Right-of-Way Values.

Land values were the subject of a great deal of discussion during the appraisal of 1900, but subsequent investigations as to actual railroad purchases resulted in quite radical changes in some of the figures in the later valuations. In view of the fact that many criticisms of these values have been made by railway attorneys, special emphasis is here given to the subject. The conclusions reached in Michigan in 1902 agree so closely with the conclusions of Taylor in Wisconsin and Morgan in Minnesota that it is thought advisable to give a rather full account of the methods used in both appraisals, and the line of reasoning which brought about the changes made in 1902.

The 1900 appraisals methods were as follows: Work in Detroit, Grand Rapids, Saginaw, Bay City, and some other large cities was assigned to special appraisers, who visited the cities, examined critically all the property, conferred with leading real estate men and experts in values, and placed an estimate per acre or per square foot. This part of the work was done with great care, and was substantially unchanged in the later appraisals.

In all other land valuations, in cities and villages, and country right of way, a personal examination was out of the question without making a very large and expensive addition to the staff, as the field engineers generally were not familiar with realty values, and could not take the time to make the large number of inquiries. The appraiser did not see his way clear to organize a special department, therefore the matter was turned over to a sub-department of the Civil Engineering Section, the work of which may be briefly outlined, as follows:

Lands were classified as:

(1) Farm land,

(2) Barren land,

(3) Villages having a population of less than 500,

(4) Villages from 500 to 3,000,

(5) Cities having less than 10,000,

(6) Cities having more than 10,000.

The percentage of waste land was fixed as a result of interviews with roadmasters, superintendents, and other officials and employees of the roads, by reports from field inspectors and others.

Letters of inquiry were sent to real estate men and bankers in every county in the State (some 500 being communicated with), as to land values in the town or county of each. The responses, which were numerous and indicated considerable care in preparation, were classified, and on these data, supplemented by as much personal inspection as it was possible for a few men to give in a limited time, the values of the various classes of land were determined by a system of averages. The naked land values were then taken, and to them were added, as follows:

South of a line east and west through Saginaw, 125% plus a fixed charge varying from $8.50 per acre downward was added to the so-called naked land values for farm land. No waste land values were considered in this district. North of this east and west line: Farm land, 100% and a fixed charge of $3 per acre and upward; waste land, 200% plus a fixed charge of $3 per acre; for all village lands, 125% plus $8.50, fixed charge; for all city lands, 100% plus $8.50, fixed charge.

The fixed charges were intended to cover the expense of acquiring abstracts, recording deeds, etc. Slightly different figures were made for the Upper Peninsula.

The result of this work was a set of very low figures in many counties, the average price per acre hardly reaching the going price of improved farm lands. There was so little time to review these figures after they were in shape that they were used in 1900, although the appraiser was convinced that they were generally too low.

In the appraisal of 1902 a very careful study of real estate values was made. The offices of Registers of Deeds in ten or twelve counties were visited, a careful abstract of all railway transfers for a period of 10 years was taken off, the acreage determined, the average price per acre for different classes of land computed, and then a very careful study of transfers of adjacent improved and unimproved lands was made. As a result, material increases were made in the farm land values, waste land values were eliminated, the 1900 valuation, made by special appraisers in large cities, was practically unchanged, while very radical changes in the way of equalization of values of lands in villages and small cities were made.

Inasmuch as the 1902 valuation was at issue in the Courts, the writer believes he is justified in discussing at some length the deduction of the staff on the conclusion of the 1902 preliminary studies, which led to the final adoption of the new figures.

One would fall into error if country values for farm purposes were conflicted with country values for railroad purposes. There is, undoubtedly, a close relationship between the two classes of values; this the writer has endeavored to discover, and it is indicated in Tables 2 to 6. The use to which land is put can and does change its value. Farm land in a certain township may be worth $50 per acre for farming, but the discovery of oil would affect values, as far as oil purposes are concerned. The presence of a vein of coal would give a distinct value for mining purposes. Farm prices would not govern values for any special use, such as oil drilling, mining, or railroad operation.

In the case of city business property, farm prices cannot be applied, as the use to which the land is put and the buildings placed on it give it a greatly increased earning power, and hence increased value. Thus, with a railroad right of way, the continuity of the strip of land, the severance of lands crossed by it, the greater earning power it derives from the construction placed on it, in short, the uses to which it is put, give it a value far in excess of adjoining lands. An excellent proof of this is found in the fact that many thousands of miles of right of way have been bought by promoters and either sold to a company, which built the lines, or used in financing the road. In no case has the selling price been based on farm values.

It is not contended that railroad land values do not bear a direct relation to land values for other purposes, as those things which tend to increase general values usually make the construction of a railroad profitable, and the better and more fully developed the country, the greater is the need for transportation facilities and the higher the prices of land for all purposes. This is shown in the figures submitted herewith.

For purposes of appraisal, therefore, in 1902 the average value, as derived from the 1900 appraisal, was taken, and, by comparison with actual purchases, an attempt was made to ascertain the relation existing between the appraisal figures of 1900 and the usual purchase price for railroad properties, as determined by actual transfers. In making these figures the appraiser was forced to the following conclusions:

(1) That the naked land value is not a proper one to use in country lands, but that the going value of country lands with all improvements should be used as a basis for computing the added increment due to railway use;

(2) That a classification of farm land and waste land should not be made, except as a basis for arriving at the relative differences in quality of land in different sections of a county;

(3) That the added value for railroad purposes is due to the three elements:

(a) Continuity,

(b) Severance or damages,

all of which the farmer or owner has cognizance of in making 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 per acre, 1900 appraisal.	Average per acre, transfer.
Jackson	Michigan Central. Widening right of way	$84.47	$156.08
Kalamazoo	Michigan Central. Additional right of way near Augusta	89.41	140.00
Kalamazoo	Grand Trunk Western. Additional strip for double tracking	94.59	120.50
Cass	Michigan Central. Gravel pit	84.97	94.15
Cass	Grand Trunk Western. Additional strip for double-tracking	71.79	203.53
Berrien	Michigan Central. Additional right of way	109.40	113.66
Washtenaw	Michigan Central. Additional right of way	49.35	130.68
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 Appraisal, average per acre.	Railroad.	Actual transfer, average per acre.
Jackson	Michigan Central. Air Line	$71.36	Michigan Central Air Line. New Line	$165.67
	Michigan Central.	88.47	Jackson and Battle Creek. Average entire county	239.53
	Michigan Central. Waste land	5.00	Jackson and Battle Creek. Wasteland	65.79
	Michigan Central. First-class farm	93.30	Jackson and Battle Creek. First-class farm	298.51
	Jackson, Lansing and Saginaw. Average country values	75.72	Jackson and Suburban.	293.34
			Detroit, Ypsilanti and Ann Arbor	393.74
Monroe	Flint and Pere Marquette.	93.30	Flint and Pere Marquette. Monroe to Toledo	215.21
	Michigan Central.	93.30	Toledo and Monroe. Electric	461.13
	Lake Shore and Michigan Southern.	93.30	Detroit and Toledo Shore Line. (Duffy)	214.38
			Detroit and Toledo Shore Line. (Burt)	262.49
Kalamazoo	Michigan Central.	89.41	Michigan Central. Kalamazoo to Mattawan	236.22
Van Buren	Michigan Central.	66.54	Michigan Central. Kalamazoo to Mattawan	196.00
Cass	Michigan Central.	84.97	Michigan Central. Cut-off near Pokagon	260.61
	Michigan Central. Wasteland	10.00	Michigan Central. Waste on cut-off	60.00
Genesee	Grand Trunk Western.	98.10	Grand Trunk Western. Improved line	337.56
Genesee	Pere Marquette.	80.81	Flint and Pere Marquette. Change of line	234.00
Montcalm	Pere Marquette.	29.00	Pere Marquette-Greenville-Stanton.	135.81
Calhoun	Grand Trunk Western.	61.44	Grand Trunk Western. Change of line west of Battle Creek	491.13
Calhoun	Michigan Central.	74.38	Jackson and Battle Creek. Electric	218.74
Tuscoia	Michigan Central.	60.75	Michigan Central. Caro-Owendale	73.04
St. Clair	Pere Marquette.	43.18	Rapid. Anchorville-Marine City	287.05
Washtenaw	Ann Arbor.	38.60	Ann Arbor. Change of line near Ann Arbor	285.50
Ionia	Pere Marquette.	77.50	Pere Marquette. Lowell-Belding	112.30
Manistee	Ann Arbor.	25.40	Ann Arbor. Change line near Harlan	47.33
Osceola	Pere Marquette.	40.03	Pere Marquette. Change line near Evart	57.93

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 village.	Appraisal, 1900. Average per acre.	Actual transfer. Average per 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 lots.	Michigan Central appraisal.	Pere Marquette appraisal.	Actual transfer.
	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 Wealthy Avenue				0.395
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.