Mineral rights have been severed from a parcel and sold to a third party. What must the appraiser establish?
Correct Answer
C) Which rights are included in the assignment
Establish the real-property rights included in the assignment, such as surface ownership subject to severed mineral rights. Verify relevant severance and access provisions with appropriate information. The assignment may require analyzing the severance’s effect on the surface interest without valuing the mineral estate itself.
Why This Is the Correct Answer
Option C is correct because the rights appraised are those legally associated with the subject, and severance means the subsurface mineral rights may belong to someone else. The appraiser must identify whether the assignment covers the surface interest subject to the severed minerals or some other combination of rights. Relevant severance and access provisions should be verified with appropriate information.
Why the Other Options Are Wrong
Option A: The market value of the minerals in place
Option A, the market value of the minerals in place, is not required when the minerals have been sold to a third party. The assignment may call for analyzing the severance's effect on the surface interest without valuing the mineral estate itself.
Option B: Whether the surface owner may extract them
Option B asks whether the surface owner may extract the minerals. Once mineral rights are severed and sold, the right to extract generally belongs to the mineral owner; the appraiser's task is to define the rights in the assignment, not to assume the surface owner holds extraction rights.
Option D: The date on which the severance was recorded
Option D, the date the severance was recorded, may be useful background but is not what must be established. The essential step is identifying which property rights the assignment includes.
Rights first, value second
Before valuing anything, know exactly which slice of the bundle of rights you are appraising. Severed minerals mean a smaller bundle for the surface owner.
How to use: Use this whenever a question mentions severed, reserved or partial property rights.
Exam Tip
When a question asks what the appraiser must establish, an answer about identifying the rights appraised is often the foundational step.
Common Mistakes to Avoid
- -Valuing minerals that the client does not own
- -Assuming the surface owner can extract severed minerals
- -Ignoring access rights held by the mineral owner
Concept Deep Dive
Analysis
This question tests identifying the property rights being appraised when mineral rights have been severed. Real estate includes surface, above-surface and subsurface rights, and these can be owned separately. The appraiser must establish which rights are included in the assignment before analyzing value.
Background Knowledge
Real property ownership can be divided spatially into surface, air and subsurface rights, each of which can be conveyed separately. Identifying the property rights to be appraised is a basic part of defining an assignment. Severed mineral rights, and any related access rights, can affect the use and value of the surface estate.
Real-World Application
An appraiser is hired to value a ranch where a prior owner sold the mineral rights decades ago. The appraiser reviews title information to confirm the assignment covers only the surface estate and considers whether the mineral owner's access rights affect surface use.
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The subject is a vacant site near a slaughterhouse. A comparable vacant site that is not near a slaughterhouse sold for $820,000, and paired land sales show a $170,000 discount for that proximity. No other adjustments apply. What is the indicated land value of the subject?
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A property consists of a primary building site valued at $250,000 plus 0.75 acre of excess land. The excess land has a market value of $60,000 per acre, net of separation costs, and is not included in the primary-site value. What is the indicated total land value?