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An Under Served Market

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Terrel L. Shields

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Certified General Appraiser
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Arkansas
Today there is a market that is badly underserved. Conservation easements got a really bad name after developers crafted huge tax breaks by busting up large ranches into smaller SFR "lots" with an attached tax benefit...so they thought.

Appraisers serving that "need" in Colorado took some real heat with lost licenses and IRS prosecution. Some ranchers who were depending upon large tax breaks were denied any break. And the land trusts duped in these schemes took a black eye at the very least. Not a fun way to work.

But land trusts/ Nature Conservancy, etc. take land in 3 circumstances. One is a fee simple arrangement where the land trust has basic control of the property. Another is a donation with partial restrictions (but not necessarily a conservation easement) and of course, that conservation easement where the title is not exchanged, only an easement to restrict development (generally on a ranch or farm that would allow continuation of a ranch operation. )

The outright donations are generally not what the land trust gets involved in, rather it is donor that is looking for an appraisal to show the "gift" value of the land for the IRS.

In speaking with a land trust director, I found out that they often are unable to provide a landowner with a name of an appraiser to get that gift appraisal done. This is generally CG territory since it isn't involving a residence in most cases, but certainly for some appraisers this is a niche that could be very profitable. First, the fee is rarely the issue and secondly, there is no real time constraint unless the donor has lollygagged around until tax deadlines. Just an idea for someone who needs to find a "niche" in your area. Find those land trusts and make an appointment to visit the director. Leave a few business cards, and I bet you generate some work within the year...once you establish a reputation, it might work into regular assignments.
 

PL1957

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Jul 19, 2004
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Certified General Appraiser
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Illinois
Conservation easements fall into the high risk assignment category solely because of the potentially onerous penalties to the appraiser. As it is, vacant land is the hardest thing to appraise properly because reasonable people can disagree as to highest and best use, and thus, can have significant differences in value. The IRS can easily put an appraiser out of business based on a disagreement.
 
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leasedfee

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Oct 14, 2007
Professional Status
Certified General Appraiser
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Colorado
After the fraud and debacle, Colorado's new regulations require that upon delivery of your appraisal of a conservation easement to the client, you also have to send a copy of same said appraisal and a check for $500 to the Department of Regulatory Affairs for review. You also have to take a mandatory day long course and hope you can get work. Among one of the lies, easily manipulated appraisers were opining that farm land in the middle of nowhere had a H&BU as a residential subdivision. And that the difference was the donation. Dumb SOBs.

For a few years, I had a minor niche in historic preservation facade easements, but that market dried up and the primary qualified beneficiary of the easements decided inspection/enforcement into perpetuity was not cost effective. Haven't received that type of phone call in 8 years and there were several people in town qualified to do this type of work. There were some of the most fun assignments I have had. . . . I wouldn't touch the farm/ranch conservation easement with a 1000 rod pole -- I'm guessing only a handful of people do these.
 

Terrel L. Shields

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May 2, 2002
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Arkansas
I wouldn't touch the farm/ranch conservation easement with a 1000 rod pole -- I'm guessing only a handful of people do these.
I've valued encumbered land, but not for CE IRS work. Finding comps is an issue but land trusts are your first call. Typically a discount might be 20-30% of unencumbered value. HBU is typically Agri before and after. I've valued donated properties and that is no biggie - mostly to Universities and churches. I've also valued purchased land by agencies - a virgin prairie and a cave / bat habitat acreage tract come to mind as unique. But those can be tricky when federal matching funds are involved... another forumite that does reviews cuffed me around the head and shoulders over that so ASK anytime fed money might be involved.

Certainly take a conservation easement course. The key is HBU and fantasizing some high dollar future use won't cut it.
AI has a professional development program geared towards conservation easements.
ASFMRA cooperates with AI. Most I know are from ASFMRA.
 

techbiker

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Texas
I've valued encumbered land, but not for CE IRS work. Finding comps is an issue but land trusts are your first call. Typically a discount might be 20-30% of unencumbered value. HBU is typically Agri before and after. I've valued donated properties and that is no biggie - mostly to Universities and churches. I've also valued purchased land by agencies - a virgin prairie and a cave / bat habitat acreage tract come to mind as unique. But those can be tricky when federal matching funds are involved... another forumite that does reviews cuffed me around the head and shoulders over that so ASK anytime fed money might be involved.

Certainly take a conservation easement course. The key is HBU and fantasizing some high dollar future use won't cut it.

ASFMRA cooperates with AI. Most I know are from ASFMRA.

Have you ever heard of farm land encumbered by a conservation easement within city limits? In a high growth area, wouldn't the discount be much larger? I only ask because conservation easements have one major problem- they almost totally eliminate development potential. I see conservation easements as nuclear bombs to potential future value. Are some of us arrogant enough to believe it morally right to force our way of life on generations far into the future?

Presents a big philosophical issue in my opinion.
 

Red Flint

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May 15, 2005
Professional Status
General Public
State
Michigan
Tread carefully on conservation easements used in conjunction with a stated IRS deduction. It is worthwhile to review Part III of IRS Form 8283 to see where you will be signing. Designations are a preferred attribute for this type of work. It is important to be proficient in use analysis and to understand the area market (almost always requires a significant length of time for research), especially for prospective scenario(s).
 

Gobears81

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Nov 7, 2013
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Certified General Appraiser
State
Illinois
Are some of us arrogant enough to believe it morally right to force our way of life on generations far into the future?

Presents a big philosophical issue in my opinion.
Unless a life estate, etc., property ownership is in perpetuity. Doing something of this nature is part of an owner's bundle of rights, which is a legal issue, not a philosophical one.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Tread carefully on conservation easements used in conjunction with a stated IRS deduction

I don't think Conservation easements require the gifting form unless they are a donation.
Have you ever heard of farm land encumbered by a conservation easement within city limits? In a high growth area, wouldn't the discount be much larger? I only ask because conservation easements have one major problem- they almost totally eliminate development potential. I see conservation easements as nuclear bombs to potential future value. Are some of us arrogant enough to believe it morally right to force our way of life on generations far into the future?
The cities have no "moral" right to dispossess agricultural land. Build the city UP not out. There is a very good purpose in preserving such properties. Future buyers of an encumbered property know what they are getting and the purpose of such easements is to avoid the kind of rural sprawl we see all too often. Compare that to France or UK where farms are far better protected from inappropriate development. In my county we have 9,000 vacant lots that are half built and have been sitting for a decade...inappropriate "greenfield" development that was a generation too early.

90% of the properties that are encumbered by a conservation easement (which most are 20 or 30 years in length, not forever) are so encumbered to protect a watershed (such as a city water supply) or to protect certain species or habitats that are unique. In fact, law requires any wetlands conversion to create an equal amount of wetlands elsewhere where possible. Under your presumption perhaps the HBU of Central park is high rise coops?

Below another failed development in the country... It looks the same today as it did when I took the picture in 2012. I doubt it will ever be finished. It is an eyesore on area. The builder also owns the land across the road which he put into a conservation easement...but it is in a flood zone and cannot be developed anyway. IMGP4994 (Medium).JPG
 

leasedfee

Member
Joined
Oct 14, 2007
Professional Status
Certified General Appraiser
State
Colorado
HBU is typically Agri before and after.
Bingo.

Have you ever heard of farm land encumbered by a conservation easement within city limits? In a high growth area, wouldn't the discount be much larger?

In an excellent appraisal, the appraiser supported before-after discounts of 35%-40% in slowly suburbanizing area.

I see conservation easements as nuclear bombs to potential future value. Are some of us arrogant enough to believe it morally right to force our way of life on generations far into the future?
Presents a big philosophical issue in my opinion.
Doing something of this nature is part of an owner's bundle of rights, which is a legal issue, not a philosophical one.
No debate on your point Gobears, but I will bridge the gap with Techbiker. Self-made amateur land use policy by interrupting the von Thunen land-rent gradient will lead to some sprawl and inefficient use of neighboring parcels. Much like a large vacant parcel hurts the business of a shopping center across the street, and the vacant parcel isn't really much of a refugee to animals either. Modern farmers need large swaths of countryside to support their machinery and 160 acres in the middle of a city isn't very productive for them.

A side note, sorry for stealing the thread, Terrel. I've become a New Urbanist. I believe it is best for an urban city (or even deteriorating old suburban cities) to zone for higher-density, pedestrian-friendly neighborhoods. Urban-cities should stop pretending to be suburbs by downzoning as they did between the 1960s and 1990s. Allowing, not forcing, density provides relief. It allows rural areas to remain rural. Below is a really enjoyable speech about urban land use by the leader of New Urbanism:
This is a more verbose and amusing version of the above talk and challenges most people's view on the topic:
 
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