Appraising a dirt pit.

[Robert Dunkle]

I have been asked to appraise a working "dirt pit" and, quite frankly, am not quite sure how to "crack the nut". If you can build on it, run cattle or grow crops on it, I'm pretty good at appraising it, but I have not appraised anything where they were hauling off the assets.

My first impression would be to appraise the "remaining land" that has not been excavated by sales comparison with other similar land sales (it is flood zone) and not give the excavated land any value, then derive an appropriate value for the license to "mine" the dirt (required in Oklahoma). The excavated area may even be a liability. I could not find any recent sales of land to any of the "dirt pits" that I know of.

The other approach would be an income approach, but that would require estimating the number of remaining cubic yards of several different types of soil and arriving at an appropriate price per yard of each type of soil.

Has anyone out there appraised such an animal? If so, how did you approach the problem. Any serious suggestions would be appreciated. I haven't accepted the assignment, yet, and may not, dependent upon the responses I get here.
Thanks, in advance.

 

[Tim The Enchanter]

Wouldn't the value come from the business of selling dirt rocks, etc?
Maybe in xx years turn it into a landfill? A lake?
HBU would seem easy enough. Once you dig a big hole it has no other uses.

Interesting. But out of my CR league. Wait for qualified responses.
Charge a big fee.

 

[Michigan CG]

There are appraisers who specialize in this type of assignment. There was a thread about it a while back and I learned enough to know I would never take such an assignment.

From what I remember it is about income of the remaining "product". I would refer it to CBRE.

 

[Restrain]

Actually done these. You have the amount of probable excavation left, probable sale price per unit, factor the time and inflation factor over the excavation period, then deduct the cost to restore and liquidate the land. If this is a large company (Gifford-Hill, etc) they will have the engineering information for you. If this is a small-time company, set down and get a look at their books and projections.

The value is definitely on the income approach as this is an operating facility. If you can actually find a site that has sold as a sand pit, great! But that is only raw land. It is the operation of the site that is the income generator. Otherwise it is a potential use without the development and income use.

 

[The Warrior Monk]

I only appraised one active one, and that was due to the fact that the HBU was not as a sand pit. Many of the old sand mines where I work are/were preexisting uses in residential areas. Typically they are converted to clustered residential subdivisions, with the homes on the upland areas and the pits graded and converted to ponds. Here's a finished example:

http://binged.it/ZNwzA3

I've had requests to appraise others in industrial zoned areas, and with those I run like the wind. I recommend to those clients to call CBRE or C&W.

 

[Jo Ann Meyer Stratton]

Get in touch with Michael Cartwright from Reno, NV. He posts on the AppraisalBuzz and the AI Alternative forums.

 

[Papoua Jose]

Typically they are converted to clustered residential subdivisions, with the homes on the upland areas and the pits graded and converted to ponds. Here's a finished example:

[url]http://binged.it/ZNwzA3[/URL]

I love country living. Ginormous mansion right next door to a single wide.

 

[Terrel L. Shields]

"Red Dirt" pits are common here. You can appraise them if you have an estimate of the annual sales of dirt and an estimate of the volume that can be excavated. Ours tend to be fairly shallow - 20' or so to bedrock. Ideally, they remove the topsoil and are actually slicing off a hillside of red dirt and as others say, the land then is reclaimed with the top soil then sold.

So...say you have 900' x 900' x 18' thick or about 500,000 CU. yd. and dirt is selling for $2.50 a yard and average 50,000 yd annually. Often this dirt is sold with the buyer providing all equipment except a dozer. Say it nets $100,000 annually and you have a 10 year supply. Your reversionary value is the cost of reclamation less the value of the land. This becomes a fairly simple time value of money cash flow analysis.

 

[Howard Klahr]

Do you have a copy of the geologist report?

 

[tsiegel]

I appraise gravel pits from time to time. In this market, pits are bought and sold based on the remaining cubic yards of material. I do it via the SCA. I have pretty good sales that clearly indicate a price per cubic yard. However, I should mention that these are typically bought and sold by mom and pop excavating companies who use the gravel for their construction business. Larger operations are going to buy and sell larger pits based on the projected revenue and an IA would be necessary but at that point you are valuing the going concern.