Bundle Of Rights Approach To Value

In the appraisal of real estate, it is important to distinguish between real estate and real property.

Real estate is the physical land and appurtenances including structures attached thereto. Real estate is immobile and tangible. Legally defined, real estate includes land and all things that are a natural part of it (e.g. trees and minerals) and all things that are attached to it by people (e.g. building and pavement).

Real property, on the other hand, includes the benefits and rights inherent in the ownership of physical real estate. Real property includes the bundle of rights that is inherent in the ownership of real estate.

The bundle of rights theory maintains that ownership of a parcel of real estate may embrace a great many rights, such as the right to its occupancy and use; the right to sell it in whole or in part; the right to bequeath; the right to transfer by contract for specified periods of time, the benefits to be derived by occupancy and use of the real estate.

In the bundle of rights theory, ownership of real property is compared to a bundle of sticks. Each stick represents a distinct and separate right, which may be the right to use the real estate, to sell it, to lease it, to enter it, to give it away, or to choose to exercise more than one or none of these rights. Although subject to certain limitations and restrictions, private enjoyment of these rights is guaranteed by law under the U. S. Constitution.

It is possible to own all of the rights in a parcel of real estate or only a portion of them. A person owning all of the rights is said to have fee simple title. Fee simple title is regarded as an estate without limitations or restrictions. Less-than-complete estates result from partial interests that are created by selling, leasing or otherwise limiting the bundle of rights in the fee estate. An appraisal assignment may require the appraisal of fee simple title or any partial interest such as the leasehold interest of an easement.

All estates in real property are subject to four powers of government; taxation, eminent domain, police power and escheat.

In addition to government encumbrances on property, legal private agreements may also impose limitations. One type is a restriction inserted in a deed. Such restrictions can limit the use or manner of development, or even the manner in which ownership can be conveyed. The purchaser of a property so encumbered is obligated to use the property subject to such restrictions. Other private restrictions include certain easements, rights-of-way, and party-wall agreements.

The rights in the bundle, subject to government limitations and private restrictions, can be sold, leased, transferred, or otherwise disposed of individually. Certain parcels of land afford owners a number of options. For example, one property owner could sell or lease minerals rights and still retain the rights to use the surface area. Another could lease surface rights to one-party and lease subsurface rights to another. Still another could sell or lease air rights for construction or aviation. Thus, the ownership of certain rights may be severed from the ownership of the rest of a property by their being sold, leased, or given as a gift to other parties.

Following is a list of the rights that are important to the ownership of property and the effect the typical conservation easement will have on each right.

RIGHT	EFFECT ON PROPERTY
1. To Sell:	Not necessarily prohibited by the easement but is subject to provisions of the conservation easement.
2. To Mortgage:	May have adverse effect due to inability to obtain maximum financing on favorable terms due to restrictions imposed by the easement.
3. To Bequeath:	Not prohibited by the conservation easement but is subject to provisions of the conservation easement.
4. To Lease:	Often prohibited and will have adverse effect due to inability to lease the property.
5. To Use and Occupy:	Not prohibited by the easement but is subject to provisions of the conservation easement.
6. To Grade, Fill or Excavate:	Often prohibited, unless minimal effect on property.
7. Install New Permanent Roads or Widen Existing Ones:	Often prohibited, with potential negative effect on property.
8. Install New Lake(s):	Often prohibited, unless minimal effect on property.
9. Occupy/Use Existing Improvements:	Often no restrictions.
10. Construct New Improvements:	prohibited, with major effect if the property has development potential.
11. Subdivide and Develop:	Sometimes prohibited, as noted above or may be limited to large tracts, such as 500 acres.
12. To Farm:	Sometimes prohibited, with effect depending on the type and quality of the soil on the property. Not for profit farming for wildlife is often permitted.

Cutting timber and drilling for minerals are other rights that are often affected by having a conservation easement on the land. Clear cutting of timber is usually prohibited, with only thinning, as part of a timber management plan, allowed. The timber value, particularly on recreational tracts of land, is often a substantial dollar amount. Minerals, on the other hand, are generally not a financial consideration when looking at the overall value of the property (except for surface minerals – sand, gravel, salt which are almost always prohibited).

The subject’s conservation easement follows the form of a typical easement. The easement is perpetual, meaning that any transferee of the property will assume the property subject to all of the restrictions of the easement. Subdivision is also prohibited, with the exception of tracts not less than typically 500 acres each and often one single-family dwelling may be allowed on each parcel as noted in a particular easement. The building of new structures or other similar improvements is limited and must have the location approved by the grantee. The maintenance, repair and reconstruction of existing improvements in permitted.

The installation of new permanent roads is substantially restricted, with new roads permitted only as required for access to the property for permitted purposes and to be constructed using permeable materials only, and subject to the overall easement restriction that the roads and their construction not impair significantly or interfere with the conservation purposes of the easement. Maintenance of existing roads is permitted.

Agricultural activities historically undertaken on the property may be continued, subject to certain restrictions, but other farming activity is usually prohibited. Clear cutting of timber (commercial harvesting) is prohibited, with only thinning in compliance with the grantee-approved Forest Management Plan allowed.

Commercial hunting and fishing are usually prohibited. However, leasing of the property for recreational use (hunting and fishing) is often permitted, although restricted to non-commercial uses. Agreements less than one year in length are usually not considered a lease that affects overall value. These agreements are often referred to as Licensing and offer very little rights.