Appraising a private road

[Verne Hebert]

This is the first time I have seen this one.

I am doing a restrospective appraisal assignment for a family trust. It consists of a number of properties, one of these properties is the fee simple ownership of a private road (3.94 acres) which accesses 10 residential properties from a county road. The family trust owns the private road, one vacant lot in this "subdivision", and the adjacent 95 acre tract to the west; the easterly boundary is a river.

Any thoughts on the process to value the private road?

 

[Jeff Horton]

Man now thats a challenge. Are you just valuing the land the road is on or the use of the road? In my mind that could make a big difference. The land has a single Highest and best use, the road. (I am assuming its a narrow strip of land or ROW) The real value in land is the road or the use of the road for access. If you need access it's pretty valuable. If you have access to you land without it it's not worth much to you. Gee, guess it depends on who are as to the value.

OK, I was rambling. Interesting to see what you come up with.

One thought might be what is the land worth without the road and what it is worth with the access. Maybe the difference is the value of the road?

Whoops, I am thinking out loud again.

 

[airphoto]

Have precisely that circumstance with a neighbor of mine .. owns private road with executor's deed filed in 1978. Here's the circumstances: although he owns full title to the road, he cannot build on it, cannot prevent any of his neighbors from the use of it .. and maintains an umbrella insurance policy to protect him from being sued if any clown is injured on the road. Further, although the neighboring clowns are free to use the road, they are not required to contribute to the maintenance of it. There is no tax assessment on the parcel, as he'd simply not pay the taxes which would require the municipality to foreclose on it and take it off'n his hands ..

So .. what's this road worth? It's not marketable .. who'd wish to own the responsiblity with no gain in use? Yes, he can prevent non-residents from traveling over it, but to what purpose?

 

[xmrdfghap]

I agree with you Bill, if anything it would have a negative value........maintenence costs without any hope of income. At least with a driveway, you can estimate construction costs and have it added to the value of the parcel as a whole......but in this case, having to make it available to the public without any benefit for yourself.......

 

[Verne Hebert]

Now we are clearing the cobwebs out!

Jeff-good thoughts--I have walked those roads too--without access, the value of these tracts are about 10 % of the market value with access.


Air Photo-

This fee simple ownership is taxed-and the trust pays it ( I don't know if they allocate it back or not; its about $ 150.00/year). If they ceased to pay the taxes, I suspect the title company, on behalf of at least one owner, would have to buy it to allow continued access-this is also food for thought. Maintenance is shared with no written agreement.

And I have to agree with you, it is not marketable............to the typical buyer.......... but to the 10 current tract owners this access makes their property not only 10 times more valuable but allows the full utility of these desirable sites.

I am been saving this one til after the holidays; I have been doing research along the way with regard to the other tracts and throwing the relevant data to this parcel in the file (the Julia Child's method).

But a thought I have is: this parcel should be worth no less than a partial acquistion value, on a unit basis, of the 90 acre tract it was cut from (on a per acre or per square foot basis) when deeded.

But I hear what you are saying, market value dictates the reflection of the typical buyer by definition--and the problem here is we only have 10 "typical buyers".

 

[Bill_FL]

Verne,

Perhaps I read too fast, but on this private road, is there deeded ROW to the other properties? IF so, I would agree with Greg that it would seem to have a negative value.

If not, what is the going rate for a Turnpike type toll? :wink:

 

[airphoto]

Verne,

Not knowing Montana, but here in New York there is an acquired right to access .. ten years of use can result in a right-of-way or even outright ownership by 'adverse possession.' The term for the right-of-way is that it is acquired by appurtenance. If this private road has been 'in use' by the parcel owners for the requisite period, they cannot be denied access. Also, in this state there is no such thing as a 'landlocked' parcel .. everyone has a right to access to their parcel. They may have to compensate the nearby owner for the right-of-way, but they cannot be denied reasonable access.

Having said that, how does it relate to your circumstance?

 

[Verne Hebert]

Yes. Deeded rightofway along this private road, for effectively ingress/egress and utilities does exists for the other 9 lots.

Sidenote: This particular county would not allow this type of road ownership if subdivided and recorded today. The ownership would be an undivided interest to all parcels of 1/10 with taxes allocated to the parcels individually.



Now treating this as a unique parcel, saleable in fee simple interest, but with with no market; there is no sales data. How do we measure the value (negative)???????



Bill-

The right of way laws in Montana are complicated, but what you are talking about somewhat parallels "easement in use".

Also, in Montana there are "landlocked" parcels with any access made by private party arrangement only, with no possibility of government intervention. I have dealt with a number of cases where folks have moved here, or purchased land here, that are "landlocked" thinking the government would intervene; and after going all the way to the supreme court realized that "hey, there is no access and the government is not going to force anyone to give me access, by any means".


And in this state, the 9 parcel holders will always have deeded access. If the owner of the road (again who also owns a lot) goes into tax default and someone "procures" the road by paying back taxes they cannot deny access to the trust lot holder either.

 

[Fred]

Someone mentioned adverse possession. I would call it prescriptive easement. Either way. there is a question as to whether the road is actually private property.

There are several ways to measure the negative value. Depending on the exact purpose and intended use of the assignment, there are other issues: like whether you only need the negative value of the road ownership or whether you would have to consider the incremental value to the other trust-owned parcel created by the trust's interest in the road for some type of offset to a net value of all property owned.

On a stand-alone basis, the negative value of the road is the capitalized holding costs during the period of cure, plus the fair cost of curing the problem. The difficulty of this type of situation is that the problem may not whittle down to one cure. And this is where some consulting fees may be warranted. Is this parcel assessed? A prudent "seller" might be well-advised to stop paying the property taxes and wait for the government to seize the road.

 

[Verne Hebert]

Steven-

Montana is a little "rustic" in many of its laws. You can spit on the street however. In this area a large number of tracts are H.O.E. ("homestead entries") and not C.O.S. (certificate of surveys). Nearly all were surveyed when Teddy was in office for the primary purpose of running railroad tracks.

This private road is what here, if often referred to as a "fee strip". It has a unique geocode, tax assessor number, title policy and the owner(s) pays taxes--------but I hear what you are infering.

This "tract" is one of 27 in a "bundle" of property being valued for the purpose of "basis" due to the death of one of the two trust trustees. So yes, the summation of the negative value this tract would contribute to the whole is an issue----the reality is, however, this small negative value would little affect the whole (less than 0.05%-a good guess); nonetheless it needs to be valued.

In Montana the government does not "seize" land. If the owner stops paying the taxes; and default occurs--someone can step up and pay the taxes and obtain the deed--I have seen it here before-big deal. All previous access rights continue. If no ones steps up the county reluctantly waits with no tax income on the parcel until some sucker steps up. So yes the owner could stop paying the taxes; but on their holdings, $ 150.00 a year beats the potential headaches.

First the private road needs to be valued on a standalone basis (because it is an individual saleable tract of land).

Can you elaborate on the capitalized holding costs, period of cure, and cost of curing the problem?


The next segment of the assignment will consider the value of the trust owned parcel (1/2 acre developable to SFR), and any incremental value to this parcel (private road) contributes to the trust owned parcel. Any thoughts on this valuation?