Phase 1 Easement Valuation Study released; Available market data compiled to better-inform mitigation

Phase 1 Easement Valuation Study released; Available market data compiled to better-inform mitigation

The first of a two phase study was recently completed by Crown Appraisals, Inc. for the FM Area Diversion Project. Fully understanding impacts of the Project has been a top priority for the Diversion Board of Authority for many years. During an extreme flood, the Project will operate and water must be temporarily stored on land upstream of the metro area. The Diversion Authority is preparing to mitigate impacts from building the project and temporarily storing water upstream. This is a priority for the Board and is required by law.

Crown Appraisals, Inc. assembled a team of experts to research and study market data associated with flooding on productive ag land. The study began in January 2018 and was completed in November 2018 by gathering and analyzing property sales data from across the nation. They evaluated property sales in other areas with impacts from floods or flood protection projects. Crown Appraisals, Inc. also looked at market sale prices and impacts from floods in six counties in the Red River Valley including Cass, Clay, Norman, Richland, Traill and Wilkin Counties.

The study looked at property value from market based sales and the impact flooding had on more than 1,600 land sales. The report explains property impacts can be placed in two categories;

  • Impacts caused when a project is built and a property is encumbered with development restrictions. This is known as an Easement Impact. For example; farmland in areas that will be temporarily flooded must remain farmland and will be restricted from building homes or commercial properties.
  • Impacts caused when water is temporarily stored on a property. This is known as a Flood Impact.

Both types of impacts will need mitigation. Mitigation could include buying a property right for the ability to temporarily store flood water on the land. Hydrology models estimate a one in twenty chance the project would operate on a given year. Mitigation could also include buying a property right for those who are unable to develop their land because of the project.

“We have discussed the monetary value of mitigation in the past, but we really need well-researched tools to provide market information and guidance. Our focus for mitigation is finding ways to properly compensate those impacted by the project,” Diversion Board Vice Chair Mary Scherling explained. “Regardless of the type of property right or mitigation option we have to purchase, this is a very important process. Everyone needs to be treated fairly.”

The Phase 1 study provided guidance for mitigating properties impacted in both categories. The mitigation for a property impact by an Easement would be 8% to 10 % of the total price of the property area impacted. Mitigation for a property with a Temporary Flood Impact would be valued at 7% to 25% of full value of the area impacted.  In applying the findings, Crown Appraisals, Inc. concluded that the total diminution of property value will range between 15% to 35%. The study notes the severity of impacts varies greatly between parcels impacted by the Project.

“We are pleased that this research is consistent with the budget and financial plan recently adopted by the Board,” Scherling said.

The Board is planning to commission Phase 2 of the study if a positive permit decision is received from MDNR. Phase 2 would provide specific parcel valuations.

“We hope Phase 2 of this research work will be completed in 2019,” Scherling said.

Crown Appraisals utilized two approaches to develop the value impacts in Phase 1. First, a regression analysis evaluated data from more than 1,600 local agriculture land sales over the past 27 years. The analysis evaluated market sales price, property characteristics from six counties in the southern Red River Valley and how properties in our community were impacted during the floods of 1997, 2001, 2006, 2009, 2010 and 2011.

The market research study also included a Paired Sales Analysis. This effort gathered market data from land sales in the Mississippi River Valley in Missouri which have flowage easements in place. These paired sales help establish the value change in having a flowage easement. A paired sales analysis was also performed on farmland from the norther Red River Valley that are frequently flooded naturally and do not have an easement. The northern valley study was reconciled with the southern valley regression analysis to concluded a value impact for the flood impact.

“The Diversion Authority has already purchased property rights for about 200 parcels. One thing we have learned is every property and situation is unique,” Scherling explained. “While we use numbers from appraisers and this study to guide us, we certainly strive to be upfront, fair and friendly with every property right owner.” The purchase of flowage easements is one primary tool that the Diversion Authority will use to mitigate farmland impacts. Additional mitigation is identified in the Diversion Authority’s ‘Property Rights Acquisition and Mitigation Plan’, which can be found on the Project website at www.fmdiversion.com.

For more information about this study, the property acquisition process or property rights please contact Eric Dodds at Eric.Dodds@ae2s.comor email info@fmdiversion.com.

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