There are three stated methods used to appraise trees and landscapes published in The Guide for Plant Appraisal, 10th Edition, authored by the Council of Tree and Landscape Appraisers (CTLA), published by the International Society of Arboriculture. These are Cost Approach, Income Approach and Sales Comparison Approach. The Guide is endorsed by all the major arboriculture, horticulture and real estate industry organizations describing the various appraisal processes, and is a critical resource for sound plant valuation.
In this article, we will more closely examine the application of the Cost Approach using the Trunk Formula Technique. This article is meant to be instructive and an opinion based on the facts provided.
Purpose and technique
The purpose of an appraisal is defined by the clients’ needs. These needs may include unexpected losses, tort claims, insurance claims, tax deductions, real estate assessment or proactive planning. The best time to conduct an appraisal is prior to any incident or damage; however, this is rarely done. If available, previous site records, tree assessments, site reviews, images and even a witness can help determine the tree’s pre-damage condition. Often a tree is not completely destroyed beyond an attempt of saving it. When this situation occurs, a different approach may be applied such as cost of repair. With all the facts gathered, it is the duty of the appraiser to determine the appropriate method of appraisal and provide an unbiased valuation. (Photo 1)
One technique outlined in the Guide is the Trunk Formula Technique (TFT), which appraises larger trees in the landscape within the cost approach. This technique extrapolates the costs to purchase the largest, commonly available nursery plant to the size of the appraised plant. This means we can take the costs of a nursery plant and proportionally increase it to infer the cost of a larger plant. Small trees, less than 4-inch caliper or an 8-foot conifer, would be retail cost.
Values based on application of the TFT is a calculation generated by using “unit costs.” The unit costs required for the formula must be obtained either from local resources determined by the consulting arborist or collected by the Regional Plant Appraisal Committee (RPAC). This committee is comprised of industry experts in your state or region. The RPAC gathers data based on statewide survey information to determine unit costs for commonly available trees, availability and functional limitations of common trees in your area. The information and data provided by the RPAC is a baseline for species; it is the responsibility of the appraiser to determine tree-species ratings and wholesale values based on availability in their region.
For example, the species ratings for common Indiana tree species can be found by visiting the Indiana Arborist Association website at www.indianaarborist.org. Based on statewide surveys in Indiana, it has been determined that for the computations needed for cost techniques, the largest commonly available transplanted deciduous tree would be 3.5 inches with a unit (per inch) cost of $37.67.
When calculating the value of a tree using the TFT, compute the cross-sectional area of the tree multiplied by the unit price. Cross-sectional area is determined by squaring the radius of the trunk at 4.5 feet, or diameter at breast height (dbh), and multiplying by 3.14. Then, multiply the cross-sectional area times the unit price to obtain the value. For example, if a tree is 20 inches in diameter, the radius is 10 inches in diameter, so the computation would be 10 x 10 x 3.14 = 314 inches. When area is determined, multiply it by the unit cost to get the overall basic value. For example, 314 inches x $37.67 per inch = $11,828. However, this is not the “value” of the tree. There are more factors that will affect the value of the plant for the final appraised value.
Factors in appraisals
An accurate appraised value will require the application of depreciation factors. Appraisers use depreciation in the valuation process to justify differences in a new, perfect tree as compared to the appraised tree. This will account for less-than-ideal plant characteristics, placement in the landscape or the site it occupies. The three factors or variables for depreciation include actual condition of the tree, functional limitations and external limitations.
Condition refers to assessing overall tree health looking at vigor, presence of pest issues and any stress symptoms. Condition is a key component in the appraisal. A healthy, well-managed tree has a higher value. (Photo 2) Another consideration is assessing the structure and form of the tree. Review the branch habit to determine if it is a strong, stable structure with good branch attachments and spacing. Does the tree have a good form for the species? Each species has a typical, genetic form – or “normal” traits – that should be representative of the species. However, most trees aren’t normal or typical. See Table 1 for more information on rating the condition.
The type of depreciation applied is associated primarily with the tree itself or the location. (Photo 3) These are factors which may limit future growth and development and overall health. Consider the site conditions and placement, such as proximity to utility lines, which could limit full development due to necessary pruning for clearance. Finally, investigate for any genetic limitations related to the genus and species itself. This would include naturally poor branch systems, susceptibility to pests and invasive tendencies as examples of what would depreciate the value of the tree. Refer to your RPAC data for more specific information.
These factors include issues outside the control of the tree owner that may affect sustainability, structure health or form. Examples include environmental issues such as water availability, threat of pest issues or utility-vegetation-management concerns, where there are impending conflicts between power lines and the tree. (Photo 4)
The appraiser will assign a rating to each of the depreciation categories when applied to the basic value. These are condition, functional limitations and external limitations. The basic cost is multiplied by each of the three categories to estimate the depreciated cost, which would be the final, functional reproduction value using the Trunk Formula Technique.
This appraisal technique is only one way of appraising large trees. It is important to realize these estimates of value may not be proportionate to the value of the property or what would actually be paid for the tree.
Let’s put the Trunk Formula Technique to work with an example for a typical suburban landscape.
A residential site located in a Midwest neighborhood has a sugar maple, Acer saccharum, located in the front lawn, shading the front of the home. (Photo 5) The tree measures 14 inches at chest height and is in good condition and proper location. The tree owners wish to have it appraised to determine the value of the tree on their property.
The calculation would be as follows:
Following the calculated steps, the reproduction value of the tree would be $3,400. This value is the reproduction cost of the tree should it be destroyed or lost. In other words, this number is the cost to replace a tree with an exact replica.
There are other approaches, methods and techniques used to estimate costs and tree value dependent upon appraisal situations. These applications may be found in the Guide for Plant Appraisal, 10th Edition. Arboricultural consultants should utilize the Guide for development of a professional work product.
Lindsey Purcell is an ISA Board Certified Master Arborist (BCMA), an American Society of Consulting Arborists (ASCA) registered consulting arborist (RCA) and an urban-forestry specialist in the Department of Forestry and Natural Resources at Purdue University in West Lafayette, Indiana.
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