The Challenges In Appraising Properties With Transmission Lines

Written by James L. Henderson
on April 27, 2012 No Comments
Categories : Word On The Street

11424_transmission The Challenges In Appraising Properties With Transmission Lines WORD ON THE STREET: Appraisals of properties that have transmission lines are similar to other appraisal assignments, but they can be more complex. When an appraiser identifies and observes a high-voltage transmission line, it is important that he report to the client its existence and analyze any potential effects on value. This is consistent with the important role of real estate appraisers in assessing lender collateral risk.

Like many factors in real estate, the proximity of the line to dwellings and the impact on view will be market-specific and assessed on a case-by-case basis. Proximity is a critical factor. When the transmission towers are extremely close to the residence, the impact on marketability will be more severe.

Alternatively, some markets may show little or no resistance at all to transmission lines, or even place a premium on them if they create open space or a greenbelt in the backyard. In other situations, the resistance may depend on the type of power-line corridor that is involved. There are many potential factors such as the size and type of tower, and the line capacity, to name a few.

When analyzing potential market impacts, a common method is ‘paired sales analysis.’ The paired-sales approach attempts to match the characteristics of a subject property sold within a claimed area of impact (the subject area) with individual sales of similar properties sold outside the claimed area of impact (the control area). The issues here center on the availability of sales and the ability to identify sales that can be considered a match to the subject property.

Other methods, such as multiple regression analysis, can be utilized by appraisers and may be well suited to identify the independent effect of the transmission line, holding the other value-determining factors constant. However, this is only possible with a relatively large number of subject-area and control-area sales, and sometimes this much data is not available.

The Federal Housing Administration (FHA) has specific policies relative to appraisals of properties with high-voltage transmission lines. These policies are generally consistent with standard appraisal practices but specifically require the appraiser to indicate whether the subject site, dwelling or related property improvements are located within the easement serving a high-voltage transmission line.

If the subject site, dwelling and improvements are located outside the easement, the property is considered eligible for funding, and no further action is necessary. If the easement encroaches upon the subject property, it becomes the requirement of the lender to obtain a letter from the owner or operator of the tower stating that the subject improvements are not within the engineered fall distance of the tower.

This is not an appraisal issue, but one of agency policy and lender decision. In either case, the appraiser is instructed to note and comment on the effect on marketability that results from the proximity to the hazard. The appraiser's function is to provide information to the lender. It is the lender – and, where applicable the U.S. Department of Housing and Urban Development – that makes the decision to reject the loan application if the situation warrants it. Otherwise, the appraiser accounts for the influence of the high-voltage transmission lines in the valuation of the property.

Currently, Fannie Mae and Freddie Mac will accept loans with transmission line proximity so long as the appraiser discloses the influence and provides comment if there is an adverse influence and loss in value. These policies are found in the Seller/Servicer Guidelines. However, one must also recognize that FHA has a slightly different mission than Fannie Mae and Freddie Mac that includes health and safety considerations. These policies can be found in Handbook 4150.2 and the agency's Valuation Protocol, Appendix D.

In regard to the question of whether or not the property values of homes located near the project have decreased, I recommend hiring a local, professional designated appraiser – specifically, one with residential experience relative to properties that have transmission-line influence, who can determine if there's any loss in value as result of the power lines. It is easy to assume the property values will lose major value, but an unbiased, professional appraiser can analyze the market thoroughly to determine whether that is actually the case.

James L. Henderson is the owner of Bakersfield, Calif.-based J. L. Henderson & Co. This article is adapted and edited from testimony that was delivered on behalf of the Appraisal Institute before a recent hearing of the House Subcommittee on Insurance, Housing and Community Opportunity. The original text is available online.

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