Checklist for Interviewing Potential Appraisers

The most important thing is to choose an experienced appraiser that routinely performs conservation easement appraisals and meets state requirements for certification. Since the IRS is contesting conservation easement values, it is important that only an experienced appraiser be engaged. Conservation easement appraisals require specialized expertise and must be prepared by an experienced independent appraiser knowledgeable in the appraisal of whole and partial interests in property and in accordance with the IRS definition of a qualified appraisal, as defined in Treas. Reg. 1.170A-13(c)(3).

Ask the appraiser to identify properties in the general vicinity that they have appraised in the past three years. Have them identify market trends and conditions for the area and determine whether these make sense in terms of your knowledge to the area. If there are nearby properties that have easements on them ask the landowners for a referral if they had a good experience with the appraiser. If you are working with a land trust ask them to identify appraisers that they can recommend. Experienced appraisers that have worked in the local area will have an advantage and knowledge base that is superior to those that have not.

Since appraisal costs vary widely, it is good to get several proposals from candidate appraisers before the selection is made. Meet with the appraisers and ask them to explain their approach, timing and cost of performing the appraisal assignment. It is best to initiate this process well in advance of an easement closing since it may take several months to obtain the appraisal. While cost is one variable, it is the combination of factors that indicate whether the appraiser will produce a durable product that will withstand any governmental scrutiny.

Ask the appraiser to explain their appraisal methodology. The appraiser should utilize the “before” and “after” method of valuation, in which the appraisal should present the full fair market value of the property before the easement (“before value”), the full fair market value of the property after restricted by the easement (“after value”) and the fair market value of the easement which is the difference between the “before” and “after” values. By IRS regulation, the appraiser must appraise all of your contiguous property even if it is not going to all be included in the easement.

You must be able to provide the appraiser with an up-to-date title report that identifies any third party rights and other limitations that affect the property, including taxation, deed restrictions, leases, mortgages, deeds of trust, easements, liens, outstanding mineral and water rights, encroachments, etc.

According to IRS regulations, the effective date of the appraisal must be within sixty days of the date of the recording of the conservation easement. Make sure that the effective date of the appraisal is coordinated with the closing of the conservation easement in order to avoid this as an issue.

The appraiser should agree to provide in the appraisal a certification of his credentials and training to perform the assignment, that IRS requirements have been satisfied and that value has been determined independently and without financial influence. Make sure that the appraiser is willing to incorporate a high level of certification in the appraisal product.

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The appraiser is required by Colorado statute to submit a completed conservation easement appraisal report to the Division of Real Estate within 30 days of dating and delivering an appraisal to the client. The delivery to the Division can be made electronically and must be accompanied by a $600 fee. This fee covers the cost of the Division’s review of all appraisals and most appraisers pass this cost on to the client. The Division is looking primarily at two elements of the appraisal; completeness and the signed affidavit. The completeness review will look to see that all elements of a competent appraisal are included and evaluated properly in the appraisal. In addition, the appraiser must sign an affidavit that certifies that he has addressed elements identified by the Division in regulations. These certification declarations relate to elements such as 1) credentials and training to perform the assignment, and 2) that IRS requirements have been satisfied and that value has been determined independently and without financial influence.