Consideration of Time 



The third step considers the factor of time. 

 A market approach to value certainly must con- 

 sider the time element. In analyzing sales of 

 timber properties, consideration must be given 

 to the amount and quality of timber involved. 

 These elements, combined with a method of op- 

 eration, determine the timber stand's length of 

 life. It is part of the appraiser's function to 

 learn whether or to what degree, the purchase 

 price reflects allowances made for the uncer- 

 tainties attached to holding or operating timber 

 over a period of time. Sales of blocks of com- 

 parable timber may give an indication of the 

 present worth of a particular property. Such 

 sales may indicate the amount of discount that 

 occurs because of the time element involved. 



The income approach to value also must con- 

 sider time. In this approach, the appraiser esti- 

 mates the present worth of the income stream 

 that he expects will flow from the property be- 

 ing appraised. To derive this value, the ap- 

 praiser must estimate the length of the operat- 

 ing period. Operations may be classed into the 

 following categories: (1) Liquidation opera- 

 tion, (2) Deferred income operation, (3) Oper- 

 ating unit, and (4) A combination operation. 



1. Liquidation Operation 

 Short term liquidation 



Timber in the process of being liquidated 

 over a relatively short period (1 to 3 years) 

 generally is appraised on the basis of present 

 market value without discount. 



(a) Long term liquidation 



The income from a timber stand which is 

 in the process of being liquidated over a period 

 of years should be discounted for the operating 

 period as a terminating series of equal annual 

 payments at an adequate discount rate. 



2. Deferred Income Operation 



In some instances for reasons beyond his 

 control, a timber property owner is unable to 

 produce an income from the harvest of standing 

 timber for a period of several years. In this 

 event, the appraiser may make an estimate of 

 the value of the total future benefits which will 

 be realized during a future operating period. 

 The value of the future benefits at the beginning 

 of the operation then will be considered as de- 

 ferred income and discounted as a single sum 

 to the present. 



3. Operating Unit 



(a) Long term operation 



In effect, the discounting of income from 

 properties under long term management is iden- 

 tical to the method of discounting income from 



timber stands which are being systematically 

 liquidated over a long period of time. However, 

 a property under good management practices 

 will substantiate to a greater degree the selec- 

 tion of a longer discount period than a liquida- 

 tion operation. This type of operation is one 

 which is acquiring additional lands and carry- 

 ing on forest regeneration practices to sustain 

 the operation through a longer period of time. 

 To repeat for emphasis, the future benefits of a 

 managed property are discounted as a series of 

 equal annual payments based on the expected 

 average annual cut and discounted for the oper- 

 ating period at an adequate discount rate. 



To meet the requirement of recording val- 

 ues by legal subdivision, unit values will be 

 prorated by volume to the subdivisions. 



(b) Sustained yield unit 



As an operation attains a status of cutting 

 on a sustained yield basis, which means the 

 average annual cut equals the annual growth, 

 the value of the property is determined by capi- 

 talizing the net annual income at an accepted 

 rate of return. 



Since production is in perpetuity, the land 

 is always in production and the property value 

 is based entirely upon its ability to produce tim- 

 ber. No value for land will be computed directly. 

 4. A Combination Operation 



It is entirely possible to have a timber prop- 

 erty which may not fall into one of the above 

 classifications but may require two or more 

 separate discount periods. By discounting the 

 income from each of these periods to present 

 worth, a total over-all value may be determined. 



CHAPTER IV 



Determination of Basic Appraisal Factors 



[Contents only] 



Determination of basic appraisal factors 

 Taxability 



Government-owned lands 



Constitutional exemption 

 Assessee 

 Description 

 Situs or location 

 Classification 

 Security- 

 Value 



Collection of physical data 



Timber inventory 



Land area 



Timber quality 



Topography 



Log and lumber haul 



Multiple use 



14 



