Real Estate & Property Law

Debate on Fairness of Government Exchanges

By Alan Ackerman

Anne Rickenbaugh provided a letter to the editor of the Aspen Times in which she discusses how the eminent domain valuation process is utilized as part of the valuation process for exchanges.  These exchanges, involving the disposition of federally owned or publicly owned land may not necessarily be premised upon federal acquisition standards because it is not a federal acquisition involved.  The end result may or may not give rise to a higher value than would otherwise be paid under the standards but one must recognize that the appraisal process contemplates a fair market value appraisal given all the considerations.  If an appraiser is limited in what the appraiser may or may not include as factors in the analysis, the values can drastically differ.

Aspen Times

When evaluating parcels proposed for exchange, land-management agencies rely on a set of appraisal standards embodied in a document known as 'The Yellow Book'; this document owes its existence to Uncle Sam's power of eminent domain, or its ability to condemn private property for public benefit. In an eminent-domain situation, a low value is desirable so that the government spends the least amount of money possible when compensating landowners. In a land exchange, the same Yellow Book process is used, but the tables are turned; the landowner pays the least amount of money possible to compensate the government.

Moreover, the Yellow Book prohibits any consideration of the surrounding parcels in the appraisal, even if an adjacent parcel could provide something which increases its value after the exchange, such as access or control. Not only is the public receiving the lowest compensation value for the parcel to be privatized, but the regulations prohibit consideration of the premiums that consolidation with the neighboring parcels might bestow upon it.

The land-management agency will use the low-boy Yellow Book appraisal to determine if the parcels are of equal value. If the agency determines a value inequity, one of two things happens. If the appraisal shows that the public parcel is worth more, the private entity will make a 'cash-equalization' payment to the federal government. If the private parcel is worth more, the private entity will make a 'cash donation' to the federal government based on the private parcel's extra value. Two bills proposing land exchanges in central Colorado (Two Shoes and the Bear Ranch in Gunnison County) include special language allowing for special treatment of these 'cash donations' as tax benefits, despite the quid pro quo which would normally disqualify them for such benefits.

Full post as published by National Eminent Domain Blog on August 11, 2010 (boomark / email).