The Appraisal of Easements - International Right of Way Association

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the highest value of the land as of the date of valuation. A potential(future) highest and best use is not the standard used unless that use isreasonably probable. Highest and best use concerns the use of land andnot the owners or buyers of property. Business value is outside of thescope of highest and best use.WHOLE PROPERTY — Sometimes referred to as the entirety, thelarger parcel, or the parent tract. Some appraisers distinguish betweenthe three. The term whole property asused in this report means a propertyunder a single ownership, physicallycontiguous and with one highest and bestuse throughout. Cases of commonownership, physical contiguity and morethan one highest and best use indicatemore than one economic unit and thus,more than one whole property. Themarket value of the whole property placesthe ceiling on just compensation. That isto say, the market value of a part takencannot exceed the market value of thewhole property, although the taking canresult in damages in excess of the marketvalue of the partial acquisition.PARTIAL ACQUISITION — Alsovariously referred to as the part taken,take, or partial take. A fee taking involvesall of the rights of ownership; however, aneasement involves a partial taking ofrights, and, in many cases, the interesttaking involves but a portion of the totalproperty. Different kinds of partialtakings include 1) the fee taking of a partof the total property; 2) an easementtaking affecting the total property; and 3)an easement taking of part of the totalproperty.An easement acquisition is always apartial acquisition. Even if the proposedeasement physically covers the entiresubject whole property, the underlyingfee estate is not acquired. The underlyingfee owner still has a beneficial interest inthe property. A partial acquisition caninvolve physical property or legal rights(such as access rights), or both. Theappraisal of easements requiresidentification of the type of easement andthe physical parts of the total property affected.REMAINDER PROPERTY — The remainder property includes thoseportions of the total property not taken plus the property rightsremaining to the owners of the easement area itself. For example, apipeline easement across a farm will leave the landowner with land areasnot within the easement, plus the right to use the surface area of theeasement area after construction for crops. As a result of some easementacquisitions, the remainder property may have a different highest andbest use than that of the original whole property.RIGHT OF WAY — As used in this article, right of way will refer tothe area within the boundaries of the easement in which the utility,pipeline, or telecommunication facility is installed. For example, thepipeline right of way width may be 50 feet. A right of way may be acrossa particular property. A right of way can also be a route across manydifferent properties, as in the case of a pipeline or a fiber optic line. A rightFEATUREIn the valuationof easementsfor publicacquisition, themeasure of valueis always the lossin the value ofthe burdenedproperty, notthe value ofthe easementto the taker.of way can also include fee simple property. A right of way should not beconfused with an easement. In most cases, a right of way will crossmultiple properties and will consist of several easements. An easement isunique to one property. Both terms, as they relate to the subject property,should be discussed within the appraisal report. Another commonmistake is to confuse a right of way with a corridor. A corridor is alwaysa right of way, but a right of way is not necessarily a corridor. Corridorsare discussed later in this article.EASEMENT — An easement is aspecifically defined interest (estate) inproperty and is owned by someone otherthan the owner of the underlying feesimple interest. It is a dominant estateand the underlying fee is a servient estate.The easement document specificallydelineates what property rights areinvolved and should be included in theappraisal report. No two easements areexactly alike. Each easement is associatedwith a particular property and is uniquefrom other easements on that propertyand to easements situated on otherproperties. Easements are not a type ofhighest and best use. An individualeasement is not a right of way system orcorridor.USER IMPROVEMENTS — Theseare the physical improvements orstructures placed within the right of waysuch as a pipeline, electric transmissionline, telecommunications cable, etc. Thisfacility may be situated on a singleproperty or may extend across manyseparate properties.The user improvements in easementareas are owned and operated bysomeone other than the underlying feeowner. Any value, cost, profit or revenuefrom operation of the user improvementsgoes to its owner and not to theunderlying fee owner. Revenue fromoperating the infrastructure is a businessventure separate from the value of theland burdened by an easement.PROJECT INFLUENCE — In thepartial taking of a right of way for a givenproject, the purpose of the project andthe proposed user improvements can impact the value of the remainderproperty. It can lower the value of the remainder (damage), raise the value(benefit), or have no impact on the remainder value. The projectinfluence rule says that any impact on value affects only the remainderand should not be considered when appraising the whole property value.Valuation of the whole property and the partial acquisition is estimatedbefore considering the project influence. The remainder property isvalued after considering the impact of the project.CORRIDOR — Corridors should not be confused with easements. Acorridor is a property use rather than an estate. Stated another way, acorridor is a type of highest and best use, while an easement is generallyan estate or interest in land. A highest and best use as a corridor is marketdriven as opposed to an arbitrary delineation, and the reasonableprobability of users is necessary.right of way ✦ NOVEMBER/DECEMBER 2001 41
H.C. PECK & ASSOCIATESINC.A FULL SERVICE NATIONALRIGHT-OF-WAY COMPANYHELEN C. PECK, PresidentMarket Center Building, 1624 Market St., Suite 205Mailing Address: P.O. Box 480306, Denver, CO 80248-0306(303) 623-6112 • Fax (303) 623-6301www.hcpeck.comFEATURERights of way across an individual property are typically in the form of aneasement; however, the user may own in fee some portions in a given length ofright of way (across multiple properties). Only when the land across a given lengthof right of way is in the absolute control of a one entity, may the length be definedas a right of way corridor (and this assumes that other tests are met as well). Insome circumstances, the individual existing rights of way easements are not in thecontrol of an individual entity, and changes and sale of the corridor for additionalusers is not possible without the additional consent of the individual owners of theunderlying fee simple estate. For example, if a railroad is situated within a physicalcorridor but owns only the right to use as a railroad, and the individual fee ownerscontrol other uses (such as laying a pipeline or fiber optic line), then that right ofway cannot be defined as a marketable corridor in an economic sense.A corridor has a number of characteristics. Any corridor connects importantdemand points while an easement extends to the boundaries of only one property.A corridor avoids congestion to the extent that it bypasses many properties,allowing a user to avoid buying right of way from many different owners. That isto say a corridor provides a distance advantage due to transport across manyownerships. The corridor owners provide services such as engineering,maintenance and surveillance. Corridors are typically marketed as an entity.Owners of corridors rent or sell right of way within the corridor to users whowish to place their user improvements within it. However, the physical corridor isnot classified as a right of way corridor unless the rights to use can be obtainedfrom a single entity without the necessity of getting also the same rights from allthe basic fee owners of the land. There is considerable literature on the subject ofcorridor valuation and some has been included in the bibliography.VALUATION CONSIDERATIONSThe proper valuation methodology for easements is the “before and after” rule.A variation of this rule is the “take plus damages” rule. Generally, case law andappraisal literature support this methodology. Strictly speaking, the appraiser doesnot appraise an easement but rather measures the impact of the easement on theburdened property. The measure and impact (value) of an easement is the loss invalue to the remainder property after imposition of theeasement. This diminution is comprised of both theeasement acquisition and damage (if any) to theremainder. Different jurisdictions have different lawsgoverning the valuation of partial takings and theappraiser should be careful to use that methodologyapplicable in the subject property’s jurisdiction.In the valuation of easements for public acquisition,the measure of value is always the loss in the value ofthe burdened property, not the value of the easementto the taker. Appraisal methodology is focused on themarket value of the property and should beconsistently applied. The valuation methodologyused should not vary regardless of the nature of theproposed project, who the buyers will be, or who theowner is. Additionally, it should not vary whether agovernmental agency is involved or if it takes place inthe private sector.VALUATION OF THE WHOLE PROPERTY — Thewhole property is appraised before any considerationof the proposed project. The whole property is notburdened by the proposed project in the beforescenario and the market data collected for the wholeproperty value estimate should not reflect any projectinfluence.VALUATION OF THE PARTIAL ACQUISITION —The proposed acquisition area to be burdened by theeasement is appraised in the before situation and willhave the same per unit value as that of the wholeproperty. All easement acquisitions are partial42 NOVEMBER/DECEMBER 2001 ✦ right of way
Page 1: FEATUREThe Appraisal of EasementsBy
Page 5 and 6: FEATUREremainder of the taking. Sal
Page 7: FEATURESUMMARYIn the final analysis

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