By James Komen

Trees have dollar value, and it is useful to be able to find that dollar value for purposes of insurance claims, legal settlements, real estate appraisal, and risk management decisions.  In this article, I will discuss an abbreviated version of how to appraise a single tree by the methods described in The Guide for Plant Appraisal as published by The Council of Tree & Landscape Appraisers.

An old adage in appraisal is "Something is worth whatever someone else will pay for it."  The biggest problem in appraising trees is there is no easily accessible market for a selling mature tree; one cannot simply uproot and sell a 150 year-old oak.  In finance, the term describing this situation is illiquidity.  Liquidity is the ability to readily exchange an asset for cash, and an illiquid asset is not easily sold.  Trees cannot be easily sold in an open marketplace, so their appraisal becomes challenging.  To solve this, a set of proxy methods has been developed to assign a dollar value to trees.

There are three basic strategies for appraising a single tree:

1. market approach
2. cost to cure
3. trunk area formula

Market Approach
Because of their immobility, trees are lumped into the value of the real estate parcel on which they reside.  The theory of the market approach is the value of a tree can be derived by finding the difference between the value of the property with the tree and the value of the property without the tree.  An appraiser looks for comparables, which are properties that have similar sizes, locations, number of bedrooms, landscapes, etc.   The goal is to find identical properties that only differ by not containing the valuable tree.  Then an average value of those comparable properties is calculated and is subtracted from the value of the appraised property.  The remaining value is then supposedly the value of the tree.

Though simple to explain, the market approach is difficult to implement because real estate parcels differ so widely and small differences in the house, landscaping, and location can all have a drastic effect on the market price.  The best way to implement the market approach would be to do a large-scale regression analysis of all properties in the area.  However, this would be extremely resource intensive and expensive to undertake and likely not worth the time of the appraiser or the money of the client.  Possible future research in this appraisal method may include building a regression model that incorporates a wide swath of variables such as property location, parcel size, square footage of the house, number of bedrooms, tree canopy cover, and real-time real estate market prices.

Cost to Cure
The cost to cure method is the price to return a tree to parity.  Parity is the condition that the tree was in before an injury.  Cost to cure is the sum of the expenses of the maintenance and the procedures such as pruning, installing cables, treating pests, etc.  The theory is if a given dollar amount is spent, then the tree will return to its original health.  Cost to cure is only applicable in cases of damage or loss and is not applicable in cases of appraising trees in full health. Sometimes it is impossible to restore a tree to full health, particularly if there was a lot of physical damage done, or if the tree was removed or killed through vandalism.

Trunk Area Formula
The most commonly used strategy for appraising trees is the trunk area formula.  It involves measuring the circumference of the tree, calculating the trunk cross-sectional area, and then multiplying this by the unit price of trunk area on commercially available nursery stock.  This base value is then discounted by three factors: species, location, and condition.  These five values (the trunk area, the base price of nursery stock, the species rating, the location rating, and the condition rating) are all multiplied together to achieve the final valuation.

The most commonly used strategy for appraising trees is the trunk area formula.  It involves measuring the circumference of the tree, calculating the trunk cross-sectional area, and then multiplying this by the unit price of trunk area on commercially available nursery stock.  This base value is then discounted by three factors: species, location, and condition.  These five values (the trunk area, the base price of nursery stock, the species rating, the location rating, and the condition rating) are all multiplied together to achieve the final valuation.

There is necessarily some subjective nature involved in calculating the value of a tree.  The species rating of the tree is a subjective rating, but it is decided upon by a committee of arborists and published by the respective regional chapters of the ISA.  Condition and location are the largest subjective components to the tree evaluation because they are assigned by the appraising arborist in the field.  There is a greater possibility of error because a difference in value of even 10% between different arborists can result in a difference of thousands of dollars in the final result.  The circumference of the tree is objectively measured in the field, and does not have nearly as large of a component of error.  The appraising arborist has a responsibility to the client to make his measurements and ratings as accurate and objective as possible.

Trunk Area
Trunk area is calculated in three steps:

1. Measure the circumference of the tree at breast height. (4½' ft above grade)
2. Use the circumference to find the diameter at breast height (DBH): DBH = circumference / π
3. Use the DBH to find the area: Area = ¼ π x (DBH)².

The cross section should be measured perpendicular to the axis of the trunk - which will not necessarily be parallel to the ground in the case of a leaning trunk.  In the case of multiple trunks, each trunk's circumference is measured, and the trunk areas are calculated separately and then added together.

Unit Cost of Stock
The value of local nursery stock is obtained by comparing quotes from different nurseries of the same as a type of tree and the prices they charge per unit square inch of trunk area.  These values are commonly published by the respective chapters of the ISA.  However, it may benefit the appraising arborist to do his own comparison of these values in order to ensure accuracy.  The price of nursery stock may vary based on geographic location, and although the ISA published values are specific to a particular region of the country, more specific localities such as a dense urban area or a distant rural may experience higher or lower costs to obtain nursery stock.

Species Rating
Species rating reflects the appropriateness of the chosen species for its climate zone and its overall species desirability.  This includes desirability of features such as flowers, foliage, fruit, roots, and bark.  It also includes climate hardiness and resistance to pests and disease, frost, salt, soil pH, and drought.  The same species of tree planted into different places may have two different values.  For example, a Washingtonia robusta palm is highly rated in Los Angeles, but has a lower value in the high desert.  Ideally suited species can earn ratings of 90-100%, while noxious weeds rate between 5 and 15%.

Location Rating
The location rating has two components:

1. The contribution to the landscape. The contributions to the landscape includes elements such as shading a yard, cooling a house, redirecting wind, blocking headlights, and adding aesthetic value. For example, a tree in front of a house will have a higher rating than a tree in the corner of the back yard.
2. The site conditions that detract from the tree's health. Negative location elements include competition with nearby species, root proximity to sidewalks and streets, overhead power lines that will limit the height of a mature tree, and limited growing space.

A value of 100% is usually reserved for golf courses, arboretums, and historical plantings where the tree's placement is integral to the value of the landscaping.

Condition Rating
Condition rating of a tree is its overall health and vitality. An appraising arborist will look for features such as cracks, rot and decay, poor structure, and broken limbs. Other elements to look for are root crown health and structure, bark expansion from growth, and foliage color and turgidity. A 100% condition rating indicates a tree is in perfect health and morphological form.

Synthesis
All five of these value and are multiplied together using the formula below: Value = Trunk Area x Unit Cost of Stock x Species Rating x Location Rating x Condition Rating There are also other variations on the appraisal method formula that are beyond the scope of this article. These include Adjusted Trunk Area for large trees and adjustments for actual incurred cost of planting for recent trees. Other appraisal methods focus on assigning point values, measuring canopy cover, or calculating the volume of space the tree occupies.

Weaknesses of Appraisal Methods
In 2002 Gary Watson of the Morton Arboretum did a study comparing the effectiveness and accuracy of several appraisal methods. He assigned multiple arborists to appraise the same trees with the same appraisal method. The results found that the arborists' appraisals differed in value by factors of two to five. This implies that the accuracy of the formula may be flawed if the same tree can be valued as such largely different amounts. But currently the trunk area formula that is the best available tool for appraising trees. Future research in tree appraisals should look for a method of appraising trees that consistently obtains similar values across a wide spectrum of arborists appraising the same tree. Such a method would improve the reliability of tree appraisals, and would improve the credibility of appraising arborists.

James Komen is a Certified Arborist with a background in finance and accounting.

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