Appraisers' Free Forum

Town in semi-resort mountain setting wants to build trail system and land owners are willing to donate public access easements to the Town trail system. Land over which the easements course is undeveloped, no mineral extractions probable, net migration is very low so pressure for affordable housing on the edge of Town is minimal. Absolutely no relevant data about trail sales nor do I know of anybody who has ever bought or sold or condemned a trail anywhere nearby, but some good sales data of 35 acre tracts near by. Trails will consume about three acres out of 50 acre parcels. No data to base "after" value on.

Hint as to what I think:
Under the circumstances the easement destroys the market value of the underlying fee since no remaining use can interfere with the easement and the public access destroys privacy, which is important in this area. As I said there is no data to support that. Maybe because nobody wants the fee subject to a trail in a remote area where lots of land is available that is private, which supports destruction of the fee value. Or maybe the parcels are large enough that the easement isn't an issue, which supports the conclusion that there is no impact.

Edd,
If the landowners are donating (giving) the easements, why are they being appraised?

If a just compensation basis is needed, use before-after on the remainder tracts. Measure what was lost to the donee. I don't see a trail easement destroying MV of the servient estate. Might reduce it a little; might even enhance it in some cases. But destroy? Doesn't make sense to me.

But if you just gotta value the trail itself, look to the corridor valuation articles (and the fictions on which they are based.) Lum library if you're an AI member has several articles on corridor valuation. Basically, corridor theory states that the value of land in a corridor is worth at least as much as the land through which it passes. Which is high-grade BS, but that's what they say. That's the *basic* theory. There are a few other recognized methodologies, but you'll have to research them.

Thanks for coming back on the easement Jim. I'm sticking with "destroy" and the "high grade BS" approach at least until you fill me on why it doesn't make sense. Flesh your opinion out a little would you? I don't know why you are saying it makes no sense. If I knew why I might agree with you, but my research is leading me to "destroy" and "high grade BS."

These easements I speak of have been surveyed and have legal descriptions. The Town will own the easement and the donor will own the land under the easement. I don't know who would buy them and why they would pay for them since there is no practical or probable use that can be made of the land under the easement. When the owner of the underlying fee has reserved nothing, he/she has no more remaining actual use of the land than does the general public. Use or probable use (not potential use) drives market value where I am, which is in the sticks.

At least one other theory holds that every right included in the fee has market value of some kind, but in my opinion it is theory without market support. I looked for market support to value whatever remains of the fee and there isn't any. That is why "destroy" makes sense to me.

Edd,
Sorry about taking so long to answer, but my hard drive failed, and I'm having to use alien computers until its replacement arrives.

The "corridor theory" I referenced is referred to in the literature as "across the fence" methodology, or ATF. It fails to satisfy my sense of reason on several fronts. Two arguments arise, at least to me:
1) Why would a gravel-strewn railroad right of way be worth as much as the manicured estate through which it passes; and
2) Why would a valuable, if gravel-strewn, communications and transportation corridor be worth as little as the sorry, eroded, weed-overgrown acre on which Bubba's trailer and junk cars sits?

Do you see my dilemma?

I saw one article regarding a 10' wide water pipeline easement in Texas. The appraiser argued that 10' wide parcels were unmarketable, so he would "theoretically expand" the tract to a marketable width and appraise it on that basis. More high-grade BS.

So, are you tasked with valuing the corridor (trail) (dominant estate) or are you measuring diminution to the servient estate?
What is the intended use of the appraisal?

If you're measuring diminution, then in a rural area there isn't likely to be much, if any. I don't know about Colorado, but here in rural TN a small slice of surface rights taken off a larger tract doesn't produce much if any diminution. A small slice of surface rights off of a one to two acre tract can diminish the value of the remainder, because it might impair the right of the owner to expand his septic drain field. I've done market studies that show no significant difference in value between a 3-acre homesite and a 2.7 acre homesite. Similarly, no difference in value between 3 acre and 3.2 acre sites. This is in an upscale subdivision; I don't even adjust for small site-size differences, because the lots around 3 acres all sell for about the same money.

I do see the dilemma.

The "corridor theory" I referenced is referred to in the literature as "across the fence" methodology, or ATF. It fails to satisfy my sense of reason on several fronts. Two arguments arise, at least to me:
1) Why would a gravel-strewn railroad right of way be worth as much as the manicured estate through which it passes; and
2) Why would a valuable, if gravel-strewn, communications and transportation corridor be worth as little as the sorry, eroded, weed-overgrown acre on which Bubba's trailer and junk cars sits?

And and I think those hurdles must be dealt with.

Here is what I'd say.
I would avoid that particular dilemma by not looking at the character of the easement, but to how the ownership of the fee under the easement is impacted. The illogic part of dealing with the market value of just the easement and not with the value of the "larger or contiguous parcel" is that easements are not marketed. No data. However, there is no relevant data for analysis in this particular assignment.
I suspect that your finding of similarity of the 2.7 acre vs the 3 acre site values is pretty common. It certainly would be true to my experience here. And with respect to the assignment, the data I did find was even more dramatic because the 1 to 3 acre (in the aggregate of 20 ft wide and yards long) easements were being carved out of 50 and 75 acre parcels.
However, the basic question the Town asked revolved around what it would cost them to buy these easements. They wanted to use the appraisal to request a matching grant. The easements were strategic to their planned trail system. Easements somewhere else were of no value to the Town. Like Denis' first imaginary nightmare, we are nudging up on value in use due to the limited market and specialized character of the situation.
Bottom line, the donor has something of value he is parting with and the donee is receiving something of value regardless of what the donor is left with in the long run. So, I turned to anecdotal responses to my hypothetical question. "If a land owner were to sell an easement to the town what should he charge?" Not scientific I assure you, but support nonetheless. Land owners, brokers and even "the man on the street" said the owner should be compensated and after considering what the donor could no longer use the land under the easement for they believed the transaction was basically a transfer of fee title. The respondents felt the Town was actually receiving greater benefit than the market value since the easements were not for sale and were integral to the trail system. I agree. In this case I would value the easements as if the fee were the object. What ever is left of the fee post easement amounts to little more than the right to pay ad velorum taxes.
So, I'm ATF on this one.

Edd,
Since the town's going for a matching grant, you'll want to value diminution to the owners, not the value of the trail. Before-after is the proper methodology for what you've got. And valuing the fee under the circumstances is, IMO, entirely proper as long as the client and the grant provider agree. Large (50-75 acre) tracts are usually valued by the acre. So a three-acre "take" would reduce a 50-acre tract to 47 acres, and you'd normally find 47 x Unit price as the supported value. Again, you're finding a "basis" for just compensation, not the compensation itself, so word your SOW appropriately. What the property donors are entitled to as just compensation is merely compensation for what they have lost, and not compensation for what the resulting trail might be worth.

Using before-after on each parcel isn't as massive an amount of work as it might sound. I'd do an overall market analysis for rural land, addressing market issues for small, medium, and large tracts (defining those in the analysis, e.g., small tract = 1-3 acres; medium tract = 3.1 - 15 acres; large tract >15 acres; wherever your market breaks). Alternatively, you could graph price/acre vs. site size, and just use that as a unit price reference. Highest and best use of those tracts will probably be similar, so do a single HBU analysis addressing all tracts as a group. Then, for each individual take, incorporate the foregoing market analysis by reference, and specifically state that the HBU conforms to the general analysis in that the HBU of the vacant tract is: (probably leave vacant and hold for future development, or leave vacant for recreational use). Finally, a per-acre supported value for each size of tract (as previously defined) should be supported with land sales analysis. I'd rate'em and rank'em, then try a quantitative grid to see if that worked. After having found the value for each size category, the individual parcel appraisal would incorporate that land study by reference, and state the supported value is, e.g., $2,500/acre for this small tract, the take is 3 acres, the loss to the donor is therefore $7,500. And you can customize: "Although the generally supported value for medium-sized tracts is $2,000/acre (see p. xx), this particular tract adjoins the city limits and is furnished with all utility services. The following sales clearly indicate a higher value per acre for this tract: (list'em). Based on the foregoing, I conclude that the value of this tract should be $3200/acre. Based on the size of the easement, the donor's loss is $x" etc. and so on.

Write up a sample along those lines and take it to the town to see if they find that acceptable, and write that methodology into your engagement letter.

Understood.

But the issue between us really is the % diminution. No market data, so I am stuck with trying to figure out H&BU use "after." Zippy de do da, nothing is feasible. The owner lost all probable feasible use of X acres of land and can claim it pure and simple, at least as far as my imagination can take me. That is 100% diminution. I know some guys who come up with fantastic imaginary stuff, especially in the "before", but I can't git r done that-away and don't want to.
But if there is no probable use left and that is the way it is. Some appraisers here benchmark, but I think that is inappropriate even in the face of a dearth of data.

Edd,
Your town's expense in this matter is what it would cost them to acquire all the little pieces required to make up the right of way for the trail. It's just like any other ROW assignment. You're appraising the pieces, not the trail. I think you're correct in concluding there's no remaining value to WHAT IS TAKEN. It's too small to sell, too small to build on. HBU is to leave vacant for recreational use.

But you're not appraising that! You're appraising EACH parent tract--the tract owned by the donor--BEFORE the donation or take, then appraising it again AFTER the donation or take. You do that for EACH donor tract, just like a highway partial take. The parent tract is smaller after the take, no? And worth slightly less because of that, correct? Just remember, you're appraising only the land, and not any improvements thereon.

Now, try to forget about what that damned trail will be worth, because it just doesn't matter, just as it doesn't matter what a highway is worth after they take your land to widen it. This is just like a highway project, only smaller. That it deals with easements matters only in that the poor residents will be paying property taxes on that trail forever, when it ought to be exempt. If I were a property owner who wanted to donate land to the project, I'd deed it to them in fee simple; and I would *not* grant an easement.

Jim Plante wrote:I think you're correct in concluding there's no remaining value to WHAT IS TAKEN. It's too small to sell, too small to build on. HBU is to leave vacant for recreational use.

YESSSS!

Except its no remaining value to what was not donated under the easement. The benchmark among appraisers was 25% diminution to the larger parcel due to the donation. Wrong as it can be. The diminution in this case is equal to the fee value of the land involved in the easement.

If I had comps I might have to say the impact of the easement was so insignificant to the value of the larger parcel as to be negligible, but I don't have any. Three acres out of the 75 are gone. It may well be that 75 acre tracts and 72 acre tracts are indistinguishable when it comes to gross unit price, just as you have found 2.7 acre and 3 acre parcels are. But, there was gift of value involved and the value of it is the land that was eased because there is no use for the remainder of the fee under the easement.

And I continue to be interested in what it would cost the Town to purchase the trail because that is what the client wants to know.

The donors may want to know the charitable deduction, but the Town hasn't asked. I wouldn't be surprised if the value of the charitable donation is pretty much the same due to the difference in before and after H&BU to the contiguous parcel. Before, there was no easement, after there is. The H&BU of the contiguous parcel may exactly the same, but the donated parcel has no remaining use. I know you take exception to that method, but it makes sense to me for this assignment. I don't care what the trail is worth after it is donated, except that I care what it would cost the Town to buy it.

The diminution in this case is equal to the fee value of the land involved in the easement......as measured by the loss to the remainder.

You're getting there, Edd. I think your conclusion of HBU of the part taken is correct. There's no remaining use of the subsurface rights unless there are recoverable minerals under it, or there's some kind of water right of way through the take (I don't know what that might be, since we don't have water wars in TN). The owners could make limited use of the air rights if they wanted to bridge over it. It will depend on how the easement is written. IMO, for all practical purposes, they're taking the entire fee estate. I think you can successfully argue that there's no remaining practical value to the servient estate, so charge'em the full value of the fee simple. (But be careful. If one of those damned easements cuts off somebody's access to his back 40, there's gonna be trouble. That could adversely affect the value of the remainder beyond the $/acre price everybody else would get. If that owner is affected to the point that the market would penalize the sales price, you have to account for it of course.)

But once again, you measure what it would cost the town to buy the trail by what they'd have to pay the owners as just compensation if they took it under eminent domain. That just compensation's basis is established by the loss the owners experienced in the donation of the easement. So, appraise before the take and again after the take; the difference is the loss. That's what the owners could write off (You might offer to throw that into the report for the donors to use. Good PR.) Simplify the problem by combining the market and HBU analyses as I outlined earlier.

You wrote:The benchmark among appraisers was 25% diminution to the larger parcel due to the donation. Wrong as it can be.

You've gotta be kidding! Where the hell did they come up with surface rights being worth only 25%?? Air rights in rural CO have to be worth darn near nothing, maybe 10 -15% at best., so that would leave subsurface rights at around 60-65%. No way, unless there's overriding water or mineral interests involved. Fer Gawds sake, how far can you dig in granite?

Jim Plante wrote:But once again, you measure what it would cost the town to buy the trail by what they'd have to pay the owners as just compensation if they took it under eminent domain.

The Town has expressly declined to exercise eminent domain under any circumstances and wishes to be treated as if it were an ordinary buyer. So why must I appraise with eminent domain or charitable contribution techniques?? Says who?

Well, you could tell'em Otis made you do it.

Frankly, I'd use that methodology because it's what the grant providers will be expecting to see--diminution to the remainder, and the before-after method. But talk it over with your client.

There are some problems using direct sales comparison on the part taken, even though we agree that the whole fee simple is effectively impaired:

1. Have there been any sales of 20' wide tracts lately? What would be the effect on value of offering a tract out there that was only 20' wide? I think your per-acre value would nose-dive. That's barely wide enough for a driveway.

2. The direct sales-comparison method might cause an unrealistically low value indication after you apply a functional utility adjustment for the narrow width.

Using before-after dodges those problems nicely, and gives the grant providers what they'll expect.

There is something to be said for convention. I did talk to the grants man and he doesn't care how I do it. Thanks for confirming my suspicions that we are often appraising according to some set of rules that can be countered with another supported logic.

I don't think there is anything wrong with before and after, especially if there is something left to the remaining H&BU after, but if all probable use is destroyed when the easement goes into place why run all of that analysis? I know, convention.

I asked about conveying the fee. They don't want to do that and didn't tell me why.

Oh, one more provocation. How wide does a trail need to be before I can forget about functional obsolescence?

Wide enough that people will buy it. How wide is the typical marketable tract?

Edd, welcome!

I had a cartoon bubble form when reading your scenario that pictured a bunch of shrewd fiddle playing hicks on 10-40 acre parcels living in the foothills, cooking up some moonshine dreaming up a way to get the town folks to build them a trail system that linked their places and pay them for the access to boot.

Their kids could sell kool aid on hot days. Their moonshine business now has a backwoods highway & if the moonshine business falls off they can sell over priced topographical maps, gps units, bear bells and pepper spray to lost and scared tourists. Plus, the trail system would really help keep their "seed" all in the family, so to speak, since cousins and second cousins.......everyone wins.