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Appraising outdoor advertising signs: a critical analysis.

In 1994, the Appraisal Institute published a monograph written by Donald T. Sutte (The Appraisal of Outdoor Advertising Signs), and in the foreword claimed, "This text provides all the information an appraiser needs to know about these controversial properties."(1) To the contrary, the monograph presents an overly simplistic outdoor advertising industry perspective in conflict with both basic appraisal principles and established eminent domain law. Specifically, the publication's approach misinterprets what is being appraised, the nature of outdoor advertising company interests, and the legal characterization of outdoor advertising sign structures. Most importantly, the publication advocates a methodology to value the interests of outdoor advertising firms which has proved to be fundamentally flawed in practice.

The passage of the Highway Beautification Act in 1965(2) stimulated considerable interest in the valuation of signboards that were supposed to be removed under that law. Eventually, over $200 million was spent to remove nonconforming signs, and almost all were acquired on the basis of schedules based on replacement cost less depreciation.

Unlike the signs removed under the Highway Beautification Act, which were largely volunteered for purchase by their owners, in recent years the widening of highways and other public projects have necessitated the removal of many billboards, which are quite valuable to the businesses of sign companies. The outdoor advertising industry has been contesting the issue of valuation vigorously, contending that the valuation of their interests should be based, not on the value of the property interest actually taken, but on a multiple of the alleged lost business income the signs produced. The application of the gross income multiplier (GIM) is very controversial. Its virtue is simplicity, but also its Achilles' heel.

An earlier monograph by Sutte on billboard valuation asserted:

In the author's opinion, the correct method for valuing signboards of standardized industry plants will consider the income that the boards produce. Standardized industry plants are bought and sold in the open market, and persons purchasing such operations customarily buy at a price based on the collectible gross income. (emphasis added)(3)

This remains the basic contention of Sutte's more recent book: When the land under a billboard is taken for a public project, the interests of the outdoor advertising company should be valued based on the sign company's business income and a gross income multiplier derived from sales of outdoor advertising companies or sign company territories. In fact, the appraisal problem in eminent domain billboard cases is not the valuation of the billboard company's business (the plant), or even a single sign's contribution to the business's value, but with the valuation of individual signboards. These are not commonly sold in the open market. The so-called "comparable sales" of sign companies and territories are in no way comparable to the interests being taken in typical eminent domain actions. The use of the gross income multiplier in this application is an attempt to convert alleged business losses, which are not normally compensable in eminent domain, to compensable property losses.


The Appraisal of Outdoor Advertising Signs makes a distinction between "standardized signs" (billboards owned by large outdoor advertising companies and rented to advertisers) and "nonstandardized signs" (billboards owned by advertisers rather than by outdoor advertising companies). In regard to these nonstandardized billboards, the author explains:

Compensation for the loss of this form of signboard is not considered in this text. . . This distinction [between standardized and nonstandardized billboards] is very important from a valuation standpoint.(4)

The reason for this distinction is apparent. Nonstandardized billboards are generally owned by advertisers and do not generate the outside business income necessary for the gross income multiplier technique to be used. Thus, in the publication's approach, two identical signboards, one owned by an outdoor advertising company and the other owned by an advertiser, would be appraised differently and have different values. This is analogous to asserting that a truck owned and used by a business firm should be valued differently and for less than an identical truck that generates income for a trucking company, or that an owner-occupied residence should be valued differently and for less than an identical income-producing rental unit.


The publication confuses the basic concept of compensation for outdoor advertising company interests under eminent domain. It states:

State and federal laws do not agree on what is being appraised and which procedures to apply in the valuation. In state courts the taking of signs may call for no compensation, full compensation, or something in between the two. The law is inconclusive. (emphasis added)(5)

Governments, property owners, and the courts will be surprised to learn that condemning authorities in eminent domain cases can pay no compensation, full compensation, or something in between the two. To the contrary, of course, condemning authorities must pay full compensation whenever property is taken for a public purpose.

The publication also confuses the difference between the requirement for compensation under eminent domain and the police power concept of amortization, that is, the requirement that signs made nonconforming under local regulation be removed or altered after a stated period of time:

Amortization schedules are the most recent method of removing signs. . . The courts have not yet decided whether the application of an amortization schedule is a legal issue. . . From an appraisal viewpoint, however, applying an amortization schedule to signs reflects neither market conditions nor just compensation.(6)

Of course, the use of police power amortization to remove nonconforming signs is by no means a "recent method of removing signs." To the contrary, it has been used for many decades as part of governments' powers of regulation, nor are the courts confused as to whether it is a "legal issue." They have almost consistently ruled that requiring nonconforming signs to be removed after a reasonable amortization period is not a taking and does not require compensation.(7)

Whether it is desirable public policy for governments to require that nonconforming signs be removed without compensation after a period of time is a matter for public policy debate, but the assertion that amortization can take the place of compensation when property is acquired under eminent domain is simply not valid. The Fifth Amendment of the U.S. Constitution and the constitutions of all 50 states require that just compensation be paid in such cases.


The question of whether billboards are real property or personal property is a crucial issue in the valuation of an outdoor advertising company's interests in eminent domain. Since condemnation law does not require that the government purchase personal property or compensate for the lost business income that the property generates except in rare cases, properly characterizing the item as real or personal property is not merely an academic exercise.

If billboards are real property (a fixture), the condemning authority must pay for the structure when the underlying fee is acquired. On the other hand, if billboards are personal property, then only the payment of relocation expenses plus any bonus value of the ground leasehold is required under the Uniform Relocation Assistance and Real Property Acquisition Policies Act.(8) Any payments from advertisers to the company must be regarded strictly as business income, which is not compensable in the vast majority of states.

Outdoor Advertising Signs acknowledges this fact:

Federal law allows compensation for the expense of relocation and for complete removal of a sign. Therefore, the identification of signs as real or personal property has a great impact on the amount of compensation. If the signs are classified as personal property, compensation is restricted to a relocation expense. (emphasis added.)(9)

In other words, for the author's billboard valuation theory to be valid, the signs must be classified as real property. Since properly classifying a sign as personal or real property is admittedly a critical matter, the publication gives a surprisingly cursory and inaccurate treatment of the issue. Rather than applying the classic and universally accepted legal standard for separating trade fixtures (personal property) from fixtures (real property), the publication simply asserts:

From an appraisal viewpoint, outdoor advertising signs must be considered real property because sign structures are affixed to the land and the right to use a signboard may be transferred through the creation of a leasehold interest. . . Very simply, a sign structure is physically affixed to the land and has every indication of being a permanent structure.(10)

The facts and established law contradict this assertion. Attachment to the real estate is a factor, but it is far from being the determinant on the issue. By definition, trade fixtures are always physically attached to the property. What separates them from mere fixtures is the chattel's unique importance to the tenant's business, reasonable transportability, and the expressed intent of the parties. Ignoring these major elements of the analysis dooms the author's conclusions.

Textbook Criteria for Trade Fixtures

The classification of billboards as real estate is clearly at variance with the criteria set in The Appraisal of Real Estate, which states:

Although fixtures are real estate, trade fixtures are not. A trade fixture, also called a chattel fixture, is an article that is owned and attached to a rented space or building by a tenant and used in conducting a business. Trade fixtures are not real estate endowed with the rights of real property ownership. They are personal property regardless of how they are affixed. (emphasis added)(11)

The text offers further guidance:

To decide whether an item is a trade fixture, and therefore personal property, or part of the real estate, courts often use the following criteria.

1. The manner in which the item is affixed. Generally, an item is considered personal property if it can be removed without serious injury to the real estate or to itself.

2. The character of the item and its adaptation to the real estate. Items that are specifically constructed for use in a particular building or installed to carry out the purpose for which the building was erected are generally considered permanent parts of the building.

3. The intention of the party who attached the item. Frequently, the terms of the lease reveal whether the item is permanent or to be removed at some future time.(12)

The three tests set forth in the textbook represent the universally accepted legal standard for separating fixtures from trade fixtures whether the characterization be for tax, eminent domain, or business purposes. In the absence of specific statutory provisions stating the contrary, a chattel's character is determined by applying these same three factors. Even the advertising industry agrees that billboards precisely fit these criteria as personal property.

Although signs are affixed to the land, they can be removed without serious injury to the real estate or billboard structure. In fact, outdoor advertising companies routinely remove and relocate signs when ground leases are not renewed, the structures are obscured, or sites become otherwise unprofitable to the business. The ground leases between the landowner and the advertising company universally anticipate removal because of such conditions. Unlike tenant-owned improvements with removal clauses, billboards are actually constructed to facilitate removal through the use of bolts, doubleheaded nails, and interchangeable parts, for example. In most cases, most of the structure, including the entire advertising face, is reused according to the industry's own estimates. Neither the signs nor the underlying property is significantly impacted by the removal process.

Except in highly unusual situations, billboards are designed to be erected at a variety of locations, not a specific one. They definitely do not become a "permanent part of the building." Indeed, the signs are actually uniquely adapted only to the outdoor advertising business, not the land. Without the billboards, the tenant's business does not exist. It is exactly this intertwining between the tenant's business and the chattel at issue that is the essence of a trade fixture. In contrast, billboards are rarely even attached to a building and bear no relationship whatsoever to the underlying use of the building or property. Removal of the sign is unlikely to have any impact on the land's use beyond the loss of the ground rental income that the landowner receives.

Review of actual billboard ground leases reveals that the intent of the parties is for the billboard structure to remain the tenant's personal property and be removed upon the expiration of the lease by the lessee. Typically, the signs are located on sites secured through relatively short-term ground leases, which specifically state that the signs remain the tenant's personal property or trade fixtures. While a few leases may not use the actual terms "trade fixtures" or "personal property," the documents invariably declare that the signs remain the property of the outdoor advertising company and can be removed at the expiration of the lease by the company. Similar terms are intended to show the parties' intent that the signs are not to be considered permanently attached to the land, especially in light of the short-term nature of the ground lease. The standard billboard ground leases are carefully worded to treat the signs as trade fixtures because such treatment provides numerous business advantages and protects the outdoor advertising company's interests.

Investment Tax Credit and Property Taxes

When several outdoor advertising companies sued the Internal Revenue Service in the 1970s, they contended that their billboards were "tangible personal property," and thereby eligible for the investment tax credit that applied only to personal property. As personal property, the sign structures would also be eligible for a more advantageous depreciation schedule. Applying the same three-part test set forth in The Appraisal of Real Estate, the industry persuasively argued that the signs were not permanent structures or otherwise endowed with the elements of real property. Both the court of claims and the tax court agreed with the industry, holding that the billboards were personal property?

In addition to their status as personal property for income tax purposes, billboards are taxed as personal property in almost all states, although there are a few exceptions, notably Iowa, Missouri, and New York. In these minority states, unique provisions of state revenue laws caused billboards to be classified as real property.(14) The general rule still remains that billboards are considered personal property for property tax purposes.

This conclusion was recently affirmed by the New Jersey Supreme Court in R. C. Maxwell Co. v. Galloway Township. Relying on an Attorney General's opinion, Galloway Township had taxed the R. C. Maxwell Company's billboards as real property. The outdoor advertising firm, supported by an amicus brief from the New Jersey Outdoor Advertising Association, contended that the signs: (1) were personal property, not real property, (2) were not "improvements to the real estate," but "personal property affixed to the real property," (3) could be removed "without material injury to the real property," (4) could be removed "without material injury to the personal property itself," and (5) were "not intended to be affixed permanently to the real property."(15) The industry maintained that normally the face was not damaged at all when it was moved, and that about 80% of the remainder of the structure could be used at other locations.

The arguments made by the outdoor advertising industry, in this case supporting their contention that billboards are personal property and with which the court agreed, are directly opposed to the position taken by Outdoor Advertising Signs. However, the industry's arguments agree completely with the definition for personal property contained in The Appraisal of Real Estate.

In addition to the cases noted above, appellate decisions over many years support the position that billboards are personal property. Most of these decisions directly involved the question of the amount of compensation due for the interests of outdoor advertising companies in eminent domain actions.(16) A few dealt with related issues.(17)


Despite overwhelming evidence to the contrary, Outdoor Advertising Signs holds fast to the notion that the money generated by selling advertising space is rental income to real estate, not business income produced by trade fixtures: "Because the use of signboard space is conveyed as a leasehold interest, signs may be considered real estate and the income approach may be adapted to their valuation."(18)

Following that theme, the monograph dismisses the industry's continued classification of billboards as trade fixtures for tax purposes by confusing the tax treatment of individual signs with the companies themselves: "For tax purposes sign companies have been classified as business, but their business is real estate by its very nature."(19)

To the contrary, advertising contracts between billboard companies and advertisers clearly involve sales of business services, not subletting of real estate. Aside from the blatant inconsistency in the characterization of individual signs for tax purposes, "the use of signboard space" is not "conveyed as a leasehold interest" any more than pages of a magazine or newspaper are conveyed as a leasehold interest to an advertiser. Nothing in the relationship between sign companies and the advertisers remotely resembles a real estate transaction.

Typically, the advertisers enter into agreements for "advertising services," not subleases. Advertisers simply pay for the unique advertising media that the sign company provides. The service agreements do not permit the advertiser to enter or occupy the premises in any traditional way. The outdoor sign company "posts the bill" and maintains the structure. Advertisers simply pay for a certain circulation (i.e., the number of vehicles passing by on the roadway).

Further, the clients often do not even get to choose the boards on which their advertisements will appear since much billboard advertising is sold on the basis of a "showing" rather than by specific location. The advertiser merely furnishes advertising copy to the billboard firm, which posts the bill at sites meeting designated viewership criteria or rotates messages at specific intervals. As noted earlier, the advertiser no more sublets the billboard from the outdoor advertising company than an advertiser sublets the circulation of a magazine or a newspaper.(20)

In summary, except for a few exceptions, the practice of the outdoor advertising industry, intent of the parties as evidenced by ground leases, classification for income and property taxes, and case law support the contention that billboards, in fact, are personal property, not real property. Thus, the argument presented in Outdoor Advertising Signs fails on this basic point, an error which reverberates throughout the monograph.


The question of whether outdoor advertising firms owning billboards located on leased land should be paid only relocation expenses for their signs or for the value of the structure has been complicated by the ambiguity of the Uniform Relocation Act.(21) One section of the act specifically provided that outdoor advertising companies should receive relocation expenses for their displaced billboards, and nothing more. This has also been the position of the Federal Highway Administration, the agency responsible for administering the Act,(22) and it has been upheld by most courts.(23)

However, another section of the Act provided compensation for real property such as grain elevators and fuel storage facilities that were located on leased land, particularly railroad rights-of-way that were acquired for reservoirs. This provision has led a few courts to rule that personal property billboard signs qualify as "structures" under the Act, requiring that they be acquired.(24) Nonetheless, even in these cases it does not follow that business income generated by the signs should be compensable as well. Compensating for the billboards themselves and the income they produce remain two separate matters.


The question of whether billboards are real or personal property is not an issue in the case of billboards removed under the provisions of the Highway Beautification Act since, in this legislation, Congress required that cash compensation be paid for the sign structures.(25) Thus, owners of billboards that are removed for this purpose are entitled to receive payment for the value of the billboard structure plus any "bonus value" of their ground leasehold.

The Supreme Court of Wisconsin ruled that the particular language in the state's beautification legislation required that all billboards that are nonconforming under the act must be acquired if they are removed for any purpose.(26) This leads to the interesting result that if the land under a nonconforming billboard is acquired for a highway widening, the sign's owner must be paid cash compensation for the structure. On the other hand, the owner of a legally conforming sign is entitled only to relocation expenses for the billboard under the Uniform Relocation Act.


A leased location on which an outdoor advertising company has placed a billboard may have three possible elements of value to the firm:

1. Possible bonus value of the ground leasehold 2. The physical structure of the billboard, and 3. The value of the outdoor advertising business conducted at that location

Despite the fact that personal property billboards are not "improvements," and a leased property cannot be "improved" by placing personal property on it, the valuation method advocated in Outdoor Advertising Signs wraps all three elements of value into a "leasehold as improved," which would make all of them, including alleged business losses, eligible for compensation as property losses. In fact, of course, only the first two elements are eligible for compensation. The condemning authority is not taking the outdoor advertising company's ongoing relationship with its clients, a distinctly business component.

In reality, if a governmental authority condemns the land under a billboard, it must compensate the outdoor advertising company for any bonus value of their ground leasehold, a real property interest. In addition, the outdoor advertising firm is entitled to either relocation expenses or compensation for the sign. Generally, the billboard structure remains the property of the outdoor advertising company, which is entitled only to relocation expenses for the sign. The exceptions to the rule occur only when the billboard is considered by state law as a "structure" requiring acquisition under the Uniform Relocation Act or if it is being removed under the provisions of the Highway Beautification Act. Under those conditions, the outdoor advertising company must be paid for the value of the sign structure. Also, the landowner whose property is being acquired must be compensated for his leased fee interest, that is, any increases in the value of the land created by the ground lease less any bonus value of the outdoor advertising firm's leasehold interest.


The general rule requires that land acquired in eminent domain be valued as a single unit. This compensation is then divided among the respective interests. Only after total compensation is determined does the division of the proceeds between the landowner and lessee become an issue. As stated in the book Real Estate Valuation in Litigation, this undivided fee rule, also referred to as the "unit rule," has been adopted by the federal courts and all but six states.(27) It follows, of course, that under this rule, the value of the sign company's ground leasehold interest cannot be greater than the value of the fee simple interest.

Inexplicably, Outdoor Advertising Signs diverts from traditional analysis. Despite the general acceptance of the undivided interest rule, this monograph maintains that outdoor advertising companies' interests should be valued over and above the fee simple interests:

The valuation must consider both the lessor's and lessee's interest in the property, which may exceed what is normally considered in a fee simple interest valuation. (emphasis added)

If the appraiser does not consider the interests of the outdoor advertising company separately, the allocation of value between the land and the improvements will be incorrect since all property interests have not been considered.(28)

Naturally, the failure to properly recognize that advertising services revenue to the business is not rental income to the property leads to the false conclusion that it is acceptable to exceed the fee simple value and ignore the unit rule.

Contribution of the ground lease to the value of the fee: The outdoor advertising company's rental payments to the fee owner generally will increase the value of the underlying land. The exception occurs when the billboard might interfere with converting the land to a higher use that would yield a greater land value. Some of the questions involved in making an estimate of the contribution of the billboard ground lease to fee value are the amount of the rental payments, the duration of the lease, and the potential for more productive uses of the site.

Valuation of the leasehold interest: The outdoor advertising company's real property interest in the site consists only of any bonus value of its ground leasehold. This is normally defined as the present value over the unexpired term of the lease of any difference between the contract rent under the lease agreement and economic rent, that is, current market rent. If contract rent is less than economic rent, the leasehold will have a positive bonus value. On the other hand, if contract rent exceeds economic rent, the value of the leasehold interest will be zero or even negative.(29)

The "bonus value" is the almost universally accepted method of valuing a leasehold interest. Its validity in eminent domain cases involving outdoor advertising company interests has been confirmed by a number of appellate courts.(30)

Compensable interest: Two critical questions in determining the value of an outdoor advertising company's interest in a ground lease are: (1) Does the outdoor advertising company have a compensable interest? (2) What is the term of that interest?

Since billboards are usually located on leased land, the terms of the ground lease are critical in determining whether the sign company has a compensable interest. The general rule is that, in the absence of a current valid lease, they have no compensable interest.

If the outdoor advertising company has a compensable interest in a ground lease (which they normally will), the next issue is the length of term of that lease. Billboard firms and Outdoor Advertising Signs contend that they should be compensated as if the lease were of indefinite term, even though it may only be a year-to-year lease or one that can be canceled by the lessor within 30 days or so if the property is sold or is needed for development.(31) They generally base this contention on the United States Supreme Court's decision in Almota Farmers Elevator and Warehouse Company v. United States,(32) in which the Court ruled that a grain elevator operator should receive additional compensation beyond the seven years remaining on its ground lease.

A number of courts have distinguished the facts in the Almota case, which involved extensive and substantial grain elevator operations under a ground lease of almost 50 years' duration and which benefited the lessor railroad, from those involving compensation for personal property billboards located on short-term ground leases.

For example, three recent Arizona cases have established that the expectation of the renewal of a billboard ground lease is not compensable.(33) Similarly, a Tennessee court rejected an outdoor advertising company's contention that its lease went beyond the actual five-year term, calling the argument "so fanciful as to negate further elaboration."(34) The New Hampshire Supreme Court and the Missouri Appeals Court reached similar conclusions in recent cases.(35)


If it has been established that a billboard is personal property under state law, it is not necessary to appraise its value in eminent domain actions, only to determine the amount of moving expenses plus any bonus value of the ground leasehold. But suppose that for some reason an appraisal of the billboard structure is required. Perhaps the sign is located in one of the few states where court decisions require that the billboard be acquired, or perhaps the sign is being purchased under the Highway Beautification Act. How should the sign be valued?

Replacement Cost

The replacement cost approach is the traditional method used to appraise outdoor advertising signs. In fact, almost every court has taken the position that it is the only valid approach to use in appraising billboards.(36) It is also the method that was used almost exclusively in the purchase of nonconforming signs under the provisions of the Highway Beautification Act, and it is endorsed by the Federal Highway Administration.(37)

The replacement cost less depreciation approach also satisfies the basic appraisal principle of substitution: "According to the principle of substitution, a buyer will not pay more for one property than for another that is equally desirable."(38) Billboard structures are readily obtainable in the marketplace on a "turnkey" basis. Thus, this replacement cost before subtracting any depreciation on the subject billboard will certainly set the upper limit of value.

Outdoor Advertising Signs states that "the cost approach may be used to value nonstandardized signs and on-premise signs," but it rejects the cost approach for valuing "standardized" billboards since "buyers and sellers in the market generally do not consider cost in the sale or purchase of signs."(39) In other words, the cost approach is rejected because it accounts only for the actual value of the sign and does not provide for any alleged business losses.

Capitalization of Income Approach

For the income approach to be a valid method of appraisal for real property, the income must be income produced by the property, not income produced by a business located on the property. For example, a real estate appraiser cannot validly estimate the value of a fastfood restaurant building by capitalizing the value of the receipts of the restaurant business or value an airliner by capitalizing the revenues it generates for the airline. Similarly, the appraiser cannot value a billboard by capitalizing the value of expected receipts of the billboard business at that location.

Outdoor advertising companies earn income by renting billboard space to advertisers. This is the business income of these companies, and it is difficult, if not virtually impossible to determine which portion of that income should be attributed to the sign as a property and which portion should be attributed to the marketing, administration, and other aspects of the business firm. This is particularly true when detailed income and expense data relating to the subject firm are unavailable. Therefore, although the valuation of an individual billboard through the use of the income capitalization approach is theoretically valid, it is a practical impossibility.

Outdoor Advertising Signs rejects the capitalization of the income approach, not because the income is business income, but because of its practical difficulties:

One traditional application of the income approach, direct capitalization of net operating income, is not a justifiable method of valuation for signboards. A review of sales data and leasing transactions indicates that the capitalization of a net operating income estimate based on expense ratios is inappropriate. As time passes and more information on expense ratios is obtained, this method of valuation may become valid.(40)

Sales Comparison Approach

Outdoor Advertising Signs advocates the use of the sales comparison approach, specifically the gross income multiplier, to value the interests of outdoor advertising firms in eminent domain actions. However, the sales comparison approach is not valid for this purpose for two reasons: (1) the "comparable sales" are not comparable to what is actually being taken, and (2) the technique includes alleged business value, a noncompensable item. This is the conclusion reached by a number of appellate courts.(41)

The essential element in the use of the sales comparison approach is the availability of adequate market data for comparable properties. Since sales of individual outdoor advertising signs are quite rare, and even those usually contain business elements, such as the transfer of advertising contracts, adequate market data simply do not exist for the sales comparison approach to be a viable technique in appraising individual billboards. There are data on the sales of entire outdoor advertising companies or territories, but these are sales of businesses and include many elements of value other than the sign structures. The use of such sales data to help estimate the value of another outdoor advertising company may be valid; its use to estimate the value of an individual billboard is erroneous.

Outdoor Advertising Signs ignores the fatal flaws precluding the use of the market approach to the valuation of outdoor advertising signs:

The sales comparison approach is most applicable to the valuation of outdoor advertising signs. The information needed to apply the sales comparison approach is obtained from market transactions that represent the negotiations of buyers and sellers in the market. . . The relevant unit of comparison applied in the sales comparison approach is the gross income multiplier (GIM).(42)

Gross Income Multiplier

The GIM is computed by dividing the sales price of a property by the potential or effective gross income generated by the property. After the appraiser has determined a GIM for a particular type of property by observing several sales of comparable properties, the GIM can then be multiplied by the estimated potential or effective gross income of a similar subject property to arrive at a first approximation of value.

For the GIM to be a valid technique in appraising an income property, obviously it is necessary that the "comparable" sales actually be comparable to the subject property interest being appraised. Use of the GIM technique to appraise individual billboards fails to meet this criteria.

As noted above, individual billboards are not normally bought and sold in the open market. Even if it were theoretically possible to extract a single sign's value from the total price paid for hundreds of billboards, doing so based exclusively on the basis of income alone is insufficient. The GIM method, as advocated by Outdoor Advertising Signs, contains no mechanism to apply adjustments for varying expenses or lease terms. The book states that "an operating expense ratio cannot be derived from sales data" and "it is very difficult at this time to estimate what may be considered a standard operating ratio."(43) The book then erroneously concludes: "The use of the multiplier takes into consideration a variety of expense ratios. Studies have indicated an acceptable range of market-derived multipliers."(44)

Actually, the multiplier accounts for only gross revenue and ignores the expense side of the equation entirely. Since it is admittedly impossible to derive operating ratios, it is also logically impossible to conclude that the range of these unknown ratios or the multipliers they produce is acceptable.

The publication further asserts that the comparable sales involve sales of "leasehold interests," that is, real estate: "Sign industry sales indicate that signs are real estate and do not reflect significant business interests."(45)

The facts contradict this assertion. Billboards are transferred by bill of sale as personal property; they are not transferred as real property by a deed. Moreover, a review of the actual sale documents reveals that the transactions include entire outdoor advertising companies or market territories. In short, these are sales of businesses and include many elements of value other than the sign structures. Frequently, the documents specifically reference items such as goodwill, accounts receivable, client lists, and supply inventories. Noncompetition clauses preventing the seller from reestablishing business in a defined market area are also common in the documents. The ability to eliminate competition, while valuable to a business, is not an appropriate consideration in eminent domain.

As noted previously, the GIM contains no mechanism to adjust for differences between the subject sign and the sales. Because it focuses exclusively on the gross income generated by the billboards involved in the sale, Outdoor Advertising Signs offers no reasonable means of doing so. Without market-derived data to eliminate items of value other than mere income, using these sales to estimate the value of another outdoor advertising company may be valid; their use to estimate the value of an individual billboard is mistaken.


The method of valuing billboards espoused in Outdoor Advertising Signs is simply not valid. It is based on neither accepted appraisal principles and practice, nor on established eminent domain law. In fact, it violates both.

When the land on which an outdoor advertising company has leased a site for a billboard is taken for a public purpose, the firm is entitled to compensation for any bonus value in its ground leasehold. In addition, in the vast majority of states that consider billboards to be personal property, the outdoor advertising company is entitled to receive moving expenses for their billboard, which remains their property. In the few states in which courts have ruled that billboards must be acquired as "structures" under the provisions of the Uniform Relocation Act, or when the billboard is being removed under the provisions of the Highway Beautification Act, the billboard must actually be acquired. The proper method of determining the value of the sign structure in this case is what it would cost to replace the sign less any depreciation.

1. Donald T. Sutte, Jr., The Appraisal of Outdoor Advertising Signs (Chicago, Illinois: Appraisal Institute, 1994).

2. Highway Beautification Act, PL 89-285, 79 Stat. 1028.

3. Donald T. Sutte, Jr, The Appraisal of Roadside Advertising Signs (Chicago, Illinois: American Institute of Real Estate Appraisers, 1972), 37.

4. Sutte, The Appraisal of Outdoor Advertising Signs, 4.

5. Ibid., 9.

6. Ibid., 13.

7. The case law upholding the principle of amortization of nonconforming signs is extensive and beyond the scope of this paper A few of the more recent cases are: Barton Wilson v. City of Louisville, 957 F. Supp. 948 (U.S. Dist. Western Ky. 1997); City of Houston v. Harris County Outdoor Advertising Association, 732 S.W.2d 42 (Tex. App. 1987); Donrey Communications Company, Inc. v. City of Fayetteville, 660 S.W.2d 900 (Supreme Court of Arkansas 1983); Lamar Advertising v. City of Daytona Beach, 450 So.2d 1145 (Fla. App. 5 Dist. 1984); Major Media of the Southeast, Inc. v. City of Raleigh (U.S. District Court, Eastern District of N.C. 1985); Major Media of the Southeast, Inc. v. City of Raleigh (U.S. Court of Appeals, Fourth Circuit 1986); Major Media of the Southeast, Inc. v. City of Raleigh, 930 F.2d 23 (U.S. Court of Appeals, Fourth Circuit, 1991); Modjeska Sign Studios, Inc. v. Berle, 373 N.E.2d 255 (Court of Appeals of New York 1977); Salinas v. Ryan Outdoor Advertising, Inc., 234 Cal. Rptr. 619 (California Court of Appeal, First District 1987); Naegele Outdoor Advertising, Inc, v. City of Durham, 803 E Supp. 1068 (1992); 844 F.2d 172 (U.S. 4th Circuit App. 1988).

8. Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, 42 U.S.C. 4601.

9. Sutte, The Appraisal of Outdoor Advertising Signs, 10.

10. Ibid., 11-13, 17.

11. Appraisal Institute, The Appraisal of Real Estate, 11th ed., (Chicago, Illinois: Appraisal Institute, 1996), 9.

12. Ibid.

13. Alabama Displays, Inc. v. United States, 507 F.2d 844 (1974); National Advertising Co. of United States, 507 F.2d 850 (1974); Southland Corporation v. United States, 78-2 U.S. Tax Cas. (CCH) P9818; 42 A.ET.R.2d (P-H) 6269 (1978); Whiteco Industries, Inc. v. Commissioner of Internal Revenue, 65 TC. 664 (United States Tax Court 1975).

14. Western Outdoor Advertising Co. v. Board of Review of Mills County, 364 N.W.2d 256 (Iowa 1985); State Ex Rel. Thompson v. Osage Outdoor Ad., 674 W.W.2d 81 (Mo. App. 1984); Metromedia, Inc. v. Tax Commission of New York, 455 N.E.2d 1252, 468 N.Y.S.2d 457 (1983).

15. R. C. Maxwell Co. v. Galloway Township, 1996 N.J. LEXIS 963, Supreme Court of New Jersey, July 30, 1996.

16. The principal cases are State of Tennessee v. Teasley, 913 SW2d 175 (Tenn. App. 1996); State of New Hampshire v. 3M National Advertising Co., 653 A2d 1092 (Supreme Court of New Hampshire 1995); City of Norton Stores v. Whiteco Metrocam, 517 NW2d 872 (Mich. App. 1994); State By Humphrey v. Card, 413 N.W.2d 577 (Minn. App. 1987); Naegele Outdoor Advertising Company v. Village of Minnetonka, 162 N.W.2d 206 (Mn. 1968); City of Lakewood v. Rogolsky, 252 N.E.2d 872 (Ohio 1969); City of Cleveland v. Zimmerman, 253 N.E.2d 327 (1969).

17. For example, Manderson & Associates v. Gore, 389 SE2d 251 (Ga. App. 1989) on valuation of business property interests; Aquafine Corp. v. Fendig Outdoor Advertising Co., 272 SE2d 526 (Ga. App. 1980) on right of outdoor advertising company to remove personal property billboard at expiration of ground lease.

18. Sutte, The Appraisal of Outdoor Advertising Signs, 41.

19. Ibid., 20.

20. For a more complete discussion of this point, see Mark P. Hodgdon, "Attacking the Use of the Gross Income Multiplier to Value Outdoor Advertising Devices." Unpublished paper presented at the Transportation Research Board Legal Workshop, Madison, Wisconsin, July 1994.

21. 42 U.S.C. 4601.

22. 49 C.ER., Part 24.303.

23. State of Tennessee v. Teasley, 913 SW2d 175 (Tenn. App. 1996); State v. Humphrey v. Card, 413 N.W.2d 577 (Minn. App. 1987); Matter of Minneapolis Com. Dev. Agency, 417 N.W.2d 127 (Minn. App. 1987); State by Humphrey v. Kouir, 415 N.W.2d 412 (Minn. App. 1987); Creative Displays, Inc. v. South Carolina Highway Department, 248 S.E.2d 916 (S.C. 1978)

24. Lamar Corporation v. State Highway Commission of Mississippi, 1996 Miss. LEXIS 303 (Supreme Court of Mississippi 1996); State of Florida v. Heathrow, 579 So2d 183 (Fla. App. 1991); Whitman v. State Highway Commission of Missouri, 400 E Supp. 1050 (W.D. Mo. 1975).

25. 23 U.S.C. 131(g).

26. Vivid, Inc. v. Fiedler, 512 NW2d 771 (Wisc. Supreme Ct. 1994).

27. J. D. Eaton, Real Estate Valuation in Litigation (Chicago, Illinois: Appraisal Institute, 1995).

28. Sutte, The Appraisal of Outdoor Advertising Signs, 24.

29. Eaton, 383-384.

30. State of Missouri v. Quiko, 923 SW2d 489 (Missouri Appeals 1996); State of Tennessee v. Teasley, 913 SW2d 175 (Tenn. App. 1996); Louisiana Department of Transportation v. Chachere, 574 So.2d 1306 (Ct. of Appeal of La., 3rd Circuit 1991); In Re Urban Redevelopment Authority of Pittsburgh, 272 A.2d 163 (Pa. 1970); City of Lakewood v. Rogolsky, 252 N.E.2d 872 (Ohio 1969); City of Cleveland v. Zimmerman, 253 N.E.2d 327 (1969).

31. Sutte, The Appraisal of Outdoor Advertising Signs, 22.

32. Almota Farmers Elevator and Warehouse Company v. United States, 409 U.S. 470 (1973).

33. Whiteco Industries, Inc. v. City of Tucson, 812 F.2d 1075 (Ariz. App. 1990); State of Arizona v. Gannett Outdoor Advertising Company, 795 F.2d 221 (Ariz. App. 1990); State of Arizona v. Miller, 795 P2d 221 (Ariz. App. 1990).

34. State of Tennessee Ex Rel Commissioner of the Department of Transportation v. Burdette Gas Products Company and Lamar Advertising of Tennessee, Inc. (1990 Tenn. App. LEXIS 890).

35. State of Missouri v. Quiko, 923 SW2d 489 (Missouri Appeals 1996); State of New Hampshire v. 3M National Advertising Co., 653 A.2d 1092 (New Hampshire Supreme Court 1995).

36. For example, 574 So.2d 1306; 272 A.2d 163; and City of Newport Municipal Housing Commission v. Turner Advertising, 334 S.W.2d (Ky. 1960).

37. Letter from Barbara K. Orski, director of the Office of Right-of-Way, to Regional Federal Highway Administrators, October 20, 1993.

38. The Appraisal of Real Estate, 43.

39. Suite, The Appraisal of Outdoor Advertising Signs, 41.

40. Ibid., 41-42.

41. State of Missouri v. Quiko, 923 SW2d 489 (Missouri Appeals 1996); State of New Hampshire v. 3M National Advertising Co., 653 A.2d 1092 (New Hampshire Supreme Ct. 1995); Louisiana Department of Transportation v. Chachere, 574 So.2d 1306, (Ct. of Appeals of La., 3rd Circuit 1991); In Re Urban Redevelopment Authority of Pittsburgh, 272 A.2d 163 (Pa. 1970). One Arizona court ruled that the gross income multiplier was a valid technique, but not the only one, to use when the billboard could not be relocated anywhere in the market area, a very limited situation. City of Scottsdale v. Eller Outdoor Advertising, 579 P.2d 590 (Ariz. App. 1978).

42. Sutte, The Appraisal of Outdoor Advertising Signs, 42-43.

43. Ibid., 43.

44. Ibid.

45. Ibid., 19

Charles F. Floyd. PhD. is professor of real estate at the University of Georgia, Athens. He received his PhD and BA in economics from the University of North Carolina, Chapel Hill. Mr. Floyd has written numerous articles on various matters related to outdoor advertising signs, and has served as a consultant and expert witness for 49 federal, state, and local governments on sign issues. Contact: Terry College of Business; University of Georgia; Athens, GA 30602-6255. (706) 542-3801. Fax 542-4295.

Mark P. Hodgdon is a senior assistant attorney general with the New Hampshire Department of Justice's Transportation and Construction Bureau. He earned his JD from the University of Maine School of Law, Portland. He has frequently consulted with other states and participated in seminars regarding the legal issues involved in valuing and condemning outdoor advertising signs. Contact: Transportation and Construction Bureau; State House Annex; Concord, NH 03301. (603) 271-3675.

Stephen R. Johnson, MAI, SRA, is president of Johnson-Perkins & Associates, Inc., with offices in Reno and Lake Tahoe, Nevada. He received his BS in real estate/business administration from the University of Nevada, Reno. He has been involved in appraising the interests of outdoor advertising firms and has served as a consultant and expert witness for a number of states. Contact: Johnson-Perkins and Associates, Inc.; 295 Halcomb Ave., Suite 1; Reno, NV 89502. (702) 322-1155.
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Author:Floyd, Charles F.; Hodgdon, Mark P.; Johnson, Stephen R.
Publication:Appraisal Journal
Date:Jul 1, 1998
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