• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

The Billion-dollar Loophole - Conservation Easements

Status
Not open for further replies.

Michael S

Senior Member
Joined
Mar 18, 2009
Professional Status
Certified General Appraiser
State
New Mexico
In depth article about conservation easement syndicates using wildly inflated appraisals to justify multi-million dollar tax deductions.

https://www.propublica.org/article/conservation-easements-the-billion-dollar-loophole

In a typical syndicated deal, the investor partnership has acquired the property within the past year or two, presumably from a seller determined to get what it’s worth. How, then, can an appraiser conclude its value has suddenly multiplied eight or 10 times from what the partnership paid for it?

Under federal regulations, an appraisal must offer an opinion on the land’s fair market value — the price a knowledgeable buyer would pay a knowledgeable seller when neither is desperate to make a deal. But when it comes to conservation easements, syndication appraisers typically claim there are no comparable area sales. So they use a more subjective approach (albeit one that often includes reams of complex projections and reports): They try to estimate what the land would be worth if put to its most profitable legal use — as, say, a development of resort homes. Under tax court rulings, this transformation is supposed to be “reasonably probable” to occur in the “reasonably near future” and not rely on “mere speculation and conjecture.”

Based on a skeletal development plan, consulting studies commissioned by the promoter, and an array of optimistic assumptions, the appraiser then projects the development costs and profits for the imagined business. On syndicated deals this invariably results in a sky-high valuation — a calculation of what the investors are giving up and can thus claim as a deduction — that makes everyone a hefty profit.
 
Nice way to lose a license AND someone might spend a long time in jail

https://www.denverpost.com/2016/04/...ent-scammer-gets-83-years-in-colorado-prison/

DeAtley is the first to go to prison over the controversial program which has cost hundreds of Coloradans thousands of acres of land and millions in overturned tax credits.​
http://www.coloradoindependent.com/158368/tears-flow-over-a-weakened-conservation-easement-bill
has alleged some appraisals were overvalued by incompetent appraisers or property owners who committed fraud
 
Interesting article. I don't know much about conservation easements, but have come across some quite inflated appraisals for tax donation purposes, and have actually received calls asking who would be the most aggressive appraiser to value a property being donated. About a year or so ago, I appraised two properties donated to the municipality and the owner had appraisals for $1,000,000 on them. The municipality thought that they got a huge windfall and wanted appraisals to determine what to market it at. I appraised the two at $400,000, so the owner probably came out ahead by donating them after considering brokerage fees for a normal sale and the massive tax deduction. I don't think that they ended up putting the properties up for sale after that
 
Interesting article. I don't know much about conservation easements, but have come across some quite inflated appraisals for tax donation purposes, and have actually received calls asking who would be the most aggressive appraiser to value a property being donated. About a year or so ago, I appraised two properties donated to the municipality and the owner had appraisals for $1,000,000 on them. The municipality thought that they got a huge windfall and wanted appraisals to determine what to market it at. I appraised the two at $400,000, so the owner probably came out ahead by donating them after considering brokerage fees for a normal sale and the massive tax deduction. I don't think that they ended up putting the properties up for sale after that

sounds like when donations are made to the salvation army and they hand you a blank form to fill out with the estimated value of your donation. amazing how an old shirt can be worth hundreds of dollars :)
 
For the denied landowners they just gave development rights away to a third party and now have zero deduction and no one to sue. I will appraise an outright gifting. I would not touch an easement. I've appraised a few ranches and found cons. easement impacted comps sell for a discount of 25-30% even though H & B U for all is agri. People don't want to fool with them and strict compliance is a nuisance. And noncompliance can trigger court action to force compliance.
 
For the denied landowners they just gave development rights away to a third party and now have zero deduction and no one to sue. I will appraise an outright gifting. I would not touch an easement. I've appraised a few ranches and found cons. easement impacted comps sell for a discount of 25-30% even though H & B U for all is agri. People don't want to fool with them and strict compliance is a nuisance. And noncompliance can trigger court action to force compliance.

The conservation easement is one of the worst land "preservation" mechanisms ever dreamed up. The easements take advantage of our legal system just to make development difficult. How can we be so selfish to deprive future generations of their right to determine what to do with their land?

If you want to preserve your land, just keep it in the family or donate it (fee simple) to a land trust.
 
of our legal system just to make development difficult. How can we be so selfish to
Most easements I see are not perpetual but 20 or 30 yr. long. The usefulness to me is a retiring rancher can sell these easements and retire without selling part of the place. Donating the easement however simply for tax benefit was peddled by developers who carved up large ranches into ranchettes and let the borrower get a supposed tax break. Those are ones who were sold a bill of goods and left holding the bag.
 
The conservation easement is one of the worst land "preservation" mechanisms ever dreamed up. The easements take advantage of our legal system just to make development difficult. How can we be so selfish to deprive future generations of their right to determine what to do with their land?

If you want to preserve your land, just keep it in the family or donate it (fee simple) to a land trust.

Why is it less selfish to give it away instead of donating or selling an easement? If they keep the land, with an easement on it they can still use it in whatever ways are permitted by the easement, which frequently includes some limited residential use. If they give it away, the only use their future generations have for it is whatever the land trust allows for everyone down the road. Additionally, the future generations can sell the land as encumbered which makes for a nice sale for those of us who do rural lands and might need an encumbered sale from time to time. :)

I disagree your premise, with one exception. Some easements are so weak that I think they are not worth much and whoever is encumbering the lands would be better off not bothering. Otherwise, I think they work well, generally, for what they are supposed to do and are good ways to protect land. Frequently, when donated, they are what people do as they get older to manage their estate. People do that kind of thing all the time with different parts of their estates - it is up to them what they may or may not want done with the land they controlled when they give it to their kids. Kind of like when people put restrictions on other parts of their inheritance. Also, most (not all - for sure) parents discuss this kind of thing with their kids before doing it.

It is also a good way for townships to protect their rural nature when otherwise it would be tough to keep expansion (usually residential) out. If you just change zoning to not allow development, you've taken away land rights without compensation. But, if a town works with agricultural easements, they can keep the number of residences and subdivisions down, while keeping the agricultural nature and not screw anyone in the process since it is voluntary.

In my area, the only ones that aren't perpetual I've seen are WRP (which has done 20, 30 and perpetual - maybe even 10/15?). If you are donating the easement instead of someone purchasing it, the IRS requires it to be permanent and I don't know of a land trust that wants anything other than perpetual since they will be responsible for monitoring, etc. Doesn't mean it is that way elsewhere, but around here that is the case.
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Back
Top