevin - H, on February 19, 1999 at 22:49:29:

You did say benefits... my error. So then how do you know we are underestimating the benefits? Benefits to whom? (Back to the argument about the squirrels.) Correcting my misquote, I stand by the comment.

>>By claiming that an appraisal must fall within this hypothetical framework you are in essence acting as an advocate for that system. Sounds like a tree appraiser is as much a sociologist as a plant specialist.

Working within a framework or set of parameters does not necessarily imply acceptance or a position of advocacy. Changing the parameters cannot be effective when done by breaking the current rules, in most cases. We have to work through education to effect the course we wish to see taken, not by simply applying what we think is best, in the face of opposition.

Advocacy works both ways, and I personally advocate change. But I won't get anywhere if I just stare at the screen and don't speak out on the issues. I also won't get anywhere if I try to use my ideas and concepts of the "proper" method, without it being substantiated and accepted by the forces of society. I am forced to work within the framework provided, even while I try to restructure that framework.

Reply to post by Bob Underwood, on February 20, 1999 at 01:35:17:

Bob,

1. Were you ever able to learn any more about the NDSU shelterbelt value method? Either the court acceptance of Helwig et al (circa 1982) or the newer version you mentioned?

It's interesting to note that Helwig et al (in the very brief intro to their method) suggest that "benefits" models are subjective and difficult to conduct and get accepted. I think this is all tied up with the legal 'status quo' that Kevin mentioned and explains in great measure the focus, until relatively recently, on replacment cost as the primary indicator of value -- it seems objective.

That all gets back to educating tree appraisers to be more than cost estimator technicians and to be able to explain and justify "benefits" based opinions so as to influence case law.

2. Evaluation vs. Valuation. It's important to make the difference. "Valuation" means putting a dollar (pound, yen, euro, whatever) on and that's what we do in appraisal. "Evaluation" is more properly concerned with analyses of condition, function, quality, utility, etc. (Though there are some esoteric definitions that call certain low-level appraisals evaluatuions, it's not the general case.) Certainly, though evaluation is most often done to arrive at a value opinion it is a sub-set of the greater valuation exercise which is the essence of the assignment.

I did an article that touched on this in Arboricultural Consultant: "Tree Appraisal: What Are The Differences Between Valuation and Appraisal?" but I'm on the road and don't have the date/issue. But within last 2 years.

Reply to post by Russ Carlson, on February 20, 1999 at 01:35:17:

Well said!

Reply to post by Scott Cullen, on February 20, 1999 at 10:34:05:

Tree Appraisal: What are the Differences Between Appraisal and VAluation?
Arboricultural Consultant (ASCA Newsletter), Summer 1998, vol. 31, No. 3

Reply to post by Scott, on February 12, 1999 at 22:15:36:

I found this tool, which analyzes intrisic value analysis of real estate:

http://www.valuecoach.com/Intrinsic.html

Has anyone used this? Is it worth it?