environmental hazards
365) Mineral Rights Ownership
07/23/08
Dear Henry,
Can you comment on appraising property where ownership of the mineral rights has become a big issue? Here in the North Texas area there has been a wave of gas well exploration and all the contract issues that go with negotiating for the best deals.
I have been told by several lenders that I am one of the few appraisers that has commented on the difference between Fee Simple ownership and " fee in surface". I have even reveiwed some appraisals that failed to even mention the current market issues with gas exploration. This seems like a mistake to me. What do you think?
Rick Neighbors rick@rickn.com
Dear Rick,
I am not an expert on appraising property with mineral rights. As far as I know there are no special rules. If this is true, you would have to appraise the property assuming it is owned in fee simple unless the lender/client and you agreed as part of the scope of work dialogue that some other form of title was acceptable and approved by them. In this case, you would have to indicate what type of title the property is held in.
If all the comparable sales are held in the same type of title, then all you have to do is note this in the report and proceed as normally. However, if the subject property is held in fee simple and a comparable property is held in "fee in surface" you should report this in the appraisal. The real problem is whether the different types of ownership change the value of a property. If you believe there is no significant value difference, then once again, you can proceed as usual -- just reporting in the comments that in your market area the value is the same in either case. However, if there is a difference, you will need to have the expertise to determine what that value difference is. This would be a complex appraisal, so you need to be quite sure your license or certification permits you to make complex appraisals. If you are permitted to do so, according to the USPAP you either have to have the knowledge and experience to make the appraisal or you must get help from someone who has.
H2
Can you comment on appraising property where ownership of the mineral rights has become a big issue? Here in the North Texas area there has been a wave of gas well exploration and all the contract issues that go with negotiating for the best deals.
I have been told by several lenders that I am one of the few appraisers that has commented on the difference between Fee Simple ownership and " fee in surface". I have even reveiwed some appraisals that failed to even mention the current market issues with gas exploration. This seems like a mistake to me. What do you think?
Rick Neighbors rick@rickn.com
Dear Rick,
I am not an expert on appraising property with mineral rights. As far as I know there are no special rules. If this is true, you would have to appraise the property assuming it is owned in fee simple unless the lender/client and you agreed as part of the scope of work dialogue that some other form of title was acceptable and approved by them. In this case, you would have to indicate what type of title the property is held in.
If all the comparable sales are held in the same type of title, then all you have to do is note this in the report and proceed as normally. However, if the subject property is held in fee simple and a comparable property is held in "fee in surface" you should report this in the appraisal. The real problem is whether the different types of ownership change the value of a property. If you believe there is no significant value difference, then once again, you can proceed as usual -- just reporting in the comments that in your market area the value is the same in either case. However, if there is a difference, you will need to have the expertise to determine what that value difference is. This would be a complex appraisal, so you need to be quite sure your license or certification permits you to make complex appraisals. If you are permitted to do so, according to the USPAP you either have to have the knowledge and experience to make the appraisal or you must get help from someone who has.
H2
340) Mold Redux
06/09/08
Dear Henry,
I attended your seminar on Environmental Hazards at the Columbia Society of Appraiser's meeting this month, and have a question to ask you. Have you ever heard of white mold? What is it, how do you know it is present (since it is white), and how does it affect value?
maureen coyle maureenann120@hotmail.com
Dear Maureen,
Mold comes in every color of the rainbow. Even "black mold" is often not obviously black. Your obligation is to report any mold that you see. Keep in mind that it has to be "apparent." Whenever you see mold -- or any other detrimental environmental condition, for that matter -- you should recommend an inspection by a professional environmental inspector. Your appraisal should also contain a statement that the value you have estimated is based on the assumption that the mold will have no effect on the value and that if, based on the results of the inspection, it does impact the value, then your value estimate is not going to be valid. Note that if the mold needs to be removed, the effect on the value is the cost to remove it plus something extra for having to deal with the problem.
H2
I attended your seminar on Environmental Hazards at the Columbia Society of Appraiser's meeting this month, and have a question to ask you. Have you ever heard of white mold? What is it, how do you know it is present (since it is white), and how does it affect value?
maureen coyle maureenann120@hotmail.com
Dear Maureen,
Mold comes in every color of the rainbow. Even "black mold" is often not obviously black. Your obligation is to report any mold that you see. Keep in mind that it has to be "apparent." Whenever you see mold -- or any other detrimental environmental condition, for that matter -- you should recommend an inspection by a professional environmental inspector. Your appraisal should also contain a statement that the value you have estimated is based on the assumption that the mold will have no effect on the value and that if, based on the results of the inspection, it does impact the value, then your value estimate is not going to be valid. Note that if the mold needs to be removed, the effect on the value is the cost to remove it plus something extra for having to deal with the problem.
H2
76) Radon Contamination
04/10/07
Dear Henry:
How much does a radon mitigation system affect the sale of a home? Does it cause the house to appraise for less? I am thinking of buying a new home that tested positive for radon at 59.6 picocuries. The builder has now had the radon mitigated and expects me to still be interested in purchasing the home. Should this be a concern?
Shelee Corrigan corriganss@neo.rr.com
Dear Shelee,
According to the National Safety Council (www.nsc.org): Radon is a colorless, odorless, tasteless, and chemically inert radioactive gas. It is formed by the natural radioactive decay of uranium in rock, soil, and water. Naturally existing, low levels of uranium occur widely in Earth's crust. It can be found in all 50 states. Radon comes from uranium that has been in the ground since the time the earth was formed, and the rate of radon seepage is variable, partly because the amounts of uranium in the soil vary considerably. Unless you test for it, there is no way of telling how much is present.
The EPA set a limit of 4 picocuries (pCi/L) as the safe radon level limit. 59.6 is a lot of radon.
To be safe, the mitigation system has to reduce the radon to below 4 picocuries (pC/L). Radon usually gets into the house through cracks in the foundation. The most common way to get rid of it is to ventilate the basement and seal up the cracks. Since basement cracks tend to increase as the house gets older, it is not uncommon for new cracks to develop and for the radon to seep in once again. Hopefully, the company who mitigated the radon will be around to back up the guarantee (which should be part of the mitigation job).
When you go to sell the house in the future, you will have to disclose that there was a radon problem when you purchased it. This is what appraisers call a stigmatized house.
If you go ahead and buy the house, the price you pay should include a reduction to reflect the future costs of any additional mitigations and the good possibility that a buyer will also want a significant price reduction.
Should this all be a concern? YES.
H2
How much does a radon mitigation system affect the sale of a home? Does it cause the house to appraise for less? I am thinking of buying a new home that tested positive for radon at 59.6 picocuries. The builder has now had the radon mitigated and expects me to still be interested in purchasing the home. Should this be a concern?
Shelee Corrigan corriganss@neo.rr.com
Dear Shelee,
According to the National Safety Council (www.nsc.org): Radon is a colorless, odorless, tasteless, and chemically inert radioactive gas. It is formed by the natural radioactive decay of uranium in rock, soil, and water. Naturally existing, low levels of uranium occur widely in Earth's crust. It can be found in all 50 states. Radon comes from uranium that has been in the ground since the time the earth was formed, and the rate of radon seepage is variable, partly because the amounts of uranium in the soil vary considerably. Unless you test for it, there is no way of telling how much is present.
The EPA set a limit of 4 picocuries (pCi/L) as the safe radon level limit. 59.6 is a lot of radon.
To be safe, the mitigation system has to reduce the radon to below 4 picocuries (pC/L). Radon usually gets into the house through cracks in the foundation. The most common way to get rid of it is to ventilate the basement and seal up the cracks. Since basement cracks tend to increase as the house gets older, it is not uncommon for new cracks to develop and for the radon to seep in once again. Hopefully, the company who mitigated the radon will be around to back up the guarantee (which should be part of the mitigation job).
When you go to sell the house in the future, you will have to disclose that there was a radon problem when you purchased it. This is what appraisers call a stigmatized house.
If you go ahead and buy the house, the price you pay should include a reduction to reflect the future costs of any additional mitigations and the good possibility that a buyer will also want a significant price reduction.
Should this all be a concern? YES.
H2