Tree Valuation: Determining the Value of a Tree On your Property (Part 2)
This article is the second on evaluating the worth of a tree on your property. In the first article we discussed an informal way of judging a tree’s worth. Here we look at more formal ways of valuating a tree.
Trees offers numerous benefits to the community. No question about it. But they also have a dollar value all their own. So, if you lose a tree on your property, you can sometimes recapture its monetary loss through an insurance claim or by taking a deduction on your federal income tax. The IRS defines a casualty loss as “… a loss resulting from an identifiable event of sudden, unexpected, or unusual nature.” Events under this definition include storms, floods, lightning, vandalism, and air and soil pollution.
Before filing an insurance claim or taking a deduction, however, you need to determine the value of the tree. You can do that yourself, which can be a challenge. Or, you can contact a qualified arborist to help you appraise the tree. He or she can help you determine the tree’s value for insurance losses, tax deductions, estate assessments, and tort claims. The appraisal also is handy if questions arise about the value of a tree on your property.
What is an Appraisal?
An appraisal is an objective, unbiased estimate of trees (or any other type of plant) on your property. In that case, you may need to litigate the dispute in a court or by arbitration, which would be based on an unbiased and honest appraisal of the plant’s value by professionals. The best time to get an appraisal is before the tree is damaged or destroyed. But many appraisals occur after a tree is damaged, removed, or destroyed from a person’s property.
If you evaluate a tree after the loss, the appraiser must gather critical information about the tree. The information may include previous site records, tree assessments, site reviews, and witnesses to the tree’s condition. The appraiser may also conduct a comparative sampling on a local basis. A critical step in determining valuation is the tree’s depreciation factors, including the tree’s condition, functional limitations, and external limitations.
The tree’s condition refers to its overall health. Functional limitations include tree placement, site conditions, the proximity of power lines, and any genetic issues. External limitations include issues outside the owner’s control that can affect the tree’s structure, form, and sustainability, such as water availability, threats from pests, ordinances, and rights of way. Having determined the tree’s pre-damage condition, the appraiser then determines the evaluation for your tree.
Methods for Evaluating Trees
Three methods exist for evaluating trees—the Cost Approach, Income Approach, and Sales Comparison approach. You can find a good description of each method in Guide for Plant Appraisal, the 10th edition of which is now available. The publication is endorsed by significant arboriculture and horticultural groups. It’s a good resource for valuating trees.
The Cost Approach focuses on the plant, location, and species as depreciation factors. While the Income Approach uses the value of produce to assign value to a tree. The Sales Comparison Approach to valuing a tree considers the increase or decrease to your property by the plants’ presence. Each evaluation method has its pros and cons. The Tree Council can help you choose the correct method for you, given these pros and cons.
But evaluating a tree or trees on your property can be a challenge. It’s a complex undertaking, which is why it’s better left to a professional. Take the Cost approach, for example. Four methods exist for this approach—the Replacement Cost method, Trunk Formula method, Cost of Repair method, and Cost of Cure method. A popular technique within this Cost Approach Method is the Trunk Formula Technique (TFT), which uses the unit tree cost formula to determine value.
You can obtain the tree unit costs from local resources—either a consulting arborist or the Regional Plant Appraisal Committee (RPAC), which includes industry experts associated with the local chapter of the International Society of Arboriculture. The RPAC determines unit costs for commonly available trees in your area, the tree’s obtainability, and their functional limitations in your area.
Hiring a Professional Makes Sense
Determining the value of a tree on your property is critical. To do it properly, however, requires training, expertise, and experience. So, evaluating the tree yourself may not be in your best interest. Ideally, you should hire a qualified professional to do the job. He or she will assign a value to your tree and then defend, explain, and support the results if there’s a dispute.
Buying a tree for your property shouldn’t be taken lightly. Trees provide numerous benefits to homeowners and communities, including functional, aesthetic, social, and environmental contributions. They also provide economic value to your home and property that you can express in dollars and sense. The value of a tree in economic terms, however, can be more than you think. So, make sure you consult a tree professional when buying a tree for your home or property. Doing so will pay off in the long run.
Are you confused about buying the right tree for your property? Then contact RI Tree at (401) 764-5885. We’ll help you choose a tree that makes sense for you and your property.
By: John Campanini, RITree Technical Director