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mineral rights

Discussion in 'Urgent - Help Needed' started by Donny Lindner, Feb 27, 2006.

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  1. Donny Lindner

    Donny Lindner Junior Member

    0
    Aug 3, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Texas
    Are we to consider mineral rights in the appraisal of land sales and/or single family dwellings with acreage?

    This has come up several times in valuating rural land with oil wells. There is also the issue of the seller conveying all the mineral rights or a percentage to the buyer. Sometimes, the actual percentage the buyer will receive is uncertain or so minimal b/c pervious owners have retained the majority.

    Has anyone had experience with this.

    The area I am located in has a significant amount of oil wells and gas lines.
     
  2. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Donny

    As an appraiser in a market full of gas wells and a bunch of oil wells, I have never considered the value of mineral rights in the value of the real estate that I am appraising. Nor do I consider personal property or the value of any standing timber.

    Valuing mineral rights, especially if there are royalty payments is specialized and something most appraisers elect not to get into. It is more for the accountant. I've heard "rules of thumb" from 48 months to 60 months income for the minerals. But what about the unexplored untapped minerals? What value.

    My personal recommendation is to put the following statement in your report:

    11. No consideration is given in the report for the contributory value of any of the following: personal property, mineral rights or standing timber, if any.

    This item 11 of my 16 items in the additional comments on page 3.

    I have never had anybody come back on this statement and I'll bet it has been in over 4,000 reports.
     
  3. Donny Lindner

    Donny Lindner Junior Member

    0
    Aug 3, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Texas
    Is it still considered to be fee simple. The new buyer is not getting 100% of the ownership rights associated with the property?
     
  4. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Fee simple means essentially that the ownership is inheritable with the estate. The ownership is not entailed but passes to the next of kin. If the mineral rights are sold or missing, it is certainly less than the full bundle of rights but it is still a fee simple estate. Usually in an area where most of the mineral rights are sold for exploration, it really makes no difference. 98% of the properties up here transfer without mineral rights. These rights have been sold off 30 to 40 years ago. Nobody thinks anything about it.
     
  5. Donny Lindner

    Donny Lindner Junior Member

    0
    Aug 3, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Texas
    Talking with some of the agents here, there is some definate market difference when you have an oil well on the property and the seller is getting none of the interest. They don't want to see and oil well if they are not getting any money. So this seems to play into the market value.

    There is great difficulty in determining the amount, if any, for the adjustment. How do we know the exact amount of interest being conveyed in the comparable sales?
     
  6. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    The market was nearly sold out of mineral rights when I started so I've never had to deal with that. Typically, the mineral right that we deal with are not great (Antrim gas and some Niagara oil) Owners rights normally amount to a great deal.
     
  7. Steve Wyrick

    Steve Wyrick Member

    0
    Aug 15, 2003
    Professional Status:
    Certified General Appraiser
    State:
    California
    The question of mineral rights depends on local or state laws in many cases. Since we don't know where you are located it is difficult to answer. My answer for my part of the world, CA is mineral rights are not typically considered to be part of the real property but treated like personal property, something that can be removed and sold separate of the surface usages.

    A minor example. A few years ago I was asked to appraise the worlds only "gem quality" Benetoite mine. A gem so rare that it has a carat value higher than a a diamond. The assignment was to determine a fair market value for property tax purposes. In checking the history of the mine going back to the late 1800's when it was discovered to the present and talking with the county assessor's office expert on mineral he state to me that the county and the state does not consider mineral as real property for taxation purposes until it is either mined or pumped from the ground and put into storage tanks. Also, since the county taxes a physical asset upon its mining or pumping from the ground as a personal asset they don't consider mineral rights in the valuation of the real property.

    Another interesting point, water can be considered to be mineral, pumped from the ground. In some western states Nevada and Arizona that I am aware of the pumping of water on your own property from the ground requires a state permit and the water is not considered to part of the owners bundle of rights but rather belonging to the state and the pumping is controlled by the state. At one time water permits in Nevada, 20 + years ago were considered like stock in a water company and could be sold. Thus the question "Is water a mineral part of the bundle of rights to ownership of land or personal property that can be moved from the land"?

    Very complicated question when you delve into it but essentially "How do other appraiser's (experienced) handle it in your area.
     
  8. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Little story about mineral rights. Judy and I bought a little 2 bdrm house on a double lot shortly after moving up here in '94'. The owner/seller "reserved the mineral rights" in the MLS data sheet and in the purchase agreement. I didn't think anything of it until about 6 months after we moved in when we received a check for about $60 for mineral rights. I called the gas exploration company and told them that the previous HO had reserved the rights. The guy at the gas company said that if the seller wanted to retain the mineral rights he should have not had the real estate broker draft the deed because the way it was drawn, the mineral rights transfered to me. So much for real estate brokers playing attorneys.

    So for over 12 years, every 6 months or so, we get a check for between $55 to $75 dollars on a house we sold in 95. We did not use a real estate broker to draft the deed when we sold it and consequently, we still own the mineral rights to those two little lots.
     
  9. Donny Lindner

    Donny Lindner Junior Member

    0
    Aug 3, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Texas
    I am in the state of Texas.
     
  10. Couch Potato

    Couch Potato Elite Member

    0
    Mar 15, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    North Carolina
    Mineral rights is definitely a local issue in how to treat them. The partial interest my wife has in four oil wells in Texas is considered real property and taxed as such based on estimated reserves. Appraising such interests requires significant knowledge of the particular business involved. If oil, gas, minerals or other such interests are common in your area you need to be familiar with how to handle them according to local laws and how your peers in the area deal with them. It could be a simple disclaimer is all you need or you may need to learn to check each and every property you appraise and use as a comp.
     
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