Appraisers' Free Forum

Otis wrote:

Jim Plante wrote:Err, Otis...
Mineral rights are a part of fee simple unless otherwise specified. So are surface rights, air rights, etc.

You begin with the whole enchilada, then exclude what does not apply. If your SOW is to appraise the market value of the fee simple interest, you just included mineral, air, surface, water, and all other rights unless you specifically exclude them.

True - I should have clarified it. It is part of the whole bundle. But here, mineral rights are specifically excluded on title policies, purchase agreements, etc. All the mineral rights were bought up years (close to centuries) ago or are owned by the state. My fault on not being clear.

They are excluded because they are too darned hard to research. Most of the time the minerals are reserved rather than deeded and it takes a lot of time to research them, particularly after they have been through fractionation in estates. I've worked titles in both OK and CO and if you do minerals you earn your keep. Also title insurance excludes just about everything. You ever read one of those policies? For an appraiser, isn't the important part if there is an impact on market value on the effective date. My bet is that if there is, it will be patently obvious.

Notice the absence of Ter. What is he doing, playing Santa Claus?

He's the expert. He knows better than to speculate without more information.

Yeah. Neat to find an expert that knows when to shut up.

Edd Gillespie wrote:Yeah. Neat to find an expert that knows when to shut up.

Notice the absence of Ter

actually i am trying to croak (literally) from a sinus infection and its been most entertaining to read the posts.

Mineral rights are part of fee simple. If there is no reservation in a deed nor a seperate mineral deed, then the mineral right transfers with the fee simple. If the mineral rights are 'severed', then you are not appraising "fee simple". You are appraising "Fee in Surface." Learn that term. The X on the 1004 ain't right. In the West its rare to find intact minerals. The U. S. kept many mineral rights. In Texas and Oklahoma, other states, where a boom occurred in the 30's impoverished farmers sold off their minerals to pay bills or retained the mineral right when they sold the farm due to production, etc.

If the deed unequivocally states no reservations of record, then you likely have intact mineral rights. In Salina, those mineral rights will be worth pretty much nothing but about 20 miles west there is some limited production and some leasing in the coal trend which angles up from Muskogee area to SE Kansas all the away to KC and even parts of W. Missouri. Typically, they lease for $50 a 3-5 year term and the old oil field saw is that the mineral right would be worth 3 x the lease bonus. If production is established then it is said to be held by production and the lease does not expire until the oil or gas plays out. Coal and other similar hard minerals are leased a little differently. The lessee gets a share of the gas (usually 12.5 - 20%) whereas coal is paid by the ton.

For most appraisers the issue of a severed mineral under the subject is a dual sword. One is that the owner has lost control of the mineral right and therefore, cannot prevent the mineral owner from "enjoying" his mineral right. That is, they can drill on you and you cannot stop them. A bad development such as a noisy pumpjack could have a negative effect upon the homeowner. Where it simply is out in an open pasture, you likely are not going to have a problem. If the mineral is intact, then they may contribute value to the property. The conundrum is to determine how much does it contribute to the property. The market which sells oil and gas minerals (industry pros) is not the same market buying land tracts for recreation, farming or residential uses. Thus you need to compare apples to apples and use comparables with fee simple intact to compare to tracts with fee simple intact.

Mineral rights are real property rights. They are not easements. They are not personal property. They are not intangibles. They are appraised under Std. 1, 2 as severed. They are included in the fee simple value. Disclaiming them in the report reduces the estate which you are appraising. For most mortgage lending disavowing mineral value is acceptable, but for an estate, a condemnation case, or gifting to the IRS, the fee simple is required to be appraised in toto.

See there. A lesson in reserve. I thought he was refusing to surface and here he was toying with us under the ruse of being ill.

Reading between his lines, if the market doesn't value the surface fee differently from the fee simple then mineral rights are of no significance to the bottom line. Some clients may need to know unequivocally if the mineral rights are intact and who owns them. All due respects, but I still think that is a title problem rather than an appraiser problem, when the mineral rights have no market value, which is Annie's issue, I think.

In Salina, there might be someone who has been offered a lease and/or know of the interest not far away in Mayes Co. However, the geology is not conducive to significant production. There is a small gas field that was drilled in the 40's on the south side of Choteau which isn't all that far from Salina. A tiny field near Pryor Creek, shallow fields all over west of there and even southwest of Choteau.

Persons in that area might think their mineral rights are great plus but they probably are not. On the other hand, the absence of the mineral would not be a great negative because that generally is a problem only when an uninvited oil company plants a rig on the property then all hades breaks loose.

when the mineral rights have no market value

The minerals may have little value but I would never vouch that they have "no" value. People do buy interests for $10 an acre or less but it would be hard to parse a $10 an acre adjustment out of the valuation. That is, the contributory value of the mineral right is less than the margin of error.

Ter Shields wrote:That is, the contributory value of the mineral right is less than the margin of error.

So, correctly stated, the market value of the mineral rights in this circumstance is insignificant.

Insignificant, but not absent. If you express the opinion they are insignificant and there is no income or lease to support a conclusion to the contrary...that beats not mentioning them then have to 'fight the fight' over whether you forgot to add the value.
Sounds like the owners thought they did contribute value..

I have no idea. Annemieke brought it up.