STATE AGRICULTURE DEVELOPMENT COMMITTEE

1. STATE AGRICULTURE DEVELOPMENT COMMITTEE 2010 Annual Appraisal Conference Program review Susan E. Craft – Executive Director Robert Baumley – Deputy Executive Director

2. Program ReviewSusan Craft Executive Director - SADC

3. Appraisal Handbook Amendments Paul Burns, Chief Review Appraiser - SADC http://www.state.nj.us/agriculture/sadc Click Farmland Preservation Program Click Appraisals Click Farmland Appraisal Resources 2010 SADC Appraiser Handbook

4. ZONING AS A VALUATION FACTOR • DUAL APPRAISAL PROVISION OF THE HIGHLANDS ACT ALLOWING HYPOTHETICAL APPRAISALS OF PROPERTIES UNDER ZONING AND ENVIRONMENTAL REGULATIONS AS OF 1/1/04 HAS EXPIRED AS OF 6/30/09. • APPRAISALS MAY BE ORDERED UNDER THE PROVISION, BUT WILL NOT BE CERTIFIED BY THE COMMITTEE UNTIL THE PROVISION IS EXTENDED – IF EXTENDED AT ALL.

5. RESIDENTIAL OPPORTUNITIES/EXCEPTIONS • CLARIFICATION ADDED – • WITH EXCEPTIONS - COMMERCIAL, INDUSTRIAL OR OTHER ALLOWABLE OR SPECIFIED USE MUST BE CONSIDERED. • IMPACT OF EXISTING USES MUST ALWAYS BE CONSIDERED.

6. Appraisal Format • All copies must be bound at the spine (we prefer the plastic spiral binder) • All copies must have color exhibits

8. Appraisal Order Checklist • III. Federal Farm and Ranch Land Protection Funding • A. Will Federal Funding be used in the preservation of this farm: Yes___ No ___ Impervious cover limitation ____ Acres or ______% of premises • Yellow Book Compliant or USPAP Yellow Book___ USPAP___ • If “Yellow Book”, only appraisers on list of qualified Federal Farmland Appraisers and have had Yellow Book Training will be permitted to appraise the property. Valuation under current existing zoning and environmental regulations shall be conducted strictly to Yellow Book Standards.

9. Continued • Under both Yellow Book and USPAP, the appraiser should identify the USDA NRCS (Natural Resource Conservation Service) as a user of the appraisal, identify the appraisal as being of surface rights only, and identify the impervious cover restriction on the preserved farm and impact on value if any. All adjustments should be market based and explained completely. The appraisal of the farm as preserved (After Value) must be identified as a hypothetical condition.

10. Checklist Change #2 – Dual Zoning • The dual appraisal provision of the Highlands Act sunset on June 30, 2009. Whereas the provision is not currently applicable, this does not preclude the ordering entity (County, Municipality, Non-Profit, SADC) from appraising the application under both “current” and “1/1/04” zoning in the event the Legislature makes this provision available again in the future.

11. Restricted Farmland Sales • 23 NEW SALES FOUND • 10 WERE SADC AUCTIONS • MINIMUM BIDS WERE RESET LOWER ON MOST • LIMITATIONS ON HOUSE SIZE – 3,500SF • 1 SALE WITH NO RESIDENTIAL OPP. • 3 OTHERS OFFERED WITH NO RES. OPP. – NO TAKERS • 2 OTHER AUCTIONS WERE UNSUCCESSFUL • 9 PRIVATE PARTY SALES • 4 MUNICIPAL OR NON-PROFIT SALES

12. RESTRICTED SALES2007 - 2010 • Burlington 13 sales - $6,728/ac avg. • 121 acre average farm size • Hunterdon 15 sales - $16,500/ac. avg. • 92.6 ac. average farm size • Salem – 9 sales - **$9,146/ac. avg. (impacted by small acreage sale) • 113 ac. average farm size • Warren – 7 sales - $6,591/ac. avg. 111 ac. average farm size • Improvements contributed to all above averages

13. Department of Community AffairsRSIS Standards • Michael Ticktin – Chief of Legislative Affairs • http://www.state.nj.us/dca/codes/nj-rsis/index.shtml

14. Break 15minutes

15. State Board of Real Estate Appraisers Barry Krauser, MAI, CRE

16. Residential Opportunities and Exceptions • Paul Burns – SADC Chief Review Appraiser

17. Residential Opportunities and Exceptions – Recommended Adjustment Directions An appraiser always has the right to adjust as they deem appropriate but should explain why if the adjustment is contrary to what appears logical. Often appraisers consider all residential opps. to be equal. The question for the appraiser is what does the market reflect.

18. Residential Opportunities - RDSO • RDSO means Residual Dwelling Site Opportunity • Resident of House – Must be engaged in the day to day agricultural production of the premises • Restriction on House Size – SADC usually 3,500 SF, Counties vary or have no restriction • Location to be approved by CADB/SADC • Proof is required that operation is going to have a production component managed by at least one resident of the house.

19. Residential Opportunity – Existing Dwelling • Can be relocated on farm with CADB/SADC Approval • Recently – Replacement house size limitations have been placed in Deed of Easement, Otherwise size is not restricted • No restriction on who can live in the house

20. Residential Opportunity – Non-Severable Exception • Defined parcel of land not subject to the preservation easement • May Have limitations – see application (one house etc.) • Usually has no limitation of house size or who can reside • It’s potential must be associated with the preserved farm • Can never be sold apart from the preserved premises

21. ApplicationPage D • BLOCK, LOT & ACREAGEPage ___ of ___ • (One and Only One Lot and/or Exception per Page) Duplicate this sheet as necessary to indicate EACH LOT, ACREAGE and EXCEPTION SEPARATELY. • County / Municipal Code: ______ Block: _______ Lot: _________ Acres: ______ • NJ State Development and Redevelopment Code: (check one) • ( ) (PA1) Metropolitan ( ) (PA4) Rural • ( ) (PA2) Suburban ( ) (PA4b) Rural & Environmentally Sensitive • ( ) (PA3) Fringe ( ) (PA5) Environmentally Sensitive • ( ) (P10) Pinelands ( ) Other . • EXCEPTION ** (Specific to above Lot) • 1. Acreage of exception: ________________________________________ • 2. Site Specific Local Zoning Regulations:________________________________________ • 3. Applicant’s reason for exception: ________________________________________ • (Describe activities) ________________________________________ • 4. General Location of exception as depicted _________________________________________ • on attached tax map: _________________________________________ • 5. Is the exception for county and/or municipal farmland preservationYES NO • and/or open space programs? • 6. Can the exception be severed from the premises? YES NO • (Refer to General Directions for definition of “severable” and “non-severable”) • 7. Does the size of the individual exception exceed local zoning requirements to • construct one single family residential dwelling? YES NO • a. How many building lots or portions thereof are there in excess of the local • zoning requirements for one single family residential dwelling? _________ • b. Is the landowner willing to restrict the exception to only one residential unit? YES NO • c. Will there be any Right To Farm language required in the deed of easement? YES NO • 8. Will the exception be used solely for non-agricultural uses? YES NO • ** Contact the SADC if you have any questions in regards to • clarification of exceptions.

22. Severable Exception • Defined parcel of land not subject to the preservation easement • May have limitations – see application (one house etc.) • Usually has no limitation of house size or who can reside • It’s potential must be associated with the preserved farm in your appraisal. • Can be sold apart from the preserved premises but is not required to. • Must have its own independent access

23. Deed of Easement – Paragraph 13 • Paragraph 13 or 13a deals with number of existing residential buildings on the preserved premises and also number of residential buildings for agricultural labor purposes • Paragraph 13b deals with severable and non-severable exceptions • Paragraph 14 iii deals with RDSOs

24. Residential Opportunities • Subject has – 1 RDSO, 1 Non-severable exception with an existing house in exception. • Sale sold with 1 severable exception - vacant • = 2 residential opportunities for the subject • Subject has a superior number of opportunities and positive adjustment is likely warranted Subject Sale RDSO nsx sx

25. Grid Adjustment • Category Subject Sale 1 adj. Sale 2 adj. Sale 3 adj. Sale 4 adj. • Res. Opp.1 RDSO RDSO + Non-Sev + Sev. + 2 Non-Sev -/= 1 Non-Sev The appraiser may have other opinions on the direction or amount of adjustment required based on his/her knowledge of the market or of the quality of a particular exception/residential opportunity used in the sales array, but the appraiser is required to accurately reflect the factual number and types of residential opportunities and clearly explain the adjustment or lack of adjustment made.

26. Residential Opportunities • Subject has one vacant non-severable exception and one vacant severable exception = 2 residential opportunities • Sale has one existing dwelling • Subject is likely superior for # of residential opportunities, possibly type of opportunities subject sale EXISTING HOUSE nsx sx

27. Divisions of Premises – Farmland Stewardship • Deed Of Easement Language -”…no subdivision of the land shall be permitted without the joint approval in writing of the Grantee and the Committee. In order to give approval, the Grantee and the Committee must find that the subdivision shall be for an agricultural purpose and result in agriculturally viable parcels.”

28. Divisions of Premises – Farmland Stewardship • Agricultural Purpose Test -Defined by the SADC as meaning that agricultural productionactivities will be expanded, diversified, and/or intensified as a result of the division. • Agricultural Viability Test -Defined as each new parcel being capable of sustaining a variety of agricultural operations that yield a reasonable economic return under normal conditions, solely from the parcel’s agricultural output.

29. Divisions of Premises – Farmland Stewardship • Policy P-30-A (Available on SADC website) -Effective Date – April 28, 1994 -Sets forth criteria, procedure and application form for Division requests Procedure 1) Application filed with CADB 2) CADB review 3) (If approved) Sent to SADC for review

30. Divisions of Premises – Farmland Stewardship • Major Considerations -Total Tillable Acreage -Quality of Soils -Configuration of New Parcels -Historical Agricultural Uses -Existing Agricultural Infrastructure -Proximity to Other Farms/Preserved Farms -Benefit to Production Agriculture

31. Condemnation and Preserved Farms • Approval of Governor is needed for condemnation absent federal authority • Deed of Easement - paragraph 23 • Hypothetical Appraisal – as not preserved • Highest and Best Use • Unity of Use

32. Paragraph 23 – Deed of Easement • 23. That portion of the net proceeds, representing the value of the land only (and not the value of the improvements), of a condemnation award or other disposition of the Premises following termination of this Deed of Easement, as permitted pursuant to N.J.S.A. 4:1C-11 et seq., P.L. 1983, c.32, shall be distributed among the Grantor and the Grantee in shares in proportion to thefair market value of their interests in the Premises on the date of execution of this Deed of Easement. For this purpose, the Grantee’s allocable share of the proceeds shall be the net proceeds multiplied by a fraction, the numerator of which is thefair market value of the development easement as certified by the Grantee at the time of the initial acquisition and the denominator of which is the full fair market value of the unrestricted Premises as certified by the Grantee at the time of the initial acquisition, which is identified as ( / ).

33. Paragraph 23 cont’d • Furthermore, in the event that this Deed of Easement is enrolled in the New Jersey Agriculture Retention and Development Program by the Committee providing the Grantee with a cost share grant for the acquisition of this Deed of Easement, the Grantee’s proceeds shall be distributed among the Grantee and the Committee in shares in proportion to their respective cost share grants as set forth in the aforementioned cost sharing grant agreement. The Grantee shall use its share of the proceeds in a manner consistent with the provisions of N.J.S.A. 4:1C-11 et seq., P.L. 1983, c.32

34. Sample Partial Taking Lot 1 Total Preserved Farm 30 Acres After Taking 29 Acres Taking ROAD Lot 2 10 acres Taking 1 acre RA = 9 acres 20 acres Road

35. Problem • Condemnor represents that taking is from Lot 2 only and Lot 1 is not included in their Remaining area. • Does the appraiser value only lot 2 or lot 1 and 2 to determine the value of the property? • Answer is not necessarily, but the appraiser must establish that highest and best use is not tied to the unaffected lot.

36. Unity of Use • Generally, when two or more properties are to be valued in one appraisal report, the • appraiser will be so advised at the time he/she is retained. However, additional • information may come to the appraiser’s attention during the research for the • assignment, which could affect whether two or more properties should be valued • together. Two or more properties should be valued together, regardless of whether they are contiguous if: (a) the properties are functionally integrated, each being reasonably • necessary to the use and enjoyment of the other; and (b) the properties are under • substantially the same ownership. Two separate properties with the same ownership but with different highest and best uses can still be appraised in one appraisal provided that • two separate values are determined by the appraiser. • Source – NJDOT Right of Way manual (page 20)

37. Practical Version • Generally, when two or more properties are to be valued in one appraisal report, the • appraiser will be so advised at the time he/she is retained. However, additional • information may come to the appraiser’s attention during the research for the • assignment, which could affect whether two or more properties should be valued • together. Two or more properties should be valued together, regardless of whether they are contiguous if: (a) the properties are functionally integrated, each being reasonably • necessary to the use and enjoyment of the other; and (b) the properties are under • substantially the same ownership. Two separate properties with the same ownership but with different highest and best uses can still be appraised in one appraisal provided that • two separate values are determined by the appraiser. • Source – NJDOT Right of Way manual (page 20)

38. Sample Taking Lot 1 Total Preserved Farm 30 Acres After Taking 29 Acres Taking ROAD wetlands Non-wetlands Lot 2 10 acres Taking 1 acre RA = 9 acres 20 acres Road

39. Valuation Problem • In most cases - Lot 2 unit value is higher when integrated with Lot 1 • Highest and Best Use is a merged Lot 1 and 2 • An independently appraised Lot 2 would be a wetland parcel, possibly not even as valuable as farmland

40. Sample Partial Taking • Farm preserved on both sides of road by one easement Road Block 1 Lot 1 Taking 300’ Power line Easement Bl 2 L 1

41. Valuation Problem • If Block 2 Lot 1 (Lot of taking) can be developed unto itself can it be appraised separately from Block 1 Lot 1? • Answer Yes, but damages to the remainder need to be considered to Block 2 Lot 1 only. • Would the per acre/per square foot value of Block 2 Lot 1 be higher if merged with Block 1 lot 1?