Hall - Windoss & Co LLCAPPRAISAL SERVICES CONTRACT
Doug Russell
Kalispell City Manager
City of Kalispell
201 1 S` Street East; P.O. Box 1997
Kalispell, MT 59903
RE: Appraisal Service — Kalispell Railbanking between BNSF & the City of Kalispell
Dear Mr. Russell:
This letter will confirm my engagement for the above described service dealing with the
identified real property briefly recognized as Eleven (11) Parcels, both fee simple and easements,
that begins on the east side of Kalispell opposite the north end of the bridge over US Highway 2
and extending to Meridian Road on the west. The subject parcels consist of Seven (7) tracts to
be valued as Fee and Four (4) to be valued as Easements.
For this assignment, I am requesting you to provide more detail on this property as discussed
below:
1. Title Insurance or Commitment for Title Insurance, if available.
2. Purchase and Sale Contract; USPAP requires a 3-year history of ownership to be discussed and recent sales
(sale or purchase) of the subject are to be analyzed;
3. Any Zoning Change Application & Zoning Change Approvals.
4. Any new or recent surveys and maps done on the subject property (Retracement Survey that was recorded
recently.
5. Any sales or listings of similar properties that are For Sale By Owner that you have knowledge as well as
any additional information you believe should be considered under a due diligence investigation for this
property.
6. You are to provide me with access to the parcels identified. I understand, by previous work, I am not to
walk on or along the existing railroad tracks.
I have agreed to provide an appraisal and present my findings in an Appraisal Report. This
service & report will be consistent with the requirements of Standards 1 & 2 of the Uniform
Standards of Professional Appraisal Practice (USPAP — 2020-2021) as promulgated by The
Appraisal Foundation and be in compliance with the Code of Professional Ethics and Standards
of Professional Conduct of The Appraisal Institute, to which I hold membership. This will
include the valuation of the real property identified above.
I agree to deliver the report to you no later than Forty -Five (45) days from the signing of this
contract and which is considered to be the Notice to Proceed. The fee will be paid on the basis
of 50% retainer and the balance of 50% upon delivery of the report.
This letter will confirm our agreement regarding fees and expenses. Based upon my review and
the specific appraisal issues that have been identified, the fee for this appraisal assignment is
Eleven Thousand Five Hundred Dollars. This is a lump sum appraisal fee. There will be no
additional expenses such as travel costs.
— Hall — W iddoss & Company, P.C. —
It is understood and agreed that the fee is not contingent upon the reporting of a
predetermined value or direction in value that favors the cause of the client, the amount of
the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent
event.
For Supplemental Services, it is understood and agreed that should I be required to give
testimony or attend any public or private hearing as your expert witness, an additional fee is
required. For all court preparation, assistance with interrogatories, deposition testimony and/or
court testimony, I will be compensated at the rate of $325.00/hour. Further, you agree to pay
those additional expenses such as travel, lodging, meals, parking, etc. based on submitted
documentation that are specific to this clause of the contract. Time spent traveling is based on the
same hourly rate identified above.
In the event you cancel my engagement as your appraiser before the due date set forth herein,
you agree to give me written notice of that cancellation and you further agree I shall receive
compensation for all services rendered and for time actually spent prior to the receipt of the
written notice to cancel engagement, together with all costs I have advanced on your behalf in
connection with the engagement prior to my receipt of the written notice.
Please signify your understanding and acceptance of the terms of this agreement for services by
signing on the space provided below and by returning the contract either via email or by regular
mail together with the payment of the retainer.
I thank you for your confidence in selecting me for this appraisal assignment.
Professionally yours,
HALL - WIDDOSS AND COMPANY, PC
Steven A. Hall, MAI,
- -••. CCIM
2020.07.21 08:21:50
By:-06'00'
Steven A. Hall, MAI, CCIM
MT General Certificate #REA-RAG-LIC-17
Expires 3/31/21
I, Doug Russell, Kalispell City Manager, understand, agree and accept the description of the
appraisal assignment and report option as well as the fee arrangements outlined in the above
letter.
DATE XXX SIGNATURE:XXX
— Hall - W iddoss & Company, P.C. —
SCOPE OF WORK
The Scope of Work was previously defined as the Scope of the Appraisal. Based on
requirements of the Uniform Standards of Professional Appraisal Practice (latest edition is
USPAP — 2020-2021) promulgated by the Appraisal Standards Board of the Appraisal
Foundation and the guide notes to the Standards of Professional Appraisal Practice adopted by
the Appraisal Institute, this has become the primary element defining the appraisal conducted
here. USPAP involves binding requirements and specific guidelines that deal with the
procedures to be followed in developing an appraisal, an analysis or opinion and with the
reporting or communication of that appraisal opinion defined as Standards 1 & 2. The appraisal
service & reporting option must be consistent with the Scope of Work defining the appraisal
service and how it is to be communicated. The appraisal has complied with the regulatory
requirements of the State of Montana administered by the Montana Board of Appraisers based on
compliance with Standards & Ethics defined within USPAP.
The scope of work rule states the appraiser, in developing a real property appraisal, must:
1.) identify the problem to be solved;
2.) determine the scope of work necessary to solve the problem and
3.) correctly complete research and analyses necessary to produce a credible appraisal.
Pursuant to Problem Identification as found in USPAP, the appraisal assignment requires the
appraiser to "gather and analyze" information about those assignment elements that are
necessary to properly adequately identify the appraisal problem to be solved. These are, at a
minimum:
1. Client
The client is identified as the City of Kalispell.
2. Intended User
The intended Users are the client and Burlington Northern Santa Fe
Railway (BNSF).
3. Intended Use
The intended use is to help establish the market value of the identified
subject property, as vacant land, related to a financial decision as to the sale
of this property to the City of Kalispell for future bicycle/pedestrian R/W.
4. Type of Value
The type of value is market value which is defined herein. The "AS IS"
value is the "assumed" fee simple estate of the land only. The existing
railroad tracks and any city infrastructure have been excluded from the
valuation in this report.
5. Effective Date of Value
The effective date of value (effective date of appraisal) for the "AS IS"
condition is identified and is consistent with the date of
inspectionsiproperty observations that will occur in August of 2020. The
date of the report will be identified on the Letter of Transmittal. This is
consistent with the date this report was submitted to the client and the
intended user.
6. Property Characteristics
Deals with the extent of the subject property such as inspection/property
viewing, property rights appraised, etc. This requires further address,
which I have included in the paragraphs below.
7. Assignment Conditions
Refers to hypothetical conditions, assumptions & limiting conditions.
Please refer to the paragraphs below and other relevant sections of the
report. The use of extraordinary assumptions and hypothetical
conditions within the report should be viewed within context that their
use might have affected the assignment results.
8. Prior Services
I have previously appraised some of the property that is characterized as the
subject property. This previous work was done in October of 2016.
— Hall — Widdoss & Company, P.C. —
(6.) The extent of the Property Identification involves both physical characteristics of the
property (land only) and legal characteristics such as the fee simple, leased fee, or leasehold
estate limited by easement, covenants, restrictions and other encumbrances) relevant to the
valuation problem. For this appraisal, the extent of the subject inspection involved an
approximate overview of the boundaries of the site. The property will be viewed by Steven A.
Hall, MAI, CCIM. I will observe the requested 25' safety distance from the tracks.
I have reviewed courthouse records for identification of legal description, easements of record,
CAMA data, assessments, taxes and zoning. I make no assurances that the courthouse (CAMA)
data is accurate but it is considered relevant information as part of the appraisal process
employed. I am not an inspector and no opinion is rendered as to compliance with health codes,
building codes or other such regulations.
(7.) The client requested an estimate of market value for the property in its "AS IS" condition,
as of the date of property inspection/observation. I assume the subject parcels are vacant and
available for development. There are existing improvements (railroad tracks), but they are not
to be included in this valuation. This is an extraordinary assumption that the land is vacant.
Further, there is an extraordinary assumption relative to the numerous points of crossing between
the railroad and the public streets. The assumption is that the railroad Right -of -Way (R/W) pre-
dates the city streets so there is no requirement to adjust (deduct) for road R/W from the total
property size surveyed. Basically, this assumes that the city roads were constructed and
surveyed over the top of the pre-existing railroad right of way. No size/severance would be
adjusted for due to the city roads/streets.
For the reader's edification, I have incorporated definitions for hypothetical conditions and
extraordinary assumptions. These definitions are taken from the US PAP 2020-2021.
"HYPOTHETICAL CONDITION.• a condition, directly related to a specific assignment, which is
contrary to what is known by the appraiser to exist on the effective date of the assignment results, but is
used for the purpose of analysis. Comment: Hypothetical conditions are contrary to known facts about
physical, legal, or economic characteristics of the subject property; or about conditions external to the
property, such as market conditions or trends; or about the integrity of data used in an analysis. "
"EXTRA ORDINARY ASSUMPTION.• an assignment -specific assumption as of the effective date
regarding uncertain information used in an analysis which, iffound to be false, could alter the appraiser's
opinions or conchisions. Comment: Uncertain information might include physical, legal, or economic
characteristics of the subject property; or conditions external to the property, such as market conditions or
trends; or the integrity of data used in an analysis. "
The use of extraordinary assumptions and hypothetical conditions within the report should be
viewed within context that their use mikht have affected the assi,-nment results.
USPAP states there to be additional reporting requirements when the appraisal involves a
hypothetical condition and, it is assumed equally, when there is an extraordinary assumption.
This is necessary to ensure the intended user(s) understands:
(a) the improved subject property does not yet, in fact, exist as of the date of the appraisal;
(b) the analyses performed to develop the opinion of value are based on a hvpothesis, specifically that the
improved subject property is assumed to exist when in fact it does not gist;
— Hall — Widdoss & Company, P.C. —
(c) certain events need to occur, as disclosed in the report, before the property appraised with the proposed
improvements will in fact exist; and
(d) the appraisal does not address unforeseeable events that could alter the proposed property improvements
and/or the market conditions reflected in the analyses.
It is the opinion of the client, intended users and me that I am qualified to provide this appraisal
service. Qualifications have been included within the addendum of the report and these identify
or serve as evidence of the experience and expertise (competency) to provide this service.
Identify the Problem to be Solved: As discussed above, the appraisal problem to be solved is a
non-traditional valuation assignment. In simplistic terms, there are Eleven (11) parcels to be
appraised. There are Seven (7) parcels to be valued as fee simple and Four (4) to be valued as
Easements. The properties comprise the railroad R/W that cuts through/across much of Kalispell
in and east -west direction from the north end of the bridge over US Highway 2 on the east to
Meridian Road on the west. After discussion with the client & intended users, it was determined
this appraisal assignment requires a more traditional Fair Market Value assessment (opinion)
based on an ATF (Across -The -Fence) methodology due to the shape/configuration of these
parcels. With regard to the Fair Market Value based on an ATF valuation, the key or critical
point is shape/configuration due to the corridor issues.
The R/W areas are predominately linear with narrow width & elongated shape. The original
intended use was to provide a corridor for the railroad, which correlates to the shape & varying
widths. The overall shapes of these parcels do not allow for "typical" development of the
property (compliance with set -backs, etc.). As stand-alone tracts, these parcel areas do not have
typical market value because they serve one purpose & tend to be too narrow to conform to set-
back requirements within which zoning district the property (easement) lies.
With regard to the Fair Market Value of the right of way, there are several key or critical points
that need to be understood. These will be discussed in a bullet point presentation followed by the
discussion of those points.
1. No recognizable "market "for the atypical sizelshape tracts, post -acquisition
2. Limited transactional data allowing direct comparison to subject (no similar size/shape tracts found).
3. Size & shapet°configuration issues require valuation based on use of Across -The -Fence (ATF) vah►ation
mitigati»g shape%onfiguration concerns. ATF or Across -The -Fence vah►ation has been defined in the body
of the report (see Definitions).
First, there is no ready secondary market for the disposal/sale of right of way. By that we are
referring to the fact that existing right of way tracts generally do not sell as a typical market
transaction. That is, they are not listed publicly and made available to the market. In the few
instances that I have found through work with MDT, vacated right of way is typically sold to the
adjacent property owner and is not listed for sale to the general public. So, without a recognized
secondary market, the question arises as to how one can produce an opinion of fair market value
when there is only the "Bilateral Monopoly" market of a single seller and a single buyer. When
both are equally motived by economics and both parties are acting in their respective self-interest,
fair market value can be achieved. The question remains over exposure to the market but the
definition of bilateral monopoly would suggest a negotiated transaction rather than an exposure to
the broad market.
— Hall — Widdoss & Company, P.C. —
Second, there is very limited transactional data to analyze relative to vacated right of way parcels.
The right of way after acquisition typically does not sell to non -related parties. When a right of
way is acquired, it is through a negotiated process or through use of governmental power of
eminent domain (a condemnation action). Without transactional data, the analyst cannot employ
any of the recognized valuation methodologies; in particular, the sales comparison approach for
vacant, undeveloped land.
Third, the right of way areas tend to be linear with narrow width & an elongated shape. Right -
of -Way, by its' very nature, is configured to provide only that land area necessary for the intended
use. When that intended use is to provide a corridor for the roads or railroad tracks, the shape is
long and narrow. That shape does not allow for "typical" development of the property.
As stand-alone tracts, these areas of right of way do not have typical market value because they
serve one purpose, tend to be too narrow to conform to setback requirements within which zoning
district the property (easement) lies, and they tend to restrict most other uses.
In simple terms, let's look at the subject railroad right-of-way which are between 100' wide and
25' wide. There is the issue of valuing the right of way due to its' size & shape. I have
considered those two items separately. Size will be considered as these Eleven separate parcels
form the basis of the valuation opinion being expressed. Previously, the actual composition of
the right-of-way areas included multiple lot/blocks areas representing one Tract (Tract 1) which
was a single elongated tract. For this appraisal, I am requested to provide an opinion for these
Eleven parcels.
Shape is the second part of this issue. The individual parcels range in width from 25' to 100' and
are elongated narrow winding tracts through the City of Kalispell in a general east -west direction
from the north end of the bridge over US Highway 2 on the East to Meridian Road on the West.
The shape & configuration of these properties and the underlying zoning create different
circumstances for valuation purposes.
There are no known land sales with these dimensions & shapes. Without some method of
approaching the shape/configuration issue, it is unrealistic to make a direct comparison between a
functionally usable tract and one with the narrow shape/configuration such as that exhibited by
these properties. It is why the use of an Across -The -Fence (ATF) valuation was brought into
practice.
Fifth, it is my opinion that the lack of a defined secondary market for easements (no parties other
than those involved as part of the bilateral monopoly) AND the limited amount of transactional
data (sales) requires a method of valuing the right-of-way under the constraints of a fair market
value definition. I have reviewed the ROW valuation as though reflective of an opinion of the
market value of the ROW areas using an ATF valuation methodology.
In terms of the appraisal service requested, this is defined as Eleven separate vacant sites. The
extraordinary assumption is that the railroad right of way pre -dates the roads (which is not
uncommon in Montana where many towns grew up around the tracks) and that there would not be
an adjustment for each of the road crossing points from the total acreage survey provided. Further
the existing railroad improvements (tracks) are excluded from consideration with the land assumed
— Hall — Widdoss & Company, P.C. —
vacant. The areas cross several different zoning districts with different segments reflecting
different Highest and Best Use conclusions. These uses include commercial, industrial, and
residential/multi-family.
Relevant to the preceding paragraph, factual market data gathered or researched for this appraisal
includes land sales & listings. This data is utilized in arriving at the Highest and Best Use for
the subject property and to estimate the market value of the property based on that conclusion of
highest and best use.
It is recognized that Montana is a non -disclosure State and verification of sales is commonly
handled through real estate agent confirmation as well as buyer and/or seller verification. There
are times when the confirming party does not wish to be identified or where the price is not to be
divulged in an appraisal report. All of these elements are considered appropriate and common
under peer review. The Kalispell market, for this property type, does rely on the exposure of
property using the local MLS service as a primary source of sales data. This office is a member
of this regional MLS (merged with Missoula Organization of Realtors MLS) to form a regional
MLS. As such, this office has full access to sales & listings that assist in the valuation of these
individual parcels.
Report Option - Standard Rule 2-2: The 2020-2021 USPAP edition has provided "In
reporting the results of a real property appraisal, an appraiser must communicate each
analysis, opinion, and conclusion in a manner that is not misleading." Standards Rule 2-2
states "Each written real property appraisal report must be prepared under one of the
following options and prominently state which option is used: Appraisal Report or Restricted
Appraisal Report." Under Comments, "When the intended users include parties other than
the client, an Appraisal Report must be provided When the intended users do not include
parties other than the client, a Restricted Appraisal Report maybe provided."
"An appraiser must use care when characterizing the type of report and level of information
communicated upon completion of an assignment. An appraiser may use any other label in
addition to, but not in place of, the label set forth in this Standard for the type of report
provided." It is my opinion this allows an appraiser to include the descriptive phrase of
Summary Appraisal Report, Narrative Appraisal Report or Self -Contained Appraisal Report.
These terms clearly form around the core description which is "Appraisal Report". For this
appraisal, the reporting option is an Appraisal Report.
It is acknowledged that I lack special expertise or knowledge with respect to the detection and
measurement of hazardous substances. For this appraisal, I have not been provided either a
Phase I or Phase II environmental audit relating to this topic. Pursuant to the statements
provided by representatives of BNSF, the subject parcels are assumed to have no site
contamination issues and the property is immediately developable to its highest & best use,
under the premise of an ATF valuation.
Steven A. Hall, MAI,
CCIM
""'" � � �" �a�" �y.�;• 2020.07.21 0822:39
Signed By" sell, Kalr City Manager-oe'oo'
— Hall — Widdoss & Company, P.C. —