Appraising An Easement In An Easement

[Mark K]

I recently found this site and have a question regarding an appraisal assignment.

My background is that I appraise residential and smaller commercial properties, about 50/50, in a small town in Indiana. About 25% of my business is eminent domain, road/waterline/sewer line easements, etc. My current assingment calls for appraising a sewer utility easement through the back yard of about 20 homes in an established area of 25-35 yr. old homes on well and septic systems.

The interesting part is that this sewer line is running along a small creek that is in a "legal drain". This legal drain is effectively a drainage easement in favor of the County and was in place prior to platting the subdivision. The legal drain is more of a "right-of-entry" for maintenance of a strip of land, 75' on each side of of the center line of the creek. The county has the right to remove vegetation, undergrowth, trees, rebuild the creekway, and perform basically anything they deem necessary to facilitate moving water downstream.

Now comes the local sewer utility to install a sewer line in this "drain". The county drainage board controls the surface and their rights do not necessarily include allowing others to enter the property for things like water or sewer lines. The locall sewer utility will have to purchase an easement.

My question to any others that have encountered a similar situation is how much of a discount to fee value to assign to the property within the easement area before damaging it even further with another easement. FYI, the homes are in the $150,000 range with the land value at about $1.00/SF.

My train of thought is that the land is already adversely affected maybe 50-75% of the fee value leaving a starting value at about 25-50 cents/SF. I typically damage a utility easement at 80-90% of the fee since they generally leave the owners with very few remaining rights of use.

Does this make sense or am I overlooking something?

Thanks for any comments or input.

 

[George Hatch]

This is a new one on me. I really don't know the answer to this, so I'll just offer an opinion along with an explanation of why I have it.

The original easement already restricts what the property owners can do on their sites. The additional easement doesn't seem to infringe any further on those rights, so I don't see how there are any additional losses to try and quantify.

The additional easement might have an adverse effect on the original easement, though. How you would go about valuing that is beyond me.

 

[Bill_FL]

I am with George on this one. Where is the damage to the property owner in installing a sewer pipe under ground in an easement that all ready exists?

That said, how are they getting this past the enviro's? A sewer pipe in a creek drain field?

 

[Mark K]

I just spoke with the County Surveyor and he indicates that the homeowners will have to be compensated to some degree. The county does not have the authority to grant permission to others for access to this drain. Because of this, the sewer company will have to purchase an easement. They found this out a few years ago when they granted access for a sewer line in the legal drain and a homeowner had construction stopped. The court said the homeowners were entitled to compensation. I'm still looking into that one for info.

The enviro's have a fairly fragile foothold in this state. I think the need for sewers trumps the potential damage to the creekway in this area. Once the DNR signs off, which they always do, its a done deal.

From an appraisal standpoint, I can't see any additional damage. From a practical and legal (at least in this area) standpoint, the homeowners will have to be paid something. I'm just trying to figure out how much.

Thanks for the input.

MK

 

[Ken in Arkansas]

Why do they "have to be paid something"? If the value before the taking is "X", and the value after is still "X", where is the basis for just compensation? If damages are done to lands outside the existing easement that is another matter. Your point about compensation to the holder of the existing easement is something that I have never encountered, but I would think that if that easement holder is not damaged, what is the basis for damages?

My $0.02.

 

[Bill_FL]

Mark,

Just a thought, but are there any rented ag grazing fields in the area that have transmission lines? That would be a good way to find out the capitalized value of land that can not be improved? Then look at rented land that does not have the lines? Difference is the value?

Tough assignment.

 

[Mark K]

To answer the question "Why do they have to be paid something?", bottom line is because a judge has said exactly that in an identical previous case. We can argue appraisal theory all day but in the end, we do what the judge says in cases of eminent domain. Judges are elected around here and they tend to give the homeowners the benefit of the doubt. And if it goes to a jury trial, which these sometimes do, you never know what a jury will do but I guarantee, they'll award some compensation to the landowner. Sometimes a reasonable award, sometimes outrageous; its a crap shoot.

The local municipality has agreed with the landowners that they will be compensated mostly because its cheaper to pay for an easement than to take 20+ landowners to trial. Besides, this project is being completed with only local money, no federal or state funds and because of this, the state and federal guidelines for property acquisition do not apply. If it was a state or federally funded project, the owners probably would get nothing for the easement in the legal drain area. In those cases, the state will spend $50,000 to avoid paying $10,000. The local town can't afford that.

This is one of those cases where appraisal theory and the real world collide. I guess that I'm just curious if another appraiser has encountered the same or similar situation and how it was addressed.

As far as leased grazing land, around here its strictly rowcrops, corn and beans. The farmers pay about $90-$150/acre with or without powerlines, easements, etc.

I was thinking last night about this and one solution might be to consider the drain area as flood ground, which it basically is, and base the land value on flood ground value as opposed to the subdivision building lot value $1.00/SF. Around here flood ground value is about 15 cents/SF. I think I can make the arguement that the owners still have about the same uses in the drain area that they would have in a floodway or flood plain (very limited) and ignore(make note of it only) the existing "legal drain" status. I have some decent flood plain comps at 10-20 cents/SF that were used for retention areas, town well fields, soccer fields, parks, etc.

Thanks for the input. Sometimes just kicking something around will trigger an idea.

 

[Tom Hildebrandt]

Mark

I have had to address a very similar issue in my home town of NC.

Before I get into the specifics, I would note that in NC, there are two laws for eminent domain. The one for the NC Department of Transportation mirrors the tyoical federal government requirements and requires a before and after approach, which allows for benifits to offset the damages and the taking. So there can be instances where the landowner is not paid anything for the acquisition.

The second statue, under which municipalities and utility companies fall, requires the take plus damages approach. The landowner is always entitled to the minimum of the value of the taking regardless of whether the proper is positively benefited by improvements generated by the condemnor.

I would bet that a little research into the underlying law will reveal that the judge in your case had a law along the lines of the one in NC that requires for the owner to be compensated, at least nominally for any acquisition.

As to how to value the take of part of an easement, I think you thoughts are on target as to allocation between the existing easement and the additional acquisition of the other easement. That is what I did in the assignments I had, a gas line in a utility (sewer, electric) easement area, and a cable line in a street right of way.

Typical practice in our area is that the actual taking of drainage easements run 10-20% rather than 50-75% of the fee plus any damages to the remainder. Sewer easements run 75% 90% of the fee, plus damages to the remainder.

The reasoning is that drainage easements are very common, and lot values do not seem to be greatly impacted unless the drainage area is in the middle of the useable area. This results in a situation where the actual taking is very slight, but there are probably substantive damages to the remainder. Sewer easements usually include the rights associated with the drainage area, plus the underground rights, hence more a more significant taking than a drainage easement.

Unless the area in flood plain is excess land, I would not use the flood plain value as a basis, I would use the lot value per square foot particularly if you derived the per square foot price from lots similarly impacted by low areas. So, in my market you would have a total loss of say 90% of $1.00 or $0.90 of which about 10% of $1.00 has already been taken, the result is that the value would be about $0.80 P/S/F involved in the take as you describe it, plus any other damages that might be a result of the acquisition.

Typical in our market, the appraiser places a nominal value on trees and shrubbery as damages even though theory would make them part of the take by other easements, and also again as theory, they are part of the take.

The condemnor almost without excepption approves this as it is to hard for the condenor to explain the concept that trees and shrubs are really part of the take. Also, the dollar values we are talking in these kinds of acquisitions is really very modest, often less less than $1,000 and seldom more than $2,000.

Have I clouded muddy waters too much?

Regards

Tom Hildebrandt GAA

 

[Mark K]

Thanks much for the reply and you have not clouded the already muddy waters at all. I think you have perceived the problem very clearly and obviously have encountered examples of "judicial discretion" involved in some of these cases.

It sounds like the state laws of Indiana and NC are very similar in regards to State/Federal projects and offsetting benefits vs. damages and the reality of the local municipalities writing their own guidelines when they use only local money. In many cases, sewers have enhanced property value but the owner still gets paid for the easement taking.

I've been leaning more towards damaging the property as opposed to using flood plain ground and think you've convinced me. This "legal drain" is somewhat different than the typical "drainage easement" found on most subdivision lots in that these drains are more often found in suburban or rural areas and they are significantly larger than the typical easement. By Code, these drains are 75' on each side of the center line or from the top of the open ditch, so at a minimum are 150' wide. Plus the county has the right to remove anything in the way within the drain area, including trees, gardens, landscaping, barns, fences, etc. In the subject subdivision, the lots are 3/4 to 1 acre, typically 125 - 150' wide and 200 -250 deep. This 75' wide drain at the rear of the lot takes a fairly large bite out of the site and I will be surprised if I don't encounter some cost-to-cure (local decision) issues for wells or septic systems installed illegally in the drainage area.

I've been asking around some eminent domain appraisers and there seems to be a 50% number that keeps coming up for the original drainage damage. Say $1.00/SF unencumbered, 50 cent/SF drainage value and then 90% damage for sewer line plus as you say, bushes,lawn,trees, etc. I'm starting to see a 45 cents/SF number in my future for the perm. esmt. plus compensation for improvements (that aren't supposed to be there), temp. const. easement, trees, etc.

Thanks for the reply.

 

[Tom Hildebrandt]

Mark

Sounds like you are on the track I would take and have thought through most of the issues.

Good luck!

Regards

Tom Hildebrandt GAA