Allocation of Value in Permanent Easement Situations
Like most aspects of property valuation, the valuing of easements is a blend of art and science. The science side of the equation is research which most often is data survey and analysis activity. The art side of the equation is professional judgement and is reflective of education, training, and experience. The first step in valuing an easement is heavily weighted to the science activity. Usually the value of the fee simple estate in the area to be encumbered by an easement is estimated by the data comparison approach. The value is often expressed in terms of value per square foot or value per acre. The easement area is not considered as a stand-alone entity but rather as a part of the larger property. Once the value of the fee interest in the area has been established, the value must be allocated between the dominant and servient parties to the easement. The benefits of real property ownership are described as being a “Bundle of Rights”. The concept comes to us from several centuries back and, in text books, is frequently illustrated as a bundle of twigs.
Each twig is labeled with a property right. Things like “Possession”, “Occupy and Use”. “Control”, “Exclusion”, “Disposition”, etc. When considering an easement, the valuer must consider how the bundle is diminished by the granting of the easement. In a theoretical situation where the property rights are evenly enjoyed (a shared driveway, perhaps) by the dominant and servient parties, the allocation of the fee value might be pretty close to 50/50. In most cases the situation is weighted to one side or the other. Elements that must be evaluated include; the use of the easement, the location of the easement, the situation of the easement, the exclusivity of the easement, the size of the easement, and the size of the larger property. The Use of the easement can vary from view corridors to roads to utility lines to pipelines. In some cases, the use can be pretty benign and have little impact on the encumbered area. In other situations, there could be visual impact, noise, odors, or exposure to danger that could cause a significant impairment of the servient party’s use. The Location of the easement has to do with the location within the encumbered parcel and the relationship of the easement to other uses on the parcel. Common utility easements are often located close to property lines so as to have as little impact on the larger parcel as is possible. A water pipeline running across an area of natural vegetation away from any structures would generally be considered low impact. High voltage power lines running close to a dwelling would be considered relatively high impact. The Situation of the easement refers to where it is; surface, underground, or in the air. All other things being equal, underground easements are less intrusive than surface or in the air. Underground telephone or power lines probably have minimal impact on the encumbered property where as a canal could cause significant detrimental impacts. Exclusivity of the easement has to do with shared, or not shared, use. An example of an exclusive easement would be a road or driveway that is not accessible or available to the servient party. Some easements, while not exclusive, do inhibit the use by the servient party. An underground pipeline easement often includes restrictions on the rights to use by the servient party. Typically, structures are not allowed in the easement area. The Size of the easement, the size of the larger parcel, and the relationship between the two all come into play. A small easement on a large parcel generally has less impact than a large easement on a smaller parcel. A forty or fifty foot wide road across a 500 acre property is much less significant than if it crossed a half acre parcel. The consideration of these elements, and more, are critical in the assessment made by the experienced professional when estimating value allocation on permanent easements. It is a professional judgment, not casual guess or application of a rule of thumb.
Mr. Arnold is a principal at Hammock, Arnold, Smith & Company.They are a general practice appraisal firm providing valuation and evaluation services to a variety of clients including corporations, government agencies, the legal community, financial institutions, private individuals and others.
Michael Neal Arnold, MAI, MRICS