Appraising a dirt pit.

[Robert Dunkle]

Now that I have stirred up an active discussion, the gravy (plot) thickens. I checked with the client about an engineering (or geologist's) report and they indicate that the "goodies" that is. top soil, has all been removed and the site is, now, just used as a storage area for topsoil the company is removing from other, leased acreage. I understand that there is some value in sub-soil for "fill dirt", but the most likely customer for that, OK Turnpike Authority, has already built a four lane divided turnpike about a quarter mile away, but used dirt from the south side of the creek that runs along the side of the property.

So what they want an appraisal on is acreage with no topsoil, in a flood zone, bordering a US highway, with a double wide and a shop building. Piece of cake!! I know there must be a dozen recent sales of similar properties!! ROTFLMAO

BTW, JoAnn, I contacted Michael Cartwright and he referred me to an expert right here in Tulsa. If I don't know people, it's good to "know" somebody who does know people. Thanks.

 

[Terrel L. Shields]

How can the Income Approach not represent the going concern? You are dealing with the buying and selling of a product.

A resource appraisal reflects the value of the resource - timber, rocks, whatever. If there is a lot of machinery necessary to utilize that resource, such as a hard rock mine perhaps. But most small pits will have limited machinery and buildings - often they are simply leased out on a royalty basis. So are you valuing the REAL property? or the BUSINESS? And who owns the business? Is it owner-operated? or Leased?

That wasn't clear from the OP. But if you simply lease out a pit, likely you will require the operator to have some sort of plan (depending upon how much detail the state requires.) There will be a lease in place. The owner should have annual income statements from the operator. That cash flow is what you are valuing when assigning a value to the pit area.

The volume is important, no doubt but a lot of these "red dirt" or "hillside gravel" pits as well as creek pits (which I think are still quasi-legal in OK, at least I know where creek gravel is being mined there) are so large and the volumes annually removed so small, there isn't any good way to estimate "volume" for the whole property-nor is it necessary. Even where we have limestone mines, the owners have very large buffer zones around the pits and as they add an area, then they drill and test it. The "volume" they have is only for a small part of the place. And the annual production (often dictated by demand) limits the "value" of the mine.
There is a travertine mine in Colorado that operates for only a few weeks at a time. The rocks are exceedingly beautiful and are used for facings on large public buildings and skyscrapers. They may sell some of this only once every few years. So then they tool up and mine it. At the rate of mining, the mine has a 100 year plus supply. Any DCF beyond 20 years however, is going to yield virtually nothing.

Likewise, a dirt pit that services only a couple of contractors might sell no more than a few thousand yards of material annually. The volume may be sufficient for 100 years as well, again, at the rate exploited that extra volumes are not going to add a buck to the beyond 20 year DCF analysis.

The value of the small pit is the annual net income discounted over a reasonable period of time at a reasonable discount rate plus any equipment value. You may need to add a reversion for reclaimation at the end of the DCF term. The undeveloped land beyond the pit area is valued at local (comparable) land prices. Direct capitalization is the method and you can use all 3 approaches in there are buildings.

The land excess to the mine is best valued by sales comparision.

You might check out the back of the "The Appraisal of Rural Property" 2nd Ed. for more information.

 

[NHvalues]

Although this thread is pretty played out, below are some links which were helpful for me to see what might be needed for competency on a prospective assignment before our client told us we didn't need to appraise their gravel pit. Might be helpful FWIW

Appraisal of Construction Rocks

USGS - Natural Aggregates of US

Aggregate & The Environment