PROPERTY EVALUATION (RESTRICTED REPORT)
Easement Valuation
The guidance offered in the literature to analysts who must value these unusual interests tends to be quite general, such as the suggestion to locate suitable comparables, a task that can be very difficult in some circumstances. To deal with some of the inevitable uncertainties, appraisers have developed rules of thumb for use in valuing easements. In some situations, however, a value estimate based on simple economic reasoning might be more defensible and could, in turn, offer guidance on the conditions under which rules of thumb provide useful results. Rules of Thumb Overview Rules of thumb are often based on fixed percentages of hypothetical fee simple values for the affected land. For example, appraisers have used geometric formulas in computing such percentages for use in valuing aircraft aviation easements (Hall and Beaton, 1965). In a different context, a utility firm might offer to pay 10% to 15% of the estimated value of a fee simple interest in the affected acreage in order to gain a temporary easement (Pattison, 1986), and those valuing scenic easements have traditionally found it useful to think in terms of percentages of underlying property values (Sutte, 1966; and Williams and Davis, 1968). 5 The fixed percentage chosen can fall within a wide range; one study of easement appraisals showed value estimates for temporary or permanent easements ranging from 0% to 100% of the values that would prevail if the claims on the burdened parcels instead represented fee simple interests (Corey, 1989). Some courts have ruled that a permanent easement denies the underlying fee owner the use of the property and, therefore, should be compensated at 100% of the value of the affected land; while others have ruled that an easement is treated by the law as less valuable than fee title, and therefore must be compensated to a lesser degree than could be a fee interest. 6 Generally, the law does view an easement as having lower value than a fee interest. In fact, if the language in documents of conveyance leaves ambiguity as to whether a fee or easement interest has been created, courts sometimes consider as evidence the amount of consideration that was paid. One rule of thumb that has sometimes been employed in condemnation situations is to value an easement at 25% of the value of a hypothetical fee simple interest in the quantity of land encompassing the easement, a rule that has been used at least since the early 1950s (Wall, 1952). For example, if a governmental unit desired an easement across a privately-owned parcel, and if the market price for purchasing the strip of land outright would be $4,000, then the estimated value of a mere easement over the strip would be .25 x $4,000 = $1,000. 7 According to Henry J. Munneke and Joseph W. Trefzger in their paper “Nonlinear effects in easement Valuation”, fixed percentage rules of thumb, as applied to linearly
5 “Nonlinear Effects in Easement Valuation” by Munneke, Henry J. & Trefzger, Joseph W. 6 “Nonlinear Effects in Easement Valuation” by Munneke, Henry J. & Trefzger, Joseph W. 7 Nonlinear Effects in Easement Valuation” by Munneke, Henry J. & Trefzger, Joseph W.
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