After the peer reviews were completed, BLM reviewed and approved the appraisals, determined that they met federal appraisal standards, accepted the appraised values, and forwarded them to the Secretary of the Interior. Appraisal Standards and Results of the Headwaters and Elk River Property Appraisals

In its instructions for the Headwaters and the Elk River property appraisals, BLM instructed the appraisers to follow federal appraisal standards in valuing the properties. These standards state that the government should appraise a property to be acquired at the fair market value. The income approach involves estimating the value of a resource on the basis of the present value of the anticipated future income from production. Therefore, BLM instructed the appraiser to assume specific timber harvest levels to avoid speculation on the amount of timber that could be harvested. For both approaches, the appraiser estimated the total amount of timber available for harvest and the costs of logging the timber, which include the costs for transportation. To this value, the appraiser added the present value for the remaining land and trees. The appraisal established a value of $78.4 million for the property. This document also summarized the results of the two appraisals and concluded that the authorized public expenditure of $380 million is within the range of appraised values; the values range from $135 million to $405 million for the Headwaters property and include an additional $26.6 million for the portion of the Elk River property to be retained by the government. The opinion also found the acquisition to be in the best interests of the United States because it represents an opportunity to set aside an irreplaceable resource for the public. The need to make key assumptions during the appraisal process tended to increase uncertainty about the appraised values. Although we note that using different assumptions would have resulted in different appraised values, we do not find the use of the assumptions unreasonable. Although we note that using different assumptions in each of these four cases would have resulted in different appraised values, we do not find the use of the assumptions unreasonable. Elk River Appraisal

In estimating the fair market value of the Elk River property, the appraisal relied on one key assumption. Observations

In our review of the Headwaters and the Elk River property appraisals, we did not identify areas in which the appraisals deviated from federal appraisal standards. The Secretary of the Interior recognized, in his opinion of value, the intrinsic worth of the irreplaceable natural resources of the Headwaters property, whereas the appraisals simply estimated the value of the properties on the basis of their use as timberlands.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO reviewed the appraisals of Headwaters Forest that were required to be conducted prior to its acquisition, focusing on: (1) whether they complied with federal appraisal standards and how the values of the appraisals were derived; and (2) key assumptions used in the appraisals.

What GAO Found

GAO noted that: (1) it did not identify any areas in which the appraisals of the Headwaters and Elk River properties deviated from federal appraisal standards; (2) federal appraisal standards state that the government should appraise a property to be acquired at its fair market value; (3) the appraiser of the Headwaters property produced a limited appraisal with four market values--one value for each of four timber harvest assumptions provided by the Bureau of Land Management (BLM); (4) in calculating these four values, the appraiser relied on two approaches: (a) estimating the current cost of the land and the timber from revenue and logging-cost estimates; and (b) estimating the total net income from future timber operations and adjusting this amount to the present value of the standing trees; (5) the appraiser of the Elk River property relied on one approach to derive fair market value, the use of comparable sale information to estimate value, and verified the result using a second approach, estimating the total net income from future timber operations and adjusting this amount to the present value of the standing trees; (6) following these standards led the appraiser to estimate the value of the Headwaters property at $135 million, $250 million, $350 million or $405 million, depending on the assumed harvest level; (7) the Elk River property was appraised at $78.4 million; (8) the Secretary of the Interior, in his opinion of value, determined that the $380 million authorized for the combined properties falls within these appraised values; (9) the Secretary's opinion of value also found the acquisition to be in the best interests of the United States because it represents an opportunity to set aside an irreplaceable resource for the public; (10) GAO's work found that in both appraisals, the need to make key assumptions during the appraisal process tended to increase uncertainty about the appraised values; (11) GAO did not estimate the specific monetary impact of these assumptions; (12) however, using different assumptions would have changed the appraised values; (13) the Department of Justice and BLM officials noted that the appraisals could not have been completed by statutory deadlines without making assumptions to address these issues; and (14) although GAO noted that using different assumptions would have changed the appraisal values, GAO did not find the use of the assumptions unreasonable.