FEDERAL LAND

MANAGEMENT

Baca Ranch Appraisal

Land Acquisition Issues

Statement of Barry T. Hill, Associate Director,

Energy, Resources, and Science Issues,

Resources, Community, and Economic Development Division

United States General Accounting Office

GAO Testimony

Before the Subcommittee on Forests and Public Lands

Management, Committee on Energy and Natural

Resources, U.S. Senate

For Release on Delivery

Expected at 9 a.m., EST

Friday

March 10, 2000

GAO/T-RCED-00-105
1

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to present the results of our review of the appraisal for the Baca

Location No. 1 (the Baca Ranch), a privately owned ranch covering almost 95,000 acres in

northern New Mexico that the U.S. Department of Agriculture’s Forest Service (the Service)

wants to buy.1

Our review was mandated by the Appropriations Act for the Department of the

Interior and Related Agencies for fiscal year 2000.2

To establish a price for the ranch, the owners commissioned certified appraisers to appraise the

property. Their appraisal, completed in September 1998, identified and evaluated sales of

ranches considered to be comparable to the property and concluded that the fair market value of

the Baca Ranch was $1,061 per acre, or $101 million in total. The Service reviewed the appraisal

to assure that it complied with federal appraisal standards, which address the principles

applicable to appraising property for federal acquisition.3 To facilitate its review of the

appraisal, the Service commissioned a market study by another certified appraiser, completed in

June 1998, that also identified and evaluated sales of ranches considered to be comparable to the

Baca Ranch—although it was not an appraisal. Two Service appraisers used the market study

when they reviewed the owner’s appraisal and, in September 1999, found that the appraisal met

federal standards and approved it. The Service and the owners signed a purchase agreement for

the appraised value in October 1999. In November 1999, the Congress appropriated $101 million

for the purchase and required that authorizing legislation be enacted before the purchase can be

completed.

Our review addressed (1) the extent to which the value established by the owner’s appraisal was

consistent with the comparable property sales data presented in the appraisal and in the

Service’s market study and (2) other key factors that influenced the appraisal’s final outcome. In

our review, we examined the owner’s appraisal, the Service’s appraisal review report, and the

Service’s market study. We also contracted with an independent and certified appraiser to

1

See Federal Land Management: Land Acquisition Issues Related to the Baca Ranch Appraisal (GAO/RCED-00-76, Mar. 2, 2000). 2

P.L. 106-113 (Nov. 29, 1999).

3

See Uniform Appraisal Standards for Federal Land Acquisitions, Interagency Land Acquisition Conference (1992). These

standards were prepared to promote uniformity in the appraisal of real property among the various agencies acquiring property on

behalf of the United States. The Interagency Land Acquisition Conference is chaired through the Department of Justice and

composed of representatives of many federal agencies that acquire land.
2

conduct a desk review of the appraisal. Neither we nor the appraisal reviewer we contracted

with attempted to reappraise the property. Because we were told by the owner’s representative

that the Baca Ranch was inaccessible due to winter conditions during the limited time available

for our review, neither we nor the appraisal reviewer we contracted with visited it.

In summary, we found the following:

• Although the owner’s appraisal of the Baca Ranch’s value complied with federal appraisal

standards, the appraised value is higher than supported solely by sales of comparable

properties presented in the appraisal and in the Service’s market study because it reflects a

premium. In arriving at a value, the owner’s appraisal identified sales of 16 large ranch

properties located in New Mexico and Colorado that it considered comparable to the Baca

Ranch in one or more ways, such as location, topographical features, and usage. On the

basis of professional judgment, the owner’s appraisers relied heavily on two higher-valued

properties that they considered to be most comparable to estimate the Ranch’s value of $101

million. This value reflects a premium over what it would be if it were computed on the

basis of all 16 comparable sales; for example, using a weighted average of these sales results

in a value $37 million lower than the appraised value. In reviewing the owner’s appraisal, the

Service’s chief appraiser told us that he had questions about the value in the owner’s

appraisal until he made a visual inspection of the property, which led him to agree that a

premium value was warranted because of the property’s uniqueness.

• The Service’s market study presents data on sales of 11 comparable properties (4 of which

are also in the owner’s appraisal) in New Mexico and southern Colorado that also support a

range of lower values for the Baca Ranch—the high end of which is still $37 million less than

the appraised value. The appraisal reviewer we contracted with also found that the

appraised value was higher than supported by information in the appraisal, which showed

that some of the low-valued properties that the owner’s appraisers did not use to calculate

the Baca Ranch’s value had similar characteristics and were comparable to the Baca Ranch.

On the basis of our analysis of the comparable property sales data presented in the owner’s

appraisal and in the Service’s market study, the government would pay a premium for the

Baca Ranch if the value in the owner’s appraisal is used to establish its price.
3

Mr. Chairman and Members of the Subcommittee, the appraised value of the Baca Ranch—as

approved by the Forest Service—is higher than would be indicated if it were based solely on the

sales prices of all the comparable properties. To develop this value, the appraisers applied their

professional judgment and relied most heavily on two high-valued comparable properties,

believing that the ranch would and should bring a premium price. As the Congress weighs its

authorization decision, we believe it is important for you to be aware of this premium.

Background

Federal appraisal standards require that property to be acquired by the federal government be

appraised at fair market value, which is the amount for which a property would be sold by a

willing and knowledgeable seller with no obligation to sell to a willing and knowledgeable buyer

with no obligation to buy. Determining fair market value requires the appraiser to first identify

the property’s “highest and best use,” defined as the use that is physically possible, legally

permissible, financially feasible, and maximally profitable for the owner. Appraisers must then

use an accepted valuation approach; the sales comparison approach is generally considered to

be the most reliable when sufficient market data are available. This approach estimates a

property’s value by comparing it with other properties that have been sold, considering various

factors—such as the location, size and other physical characteristics, and uses of the

properties—to estimate the extent of comparability. A property’s size is one of the physical

characteristics considered when comparing the sales of similar properties; other things being

equal, smaller parcels of land tend to have higher per-acre values than larger parcels.

Federal appraisal standards also require, among other things, that appraisers collect, verify,

analyze, and reconcile available data; identify and consider appropriate market information; use

all pertinent information in developing the appraised value; and report their analyses, opinions,

and conclusions clearly and accurately in a manner that is not misleading and that contains

sufficient information to allow the report’s users to understand it properly. The standards

generally address appraisal procedures and documentation rather than outcomes; different

appraisers can consider the same data and follow the same methodology but develop different

estimates of appraised values, because they apply different professional judgments, and still

comply with the standards. The federal standards also state that it is essential for appraisers to

visually inspect the properties they are appraising and the properties used as comparisons.
4

Data on Comparable Sales Support a Lower Value for the Baca Ranch

While the September 1998 owner’s appraisal is consistent with federal appraisal standards, it

presents data on comparable ranch properties that support a value for the Baca Ranch that is

lower than $101 million. The appraisal used the sales comparison approach to value the

property as a “trophy ranch” that is used primarily for recreation. The appraisers first

considered over 50 sales of properties as possible comparable sales, then narrowed the number

to 16 large ranch properties located in New Mexico and Colorado that were more comparable to

the Baca Ranch. These 16 properties had per-acre prices (adjusted to account for changes in

land prices over time) ranging from $2,908 per acre for 5,800 acres to $196 per acre for 90,000

acres (the only property of the 16 that is approximately the same size as the Baca Ranch).

The appraisal further narrowed its consideration of comparable sales to five properties.

Although these five properties were much smaller than the Baca Ranch (ranging from about

4,000 to 32,000 acres), they were considered to be the most relevant on the basis of other factors

such as the date of sale, location, physical characteristics (other than size), and diversity of use.

The appraisal estimated that the Baca Ranch’s value fell between the values of two properties

that it considered to be most comparable to the Baca Ranch in terms of location and usage: a

property classified as superior at $1,395 per acre for about 11,000 acres and a property classified

as inferior at $880 per acre for about 32,000 acres. The appraisal calculated the Baca Ranch’s

value by assigning 85 percent of the per-acre value to these two properties (40 percent and 45

percent, respectively) and the remaining 15 percent to the three lower-valued properties (5

percent each), resulting in the appraised value of $1,061 per acre for the Baca Ranch.

By relying on the two high-valued properties, the appraisal resulted in a per-acre value that

reflects a premium over what it would have been, had it been computed on the basis of all 16

sales of comparable properties. We computed the weighted average per-acre price for all 16

comparable ranches presented in the appraisal to be about $670 per acre.4

Although a weighted

average does not reflect all of the factors affecting a property’s value, it shows that, on average,

the value of the comparable properties is about $390 lower per acre—and $37 million lower, in

total—than the appraised value of the Baca Ranch. Figure 1 shows the time-adjusted price per

4

For the properties that the appraiser had not already adjusted, we adjusted the sale prices to reflect an increase in land values of 4

percent per year so that these data would be more comparable to those presented in the appraisal.
5

acre and the total acres for each of the 16 comparable properties, the weighted average price per

acre for the 16 properties, and the appraised value of the Baca Ranch.

Figure 1: Price per Acre v. Total Acres for All 16 Comparable Property Sales Included in the Owner’s

Appraisal, the Weighted Average Price per Acre for These Sales, and the Appraised Value of the Baca Ranch

0

500

1,000

1,500

2,000

2,500

3,000

0 20,000 40,000 60,000 80,000 100,000

Total acres

Weighted average of comparable properties in owner's appraisal ($671 per acre)

Price per acre in dollars

Baca Ranch’s value,according to 

owner’s appraisal ($1,061 per acre)

In reviewing and approving the Baca Ranch appraisal and the appraised value, two review

appraisers in the Service verified that it was complete and accurate, that its analysis and

conclusions were logical, and that it met federal appraisal standards. As part of their review, the

review appraisers visually inspected the Ranch as well as other properties discussed in the

appraisal. The Service also used the market study to define the market and identify sales of

properties that would be relevant to the sale of the Baca Ranch. The market study used the sales

comparison approach, analyzing sales of 11 ranch properties located in New Mexico and

southern Colorado (ranging from about 2,000 acres to about 95,000 acres) and comparing them

to the Baca Ranch on the basis of several factors—such as the property’s location and size, the
6

presence of buildings or other improvements, and amenities such as trees and water.5 Using a

valuation technique similar to that used in the appraisal, the study placed the Baca Ranch’s value

between a property with a price of $670 per acre (for about 16,000 acres) and another with a

price of $400 (for about 24,000 acres); a third property, priced at about $580 per acre (for about

11,000 acres), was judged to be equal to the Baca Ranch. These values range from about $390 to

$660 per acre lower than the appraised value of the Baca Ranch and suggest a total price about

$37 million to $63 million lower than the appraised value.

The Service’s chief appraiser said that the market study was useful and saved him substantial

time in reviewing the subsequent Baca Ranch appraisal because it provided verified market

information about the characteristics and sales prices of relatively large western ranch

properties. Furthermore, he said the study allowed the Service’s managers to make an early

assessment that the agency would probably be able to approve an appraisal—which had not yet

been submitted to the Service—that would meet the price expectations of the Baca Ranch’s

owners. However, he also said that he did not consider the market study’s values to be relevant

to the appraisal because they were not supported by physical inspections. We acknowledge the

importance of physical inspections in appraising property; however, even without such

inspections, the market study provided market data on comparable properties that indicate a

lower range of value than estimated in the owner’s appraisal.

The appraisal reviewer we contracted with found that the owner’s appraisal complies with

professional appraisal standards;6

however, he disagreed with the appraisal’s conclusion

regarding the appraised value. He said that the information on comparable sales presented in

the appraisal indicate that the appraised value should be lower, but he did not estimate how

much lower that value should be because he did not reappraise or visually inspect the property.

The Baca Ranch’s Uniqueness Was Cited as a Key Factor in Assigning It a Premium

Value

The key factor that was cited by the appraisers as influencing their ultimate assessment of the

property’s premium value—and by the Service’s chief appraiser as influencing his decision to

5

Four of the 11 comparable properties identified in the Service’s market study were also included in the 5 comparable properties

identified as most relevant in the owner’s appraisal.
7

accept it—was the Baca Ranch’s uniqueness. Specifically, the owner’s appraisal said that the

Baca Ranch is a unique property—because of characteristics such as its location, size, scenery,

and pristine appearance—and that purchasers of such “trophy ranches” as the Baca Ranch are

willing to pay premium prices for uniqueness. Furthermore, the appraisal asserted that

properties such as the Baca Ranch that range in size from 10,000 to 100,000 acres do not follow

the usual size-price relationship in land—that is, as the amount of acreage increases, the price

per acre decreases. As a result, the owner’s appraisers believe that the Baca Ranch’s size does

not matter as much as its location, usage, and other physical characteristics do and that the

property should bring a premium price because of these other factors. According to the owner’s

appraisal, no properties are truly comparable to the Baca Ranch; therefore, the appraisers

applied professional judgment and used qualitative analysis to eliminate most of the larger and

low-valued comparable properties and instead rely on two smaller comparable properties to

compute the appraised value. The appraisal then used the per-acre prices of these two relatively

high-priced properties to estimate the per-acre value of the Baca Ranch and calculated the total

appraised value by multiplying the per-acre value by the ranch’s acreage—a calculation that

assumes that the property’s total value is directly based on its size.

The Service’s chief appraiser agreed with the owner’s appraisal that the Baca Ranch is unique

and said that professional judgment was a key factor in his review and approval of the appraisal.

He said that the appraised value for the Baca Ranch lies within the parameters of the existing

market—that is, it lies within the range of comparable sales data that are presented in the

appraisal. However, he also said that in his review of the appraisal, he was initially very

concerned that the appraised value appeared to be too high, but then he visually inspected the

Baca Ranch and the comparable properties. In seeing the properties firsthand, he said that on

the basis of his professional judgment, the relatively high value given to the Baca Ranch in the

appraisal was warranted. He did not provide more specific information about the basis for his

professional judgment, however, to support his approval of the appraised value. He noted that

an appraised value is only an estimate and that the actual market value of a property can

reasonably be expected to vary as much as 10 percent either way.

6

See Uniform Standards of Professional Appraisal Practice, The Appraisal Foundation (1998). These standards are incorporated

by reference into federal appraisal standards.
8

The appraisal reviewer we contracted with disagreed with the basic premise of the owner’s

appraisal, namely, that the Baca Ranch is unique and therefore exempt from the usual size-price

relationship. He said that the information presented in the appraisal did not conclusively

demonstrate to him that the Baca Ranch is unique. For example, he noted that the appraisal

presented no clear evidence that the Baca Ranch property is the only large property with

streams, timber, and other amenities. He said that the appraisal provides information showing

that some of the lower-valued properties it identified have physical characteristics that make

them comparable to the Baca Ranch. For example, some of the properties also reflect values

associated with keeping them undeveloped. Furthermore, he said that the sales of these

comparable properties clearly demonstrate the usual size-price relationship—size matters—and

that the size of the Baca Ranch is a relevant factor to consider in estimating its appraised value.

For these reasons, he said that the comparable sales support a lower appraised value.

_____

In closing, Mr. Chairman and Members of the Subcommittee, the value placed on the Baca Ranch

by the owner’s appraisal and agreed to by the Forest Service is higher than would be indicated if

it were based solely on the sales prices of all the comparable properties. In arriving at this value,

the appraisers applied their professional judgment and relied most heavily on two high-valued

comparable properties, believing that the Baca Ranch would and should bring a premium price.

Ultimately, the Congress will decide whether the federal government should acquire this

property and whether the property warrants a premium price. In weighing its authorization

decision, we believe it is important for the Congress to be aware of the significance of this

premium in determining the property’s appraised value.

Mr. Chairman, this concludes our testimony, and we would be happy to respond to any questions

that you and the Members of the Subcommittee may have.
9

Contacts and Acknowledgements

For further information, please contact Barry T. Hill at (202) 512-3841. Individuals making key

contributions to this testimony were Jennifer L. Duncan and Sue Ellen Naiberk.

(141416)
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