Federal Land Management:

Appraisals of Headwaters Forest Properties

RCED-99-52: Published: Dec 24, 1998. Publicly Released: Dec 24, 1998.

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Pursuant to a legislative requirement, GAO reviewed the appraisals of Headwaters Forest that were required to be conducted prior to its acquisition, focusing on: (1) whether they complied with federal appraisal standards and how the values of the appraisals were derived; and (2) key assumptions used in the appraisals.

GAO noted that: (1) it did not identify any areas in which the appraisals of the Headwaters and Elk River properties deviated from federal appraisal standards; (2) federal appraisal standards state that the government should appraise a property to be acquired at its fair market value; (3) the appraiser of the Headwaters property produced a limited appraisal with four market values--one value for each of four timber harvest assumptions provided by the Bureau of Land Management (BLM); (4) in calculating these four values, the appraiser relied on two approaches: (a) estimating the current cost of the land and the timber from revenue and logging-cost estimates; and (b) estimating the total net income from future timber operations and adjusting this amount to the present value of the standing trees; (5) the appraiser of the Elk River property relied on one approach to derive fair market value, the use of comparable sale information to estimate value, and verified the result using a second approach, estimating the total net income from future timber operations and adjusting this amount to the present value of the standing trees; (6) following these standards led the appraiser to estimate the value of the Headwaters property at $135 million, $250 million, $350 million or $405 million, depending on the assumed harvest level; (7) the Elk River property was appraised at $78.4 million; (8) the Secretary of the Interior, in his opinion of value, determined that the $380 million authorized for the combined properties falls within these appraised values; (9) the Secretary's opinion of value also found the acquisition to be in the best interests of the United States because it represents an opportunity to set aside an irreplaceable resource for the public; (10) GAO's work found that in both appraisals, the need to make key assumptions during the appraisal process tended to increase uncertainty about the appraised values; (11) GAO did not estimate the specific monetary impact of these assumptions; (12) however, using different assumptions would have changed the appraised values; (13) the Department of Justice and BLM officials noted that the appraisals could not have been completed by statutory deadlines without making assumptions to address these issues; and (14) although GAO noted that using different assumptions would have changed the appraisal values, GAO did not find the use of the assumptions unreasonable.

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