III. Outmoded Valuation Methods Omit The Market
Initially, new transportation corridors and nearby lands were economic complements, like rivers and ports, forests and lumber mills. But the concept of private property was nurtured to further America’s founding principles of independence from the state and to provide incentives for economic development (Bethell, 1998, pp. 19-32). Law separated the Siamese twins of corridor and non-corridor properties. As such, the highest and best use of land was perceived to be its stand-alone use rather than the economic viability of the transportation technologies on which they were dependent. After the proliferation of land use zoning in the 1920’s, the vagaries of economic location were regulated as a form of property value insurance (Fischel, 2001, pp. 9-10). Accordingly, property valuation guilds developed four conventional highest and best use tests for private market property: legally permissible, physically adaptable, financially feasible, and economically most profitable (Appraisal Institute, 1992, pp. 280-282). Missing from this equation was any consideration of technology essential to the marketability and valuation of corridors. Unwittingly, real estate appraisers adopted market valuation methodologies to non-market special purpose corridors.
Corridor appraisers, mainly working for major railroads, articulated four methods for valuation of corridors: value for corridor use, across-the-fence value, liquidation value, and subjective percentage methods (Lusvardi, Wright, and Amspoker, 2000, pp. 250-259). Liquidation value acknowledged that corridors do not always sell at par with across-the-fence land values; it does not directly address the economic obsolescence of transportation technologies and corridors. The omission of any consideration of the effect of technology on corridors has been perpetuated in the professional literature of the appraisal profession up to this day. None of the conventional corridor valuation methods (Table 1, below) are relevant to the valuation of positive “corridors within corridors.” Appraisers have contrived highly subjective and one-sided percentage-of-land value techniques to appraise easements and leases (Zulaica, 2000, pp. 6-9). But these do not reflect what a willing buyer and seller with equal bargaining power would pay for such fractional rights.
TABLE 1: Conventional Valuation Methods for Transportation Corridors: The Marketization of Easements