Shared Well

[Doug Wegener]

I dont agree an adjustment should be made. If you cant extract a basis for an adjustment then an adjustment should not be made.

A property with a shared well which has adequate water for both properties and a well easement/agreement would not be negatively impacted. Show me the paired sales that prove they are.

That is an unsupported adjustment.

 

[Doug Wegener]

I almost forgot this. While not a paired set, it was convincing to me.

Several years back I appraised a property that had a high producing well. I dont remember the exact amount but it was 40-50 gpm. In other words, a well with clearly excess capacity.

The owner had recently sold a 5 gallon per minute shared well interest in the well to a neighbor with a low producing well for $5000. A "tyical well" at that time in Josephine County was costing about $5000. Of course, it could be more depending on how far they had to drill etc.

From the perspective of the shared well purchaser it made sense. When you drill a well you dont know exactly what the depth or cost will be, or even for sure that you are going to get water for that matter.

However, in this case the purchaser could be guaranteed a certain amount of water with a certain purity for his $5000.

In other words, the buyer was willing to pay as much for a shared well interest as it would have cost him to drill a well.

The appraisal of principle of substitution is at work here. And to me it was evidence that no adjustment should be made for shared wells, absent clear and convincing market evidence to the contrary.

 

[hastalavista]

I dont agree an adjustment should be made. If you cant extract a basis for an adjustment then an adjustment should not be made.

Doug-

Not all adjustments can be market extracted and don't need to be.
If, based on the appraiser's opinion, there is a negative influence to a property, it should be analyzed. If there is no "paired sales" to pair-up, which would happen in this specific since the poster said the arrangement was unusual, then the appraiser can use other methods. For this specific, it would be relatively easy to say the adjustment is no more than the cost of a new well, and take the process from there.

BTW, I'm in much agreement with your quote above if one is talking about an upward adjustment. But in a negative influence/condition scenario, there are several ways it can be addressed.

To apply your statement to another example, what if one was appraising a 4-story house (no elevators) in a neighborhood where the max was 2-story. The appraiser concludes that having 4-floors to walk up and down would be a negative impact on appeal, and limit the potential buyer pool. There are no other similar homes to analyze and extract an adjustment, and one would have to use another method to determine a reasonable effect/adjustment.
So, in this case, since there is no sales to extract the adjustment from, should one not make an adjustment?

 

[Joanne Rauenzahn]

Relatives, U usually have to take them fer a ride in the trunk, over bumby roads for long periods of time before they git the drift........ROFL

 

[Mark K]

I dont agree an adjustment should be made. If you cant extract a basis for an adjustment then an adjustment should not be made.

A reasonable basis for adjustment could be calling some local brokers and asking them how they think a typical buyer in the area would respond. Positive, negative, indifferent. I suspect that in most areas, the typical buyer (the "market") would prefer to have their own water supply as opposed to sharing a well with a neighbor. Our job is to attempt to quantify this desire.

I would make an adjustment and the dollar amount would be contingent on the cost of a new well combined with the level of the response.

Given the choice between two identical houses, one with its own water supply and one with a shared well, I think its safe to say that most buyers would prefer their own well.

 

[Doug Wegener]

"Given the choice between two identical houses, one with its own water supply and one with a shared well, I think its safe to say that most buyers would prefer their own well"

What if the well on its own property was a low producing well. I think buyers would prefer a good shared well than a poor well on their own property. See the example I used to illustrate this.

Anyway, that doesnt translate into lower value for a shared well. Some things are more marketability issues than value issues. Maybe a shared well would just take longer to sell.

In rural areas with acreage and wells home are rarely identical though.
I think a good agent could overcome any resistance by a buyer by pointing out the quality and quantity of the water of the shared well as well as thier legal right to it by an agreement.

Should you really be making those kind of adjustments if your not sure thats how the market acts?

 

[Richard Carlsen]

That is an unsupported adjustment.

Yep. Sure is. Not enough market data to really prove it one way or the other but based on experience, discussions with brokers, reading comments/addendum's to PA's, etc. it is the appraisers best estimate of the market impact of this element.

If it is what I really think the market has been telling me for 30 years or so but cannot prove, it would be misleading to the client not to make the adjustment. That's what they pay me the big bucks to do.

 

[Mike Boyd]

I have to say the GREG is correct. You may not be able to install a separate well for a variety of reasons. While shared wells may not be typical they are not uncommon. What is a public water system? Do they not have a common source or sources? There must be an agreement and there must be an easement. Otherwise, lacking any market data that proves otherwise, I see no basis for an adjustment. I would recommend a well test for quantity and quality to ascertain if there is adequate amounts available to each property as well as the quality of the water.

 

[TEL2002]

The property with the well I would assume picks up a lot of liability for have a well with drinkable water. If the water becomes tainted in some manner....you might get your buns sued. Do you not, in a sense, become a utility company providing water to your neighbor????

Hey, it's 5:00 and time to go pound nails in my deck. Wells are just too deep of a topic for my brain at this time.

 

[Brian Weaver]

Typically, lenders will only loan on shared well properties IF the shared well is in control of the borrower.

There may be exceptions...but this is typical policy for many lenders.