Ever appraise a gravel pit

[shellyS2165]

I was recently asked to appraise a local gravel pit for a purchase containing 40 acres with the owner's house on the property. The pit is an open pit and is licensed with the County. However, the current owner has health issues and has not actively sold much gravel out of the pit in the last 2 years. An excavating company is looking at purchasing the pit for $0.50 /yard with an estimated 4,000,000 yards to be excavated. I know I can only value the remaining aggregate without assigning a value to the 40 acres. Any ideas or advice or should I pass on this one??:

 

[C. Kevin Bokoske MAI]

The ASC shows that you are a Certified General, so you at least can do it legally. Doing it under USPAP is a different matter. I wouldn't take it on until I told the client it's my first one, and I would look around for another appraiser who had experience in these and would agree to work with you.

I appraised several in CT in the 1990s. I valued the proceeds from selling the material and then the land that would remain after the material was depleted. Researched material prices, volume, demand, construction outlook, etc. Also need an estimate as to how many cubic yards are available, and exactly what the material is. "Gravel" is a generic term. There are many kinds with many different prices. That is the starting point. Use a DCF if considering more than 1 year to sell out. Use the standard H&BU analysis for when the material is gone. Consider the costs of restoring the "pit" to a more useable form after the sellout. This might involve fencing, grading, etc. Hope this gets you started towards a new experience! You will then be your local expert in gravel bank appraisal.

 

[Joker]

Don't rely on the buyer or seller to estimate the amount of remaining product! Be certain to use only geological surveys and prominantly in the report that you have based your appraisal on that info and that any significant variance from the actual aggregate and that estimated by the survey will render your appraisal null and void!

BE CAREFUL!

 

[jrmcbee]

I came across a similar situation a year or so ago. After much research and discussions with several area appraisers that were much more experienced than I am, I came to the conclusion that the only thing that I could estimate the value of was the land on an "as is" basis. The gravel removal is a business endeavor, in my case, most appropriately valued by someone more familiar with that type of operation. I agree with the prior post as well; do not rely on hearsay for the estimate of remaining materials. The way I approached my deal excluded this anyway. Best of luck. These can be tricky deals.

 

[Terrel L. Shields]

The Cost Approach is applicable to pits but involve the on-going concern.

The reserves can be appraised at market, and discounted for time assuming you have a "good handle" on how much the pit can be used...i.e- if he is selling 100 CU. yd. per day, then that is the "cash flow". Can you assume higher sales afterwards?..

Lots of questions left unasked here. Typically, if gravel is readily available in the area, land will sell for just a land plus premium price...not a reserve based valuation.

 

[Restrain]

I'm with Kevin. A DCF for extraction of the gravel (net cost), recovery of the site at the end of the excavation period (can be pricy), and a reversion of the site at the end of the process. If you've got sales of land with gravel pits or with extractable gravel, that's the best approach. However, most times you don't have these, so you can use the land sales for the reversion.

 

[Michael Schendel]

I was asked to appraise a property located in a subdivision which backed to newly "developed" gravel pit and the affect it had on the market value of the property. Does that count?

I found out all the homeowners in the subdivision were suing the builder for nondisclosure of the future gravel pit in the public report when they first bought the property.

I declined the order!

 

[Kenneth J Jones]

Quarry Appraiser

Shelly:

I'm 1 of only 6 people who holds an ASA designation in Machinery & Technical Specialties: Mines & Quarries.

I strongly suggest, if you've never undertaken an appraisal of a quarry (which includes a sand and gravel property) you're in way over your head.

If you want to, you can either refer the client to me, or we might work out an arrangement where you work along with me so you can actully comply with the USPAP Competency provision while learning something.

In reply to another post, the cost approach has NOTHING to do with this type of valuation.

You may contact me at: Ken@GlobalValuations.com

I look forward to hearing from you.

Kenneth J. Jones, ASA, SCGREA
Global Valuations
Clark NJ / Phoenix AZ

 

[David Santacroce]

This is a learning experience for value is use. Do the necessary study. Often the rights in such facilities are leased for a term with a basic rent plus payment for depletion [the literal carrying away of the site site products].

 

[Fred]

if you've never undertaken an appraisal of a quarry (which includes a sand and gravel property) you're in way over your head.

That's funny - if the pun was intended.