Spring 2006

TIMBER APPRAISALS

When an Indiana forester talks about a timber appraisal he is usually referring to an evaluation of the commercial timber in a given parcel at a given date in time when the production of timber is the highest and best use for the given woodland. This is different than a timberland appraisal, which would include both the value of the timber and the land together, and it is different than an ornamental tree appraisal that might be for trees in a yard or park. In this article I am referring to timber appraisals and not timberland appraisals or ornamental tree appraisals.

Timber appraisals are done for a number of different reasons including for buyers or sellers of land. There can be a large difference in the per acre timber value from one woodland to the next. This wide range of timber values can become very important when buying or selling timberland, even for farms with small woodlands. If a good timber appraisal is done the seller can be sure he is getting a fair price for his timber as it is sold along with the land. I never recommend selling timber if you are going to sell the land, but instead get the timber appraised and make sure the selling price reflects that known timber value.

This way the buyer, the seller and the future productivity of the woodland all come out as winners. The new owner should be making the choice about the future of the woodland, and not the seller. An unharvested woodland will also look better to more potential buyers. It is becoming more common for the agent selling the property to arrange for the timber appraisal and make it available to the seller and to all prospective buyers.

A timber appraisal that is done at the time a property is being sold can result in an informed buyer and seller, and can also be use to establish a timber bases used for the calculation of the long term capital gain of the timber. This timber bases can be used by the new owner to determine taxes owed when timber is sold, which can result in a good tax savings for the owner. If a timber appraisal was not done at the time of purchase, a consulting forester can, after the fact, do a timber appraisal to determine the value of the timber at the time of purchase.

Many timber appraisals are done when a woodland owner dies to help settle the estate. Such timber appraisals can be used to determine how the land is divided among the heirs, or to help settle the estate taxes. Timber appraisals are often done in cases of eminent domain. When woodlands are taken for the public good the owners need to be fairly compensated. Knowing the timber value is an important part of the total value and needs to be considered.

Timber appraisals are often done to help settle civil and criminal litigation in cases of timber trespass, timber theft, insurance claims, fire damage, and divorces. When dealing with timber theft or trespass, foresters often need to act as detectives to determine the value of trees that are cut and gone using remaining evidence such as stumps, tree tops, logging residue, residual trees, equipment tracks, and whatever else is left at the site. The field inventory for fire damage appraisals often needs to wait until the next growing season to see just what was killed, what was damaged, because the salvage value of trees need to be taken into account. When doing timber appraisals to help settle divorce cases foresters need to be very careful not to get between the husband and wife. When doing timber appraisals involving court cases a forester needs to be prepared for the possibility that he may need to be an expert witness in court.

Timber appraisals are often more expensive than home or farmland appraisals because of the extensive fieldwork required to do a good timber inventory. Because of this cost, timber inventories and appraisals are not usually done just for the development of a management plan in our typical smaller Indiana woodlands. Larger tracts of timber, tracts owned by corporations, or very high value woodlands may justify an inventory and appraisal for a management plan, but it will only provide a small amount of the total information needed for that management plan.

Most timber appraisals use the fair market approach to place a value on the inventoried timber. The fair market approach uses timber values from actual timber sales that had timber that is comparable to the timber being appraised. When selecting a comparable timber sale, a forester needs to consider the time of sale, type of sale, logging conditions, marketing area, size of sale, tree species, tree sizes, and timber quality. Occasionally the investment approach is used to evaluate premerchantable trees, such as in tree plantings. This approach considers the long term investment value of the trees over time and represents that value as one present value. Because of the many assumptions needed and the uncertainty of events over time, this approach is very difficult to use and is only use when the fair market approach is not applicable. The replacement cost approach for doing appraisals is almost never used for timber appraisals because large trees cannot be replaced at a reasonable cost. The replacement cost approach is sometimes used to appraise very young trees, such as those in tree plantings less than 5 years old, because they can be replaced.

There are so many variables involved in appraising timber that even a very well done appraisal may only be within 10% of the actual value. Markets are always changing and anyone using a timber appraisal needs to know the date for which the timber was appraised and take that into account when making decisions. If you have a timber appraisal that you have questions about, you should give the forester that did the appraisal a call and ask.

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