his price;
(_4_) That in making up land values, account should be taken of:
(_a_) The cost of acquiring the land, or expense,
(_b_) The cost of the land itself.
The reasons are:
_I_.—In making a price on a 40-acre farm, the owner does not make two
prices, one on land and one on improvements. He arrives at a flat price
per acre for the entire farm, and usually asks more per acre for a part
than the whole. A man who valued his land at $100 per acre, with
improvements, would hardly sell 5 acres from a corner of his land, even
for residence purposes, at naked land prices.
The 1900 appraisal was based on naked land prices, as estimated by a
number of citizens of each county, and this flat rate was used in making
figures for the so-called "Market Value of Right-of-Way." It is fair to
assume that a railroad company can purchase large tracts of land for
gravel pits, or a narrow strip adjoining and widening its existing right
of way, at about market prices, as the elements of severance, abutting
damages, etc., are absent. Prices for this class of land ought to be,
and usually are, lower than those paid for a new right of way.
TABLE 2.—COUNTRY LAND.—ADDITIONAL STRIP FOR WIDENING RIGHT
OF WAY, GRAVEL PITS, ETC.
═════════╤════════════════════════════════════════╤══════════╤═════════
County. │ Description: Road and purpose. │ Average │ Average
│ │per acre, │per acre,
│ │ 1900 │transfer.
│ │appraisal.│
─────────┼────────────────────────────────────────┼──────────┼─────────
Jackson │Michigan Central. Widening right of way │ $84.47│ $156.08
Kalamazoo│Michigan Central. Additional right of │ 89.41│ 140.00
│ way near Augusta │ │
Kalamazoo│Grand Trunk Western. Additional strip │ 94.59│ 120.50
│ for double tracking │ │
Cass │Michigan Central. Gravel pit │ 84.97│ 94.15
Cass │Grand Trunk Western. Additional strip │ 71.79│ 203.53
│ for double-tracking │ │
Berrien │Michigan Central. Additional right of │ 109.40│ 113.66
│ way │ │
Washtenaw│Michigan Central. Additional right of │ 49.35│ 130.68
│ way │ │
Washtenaw│Ann Arbor. Additional right of way │ 88.60│ 116.12
Ionia │Pere Marquette. Gravel pit │ 77.50│ 125.00
═════════╧════════════════════════════════════════╧══════════╧═════════
Actual purchases are averaged from recent transfers, and represent
consideration paid owners, but not cost of acquiring.
The 1900 appraisal averages show country land after fixed charges
and percentages are added.
The tables given herewith are summarized from a very large mass of
information introduced as evidence in a suit of Michigan Central
Railroad _et al._ _vs._ Powers (The Michigan Tax Cases), and are
selected as average examples of conditions throughout the Southern
Peninsula.
It is evident from the figures in Table 2 that no such naked land values
as those used in 1900 were considered by the farmers in placing values
on their lands, as the sales covered in that table do not involve any
large element of damages. All transfers are of a strip a rod or more in
width adjoining an existing right of way.
_II._—It is true that in some sections of Michigan there are large
tracts of barren or low-priced land. In 1900 barren land prices were
used, and were much lower than farm land; in the poorer parts of the
State large percentages of barren land were used. This fact brought the
average per acre of country land, as applied in the appraisal, very low
in many of the counties, and justified the appraiser in using the
average country price of 1900 as the base price for a re-valuation.
Generally, the 1900 appraisal averages for country lands were fair
indices of the difference in actual value in different parts of the
State.
In the 1900 appraisal, the Michigan Central was credited with having, in
Jackson County, 309.1 acres of farm land (naked value, $38, average rate
$93.30), and 34.35 acres of barren land at $5 per acre. The field
inspectors reported that part of the district between Parma and Albion,
in the vicinity of Bath Mills, was waste or barren land. The Jackson and
Battle Creek Traction Company parallels and adjoins the Michigan Central
Railroad right of way from Parma to Bath Mills. An investigation of
records of deeds showed that they bought 25.02 acres of land in this
district at $65.79 per acre, and that the average price of all their
land in the county was $239.52 per acre.
While there was a marked difference in the rates of different grades of
country land, no one would be justified in putting any land south of a
line drawn from Saginaw to Muskegon at prices as low as $2 to $10 per
acre. An average based on the 1900 classification of lands would
probably eliminate all waste land classifications, without doing any
injustice.
TABLE 3.—AVERAGE VALUES PER ACRE OF COUNTRY LANDS, OF THE 1900
APPRAISAL, OF THE JACKSON, LANSING AND SAGINAW RAILROAD, AFTER
ALL THE PERCENTAGES AND FIXED CHARGES WERE ADDED.
════════════╤═══════
County. │Price.
────────────┼───────
Jackson │ $75.71
Ingham │ 74.90
Clinton │ 42.38
Shiawassee │ 67.18
Saginaw │ 40.80
Bay │ 38.69
Arenac │ 32.47
Ogemaw │ 8.69
Roscommon │ 10.74
Crawford │ 8.41
Otsego │ 15.62
Montmorency │ 12.38
Cheboygan │ 17.13
════════════╧═══════
Table 3 illustrates quite clearly the extremely low figures applied in
many counties in the 1900 appraisal, and also represents quite well the
relative difference in value in the different counties.
That the 1900 rate varies about as the purchase price, is shown by the
fact that the Pere Marquette Railroad built a line in Montcalm County,
buying 155.3 acres at an average price of $135.19 per acre, while the
1900 appraisal showed an average of $29 on the 918 acres appraised. The
purchase price was 4.66 times the 1900 appraisal.
In Calhoun County, the Grand Trunk Railroad bought 63.2 acres at $491.13
per acre, while the 1900 appraisal was $61.44 on all the country land in
the county, or only one-eighth of the actual purchase price.
_III._—There can be no doubt that a railroad right of way costs much
more than an equal acreage of farm lands. The writer has always been
inclined to hold the view that an ordinary right of way through good
farming country would cost from two to three times farm prices, no
matter how much care is used in the acquisition of the land. In recent
years the price of right of way has been greatly increased. The Newton
and Northwestern Railroad right of way, in Iowa, cost $267 per acre, on
a line 80 miles long. This is nearly all country land, about 1 mile in
the outskirts of Boone (population 12,000), and about ½ mile in Newton
(population 6,500), being the only city land to increase the average.
The Rock Island System and the Chicago Great Western paid higher country
prices in the same territory. This line is in such country as Southern
Michigan, and land is held at from $65 to $100 per acre.
The Toledo Urban and Interurban right of way, in Lucas County, Ohio, was
bought by the writer in 1901 at an average net price of $329.21 per
acre. The average assessed valuation is $55 per acre. The going value of
farm lands will range from $100 to $225; probably a fair average is $135
per acre. The prices paid by Michigan railroads are fully sustained by
these personal experiences.
The figures in Table 4 show that the actual average price paid for new
right of way is greater than the average of the 1900 appraisal, after
the 125% and fixed charges are added, by from 230 to 726 per cent.
The argument that a change of line costs more than a new line is not
sustained by Table 4. In Jackson County, the Michigan Central Railroad
changed its line at an average cost of $165.67 per acre. The Jackson and
Battle Creek, a new line, parallel with and adjoining the Michigan
Central, paid $239.53; the Jackson and Suburban, a new electric line,
paid $293.34, and the "Ypsi-Ann" Electric paid $393.74. All the new
lines in Monroe County are higher than any changes of line in similar
country. The Ann Arbor change in Washtenaw County, located by the
writer, is at one point 3 miles from the old right of way, and only at
the two ends of the 7-mile line does it run on farms owned by parties
crossed by the old road; therefore, to all intents and purposes, it is a
new line.
The naked land values used in 1900, being clearly too low, were of no
use and were dropped. The so-called market price of right of way as
given in 1900 was misleading.
TABLE 4.—COMPARISON OF COUNTRY LAND VALUES.
The actual purchases are averaged from recent transfers, and represent
consideration paid to land owners, but not the cost of acquiring.
The 1900 appraisal averages show all country land after fixed charges
and percentages were added, per rule of 1900.
═════════╤═══════════════════╤══════════╤═══════════════════╤═════════
County. │ Railroad. │ 1900 │ Railroad. │ Actual
│ │Appraisal,│ │transfer,
│ │ average │ │ average
│ │per acre. │ │per acre.
─────────┼───────────────────┼──────────┼───────────────────┼─────────
Jackson │Michigan Central. │ $71.36│Michigan Central │ $165.67
│Air Line │ │Air Line. New Line │
│Michigan Central. │ 88.47│Jackson and Battle │ 239.53
│ │ │Creek. Average │
│ │ │entire county │
│Michigan Central. │ 5.00│Jackson and Battle │ 65.79
│Waste land │ │Creek. Wasteland │
│Michigan Central. │ 93.30│Jackson and Battle │ 298.51
│First-class farm │ │Creek. First-class │
│ │ │farm │
│Jackson, Lansing │ 75.72│Jackson and │ 293.34
│and Saginaw. │ │Suburban. │
│Average country │ │ │
│values │ │ │
│ │ │Detroit, Ypsilanti │ 393.74
│ │ │and Ann Arbor │
Monroe │Flint and Pere │ 93.30│Flint and Pere │ 215.21
│Marquette. │ │Marquette. Monroe │
│ │ │to Toledo │
│Michigan Central. │ 93.30│Toledo and Monroe. │ 461.13
│ │ │Electric │
│Lake Shore and │ 93.30│Detroit and Toledo │ 214.38
│Michigan Southern. │ │Shore Line. (Duffy)│
│ │ │Detroit and Toledo │ 262.49
│ │ │Shore Line. (Burt) │
Kalamazoo│Michigan Central. │ 89.41│Michigan Central. │ 236.22
│ │ │Kalamazoo to │
│ │ │Mattawan │
Van Buren│Michigan Central. │ 66.54│Michigan Central. │ 196.00
│ │ │Kalamazoo to │
│ │ │Mattawan │
Cass │Michigan Central. │ 84.97│Michigan Central. │ 260.61
│ │ │Cut-off near │
│ │ │Pokagon │
│Michigan Central. │ 10.00│Michigan Central. │ 60.00
│Wasteland │ │Waste on cut-off │
Genesee │Grand Trunk │ 98.10│Grand Trunk │ 337.56
│Western. │ │Western. Improved │
│ │ │line │
Genesee │Pere Marquette. │ 80.81│Flint and Pere │ 234.00
│ │ │Marquette. Change │
│ │ │of line │
Montcalm │Pere Marquette. │ 29.00│Pere Marquette- │ 135.81
│ │ │Greenville-Stanton.│
Calhoun │Grand Trunk │ 61.44│Grand Trunk │ 491.13
│Western. │ │Western. Change of │
│ │ │line west of Battle│
│ │ │Creek │
Calhoun │Michigan Central. │ 74.38│Jackson and Battle │ 218.74
│ │ │Creek. Electric │
Tuscoia │Michigan Central. │ 60.75│Michigan Central. │ 73.04
│ │ │Caro-Owendale │
St. Clair│Pere Marquette. │ 43.18│Rapid. │ 287.05
│ │ │Anchorville-Marine │
│ │ │City │
Washtenaw│Ann Arbor. │ 38.60│Ann Arbor. Change │ 285.50
│ │ │of line near Ann │
│ │ │Arbor │
Ionia │Pere Marquette. │ 77.50│Pere Marquette. │ 112.30
│ │ │Lowell-Belding │
Manistee │Ann Arbor. │ 25.40│Ann Arbor. Change │ 47.33
│ │ │line near Harlan │
Osceola │Pere Marquette. │ 40.03│Pere Marquette. │ 57.93
│ │ │Change line near │
│ │ │Evart │
═════════╧═══════════════════╧══════════╧═══════════════════╧═════════
Having shown that there is an increase in cost of railroad over farm
land, the question arises: Is it legitimate? If it is a proper item of
cost, has it a place in the present value column?
In building a new railroad, engineers prepare their estimates of cost,
including grading, rail and fastenings, ties, bridges, and, among other
items, right of way. Their clients provide funds to build the line, and
furnish, among other items, cash for the right of way. The right-of-way
account in no wise differs from that of any other item of physical cost.
The right of way, with all its hold-ups, items for damages, court costs,
legal expenses, bills for personal services and expenses in securing it,
abstracts and recording of deeds, is just as much an element of physical
cost as the rails. The cost of acquiring the right of way is as proper
an element as charges for inspecting the rails, freight charges on them,
the loading and unloading, or any other charges that enter into the cost
of rails delivered to the track-laying contractor.
Should the cost of reproduction of right of way be carried to the
present value column? Clearly, yes. If a road is unfortunate enough to
buy its rails when they are at a price of $60 per ton, the full price is
charged to capital account; and when the line is sold to some large
corporation, no reduction is made, even though the price of rails be
much less at the time, but the selling price is based on the
construction account as a whole.
The same is true of the right of way. In no case which has come under
the writer's notice has a new company, or a set of promoters disposing
of a new line or a new right of way, ever consented to deal except on
the basis of construction account, plus promoters' profit. The cost of a
right of way is increased on account of continuity. A farmer is
justified in increasing his price per acre by reason of the fact that
the road must have a continuous line, regardless of how it affects the
individual. He must rearrange his fields, replant his orchard, change
his fences, ditches, and tile lines, and re-adjust his entire property
to accommodate the necessity of the road. He must also take into account
severance or damages. He is compelled to cross the line at an
inconvenient place, open and close two gates in every lane or at every
crossing, drive his cattle back and forth to water, haul his produce
over a short heavy grade across the track, and he must not interfere
with the railroad. He is in constant danger of loss of property from
fire or from accident, and he is in personal danger every time he passes
from his own land on one side of the railroad to his own land on the
other side. Every one who has bought right of way knows these arguments,
and is aware that the farmer knows them and charges extra on account of
them.
The law provides that, in condemnation, the jury shall take into account
two elements, the value of the land, and damages. The railroad pays
them, and very promptly charges the entire cost to the right-of-way
account. No one will question the propriety of the farmer taking them
into account in fixing his price. The value of continuity to the
railroad can hardly be measured in dollars and cents.
A fair illustration of continuity may be found in coal lands. A promoter
will secure option on a large acreage. As long as his holdings are
disconnected and widely separated they are of no more value than
adjoining lands, but let him close options on a large block of land all
in one body, and immediately he can add from 100 to 200% to the value of
his land for mining purposes. This added percentage is due to
continuity.
The conditions surrounding the purchase of railway lands in Michigan
have changed materially in the past few years. In a new country, without
means of transportation, land values are low, and, in order to open new
markets, land owners can afford to donate the right of way. Undoubtedly,
a very large percentage of the total right of way on the older lines was
either donated or bought at very low prices. As a community grows and
develops, acquires new industries, and receives new improvements,
property values increase; and, along with a general appreciation of
other values, those of railroad property must increase. It would
certainly be true that the present value of the site of the Majestic
Building, in Detroit, is not the same as it was in 1850; the argument
that its actual cost in 1850 was, say, $200, would not be any
justification for such a value to-day. Equally is it true that the value
of property owned by the Michigan Central Railroad is not to be measured
by the price paid for it 50 years ago. The greater business, and the
larger income derived from that business, make the Detroit of to-day a
much more valuable terminal for the road than the Detroit of 50 years
ago.
The same argument will apply to any city which has grown up after the
construction of railroads. The original right of way was farm land and
may have been a donation, but the change from farm to city certainly
increases the value of the railroad land just in proportion as the
surrounding land increases.
The same reasoning is properly applicable to lands which decrease in
value. Where a railroad buys right of way to gain access to valuable
timber lands, and, after the removal of the timber, the land is too poor
to support a population, the present value should depreciate in the same
ratio as the surrounding land, and immediately on its abandonment as a
right of way it would cease to have a railroad value.
In an appraisal, it appears to be fair to base the cost of reproduction
on the cost of building a new line on the location of the road under
appraisal, all other means of transportation remaining as they are
to-day, so as to secure as nearly as possible the conditions that would
be encountered by a new company building a new line on this location.
The argument was made in 1900, and reiterated frequently, that railroad
companies secure many donations. It may safely be said that, in a
developed country, such as in the south half of the Lower Peninsula, the
donations are of little account. Few donations were found in an
examination of records of deeds covering 10 years; and in some cases the
conditions were so burdensome that it may be said that the gift land was
the most expensive. A condition for a cattle-pass costing from $400 to
$600, a side-track costing from $1 to $1.50 per ft., and other like
specifications are found; and in many deeds where a liberal
consideration is named conditions which add greatly to the cost are not
infrequent.
The recent new lines in Southern Michigan secured but few donations,
although all considerations of $1 and other good and valuable
considerations were classed as donations unless the contrary was
susceptible of proof. In the case of the Ann Arbor Railroad, in
Washtenaw County, the $1 consideration represents a higher price than
the average, this being known by the writer, as he bought it. The same
is true of the Detroit and Toledo Shore Line, in Monroe County. In
making an appraisal, no deductions should be made for donations, if
there are any, as the fact that land is donated does not indicate
absence of value; nor should an addition be made to the appraisal value
on account of the fact that a road has been held up and compelled to pay
exorbitant prices in certain localities.
In some counties the base values of land in villages and small towns
were given at ridiculously low prices in 1900; some are as low as from
$50 to $100 per acre in towns of from 1,000 to 3,000 population. When
one stops to consider that a lot 4 by 8 rods contains ⅕ acre, and that
such lots in a town of considerable size range from $50 to $300 each, it
is readily seen that from $250 to $1,500 per acre are not excessive
figures. The figures for an adjoining county were often very high, and
village values were put up to substantially full value. The result of
adding percentages in 1900 was to magnify discrepancies, and little
villages of from 200 to 500 population in one county were appraised at a
higher rate than towns of from 2,000 to 5,000 in the next.
In 1902 the appraiser undertook to equalize all such discrepancies, and
found that no hard-and-fast rule would apply. A comparison of village
values, as determined by actual purchase, with the 1900 appraisal, is
given in Table 5.
The 1900 appraisal for city lands, outside of Detroit and Grand Rapids,
was generally very conservative or low. In some cases the figures were
extremely low.
TABLE 5.—AVERAGE PRICE PER ACRE FOR VILLAGE LAND.
Actual purchases are averaged from recent transfers. The 1900 appraisal
averages are averages of prices as applied after all percentages and
fixed charges are added.
══════════╤════════════════════╤════════════╤════════════╤════════════
County. │ Name of road. │ Name of │ Appraisal, │ Actual
│ │ village. │ 1900. │ transfer.
│ │ │Average per │Average per
│ │ │ acre. │ acre.
──────────┼────────────────────┼────────────┼────────────┼────────────
Jackson │Michigan Central │Parma │ $177.25│ $1,166.65
Van Buren │Michigan Central │Mattawan │ 571.00│ 2,439.04
Tuscola │Michigan Central │Caro │ 571.00│ 733.42
Oakland │Pere Marquette │Clyde │ 346.00│ 333.00
Oakland │Pere Marquette │Milford │ 571.00│ 1,136.37
Genesee │Pere Marquette │Grand Blanc │ 121.00│ 327.87
Kent │Pere Marquette │Lowell │ 571.00│ 1,552.26
Ionia │Pere Marquette │Belding │ 1,000.00│ 967.77
Washtenaw │Michigan Central │Dexter │ 571.00│ 718.75
Washtenaw │Michigan Central │Delphi │ 233.50│ 2,383.34
Cass │Grand Trunk Western │Cassopolis │ 458.50│ 1,600.00
Cass │Grand Trunk Western │Edwardsburg │ 222.25│ 466.67
══════════╧════════════════════╧════════════╧════════════╧════════════
The conclusion reached by the appraiser in 1902 was that, for railroad
purposes, right of way is worth what it costs to produce it. It would be
just as consistent to claim that a railroad has a misfortune in having a
river to cross, and that no value should be placed on the bridge which
spans it, as to claim that right of way, which costs three times
farm-land values, should not be valued at a higher figure than farm
land.
TABLE 6.—COMPARISON OF VALUATION FIGURES WITH ACTUAL
CONSIDERATIONS—COMPARISON OF IMMEDIATELY ADJOINING PROPERTIES,
GRAND RAPIDS, MICHIGAN.
The prices are per square foot or per acre.
═══════════════════════════╤═════════╤═══════════╤═══════════╤═════════
Location. │ Size of │ Michigan │ Pere │ Actual
│ lots. │ Central │ Marquette │transfer.
│ │appraisal. │appraisal. │
───────────────────────────┼─────────┼───────────┼───────────┼─────────
│ ft. deep│per sq. ft.│per sq. ft.│
Fulton to Island Street │50 by 100│ │ $2.00│ $1.40
Island to Oakes Street │50 by 100│ │ 2.00│ 1.22
Oakes to Cherry Street │ │ │ 2.00│ 1.33
Cherry Street Frontage │130 deep │ $1.23│ 1.23│
Cherry to Williams Street │50 by 130│ │ │ 1.55
Williams Street Frontage │130 deep │ 0.92│ 0.54│
Williams to Bartlett Street│ │ │ │ 0.76
Bartlett Street Frontage │130 deep │ 0.77│ 0.46│
Bartlett to Goodrich Street│ │ │ │ 0.625
Goodrich Street Frontage │130 deep │ 0.62│ 0.38│
Goodrich Street to │ │ │ │ 0.395
Wealthy Avenue │ │ │ │
Prescott to First Street │ │ 0.25│ │ 0.54
First to Second Street │ │ 0.25│ │ 0.16
│ │ per acre.│ per acre.│
Land on Hall Street │ │ 1,500│ 1,359│ 3.75
North side of Hall Street │ │ │ 1,000│per acre.
Hall to Stevens Street │ │ 1,500│ 800│ 1,351.11
On Crofton Street │ │ 400│ │ 400.00
═══════════════════════════╧═════════╧═══════════╧═══════════╧═════════
The problem of an appraiser is to determine, with the best evidence at
hand, what land is fairly worth for railroad purposes at the time of
appraisal. He must take into account the railway-purpose increment, if
he is consistent in his appraisal.
Non-Physical Values.
The foregoing narrative account of the general field and office handling
of the Michigan appraisal of physical property, while not touching on
matters of principle of valuation, except as to land values, is
submitted as describing briefly the machinery of the appraisal. A number
of very important issues were raised which have to do with the theory of
valuation. These are worthy of discussion at length, in the subsequent
consideration of the method of determination of a fair value, but are
not here referred to. Within any short limits it is impossible to give a
comprehensive description in detail of all the work of the Michigan
appraisal. Several articles descriptive of this work have been written,
giving quite full extracts from the various sets of rules which were
promulgated, and describing some phases of the work in much more detail
than is here attempted.