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Practical Points of Interestin the Valuation of Easements

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Maine Association of Assessing OfficersAnnual Conference

Sebasco EstatesSeptember 28-30, 2011

Practical Point of Interest in the Valuation of Easements‗ The nature and definition of easements‗ Easements versus rights-of way‗ Use of easement by public utility companies‗ Possessory interest & non-possessory interest‗ Valuation method & techniques

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Effects of Easements on Just ValueProperty Tax Bulletin No. 24

www.maine.gov/revenue/forms/property/pubs/bull24.pdfReference: Title 36, MRSA, Section 701-A

◘ The Law; “The just value of land is deemed to arise from and is attributable to legally permissible uses only.”

◘ What is an Easement; “An easement is a right, privilege, or liberty which one has in land owned by another; it is a right to a limited use in another’s land for some special and definite purpose . It is a non-possessory interest since the owner of the easement does not posses the land itself …”.

◘ Can you separately assess a non-possessory interest?

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Nature of Easements

◘ Affirmative – one which allows the holder of the easement to do certain acts on another’s land.

◘ Negative – one which allows the holder of the easement to prevent an owner from doing certain acts on his own land.

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Types of Easements

A. Conservation Easements◘ Permanent guide to future use.◘ Granted voluntarily by owner◘ Runs with the title◘ Will remain forever wild or permit limited uses.

B. Rights of Way across another’s landC. Rights to lay pipes underneath or on another’s landD. Rights to place utility lines across another’s landE. Right to flood another’s land

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Valuation of Properties Subject to Easement or Adjacent to Easements

1. There is no ‘rule of thumb’ which establishes Just Value of properties subject to easements.

2. Review the terms & conditions of each easement; what is allowed, what isn’t.

3. Does the easement decrease value, increase value, or have no effect on value.

4. Is the value of adjacent property effected?

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Right of Way vs. EasementIAAO Glossary

Right-of-Way (ROW)(1) An easement consisting of a right of passage

through the servient estate.(2) By extension, the strip of land traversed by

railroad or public utility, whether owned by the railroad or public utility company or used under and easement agreement.

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Right of Way vs. EasementIAAO Glossary

Easement(1) Broadly, any non-possessory interest held by

one person in land possessed by another.(2) A right held by one person to use the land of a

another for a specific purpose, such as access to other property.

(3) In a restricted sense, a non-possessory interest held by one person, by reason of his possession of a given piece of land (the dominant estate).

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Types of EasementsIAAO Glossary

Easement, Appurtenant - Gives one person the right to use another’s land so long as the first person owns a specific piece of property.

Easement in Gross- A right to use another’s property, usually for a specific purpose. Utility easements and railroad right-of-way are examples of easements in gross.

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Valuation Process & Decisions

◘ What property is being valued?◘ The Right-of-Way?

◘ The entire ROW or a section of the ROW?

◘ The larger (servient parcel)?◘ The easement?

◘ All of the easements within a right-of-way?◘ One of the easements within a right-of-way?

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Highest & Best Use Considerations

◘ Will the easement affect the use and/or utility of the property that results in a change in highest & best use?

◘ Highest & Best Use Test1. Physically Possible2. Legally Permissible3. Financial Feasible4. Most Productive

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Easement Valuation MatrixRight of Way, IRWA, May/June 2006

Potential Types of Easements Comments % of Fee

Overhead Electric, RR ROW Severe impact on use 90%-100%

Transmission pipelines, drainage easements Major impact on use 75%-89%

Distribution pipelines, scenic easements Some impact on use 51%-74%

Water & Sewer lines, cable TV, telephone Balanced use & benefit 50%

Water & Sewer lines, cable TV, telephone Located along property line or rear of lot

26%-49%

Air Rights Minimal effect on use 11%-25%

Small subsurface easement Nominal effect on use 0%-10%

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RACKO, LLCResort Area Community - KAPPA Omega

80 Acres of Land in Sebasco Estates

1 2 3 4 5 6 7 8 9 1020 19 18 17 16 15 14 13 12 1121 22 23 24 25 26 27 28 29 3040 39 38 37 36 35 34 33 32 311 2 3 4 5 6 7 8 9 10

20 19 18 17 16 15 14 13 12 1121 22 23 24 25 26 27 28 29 3040 39 38 37 36 35 34 33 32 31

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RACKO, LLC

A. Unencumbered (80 Acres)80 acres (x) $10,000/ acre = $800,000

1 2 3 4 5 6 7 8 9 10

20 19 18 17 16 15 14 13 12 11

21 22 23 24 25 26 27 28 29 30

40 39 38 37 36 35 34 33 32 31

1 2 3 4 5 6 7 8 9 10

20 19 18 17 16 15 14 13 12 11

21 22 23 24 25 26 27 28 29 30

40 39 38 37 36 35 34 33 32 31

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B. Encumbered by ROW-beach access (16 acres)Total $800,000 -[16 acres @ $10,000/ac.) x 50% Factor]= $800,000 - $80,000 = $720,000

1 2 3 4 5 6 7 8 9 10

20 19 18 17 16 15 14 13 12 11

21 22 23 24 25 26 27 28 29 30

40 39 38 37 36 35 34 33 32 31

1 2 3 4 5 6 7 8 9 10

20 19 18 17 16 15 14 13 12 11

21 22 23 24 25 26 27 28 29 30

40 39 38 37 36 35 34 33 32 31

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C. Encumbered by Underground Pipeline Easement (24acres)Total $800,000 -[24 acres @ $10,000/ac.) x 75% Factor]= $800,000 - $180,000 = $620,000

1 2 3 4 5 6 7 8 9 10

20 19 18 17 16 15 14 13 12 11

21 22 23 24 25 26 27 28 29 30

40 39 38 37 36 35 34 33 32 31

1 2 3 4 5 6 7 8 9 10

20 19 18 17 16 15 14 13 12 11

21 22 23 24 25 26 27 28 29 30

40 39 38 37 36 35 34 33 32 31

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D. Encumbered by Overhead Electric Transmission Easement Total $800,000 -[32 acres @ $10,000/ac.) x 90% Factor]= $800,000 - $288,000 = $512,000

1 2 3 4 5 6 7 8 9 10

20 19 18 17 16 15 14 13 12 11

21 22 23 24 25 26 27 28 29 30

40 39 38 37 36 35 34 33 32 31

1 2 3 4 5 6 7 8 9 10

20 19 18 17 16 15 14 13 12 11

21 22 23 24 25 26 27 28 29 30

40 39 38 37 36 35 34 33 32 31

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RACKO, LLCValuation: Land Cap. Rate = 10% (I=VxR)

A. Unencumbered (80ac.) = $800,000a) $800,000 x 0.10 = $80,000/yr = $1,000/acre

B. ROW beach access (16ac.) = $720,000b) ROW = $80,000 x 0.10 = $8,000/yr = $500/acre

C. Gas Pipeline Easement (24ac.) = $620,000c) Easement = $180,000 x 0.10 = $18,000/yr.

D. Electric Transmission (32ac.) = $512,000A. Easement = $288,000 x 0.10 = $28,800/yr.

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RACKO, LLCResort Area Community - KAPPA Omega

80 Acres of Land in Sebasco Estates