Do you own land in a residential or rural area? If you do, there’s a chance that a utility easement runs through your property. While the land still belongs to you, utility companies might have special rights to a specific patch of land on your property.
A utility easement is often worth less than the physical space it takes up on your land. This is because a utility easement doesn’t mean you’re selling a piece of land. It means you’re selling the rights to that piece of land.
However, the value of a utility easement depends on how much it will impact your ability to use your land. Determining how much a utility easement is worth is an imperfect science. There are land appraisers who specialize in valuing easements. However, there is no one universal appraisal method.
What Is A Utility Easement?
A utility easement is a portion of land on a private property used by utility companies. Utility companies may use this portion of land for things like sewage, cable, or electrical lines. Many people believe that utility companies own these portions of land. Legally, however, these portions of land function similarly to a lease.
The property owner retains ownership of the land while giving special rights or privileges to utility companies.
Types of Utility Easements
Utility easements can either be temporary or permanent. Temporary utility easements are common but have little to no effect on property value. Permanent utility easements are more difficult to appraise. This is because their value factors into the total property value.
In regards to how their built, utility easements can be overhead, surface, or subsurface. Overhead easements can include telephone or electrical lines. Surface easements might entail drainage or sewage systems. Subsurface easements can include communication or sewage lines.
However, it is important to note that many utility easements will take the form of two or even three of these types. For example, an overhead electrical line might require a pole to be installed on your property. The type of utility easement on your property impacts the land usage, and ultimately, the value of your property.
Why Are Utility Easements Necessary?
Utility easements are set up to protect the rights of both the landowner and the utility companies. Upon taking ownership of land, a landowner agrees to the necessity of the easement. They also assume responsibility for any damages as a result of the easement.
In residential areas, utility easements are built within an infrastructure that allows for seamless updates and upgrades. This keeps disruption low, and also keeps the cost of utilities down for community members.
How To Value Or Appraise a Utility Easement
Valuing the worth of a utility easement is difficult given what is actually being sold. When a utility easement is being appraised, it is not the physical land that is being evaluated. Rather, it is the rights to that land that are being exchanged.
As a result, easement valuation is based not on the benefit to the utility company, but the detriment to the landowner. Given the complicated legal nature of easements, it is important to consult a professional appraiser when buying, selling, or transferring land.
Methods of Easement Appraisal
The Federal Method, sometimes referred to as the “Before and After” Method, is a simple calculation. It assesses the value of the total property before the easement is in place, and the value of the total property after.
Based on the Federal Method, the value of the utility easement is the difference between these two numbers. For example, a property could be worth $100,000 before an easement is acquired. After the easement is acquired, it could be worth $95,000. The easement would then be valued at $5,000.
This method is more complex and more closely looks at the impact of an easement on the total property value. With this calculation, the property owner and utility company must agree on what percentage of rights each party is entitled to.
Below is a rough guideline on what those percentages could look like:
|90%-100%||Dramatic impact on surface use of land.||Overheard electrical wiring, sewage, drainage, irrigation, tunneling for easy access.|
|75%-89%||Large impact on surface use of land.||Overheard electrical wiring, sewage, drainage.|
|51%-74%||Some impact on surface use of land.||Pipelines.|
|50%||Property owner and utility agree to equal use.||Subsurface communication lines, sewage lines.|
|26%-49%||Little impact on surface use of land. Likely, the easement is in a location that is already unusable.||Sewage lines.|
|11%-25%||Minimal impact on surface use of land. Subsurface or overhead rights don’t affect land utility.||Right to air above utility easement area.|
|0%-10%||Almost no impact on surface use of land.||Subsurface easement that takes up minimal surface area.|
For example, let’s say that the total square footage of your property is worth $100,000. Let’s then say that value of the easement based on its square footage is $5,000. If the impact level warrants a rights division of 50%, then the easement would be worth $2,500.
If the appraiser sees the damage as a possibility, then the cost of repairing those damages is added to the utility easement value.
How Does A Utility Easement Affect Me?
Before building anything below or above ground, it’s important to know if you have any easements on your property. You may be taking on a large project like building a house. Or, you could be taking on a smaller project like constructing a dry well. Either way, understanding your property rights can save you a lot of time and money down the road.
For example, you might build a deck over a subsurface telephone line. However, if the telephone company wants to access it, they may have the right to destroy your deck to do so. Checking whether or not you have a utility easement running through your property could be as simple as looking at the title or deed.
At the time of purchase, you can also task your real estate agent with uncovering that information.
To sum it up, it’s important to know if you have utility easements on your property. However, if you’re buying or selling land, it’s also important to know the value of those easements.
Consult your local government, utilities company, or real estate agent to find out more about utility easements on your property.