Ribeye--I am on board with both your points, and think that is good place to consider modification to the eminent domain process. Particularly with the first point. One of the things that I find punitive on the part of the condemnation authority's side has to do with terms. In many cases it seems that they are willing to negotiate on terms, but that if you take them to the commissioner process and on into district court, that willingness goes away. It is as if they hold it as a threat, or a silver bullet. "We will work with you on language but if we have to condemn you we are going to get the most broad terms however we write them." I do not see the fairness in that. If you are willing to change language, then change the language. If you can't agree upon price, then condemn for the rights you were already willing to agree to. I 100% agree that many times the money is less important than the language and advise my clients to the same. I'm not sure how to work through the process, but I think it is something that should be addressed.
As to point 2, I agree with some aspects and do not agree with some aspects. I believe a lot of the pipeline industry's troubles are a result of their own in how they purchase easements. While their attorneys and other internal experts are knowledgeable of before and after valuation, the boots on the ground only know how to negotiate in terms of price per rod. In many instances that price per rod results in an offer of damages, but neither they nor the landowner realize it because it is not spelled out in black and white.
For example, if the stories I hear are accurate, it seems as though KM tried to buy all ROW at around $500/rod right off the bat. Let's take a property that is 320 acres in size, is worth $5,000 per acre and assume the easement traverses the property for one mile, or 320 rods. We cannot get from rods to before and after without converting to acreage. The KM standard easement width appears to be 30', thus one mile by 30' equates to an easement size of 3.63 acres. Now we can work some numbers. The value of the whole property is $1,600,000 (320 x $5,000). The value of the 3.63 acres is $18,150 (3.63 x $5,000), and typically reduced from its full value for easement purposes. Just to keep even numbers, lets assume the value of the rights are $16,000. The area outside the easement is 316.37 acres (320 3.63) at a value of $5,000 per acre equates to a remainder value before damages of $1,581,850 (316.37 x $5,000). At $500 per rod for 320 rods, the total offer is $160,000 (320 rods x $500/Rod). Of this $160,000, $16,000 is the value of the rights acquired leaving $144,000 which from an allocation standpoint has to move to the damages column. Thus, the offer is really saying here is $16,000 for the part taken, and here is $144,000 for damages to the remainder. The remainder has a non-impacted value of $1,581,850, thus the pipeline's offer results in a payment for the easement of $16,000 and damage of 9.1% to the remainder. Whether market data supports this allocation from a valuation perspective is another debate, but based on what they were willing to pay off the bat, that is the only way the offer can be allocated.
One of KM's blunders, in my opinion, was trying to hold fast to the $500 per rod method without accounting for the changing of property values across the entirety of their route. Utilizing the exact same scenario, when crossing land that is worth $2,500 per acre the damage to the remainder equates to about 19%, and when crossing land that is worth $10,000 per acre, the damage to the remainder equates to approximately 4%. People are not stupid and latch onto this reality, which is why that price per rod began to go up finally through the central hill country. I know of many landowners that negotiated a price of $1,500 per rod without ever stepping foot in the courtroom. Under the same scenario $1,500 per rod accounts for about a 14% damage to the remainder on $10,000 per acre dirt. I think had KM staggered their initial offers with the price of property in a more organized manner, the initial insult would not have been as severe. I guess we will never know, but that is my guess.
So, I agree that it would be beneficial for everyone involved if offers were broken down in a more transparent way to address whether or not the pipeline company is willing to pay damages to get the deal done. I disagree that their being silent on the issue results in them not paying a damage to the remainder.
As you point out, these discussions are enjoyable to me and I appreciate your candor in talking about them. We have a wealth of knowledge on this thread and where better to have such discussions?
As to point 2, I agree with some aspects and do not agree with some aspects. I believe a lot of the pipeline industry's troubles are a result of their own in how they purchase easements. While their attorneys and other internal experts are knowledgeable of before and after valuation, the boots on the ground only know how to negotiate in terms of price per rod. In many instances that price per rod results in an offer of damages, but neither they nor the landowner realize it because it is not spelled out in black and white.
For example, if the stories I hear are accurate, it seems as though KM tried to buy all ROW at around $500/rod right off the bat. Let's take a property that is 320 acres in size, is worth $5,000 per acre and assume the easement traverses the property for one mile, or 320 rods. We cannot get from rods to before and after without converting to acreage. The KM standard easement width appears to be 30', thus one mile by 30' equates to an easement size of 3.63 acres. Now we can work some numbers. The value of the whole property is $1,600,000 (320 x $5,000). The value of the 3.63 acres is $18,150 (3.63 x $5,000), and typically reduced from its full value for easement purposes. Just to keep even numbers, lets assume the value of the rights are $16,000. The area outside the easement is 316.37 acres (320 3.63) at a value of $5,000 per acre equates to a remainder value before damages of $1,581,850 (316.37 x $5,000). At $500 per rod for 320 rods, the total offer is $160,000 (320 rods x $500/Rod). Of this $160,000, $16,000 is the value of the rights acquired leaving $144,000 which from an allocation standpoint has to move to the damages column. Thus, the offer is really saying here is $16,000 for the part taken, and here is $144,000 for damages to the remainder. The remainder has a non-impacted value of $1,581,850, thus the pipeline's offer results in a payment for the easement of $16,000 and damage of 9.1% to the remainder. Whether market data supports this allocation from a valuation perspective is another debate, but based on what they were willing to pay off the bat, that is the only way the offer can be allocated.
One of KM's blunders, in my opinion, was trying to hold fast to the $500 per rod method without accounting for the changing of property values across the entirety of their route. Utilizing the exact same scenario, when crossing land that is worth $2,500 per acre the damage to the remainder equates to about 19%, and when crossing land that is worth $10,000 per acre, the damage to the remainder equates to approximately 4%. People are not stupid and latch onto this reality, which is why that price per rod began to go up finally through the central hill country. I know of many landowners that negotiated a price of $1,500 per rod without ever stepping foot in the courtroom. Under the same scenario $1,500 per rod accounts for about a 14% damage to the remainder on $10,000 per acre dirt. I think had KM staggered their initial offers with the price of property in a more organized manner, the initial insult would not have been as severe. I guess we will never know, but that is my guess.
So, I agree that it would be beneficial for everyone involved if offers were broken down in a more transparent way to address whether or not the pipeline company is willing to pay damages to get the deal done. I disagree that their being silent on the issue results in them not paying a damage to the remainder.
As you point out, these discussions are enjoyable to me and I appreciate your candor in talking about them. We have a wealth of knowledge on this thread and where better to have such discussions?