Improved Parcel with a Dry Well

[Stephen Wood]

I have an assignment (conventional refinance) for a property located in a rural property subdivision yesterday that turns out to have a dry well. This is the only water supply to the property. The borrower stated that the well has gone dry periodically over the last two years. If any Tennessee appraisers out there see this, the property is located in Cumberland County, just past the Roane/Cumberland County lines.

The owners are currently collecting rain water in an underground cistern for laundry, etc. You should see what the have contrived...a downspout running from the house gutters at about a 45 degree angle to the cistern 100' from the house. They bring in water for drinking and bathing.

I reported this to the lender who wants to continue with the appraisal. Their instructions? Do your best !

The city (Crab Orchard, TN) plans to run water lines to this subdivision and is in the bidding process now. They hope to have the work completed by late fall. The cost to connect when (and if) this work in completed is low, $750.00for the connection fee plus the cost to run a water to the meter.

I am really not sure how to approach this one. I admit to having not yet looked for a comparable sale with a similar situation. Something tells me this is not going to be easy to find. I have several ideas, none of which I particurly like. Rather than tossing those out for discussion, I wondered if anyone had run across a similar situation and how they handled it.
I'm stumped.

 

[RSW]

Wow! I have been appraising for many years and have never had a situation like that. I don't know if the lender is going to accept a property that does not have a permanent water source such as a well or public water. You will need to try to abstract from the market what the effect of a dry well has on the subject's value. It may be impossible to locate any sales that have a dry well and that sold while it had a dry well. You cannot value the property today on the speculation that public water is going to be available in the future. Things can happen that would stop the water from being installed. I just don't know. Is this a conventional loan or an FHA?

 

[Wayne Tomlinson]

There are several areas in Illinois which have wells that only provide a minimal amount of water, then water is hauled from town.

In my area about half of the houses came with a pick up truck with a tank in the back.

My county now has public water to almost all areas. Most of the areas have a public water district, partially funded by Rural Development. The county next door is just now getting ther rural water.

I grew up with a well in the front yard, a cistern in the back yard.

Not too far away was a faciity that served its function quite well, and did not need water.

When those things were moved inside, water wells could not usually supply the greatly increased water needed for the Modern facility.

I remember an old gentleman who I knew well. He purchased a farm with USDA financing. As a part of the deal, the government requiered him to test and bring the fertilty up to par, they also required that the house have indoor plumbing.

I went by as they were building a pond to have adequate water for the running water. I complimented him on the nice well.

He grunted and said that he had to put in a toilet in the house,

Quote: "You know, they tell me some people will be working in the barn, and go into the housew to sh-t!!!". I agreed with him that seemed like a waste.

That was with government financing. So, in that instance, he was required to have running water.

Wayne Tomlinson

 

[Ray Miller]

I have never appraised a home with out a well or continual water supply.

I have owned homes that had cisterns and you had potable water hauled in and unloaded in the cistern. We also had rain water cisterns for potable water.

Back in Missouri thier use to be a number of water haulers that made a living hauling water to peoples homes. I don't know if they still do it or not now days.

 

[Stephen Wood]

I really appreciate the responses. I have also talked to a couple of local appraisers who have never come across a situation like this either. Since my original post, I have searched for a sale anywhere in Eastern Tennessee that seemed remotely similar, even with the cistern that Ray suggested. No luck. Its hard for me to believe the lender really wants to make this loan but they are insisting I come up with an "as-is" value with no assumptions or conditons. Wish me luck ! I sure wish I had known what I was getting into before I accepted the assignment.

 

[RSW]

I really appreciate the responses. I have also talked to a couple of local appraisers who have never come across a situation like this either. Since my original post, I have searched for a sale anywhere in Eastern Tennessee that seemed remotely similar, even with the cistern that Ray suggested. No luck. Its hard for me to believe the lender really wants to make this loan but they are insisting I come up with an "as-is" value with no assumptions or conditons. Wish me luck ! I sure wish I had known what I was getting into before I accepted the assignment.

You can always decline the order even if you have already visited the subject property. I've done it before!

 

[Richard Carlsen]

I've run into dry wells twice over the years. Since the assignments were "as is" and in the last one the new 1004 reporting form was mandated and an extra-ordinary assumption could not be made, I simply stated in the report that there is evidence that the current water supply system is not functioning as intended and made the report "subject to certification by a licensed professional or county authority, that the private water well system is operating as intended and safe for use."

Now I can do the appraisal as though the system in place is working and if it is not, then the condition on the report will not be removed and the report cannot be used for lending consideration. The operation or non-operation of the private water well now becomes the responsibility of someone else and not mine since such definitive determination is not part of the appraisal process nor am I competent in making such determination.

 

[Mark K]

I


I reported this to the lender who wants to continue with the appraisal. Their instructions? Do your best !

Value it as though you might have to buy it next month/year. (municipal projects are always getting delayed/canceled)

Borrower walks; bank repos the property; bank looks at you and says "Hey, Mr. Appraiser, you said it was worth $zzz. You can either buy it for that much or we sue you."

I'd report the value "subject to" installation of municipal water or "as-is" value of a storage building. A residential dwelling without water service is not living space.

Anything else is pure speculation.

 

[Richard Carlsen]

Value it as though you might have to buy it next month/year. (municipal projects are always getting delayed/canceled)

I respectfully disagree with you Mark.

The only way you can "Value" the property is IAW the definition of market value agreed to with the client; in this case I assume the FNMA preprinted definition will apply. That is right from USPAP. The assignment conditions are, I assume, "as is" so you must determine if the water system installed in the house is functioning as intended. If it is not or appears to not be so functioning, you simply condition the value contained in the report on certification by a competent authority that you are willing to hang your hat on that it is functioning as intended. This takes you out of the decision making loop as to the sufficiency of catching rain water and a possible old, malfunctioning well and puts you back in the appraisal business. You also do not have to pretend anything. Such mind games are hard to explain, most often because they have little justification when viewed in the light of the assignment conditions.

 

[CANative]

Can the well be drilled deeper or in a different spot on the property? Why did the well go dry? Do nearby properties have a similar problem? I think you need to dig a little more before pulling the trigger on this one.

I've done a couple of these. One was last month. The well could only pump 1/2 gpm and could not produce enough water for full time occupation. Many of the surrounding properties have similar problems and there is a rural HOA that has a community water system fed by springs. Water has to be trucked up to the residence.

I've done a couple in the remote areas of Mendocino's interior where no had had drilled a well or found a spring and developed it. They had to buy water and have it delivered. A whole bunch of miles up winding dirt logging roads.

I made an adjustment to the comps for the full cost of developing a water well system.