Shared Well

[TEL2002]

Greg said.... "then it's possible that on a whim the water source owner could turn off the tap."

In 1983 I bought a 4 plex in Mississippi. There was a shared well. I provided the water to three mobile homes on the next parcel. After putting up with their nonsense (broken water line & they don't fix it...they just let it run & my pump keeps pumping, etc.) for 1 year, I gave them 60 days to drill a well and then I would cut them off. They each were paying $10 a month (sometimes) for water. After 60 days they had done nothing, but I cut off the water pipe to their property and capped it. They dug it up & patched the pipe. I reversed it. This we did 3 times. The last time I dug the water line up all the way to the pump...nothing left to patch.

Regarding the appraisal...just report it, let the UW earn their check.

 

[Brad Ellis]

Richard,

Greg pointed out the problem.

I think I still have a couple of these in inventory.

The law suits will probably take some time, but they are different because the appraiser failed to even tell us about the shared well. This case is different.

But, as a lender/client, I will assure you that by insisting and demanding on a legal document shownf the actual status (or lack thereof) I will have been saved from making a stupid loan.

I would never think an appraiser is being childish or petulant by making these demands. None of our underwriters would think so either, and I can certify that from actual experience.

Brad

 

[Marcia Langley]

Brad,

So, are you saying that a subject shared well for a Fannie job should have the EA box checked "subject to" the client's receiving assurance of a shared well agreement? Would this be true whether the well was on the adjacent property or on the subject property?

In my area residential properties with shared wells sell in the same price range as other properties. There is not a discernible difference in marketability.

The issue seems to be more about the security of the loan than the affect on market value. (Notwithstanding properties like Greg's where problems have already arisen). It seems like if the appraiser reports the shared well arrangement and remarks on whether they were able to discover a shared well agreement, then it is the lender who must satisfy their own requirements for leagal instruments, not the appraiser.

I would not have a problem making my opinion of value subject to an EA in the case of a shared well, but what if one really can't find a difference in Market Value, then what? What if the lender wants another appraisal that is not "subject to" an agreement in place, but rather the known fact that an agreement does not exist? One would have to opine the same value but without the EA.

Like the guys said, the appraiser can't demand such things prior to completion of the appraisal. Only the lender is in a position to demand an agreement in order to close the loan.

An EA makes the opinion subject to an assumption. It does not make the loan closing subject to an assumption, only the lender can do that.

 

[hastalavista]

Marcia-

I'll piggy-back on your post and add this:

I've been in the situation with shared wells, small mutual company wells (less than six neighbors), mutual wells (20+ customers), etc.

If the water system is anything other than a public utility (which is the standard in the region), then I will make a comment in the report. In some areas, it is "typical", and I will say so. In some (usually, where unincorporated areas have been "incorporated") it isn't, and will say so. I will not make my report "subject to". I will state the status (private/on-site, shared with neighbor/off-site, mutual, etc.). I will typically put the statement in bold and then state that while I was on site, the system appeared to be functional, but a quality/condition rating of the system is beyond my Scope and Expertise, and my comments herein are part of my full disclosure/due diligence requirements.

I go on and value the property, giving the well's configuration consideration in that value, as Richard suggests. I leave it up to the client to take it from there (and, sometimes I get a call back from the broker who says, "Because you put that statement in there, they are holding up my deal!". To which I usually respond, "Well, if it is holding up your deal, I guess they consider it worth knowing, don't you think?").

So, while I wouldn't make the report "subject to", I'd make it clear in my report to the lender what the deal was. If they don't have Brad's eagle-eyes, shame on them.

 

[CANative]

The EA is for the appraisers protection because bottom line you are making a unilateral decision that the water source is as legally dependable as a private well, spring, mutual water, or public water source.

Fannie Mae has directed us not to make unilateral decisions about unknown conditions that may adversely impact on value or marketability. Our signature on their pre-printed forms is our certfication that we have not made these types of decisions. That was the whole idea of changing the forms and certs.

Wasn't it?

 

[Marcia Langley]

Greg,

Just so I'm understanding correctly, are you saying you always check CB4 for shared wells on Fannie jobs? Or maybe that you always do it when you have not been provided with an agreement?

 

[Kevin A. Spellman]

If the deed does not address the use and or the maintenance of the well, then you must. You should introduce the cost to replace the well. It may be necessary for this cost to appear in both the market and cost approach. A typical buyer would recognize this issue and would react accordingly

 

[CANative]

Greg,

Just so I'm understanding correctly, are you saying you always check CB4 for shared wells on Fannie jobs? Or maybe that you always do it when you have not been provided with an agreement?

Prior to using the revised forms I just described the condition and recommended that the client use due diligence. Since the new forms I have managed obtain agreements from the property owners. But if I couldn't then I would check CB4. The differnce between the new forms and the old forms (in my mind) is the the certifications and Fannie Mae proclamations seem to be more specific and "feel" like these are that type of issues that caused them to go on the warpath.

I don't know. I struggle every day with these decisions.

 

[Vegan702]

Wow, good stuff in here! I am in this same situation, except I am a owner with a shared well. I purchased my home about 2 years ago and there are 4 lots in my cul-de-sac with 3 of them being built on in the last 15 years. When I purchased my home I was never provided a well agreement and neither was the appraiser that appraised the home, nor did they mention it was shared in the report, actually 2 appraisers as there were 2 appraisals done on the home. Now I just put my home on the market today and looks like I need to be asking for an agreement from my neighbor. We currently just split the bill 3ways every month for the electric to run the pump and whoever has been living in the cul-de-sac the longest takes on the responsibility of paying the bill and maintaining our account for repairs.

 

[Marcia Langley]

I don't know. I struggle every day with these decisions.

Greg,

I sure do know what you mean!

I'm thinking that it could depend on the market reaction for any given area. In an area where there is generally a discernible price difference it would seem appropriate to make the opinion of value subject to an agreement. In a market that does not appear to react adversely, maybe not.