Why Would You Intentionally Devalue Your Property?

by Herb Schwartz
April 28, 2000


A member of our community asked this question at a recent meeting on conservation easements and land stewardship hosted by Sanctuary Forest. A wonderful question.

In the Spring 1999 Branching Out, I said that a landowner who creates a conservation easement reduces the value of her land because she has voluntarily limited certain development rights. In the Fall 1999 issue, I pointed out the income tax and estate tax benefits of reducing the value of your land by placing a conservation easement limiting or forbidding development. And in the Winter 1999 issue, I reported on the Luna Preservation Agreement, ?equivalent to a conservation easement? in which Pacific Lumber reaped no income or estate tax benefits because they were paid $50,000 for the value of the deed restriction which saved Luna.

Let us look a little more closely at the definition of ?value.? In the ?unclassified? ads of the March 13, 2000, issue of High Country News we find:

?Conservation Easement Community?
35 acre parcels in a secluded western Colorado old-growth pi?on-cedar forest with abundant wildlife and views of the West Elk mountain range; 35-acre parcels perpetually protected by a wildlife conservation easement??

The ad explains that utilities are installed underground to pre-selected building sites, there is a private water system featuring ?Pure Rocky Mountain drinking water from the source? and you can buy a parcel for $145,000.

How are these easements valued? The appraisal is for the fair market value of the property considering its highest and best use on the valuation date and results from the comparison of the property interest ?before? the easement and ?after? the creation of the easement. Easements are in perpetuity.

Assume that the highest and best use of a piece of land is, as of the date of valuation, industrial timberland. ?Highest and best use? is a technical appraisal term that means the reasonable and probable use of the property that will support its highest present value. For example, consider a gift of an easement limiting your land to harvesting timber using only SmartWood? certified sustainable forestry practices. Suppose the Forest Practices Act would allow you to clear-cut your land. Then the valuation of the easement would be equal to the value of the clear cut minus the value of the land cut using scientific sustainable forest practices. However, if the ?highest and best use? of the land on the valuation date is residential, then an easement limiting timber harvesting will have a far less value. If the easement also limits housing development, then the easement has a greater value.

Any realistic available use of the property is an element of the appraisal. Suppose you have a piece of property adjoining a highway. Suppose zoning permits commercial development along the highway. Then it?s realistic to say that it could be developed into a strip mall, (its ?highest and best use?). A conservation easement is valued on the date of creation of the easement by calculating the value of the land as a strip mall minus the value of the land as standing timber.

Appraisal valuation is a snapshot taken the moment the appraiser signs and dates her name on the papers. In the next moment, because of the cumulative impact of a ?conservation easement community? limitations on harvesting or residential development could eventually increase the value of property. ?Cumulative impact? is phrase borrowed from environmental impact reports?.the impact of actions that have already happened, current actions and planned future actions. The impact of existing zoning regulations, general plans, probability of change are all factors that go into the appraisers alchemical valuation.

In our ?post-industrial, pre-residential community,? when we ?intentionally devalue our property? by creating a conservation easement, we may actually be on the cutting edge of a market change that may eventually turn timberland into ?a conservation community.? Creation of a conservation easement is not synonymous with ?intentionally devaluing your property.? It will certainly have the opposite effect in the eternity of geologic time. It will generate a charitable deduction today on its ?valuation date.? Hey! A sweet soundbyte slogan: ?Create a conservation easement now, enjoy it now and later!?


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