Valuing An Easement - Methodology

[Richard Carlsen]

One of the local brokers called this morning with an appraisal question in an area where I have no experience whatsoever. Perhaps someone can give me a simple reply that I could pass on to him (remember, we are dealing with a real estate broker here)

Background: This broker is dealing with a gentleman who owns a 160 acre parcel that was purchased some years ago. At the time of purchase, everyone thought there were a lot of verbal agreements in place about easements but now it turns out that they would not hold water and the 160 acres is essentially landlocked. There will apparently be some court action to unlock the access utilizing a ROW or easement.

What the broker would like to know is this: What is the methodology for forming an opinion of value for a ROW or easement? The easement would, of necessity, be 66ft with access to all potential owners of land for the legal splits of the 160 acres. In other words, how does one arrive at an opinion of the value of a ROW or an easement?

Short answers that I can pass on would be appreciated.

 

[Otis Key]

I'm not experienced in the valuation of easements but I was wondering about something. Does your state have prescriptive easement rights? How long has there been this "Illegal" access to this 160 acres? Also, I don't think that the courts have permitted someone to be landlocked when there has been access for many years. I'm not an attorney, but's that's where I'd point them towards.

 

[ccooper]

No simple answer Richard. We had an instance where we had to appraise a land locked subject. We found other land locked comps from all over. Tried to figure out through matched pairs in the neighborhood of the land locked comps, how much were they "damaged". Varied from in excess of 50% for raw land.

Another instance involved a house and 40 acres that was landlocked. We estimated the cost to cure and made a depreciation adjustment. Cost to cure was "guesstimated" by interviewing attorneys and getting realistic estimates upon how much it would cost in attorney's fees to sue to gain right of way across other property. Note, adverse possession was not a possibility here since the adjoining land owner (family member before brother lost his house and 40 (subject) to the bank) quickly ran out and posted no trespassing signs and chained the driveway off well under the 10 year adverse possession deadline. Is adverse possession an option in this instance?? If so, the court battle might be easier than just suing for ROW.

The amount of "damages" to the property you have to cross is another topic that would depend upon the affect of the easement on the affected property. Can you still run cattle all over it or would you have to put up 66 feet of new fencing ( times 2).

Good Luck,
Chris

 

[Ted Martin]

Access to the 160 may be granted but access for purposes of spliting the 160 might not.

 

[Steve Owen]

What is the methodology for forming an opinion of value for a ROW or easement?

The shortest, simplest answer is before and after value. You first appraise the tract from which the easement will be taken, then determine what the appraised value of that tract (not the 160 acres, but the tract from which the easement will be taken) is after the easement is in place. In theory, the difference gives you the value of the easement.

However, in practical life some other (many other) rubs may come in. One of the most common is something called damage to the remainder. An example would be if the tract the easement was going to cross was laid out in such a way that the easement could not cross without cutting of a small corner of that tract (let's say two acres for the sake of discussion). The owner of that tract could argue that the remainder of his tract after the easement was taken was damaged by loss of use of that two acres and therefore he should be paid additional damages. Of course, the appraiser should take such damages into consideration.

Easements are sometimes valued on a per sq ft basis based on the per unit value of the land. Doing so is almost always misleading and wrong.

 

[Mike Boyd]

Richard,

Easements are valued by determining the loss of value to the property(s) that would be giving up the easement. In California, Prescriptive Easements are almost always granted by the courts if there is no other access, which would result in appraisals ordered by that court. If appraaisals are already in place and if the appraiser(s) are deemed expert witnesses the court may allow them as evidence.

He will probably ask how you determine the prospective loss of value by the granting of the easement. I might suggest to him that he should take Appraisal 101 for continuing education for his broker's license. However, if he is a friend then you might look it up and give him a perview. It is kind of complicated for a non appraiser even if he is a broker. There is also room for subjective opinions such as determining what aspect other than size diminishes the value.

There might also be a case for Adverse Possession rather than obtaining a presescriptive easement. For appraisal purposes, the job of estimating value is the same although there may be no money damages and no reason for appraisals.

On a prescriptive easement where the court makes a determination, the fee and some proceedures might change if it is anticipated that there will active and determined objections by the property owners. I have not experienced that but someone in this forum is a specialist in this type of thing. I can't remember his name but perhaps he will see the post and answer.

 

[Verne Hebert]

It sounds like the precursor to you question is either the title company or the broker's policy will be attempting to purchase an access, and like a utility easement, from the adjacent owner(s).

I think Steve and Mike nailed it, simply.

A significant issue in these assignments is a change in highest and best use from the before and the after uses.

In Montana landlocked is landlocked. No gifts from the courts. My question is: how would an access easement be obtained if the adjacent landowners are unwilling? Does Minnesota then approach this as eminent domain? I don't see how the state could. What is the public benefit?

 

[Steve Owen]

That's interesting (Montana law), but in Missouri (and I believe, in most states) you cannot leave a landlocked property landlocked. If the property owner wants access the courts will grant it... but, not without just compensation. The public good is that you cannot keep a person off of their own property. I believe that goes back in English common law to pretty ancient history.

If you had told us Lousiana was different I would not have been too surprised. But, Montana? Wow. How about folks from other states... do you know how your state handles this?

 

[Mark K]

First you have to determine how many of the rights in the "bundle of rights" are being conveyed by the easement and then determine what rights remain to the owner of the land over which the easement is running. If in your opinion the easement takes 50% of the utility from the owner, then the damages are 50% of the value, etc. Sometimes the owner is left with the right to pay taxes and cut the grass on the easement (drainage/utility easements for example). I generally pay 90% damages on these. Sometimes its a sub-surface easement (sewer line) and the owner can use the surface with certain limitations. I often use 50% damages for these. Any improvements in the easement area should be compensated, fences, driveways, landscaping, well, septic, etc. It depends entirely on how the easement is worded and what rights are conveyed. A broker should be able to understand this concept.

 

[Fred]

The question how to appraise and easement is like the question how do you appraise real property. All real property appraisals need to define the subject property, so you are going to need the terms of the easement. The terms of the easement along with the question of value to whom, will affect what method is necessary. Sometimes that can include capitalization.