Unique Valuation Approach Provides Safe Drinking Water

July 10, 2023

Unique Valuation Approach Provides Safe Drinking Water

By Arthur L. Schwertz, MAI

When you think of “liquid gold”, images of old, buried pipes carrying clean water from a local well to your kitchen sink probably don’t jump to mind. Yet that’s exactly how several Wall Street firms see it.

Vacant land, retail centers, office warehouses… these are all property types with which most appraisers are very familiar. But what about a municipal water system? How do you find the real estate value of wells, pumps, storage tanks, and pipes? And why would you need to find that value in the first place?

Many of us take for granted the luxury to turn on the tap, right in our home, and take a shower in clean, safe water- usually, at whatever temperature we like! Not only that, but we’re used to having this resource delivered to us for next to nothing. As with much of the nation’s infrastructure, water systems around the country, especially in rural communities, suffer from years of neglect and poor maintenance.

By determining the true value of a water system, we assist our client in gaining regulatory approval to charge a fair price to the user.  This allows our client to properly restore and maintain the system.  These prices for water often have not changed since the 1960’s, though costs for maintenance are significantly higher.

Raising the cost to the end user, sometimes just a few dollars per month, allows a provider to reliably supply clean, safe water. By unlocking the value of these real estate assets, we’re giving the provider the means to do just that.

Yet how does one value one of these systems? How do you define real estate value? Not just the well and associated pumps, with whatever land they sit on, but also the value of the easements – in other words, the land through which the pipes travel and the water flows.

These pipes cross private property, whose owners would have to sell permission to a water company to run those pipes through their land. The value of holding those easements contributes to the real estate value of owning the system. In the State of Louisiana, our appraisers enabled a large regional operator to convince the Public Service Commission to consider the value of these easements in the overall market value of the water system, which is used to determine fair price of water to the end user.

Our office is proud to not only provide a unique appraisal solution to a unique appraisal problem, but to help provide reliable drinking water to rural communities across the nation.

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