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Date:               June 27, 2008

From:               Jim Burton

To:                   Fellow Board Members

Subject:            Rouse Property Contract

cc:                   Jack Roberts, Mark Adams, Robert Dupree, Sam Adamo, Todd Kaufman


“It is the duty of the state, in the conduct of the inquest by which the compensation is ascertained, to see that it is just, not merely to the individual whose property is taken, but to the public which is to pay for it.”

- US Supreme Court decision in Searl v. School District, Lake County, 133 US 553, 562 (1890) and Bauman v. Ross, 167 US 548, 574 (1897)

At our last Board meeting, questions were raised about Administrative Item 2d, the proposed transfer of funds to the Schools for the purpose of settlement on an $11.5 million contract for the Rouse property located at the southwest corner of Route 621 (Evergreen Mills Road) and Route 617 (Red Hill Road). Settlement is scheduled for July 7. The Schools have determined that ES-22, MS-6, and HS-8 can be constructed on the property.

The Board forwarded the issue to the next day’s Finance Committee meeting for further review. Discussions at the committee meeting and at a follow-up meeting Supervisor Miller and I had with School Board Chairman Robert DuPree, Sam Adamo, Sarah Howard-O’Brien, Randy Vlad, and Todd Kaufman revealed the following information:

a.  The property is 173.69 acres of raw, undeveloped land zoned A-3 and situated on the eastern edge of the Rural Policy Area. The property has frontage on Evergreen Mills Road which is a two-lane paved road, and on Red Hill Road which is a dirt road. There is a large swatch of floodplain through the middle of the property and fairly steep hillside in the western end.

 b.  The current County assessment for the property is $2.6 million. This assessment was arrived at by examining sales in 2006 and 2007 for 25 undeveloped properties ranging in size from 20 to 111 acres. Fifteen of the twenty-five properties were zoned A-3 at the time of the transfer, one was split zoned Town and AR-1, the remainder were AR-1 and AR-2. The average price per acre for these sales was approximately $23,000 per acre.

c.  The School system’s appraiser estimated that the property would yield 53 residential building lots when developed and valued the property at $9.5 million. The appraiser then suggested that a 15-20 percent bonus (approximately $1.4 to $1.9 million) be added to the total value as an incentive to avoid condemnation proceedings (attachment 1). The School system accepted that suggestion and added $2.0 million to the appraised value resulting in a contract price of $11.5 million.

d.  In arriving at a $9.5 million appraised value, the appraiser examined six sales from 2004 and 2005 as comparables. Only one of the twenty-five properties used by the County Assessor’s Office (see item b) is among the six properties examined by the appraiser. Two of the properties selected by the appraiser were zoned A3 and four had one-acre zoning. One-acre zoning is not a valid comparable for the RouseTwo of the properties selected by the appraiser were raw, undeveloped land like the Rouse property, while four of the properties were land with approved subdivisions, including the Creighton Farms/Ritz Carlton development on Route 15 across from Oak Hill.  The average adjusted price per acre for the two undeveloped parcels was $34,630 per acre and the average adjusted price per acre for the four subdivided parcels was $70,459 per acre. An overall average price per square foot (acre) was then applied to the entire property yielding an appraised value of $9.5 million.

e.  In his report the appraiser stated that the Rouse property soils were poor and that non-conventional sewage systems would probably be necessary to obtain the estimated 53 residential building lots that the property might yield. Central utilities exist on the opposite side of Evergreen Mill Road. However, County land use policy does not allow the extension of central utilities into the Rural Planning area except to serve government uses, such as public schools.

f.  At the request of several Supervisors, Mr. Kaufman analyzed the appraiser’s report, and, using only the appraiser’s data (average adjusted price per residential building lot for the six comparable sales, pg 33) calculated the property’s value as $5.7 million.

g.  Thus, we have an appraisal containing data that results in two very different value outcomes: $5.7 million and $9.5 million.

h.  A third approach is to employ the County-assessed values for three-acre lots with houses on them near the Rouse property on Red HillThe County assesses the land share of these parcels at approximately $100,000 per acre. If we assume that the Rouse property can in fact be subdivided and developed into 53 building lots (which, given the topography and the soil, seems to be of some question) and that those lots would sell for a price near the assessed value of the Red Hill Road lots, then a contract price of $11.5 million could be considered reasonable.  

This, then, is the key question.   Do we use speculative values to determine contract prices or do we use average sales prices for similar, raw undeveloped land as it exists at the time of sale? I would argue that using the price for fully developed A-3 building lots with houses on them to determine the value of raw, undeveloped land is not a reasonable approach. There is simply no guarantee that the subdivision process with its engineering, soils, hydro-geological, etc. studies will ultimately lead to 53 usable salable residential lots.  

The above information, taken together, leads me to the conclusion that $11.5 million is an excessive amount for this contract.