valuation of easement

[novara]

commercial / industrial property in new jersey. adjoining property needs a permenant access easement on my client's property. the land that would be subject to the easement is a private road. so, the additional use that would be generated by the easement will not impact my client's land; in fact, my client's land is already subject to an access easement of similar nature.

so, how do you go about valuing the easement?

obviously, the easement would allow the adjoining land to be developed to its highest and best use; without the easement, the land can be used for container storage and other passive uses.

any thoughts on how one would approach the valuation?

 

[Terrel L. Shields]

I think in most cases the value of an easement to the dominate is considered to be 99% of the value of the fee simple. The one who suffers this legal trespass still pays the taxes on it but unless they have a uility for such an easement (i.e.- a shared driveway.) the ground is basically useless to them.

 

[Mark K]

I appraise a lot of easements; sewer/water lines, power lines, drainage, etc. The easement value is based on a percentage of the fee value depending on how cumbersome the easement is to the property owner. These are based on market value definition.

In your case I think this is going to be a negotiated price based on a Use Value. How much is the adjacent owner willing to pay for access for his particular use. Eminent Domain or condemnation assumes Market Value. If you easement is not subject to condemnation, then the easement is worth whatever the parties will agree to.

I've seen developers pay $75,000 for a 1/4 acre easement across land worth $5,000/acre. Without the drainage easement across an adjacent farm, the subdivision could not be developed. If this case involved the municipality needing the easement, under the threat of condemnation, the farmer would have received no more than $1,250, the value of the 1/4 acre (assuming the easement didn't damage the residue). Probably less if it was a subsurface drain, maybe 50-75% of fee.

Bottom line, its worth whatever you and your client can squeeze out of the neighbor. If it increases the value of the adjacent property by $1 Million, it could be worth quite a bit.

 

[jimmyfrank]

I appraise a lot of easements; sewer/water lines, power lines, drainage, etc. The easement value is based on a percentage of the fee value depending on how cumbersome the easement is to the property owner. These are based on market value definition.

In your case I think this is going to be a negotiated price based on a Use Value. How much is the adjacent owner willing to pay for access for his particular use. Eminent Domain or condemnation assumes Market Value. If you easement is not subject to condemnation, then the easement is worth whatever the parties will agree to.

I've seen developers pay $75,000 for a 1/4 acre easement across land worth $5,000/acre. Without the drainage easement across an adjacent farm, the subdivision could not be developed. If this case involved the municipality needing the easement, under the threat of condemnation, the farmer would have received no more than $1,250, the value of the 1/4 acre (assuming the easement didn't damage the residue). Probably less if it was a subsurface drain, maybe 50-75% of fee.

Bottom line, its worth whatever you and your client can squeeze out of the neighbor. If it increases the value of the adjacent property by $1 Million, it could be worth quite a bit.

Very interesting replies to what an easement is worth. I would like to hear from others who are experienced in these type valuations. Also, by what method (or means) do you estimate percentages of fee such as 99%, 50-75%. Am I to assume this is not condemnation? Thank you

 

[Terrel L. Shields]

99% is my way of saying it pretty much = market value yet the owner retains some tiny modicum of ownership...and unless they can share that easement for a beneficial purpose, then they pretty much are out everything but the taxes. I advised someone once to deed the easement to a pipestem lot to that lot owner and thus avoid the taxes. Of course, they wouldn't ...too much trouble but they were paying a substantial amount of tax on a quarter mile long driveway (nearly one acre.)

 

[jimmyfrank]

99% is my way of saying it pretty much = market value yet the owner retains some tiny modicum of ownership...and unless they can share that easement for a beneficial purpose, then they pretty much are out everything but the taxes. I advised someone once to deed the easement to a pipestem lot to that lot owner and thus avoid the taxes. Of course, they wouldn't ...too much trouble but they were paying a substantial amount of tax on a quarter mile long driveway (nearly one acre.)

Yes Terrel, I understand that 99% saying. But the question is "how would you go about valuing the easement."

 

[Terrel L. Shields]

you value the land taken like you would any other "taking"...in a public taking way, it is the difference between the larger parcel and that parcel less the easement. This tends to be low (favors the state.) Otherwise, one can argue that the value is that of the marketplace. When one party has the other "over the barrel" then you can go to court in many states and force an easement across to a property (i.e.- landlocked property isn't legal) but even then the argument is where the easement goes and what it is worth. In negotiation, brinkmanship is important as the most money is squeezed out when you get paid almost as much as it would cost them to go to court plus a lesser amount. I think ideally, the value of the easement would be the value of a similar sized property selling fee simple.... Say they want 1 acre off the side of your 40 acre parcel. I would want the per acre value of a 1 acre parcel not the value of per acre of the 40. The 1 acre parcel is more likely to be worth far more than in the 40. In the court situation you can expect to be paid only the unit value of the larger parcel...not good.

 

[Mark K]

Also, by what method (or means) do you estimate percentages of fee such as 99%, 50-75%. Am I to assume this is not condemnation? Thank you

Condemnation cases generally involve Market Value. If this is the case, the owner is never paid more than 100% of fee in the MV appraisal report (not saying a jury won't give more). An easement may damage the residue and result in a large award for a minor taking but that is a separate issue.

The 50-75%, 99%, 25%, whatever, is somewhat subjective based on the appraiser's opinion of the property rights conveyed by the easement document.

Technically, the award should be based on the Value Before - the Value After. Oftentimes the easement has no discernable effect on the value and can even increase the value "After" (bringing utilities to a site that has none) but this really doesn't matter. The owner WILL be paid something, 4th or 5th Amendment thing; can't take property (property rights) without just compensation.

But most of this is predicated on the threat of eminent domain. An agreement between property owners is outside of the realm of Market Value unless one or the other is merely curious about the effect on the market value of the easement on the real estate. If a part of a parcel has an ingress easement and the owner wants to grant a similar easement on the same part of the property, I think it would be difficult to argue that the value is affected at all. Value of an Access easement over an access easement? Depends on whether the nature/quantity of the access traffic will change significantly. If it turns an occasional use drive into a virtual freeway with large trucks 24/7, then there might be a good argument for damages to the remainder of the site.

 

[jimmyfrank]

Condemnation cases generally involve Market Value. If this is the case, the owner is never paid more than 100% of fee in the MV appraisal report (not saying a jury won't give more). An easement may damage the residue and result in a large award for a minor taking but that is a separate issue.

The 50-75%, 99%, 25%, whatever, is somewhat subjective based on the appraiser's opinion of the property rights conveyed by the easement document.

Technically, the award should be based on the Value Before - the Value After. Oftentimes the easement has no discernable effect on the value and can even increase the value "After" (bringing utilities to a site that has none) but this really doesn't matter. The owner WILL be paid something, 4th or 5th Amendment thing; can't take property (property rights) without just compensation.

But most of this is predicated on the threat of eminent domain. An agreement between property owners is outside of the realm of Market Value unless one or the other is merely curious about the effect on the market value of the easement on the real estate. If a part of a parcel has an ingress easement and the owner wants to grant a similar easement on the same part of the property, I think it would be difficult to argue that the value is affected at all. Value of an Access easement over an access easement? Depends on whether the nature/quantity of the access traffic will change significantly. If it turns an occasional use drive into a virtual freeway with large trucks 24/7, then there might be a good argument for damages to the remainder of the site.

Good analysis, Mark. I agree with you!

 

[Serge Paquette]

Seems to me the answer would rely on game theory. Easement value to the property getting the access easement is X (value with easement less value without easement)and easement value to the property granting the easement is $0 or real close to $0. So now how much is the owner benefitting from the easement willing to pay. The value is $0 to X.