- When buying land, conservation agreements or other real property interests, below, at or, in limited circumstances, above the appraised value, contemporaneously document:
- The justification for the purchase price
- That there is no private or undue benefit
- Obtain an independent appraisal by a qualified appraiser in advance of closing to support the purchase price based on the fair market value.
- However, a short narrative, a letter of opinion or other documentation from a qualified real estate professional may be obtained in the limited circumstances when:
- A property has a very low economic value
- A full appraisal is not feasible before a public auction
- Or the amount paid is significantly below the fair market value
- However, a short narrative, a letter of opinion or other documentation from a qualified real estate professional may be obtained in the limited circumstances when:
Background
A land trust must be able to justify the price paid for land and conservation agreements for several reasons: to show fiscal responsibility; to avoid undue benefit; to substantiate prices paid in a changing market; to avoid inflating market value; to avoid losing money on resale; and to be prepared in the event of a expropriation action. The surest way to justify the acquisition price is to obtain a qualified independent appraisal from an appraiser certified by the Appraisal Institute of Canada. However, there are some limited circumstances when a short narrative from an appraiser or real estate professional is adequate: if the land trust is considering the purchase of land with low economic value (such as a wetland or other property with extremely limited development potential and as currently accepted by the Ecological Gifts Program); or if the land trust is under the time pressure of having to bid at a public auction. In the very rare case of considering whether to pay more than the appraised value, the land trust should have good legal advice and carefully weigh the public benefit, risk of undue benefit and risk to its credibility. If the land trust does decide to proceed, it should thoroughly document the property’s unique value, its worth to the land trust and the public interest the property serves. When negotiating split receipt transactions, a land trust should take care to be honest and forthright in its communications with the landowner.