Applying Fair Market Value Concepts to Water Rights

By Colby, Bonnie G. | Real Estate Issues, Spring/Summer 1993 | Go to article overview

Applying Fair Market Value Concepts to Water Rights


Colby, Bonnie G., Real Estate Issues


Market acquisitions of water rights are increasingly common in regions where existing water supplies are fully appropriated and development of new supplies is costly. Both market acquisition and development encourage new water users to bid water away from current right holders. Urban growth, environmental disputes and Native American claims to water all create incentives for acquisition of water supplies. While water right acquisitions often are essential to real estate development, they also are the subject of controversy in state and federal courts, legislatures and administrative agencies.

Water use and transfer is carefully scrutinized and highly regulated in most western states. Within this conflictual environment, water rights valuation has become an important task. Such appraisals provide essential information for potential buyers, many of whom are real estate developers and city governments seeking supplies for growing populations. Appraisers may assess fair market value for the courts to award compensation for damages or takings of water rights; for public agencies who supply water to farms, cities and business; and for conservation organizations who acquire water for wildlife refuges, wetlands and streams.

This article reviews several markets for water rights in the western U.S. and discusses the application of fair market value to water rights and how this differs from other real property in several critical ways.

BACKGROUND ON WATER MARKETS IN THE WESTERN UNITED STATES

The markets where water rights are traded vary by region, water source and types of buyers and sellers. Traditionally, a market is defined as a set of arrangements where buyers and sellers are brought together by the price mechanism. For water rights appraisal, it is the interaction of individuals who exchange water rights, water supplies associated with land and water-related infrastructure for other assets, such as money.(1)

A transaction that involves both land (and improvements) and water may still be considered a water transaction if the acquisition was motivated primarily by the desire to obtain water supplies. These transactions are common in Arizona where water transactions often include land acquisitions, due to specific provisions in state law. In Colorado, New Mexico, Utah and Nevada, water rights can be (and frequently are) bought and sold separately from land.

Information on major water sources and uses, transactions and prices for five water market regions are briefly described in this article. Figure 1 identifies the five market areas which are located in Nevada, Utah, Colorado, Arizona and New Mexico. (Figure 1 omitted) Price observations have been made as comparable as possible allowing for time and market areas. Prices have been adjusted, using the Gross National Product (GNP) price deflator, to 1986 dollar values. In addition, several conventions have been adopted to compare different water rights in terms of common units of measure. Water rights may be transferred in perpetuity (sold) or temporarily (leased). Unless otherwise noted, transactions described in this study are for sales rather than leases.

WATER HAS RIGHTS, TOO

In quantifying water rights, it is important to distinguish between diversion rights and the consumptive use portion. Diversion rights refer to the maximum quantity of water which may be withdrawn per unit of time from a water source. Consumptive use refers to the portion of that diversion right which may be removed permanently from the hydrologic system through evaporation, transpiration or other means. The difference between diversion and consumptive use is the "return flow," or the portion of the diverted water which returns to the system and is available for appropriation and use by others. In many areas, transfers of water rights are limited to the consumptive use portion of the water right. This limitation is enforced to protect other water users from having their own water rights adversely impacted as a result of the transfer. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Applying Fair Market Value Concepts to Water Rights
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.