A utility easement runs across a residential lot, restricting 20% of the buildable area. What is the most appropriate way to account for this in the site valuation?
Correct Answer
A) Compare to sales of similarly encumbered properties
Use reliable market evidence, including sufficiently comparable encumbered sales when available, to measure the easement’s effect on utility and value. A restriction over 20% of buildable area does not establish a 20% value loss. Underground utilities can still impose enforceable restrictions, and no universal 5% discount applies.
Why This Is the Correct Answer
Option A is correct because comparing the subject to sales of similarly encumbered properties measures how the market actually reacts to the easement. Sales comparison relies on properties of similar utility sold under competitive conditions. This evidence captures the easement's real effect on utility and value.
Why the Other Options Are Wrong
Option B: Ignore the easement if utilities are underground
Option B, ignoring the easement if utilities are underground, is wrong because underground utilities can still carry enforceable restrictions on building and use. The easement may still limit the buildable area.
Option C: Apply a standard easement discount of 5%
Option C, applying a standard 5% easement discount, is wrong because no universal discount exists for easements. The effect depends on the easement's terms and market reaction, which must be measured.
Option D: Reduce the site value by exactly 20%
Option D, reducing the site value by exactly 20%, is wrong because restricting 20% of buildable area does not establish a 20% loss in value. Buyers may react more or less strongly depending on how the restriction affects use.
Measure the market, not the map
The share of land an easement covers is a map fact; its value effect is a market fact that must be measured.
How to use: Use this when a question ties a physical restriction to a value percentage.
Exam Tip
Avoid answers that use fixed percentages or assume value changes in proportion to restricted area; look for market-based measurement.
Common Mistakes to Avoid
- -Equating the percentage of restricted area with the percentage of value loss
- -Assuming underground utilities remove any easement impact
Concept Deep Dive
Analysis
This question tests how to measure the value effect of an easement. The best approach is market evidence, such as sales of similarly encumbered properties, to see how buyers react. A physical percentage of restricted area does not translate directly into the same percentage of value loss.
Background Knowledge
Easements can affect a site's utility by limiting where improvements can be built. The value effect is measured through market evidence, often paired or encumbered sales. Appraisers review the easement's specific terms to understand the restriction.
Real-World Application
A residential lot has a utility easement along one side that prevents building on about a fifth of the lot. The appraiser locates sales of similar lots with comparable easements to measure buyers' actual reaction rather than deducting a flat percentage.
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