Servitude Valuations

The definition of market value implies that it is the most probable price for which it will sell.

Not the highest or lowest possible price.

Servitude Valuation is defined by the Dictionary of Real Estate Appraisal (6th edition) as “An encumbrance consisting in a right to the limited use of a piece of land without the possession of it.”

Examples are:

1. ESKOM power line servitudes

2. Right of Way servitudes

3. Water pipeline servitudes

A servitude has the following implications:

1. It is where only a portion of the property is used (taken up) by the servitude,

2. The servitude holder does not own the portion, but the holder does have the right to use the portion for a very specific use and

3. This right of the servitude holder limits the rights of the owner.

The value of the servitude consists of two aspects:

1. The value of the rights that the owner loses.

2. The probable lower value of the remainder portion is caused by the servitude.

The valuation ‘problem/challenge’ is valuing only a portion of a property.

All other types of property valuations are always the whole property's value (as described in the Title Deed).

Therefore, a specialised valuation approach is used to value servitude.

The Approach (method) that is used is called the Before-and-After approach.

It consists of three steps.

1. Value the whole property (as if there is no servitude).

2. Value the remainder of the property as if the servitude was already taken (this is also a complete valuation).

3. Deduct the value in step 2 from the value in step 1.

The answer is the value of the servitude.

It is essential to understand that the process consists of two complete valuations.

Examples of aspects that may influence the value of the remainder:

1. Location of the servitude on the property (is it on the boundary or right in the middle of the property?)

2. Potential disruption of current farming operations

3. Loss of privacy

4. Potential fire hazard

5. Potential security risk

6. The visual effect of the powerlines and pylons (especially in game and eco-tourism farms).

7. Area of the servitude about the total extent

8. Buyers’ resistance because of the above

Most common mistakes made when valuing a servitude:

1. Only one valuation of the whole property is done, and the value/ha is calculated.

2. Then, the extent of the servitude is multiplied by the value/ha, as calculated above, to get a value of the servitude ‘corridor’ (the strip on the property where the servitude is located).

3. This method is, in most cases, COMPLETELY WRONG!