Uniform Standards of Professional Appraisal Practice

Timber: Timber value is based on both current and future potential timber production. First, Appraisers need to determine the volume of timber on the site as of the date of acquisition. The next item is to determine the value of the timber at the time of acquisition. This should be the value the landowner would net from the proceeds of selling the timber less all expenses of harvest such as logging, trucking, and consulting forester fees.

However, this {volume x net value} consideration is not the end of the exercise. Next, consider a 50-year-old timber stand, located in Western Washington. Timber on the site may be marginally qualified as pulp logs right now. It may generate only about enough to pay for logging, trucking, and reforestation expenses. But, if the landowner holds the growing timber for 15 more years, the value skyrockets upward as 4-sawlog, 3-sawlog, and even 2-sawlog timber could be harvested. Through time, each timber stand’s high-grade-intensity increases and the value of the asset grows.

Astute Investors

Astute investors consider future value as a discounted Net Present Value (NPV) of the future timber sale revenues. This NPV condition can make the property a solid investment and that is the amount to appraise the standing timber on the property. USPAP Forestland Appraisals apply these techniques to find meaningful value assessments.

Almost there. Next, each timber stand is virtually grown forward in time to find its highest potential value scenario, considered in NPV terms. This procedure discovers

1. Discounted NPV of the current rotation as it grows forward in time,
   • growth determines financially optimal harvest timing,
   • harvest dates are determined in concert with the value of the next rotations value,
   • the next rotation cannot be planted until the current one is harvested.
2. The next rotation grows and is harvested at its financial optimum,
   • harvest dates are determined in concert with the value of the subsequent rotation.
3. All timber rotations into perpetuity, considered at each potential rotation length.

FRASS algorithms make all possible combinations of timber rotation lengths through the current, the next, then all timber rotations into perpetuity. By implementing this approach, discovery of the highest discounted present value is found through all future harvest timing combinations. Finally, this determines the true value of timber on the property. Without this intensive analysis, forestland valuation is worthless.

This is the Income Capitalization Approach as it is correctly applied to forestlands.

Sales Comparison Approach is often used by Licensed Appraisers but has been grossly misapplied to forestlands when executed as USPAP Forestland Appraisals. Misapplication is made when an observer considers this approach’s fundamental basis. Similar properties based on location and size, are generally found to assign the price that was paid. The previously sold property may have housed more productive lands of different ages than the subject property. Therefore, when the other property’s attributes are applied to the subject property’s value, they are erroneous.

When USPAP Forestland Appraisals use this approach, the Appraiser must consider how the forestland properties differ. Characteristics such as

• soil productivity,
• timber stand ages,
• tree species,
• regulatory constraints,
  • riparian zones,
  • TSE habitat restrictions,
• slope,
• road access.

Each of these characteristics affect parcel value. These characteristics build, one on the other, to make comparisons problematic. Unfortunately, they are still adjusted haphazardly by some attempting to pull values from nearby properties.

In 40 years as a Professional Forester, I have never witnessed any two forestland properties that were identical. More to the point, time and the macroeconomy are factors that cannot be swiped away. Making price adjustments based on these differences can yield only ‘judgement values’.

We can do better than this.

The Income Capitalization Approach, applied to forestlands, is based on the assumption that there exists a definite relationship between:

1. amount of income a property can earn,
2. timing of income events as discounted to NPV,
3. timing of costs needed to generate those income events, discounted to NPV,
4. its ultimate value.

This is more difficult for the Forestland Appraiser to determine, but it generates the actual value of the asset in question. Therefore, this process is the golden fleece of USPAP Forestland Appraisal methods.

Stratification Matters

Readers of this web domain have seen the approach of segregating parcels into timber stands with roads, bridges, culverts, riparian zones, and wildlife habitat. Hauling distances from each timber stand place costs from the transportation of logs from the site to the ultimate buyers of logs, generally lumber mills. When each timber stand is processed through Forest Biometric Growth & Yield analyses, we generate actionable information. We can measure timber characteristics to express them as commodities: these have prices and costs. Therefore, the values can be expressed and applied precisely.

Finally, these factors are melded into future market expectations of commodity value – determined one log at a time. This is where we put 21st Century technology to task. Millions of calculations are made for each tree, timber stand, and parcel to generate the USPAP Forestland Appraisal Report.

The GIS work involved can be extensive and used for daily management purposes. GIS data can be fundamentally basic to describe location, property boundaries, stream and road locations. Maps can give a feeling of ‘place’ useful for the Forestland Appraisal event. In the FRASS Platform, GIS maps are representations of data.

When the USPAP Forestland Appraisal Report is minted, the Licensed Appraiser will document findings. These findings are put forward to aid clients, buyers and sellers, loan officers, and peers of the analysis made. The asset values assigned should be defensible, repeatable, and understandable by everyone.