F.

(SWOT) Analysis (100 points):
Due date: Wednesday April 8, 2020 at11:30 PM via BlackBoard. This is an individual project and is a part of the marketing plan. This SWOT analysis must be 6-10 pages long and this does not include a cover page and references. Details of this assignment are as follow:

Each student will select one hotel chain from the list below to identify and analyze the strengths, weaknesses, opportunities, and threats (SWOT analysis):

Marriott International

Choice Hotel International Inc.

G6 Hospitality LLC (can be under LG Management LLC)

Intercontinental Hotels Group

Accor Hotels

Hyatt Hotels Corporation

Wyndham Hotels & Resorts

Requirements
: This SWOT analysis has four categories: Strengths, Weaknesses, Opportunities, and Threats. In each category, a student must write the concepts identify in the assigned hotel group above. Then, you explain each concept in detail. This SWOT analysis can be obtained by following the steps below:

The written part of the SWOT analysis contains four main sections:

Introduction (30 points):
You briefly describe your company (e.g., history, its business, operations, customers), a definition of SWOT analysis, its purposes, and list the SWOT analysis of your company as shown in Table 1 and as an example provided on page 3.

Content (50 points):
Identify the SWOT of the assigned company in the table as shown below and explain each components of SWOT (strengths, weakness, opportunities, and threats) as you found in the database.

Conclusion (15 points)
: This is from you own perspective of what you learned from finding out about the SWOT analysis of your company. What do you think about the company and its future.? Does this analysis help you with your learning and the application of what you have learned about this concept? This must be in a paragraph format and with a minimum of 10 sentences.

Reference

s (5 points):
This section requires an APA citations and references. You can use the textbook and the one you download from the required database. Usually, students will search for more information to complete this assignment.

Required paper format:

Cover page: Provide your name, last name, course name (HA 3013: Hospitality Marketing and Sales), semester (Spring 2020), title of the project (SWOT of the assigned company) and Submitted

Type SWOT analysis of the assigned company in the middle of the page, page 1.

Use Times New Roman 12 font with 1” margin for all four sides.

Use double-spaced.

Use page numbering.

Have 6-10 pages. Cover page and reference are not counted in these pages.

Use the American Psychological Association (APA) format for citations and references.

Information of the APA writing style can be found at the Purdue Online Writing Lab at https://owl.english.purdue.edu/owl/resource/560/01/

References page will be at the last page and is by itself.

Submission guidelines:

Click on the “SWOT” Drop Box.

Attach a file by clicking on browse my computer and locating the file on your computer.

Attach your file. DO NOT COPY and PASTE your assignment into the comment box.

Click “submit”.

Table 1: SWOT analysis of the PR or HA program

An example of how to place each components of the SWOT analysis in the table.

Table 1: A SWOT analysis of the Williamson Dining Room

Reference

Kotler, P., Bowen, J. T., Makens, J.C., & Baloglu, S. (2016). Marketing for hospitality and tourism (7th ed.). Upper Saddle River, New Jersey: Pearson.

P eer-R ev iew ed A r t ic le

Identifying Rights and
Interests to Be Appraised
in Rural Property
E xcerp t f ro m th e 2 0 1 7 A p p ra is a l In s t itu te b o o k Rural Properry Valuation

Abstract
The fee s im ple estate o f rura l p ro pe rty m ay be d iv ided in to separate econom ic, legal, and physical interests.

This artic le discusses the com m o n p ro pe rty rights and partia l in terests related to rura l properties.

The term real property refers to a compli­cated legal concept that is often mis­interpreted as the physical parcel of land.
Proper usage of the term relates to the benefits
and rights inherent in the ownership of the phys­
ical real estate. In other words, the property con­
sists not of real estate but of rights to real estate.

The property rights inherent in real estate
include the right to occupy, sell, lease, or
bequeath it and any other rights or benefits that
can be derived from the ownership of the land.
These various benefits of ownership are known as
the bundle of rights. When a property owner has
all of these rights, he or she has a complete own­
ership interest in the property, which is known as
the fee simple estate. To best illustrate the bundle
of rights, imagine a group of sticks. Each one of
these sticks represents a right inherent in the
ownership of property. The total number of sticks
represents fee simple ownership. A lease, an ease­
ment, or a deed restriction takes one of the sticks
away from the bundle of rights, leaving the prop­
erty with an encumbrance.

Fee simple title, the complete bundle of rights,
can be divided in many ways:

• by a lease (leased fee or leasehold estate)
• through an easement (for a highway, power

lines, pipelines, etc.)
• by deed restrictions
• through a life estate

In the appraisal of rural and agricultural properties,
one or more property rights are usually encum­
bered or have been severed from the fee simple
estate. An estate may be subject to access ease­
ments, utility easements, mineral reservations, or
other encumbrances. For example, consider a farm
that has had the mineral estate severed. In this
case, the property rights appraised are “fee interests
in the surface estate.” An analysis of sales in the
market area reveals that surface interests in farm
properties are selling for $6,000 per acre, and fee
mineral interests contribute $1,000 per acre. If the
property were appraised in fee simple at $7,000 per
acre, it would be overvalued by $1,000 per acre.

Possession of a title in fee establishes the fee sim­
ple estate—i.e., absolute ownership unencumbered
by any other interest or estate, subject only to the
limitations imposed by the governmental powers
of taxation, eminent domain, police power, and
escheat. The fee simple estate includes air rights,
subsurface rights, and all other property rights asso­
ciated with real estate ownership. A fee simple
estate that is mortgaged, however, does not include
the full bundle of rights. Because an appraiser usu­
ally is not valuing the fee simple estate in agricul­
tural properties, a conditional statement clearly
describing the estate is often required. In most rural
areas, minerals have been partially or totally sev­
ered from property rights and many properties are
subject to access easements, deed reservations, and

This material originally appeared as chapter 2 in Rural Property Valuation (Chicago: Appraisal Institute, 2017).

40 The Appraisal Journal • W in te r 2017 w w w .appra isa linstitu te .o rg

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Identifying Rights and Interests to Be Appraised in Rural Property

other restrictions. The comparable sales used to
value a property should reflect the same or similar
estates. In some instances, certain rights may not
be included in the estate appraised, but these miss­
ing rights may have little or no value, meaning
that they do not contribute to value in the context
of the highest and best use of the property. An
appraiser’s job ;s to determine which rights con­
tribute to value and how much value they add.

An interest in real estate is defined by degrees.
A fee simple estate denotes complete, but not
absolute, ownership. A leased fee estate typically
describes a property subject to a lease that has a
definite expiration date. A leasehold estate is the
interest of the tenant or lessee.

A partial interest is any interest or group of
interests that makes up less than the entire bun­
dle of rights. Fartial interests can be created in
several ways:

• economically
• legally
• physically
• financially

Economic Interests

The most common type of economic interest is
created when the fee simple estate is divided by a
written lease, such as a farmer who leases lands
for crops or for grazing livestock. In that circum­
stance, the lessor and the lessee each obtain par­
tial interests, which are stipulated in contract
form and are subject to contract law. The divided
interests resulting from a lease represent two dis­
tinct but related interests—the leased fee inter­
est and the leasehold interest.

A leased fee interest is the lessor’s, or land­
lord’s, interest. A landlord holds specified rights
that include the right of use and occupancy con­
veyed by the lease to others. The rights of the
lessor (the leased fee owner) and the lessee
(leaseholder) are specified by contract terms
contained in the lease.

Although the specific details of leases vary,
holding a leased fee interest generally provides
the lessor with the following:

• rent to be paid by the lessee under stipulated
terms

• the right of repossession at the termination
of the lease

• default provisions

When a lease is legally delivered, the lessor is
obligated to surrender possession of the property
to the tenant for the lease period and abide by
the lease provisions. The lessor’s interest in a
property is considered a leased fee interest
throughout the duration of the lease.

The leasehold interest is the tenant’s position.
A leasehold is the right to use property for a
stated term under the conditions of the lease.
W hen a lease is signed, the tenant acquires the
right to possess the property for the leased period
and to sublease it subject to the conditions of
the lease. In return, the tenant is obligated to
abide by the lease terms, pay rent, and surrender
possession of the property at the termination of
the lease.

In some instances a property is subject to ver­
bal sharecrop arrangements. State laws address
the rights of the lessor and lessee with regard to
verbal agreements. In some states a verbal
sharecrop arrangement must be terminated in
writing by the lessor prior to a specified date set
by the statute. Cash leases that are unwritten
may carry the same termination rights, depend­
ing on state law. In some areas, local custom
calls for written agreements or a written lease
that is extended from year to year. Appraisers
should be aware of local customs and state laws
relating to agricultural leases and their implied
effect on value.

Lease Documents
Leases can be verbal or written contracts. Verbal
contracts are normally for less than one year and
may or may not be enforceable under state law.
Both written and verbal leases obligate the
tenant to pay rent to the landlord and may
include other agreements between the parties. A
lease document should include a legal descrip­
tion of the land and any improvements included
with the property.

Leases typically include clauses that specify the
following:

• the length of the agreement
• the amount of annual or monthly rent
• the amount of any deposit
• the required insurance on the buildings and

liability coverage on the land
• the landlord’s right of entry
• provisions for subleasing, maintenance, and

repair on all structures
• which party is liable for taxes

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Peer-Reviewed Article

T a b le 1 Payments from Conservation Reserve Programs

Paym ent Type Description Limit Sign-up Type

Rental payment Annual payment to participants.
Based on soil productivity for
each county and the average
dryland case rental rate.

$50,000 annually for any
person or legal entity

General and
continuous sign-up

Cost-share payment Payment for a percentage
of installing or establishing
an eligible practice

No more than 50% of the
actual or average cost of
establishing the practice

General and
continuous sign-up

Maintenance incentive
payment

Reimburses participants for the
average annual cost of certain
practice maintenance

$5 per acre per year

Certain continuous
sign-up practices

One-time sign-up
incentive payment (SIP)

One-time incentive payment
made to participants that enroll
certain practices

$ 10 per acre per year enrolled
(not to exceed 10 years)

Certain continuous
sign-up practices

One-time practice
incentive payment (PIP)

One-time incentive payment
for eligible installation costs
for certain practices

40% of the eligible cost
of practice installation

Certain continuous
sign-up practices

Other financial incentive Additional incentives, as part
of annual rental payments, for
windbreaks, grass waterways,
filter strips, and riparian buffers

Up to 20% of the annual
rental payment

Certain continuous
sign-up practices

S ources : 16 U .S .C . 3 8 3 4 , 7 C.F.R. 1 4 1 0 .4 0 -1 4 1 0 .4 2 , a n d U S D A , FSA, C o n s e rv a tio n Reserve P ro g ra m C o n t in u o u s S ig n -U p , Fact S h e et, Ju ly 2 0 1 0 ,

w w w .fs a .u s d a .g o v /ln te rn e t/F S A _ F ile /c rp _ c o n ts ig n u p _ 0 7 2 6 1 0 .p d f

Leases may also include an eminent domain
clause, direct payment for a possible taking or
damages, a default clause, and renewal options.

It is important that appraisers understand the
effect leases have on the property interest being
appraised. Local custom and state laws are of
prime importance. A property’s value can be
influenced positively or negatively by the terms
and conditions of the lease agreement, just as
the value of a property involved in a sales trans­
action may be influenced by the terms of the
financing agreement.

Similar to leases are Conservation Reserve Pro­
gram (CRP) contracts, which are agreements
between landowners and the federal government
to leave cropland idle for a specified period of
time—usually 10 years. For example, the Grass­
land Reserve Program (GRP) contracts limited

future development and cropping uses of the land
and retained the right to conduct common graz­
ing practices and operations related to the pro­
duction of forage and seeding.1 In most cases,
CRP contracts are not recorded, but the land-
owner is subject to very restrictive language
during the holding period and a substantial pen­
alty can be imposed if the lease terms are compro­
mised. Appraisers should research and understand
the implication of the language in CRP contracts
and assess the quality of the income stream during
the holding period. Table 1 describes the pay­
ment types under the CRP.

Rental Paym ents
The three most common types of agricultural
leases are gross leases, net leases, and cropshare
leases. Farmland is typically leased on a cash rent

1. T h e GRP w a s re p e a le d in th e 2 0 1 4 Farm B ill, b u t g ra s s la n d p re s e rv a tio n c o n tra c ts — s im ila r t o w h a t w a s a v a ila b le u n d e r th e GRP— are

c u r re n tly e lig ib le u n d e r th e CRP.

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Identifying Rights and Interests to Be Appraised in Rural Property

or cropshare basis, both of which may or may not
involve expense sharing. These leases delineate
different responsibilities for the tenant and land­
owner. In a gross lease, the landlord receives the
stipulated rent and is obligated to pay some or all
property expenses, including real estate taxes. In
a net lease, however, the tenant pays all or most
of the property expenses in addition to the stipu­
lated base rent. Property expenses usually include
real estate taxes and the costs of insurance, man­
agement, maintenance, and structural repairs. In
a cropshare lease, the landlord receives a share of
the annual gross income and may participate in
some of the annual expenses. Again, local cus­
toms often outline the level of responsibility
ascribed to each position.

Rental payments are typically flat or level
payments made throughout the contract term.
A step-up or step-down lease provides for a cer­
tain rent for an initial period, followed by an
increase (or decrease) in rent over stated peri­
ods. An index lease provides for periodic rent
adjustments based on the change in an eco­
nomic index. Index leases are usually long-term.
A revaluation lease provides for periodic adjust­
ments to contract rent based on the prevailing
market conditions.

Rental payments can be monthly, quarterly,
semiannual, or annual, depending on whether
the property is subject to a cash lease or a share-
crop arrangement. Cash agricultural leases usu­
ally call for annual or semiannual payment in
advance or partially in advance. Sharecrop leases
are sometimes verbal and typically call for a
share of the crop with payment at the time of
harvest. Payments can be set on a percentage
basis—i.e., one-quarter to one-third of the crop
payable to the landowner or a 50-50 split for
crop production. The tenant and landlord may
also share in any government payments. Under
sharecrop leases, the landlord is usually obli­
gated to pay raxes and property maintenance
costs, while the tenant provides the labor for
maintenance and operation of the property. In
analyzing sharecrop agreements, appraisers
should look for automatic extensions and con­
sider the perceived risk to the landlord in com­
parison with a cash lease arrangement.

The most .mportant obligation associated
with the rights to use and occupy a leasehold
interest is the payment of rent. Contract rent is
the actual rental income specified in a lease.

The rent is paid by the tenant to the lessor
according to the terms in the lease contract. A
leasehold has positive value when contract rent
is less than market rent, i.e., the rental income
that a property would command in the open
market. In turn, the leased fee value may be neg­
atively affected by a positive leasehold. A leased
fee encumbered with a long-term, below-mar-
ket, fixed rental rate may be worth less than an
unencumbered fee simple estate.

Legal Interests

The most common legal partitions of the com­
plete bundle of rights in rural property are life
estates, easements, and transferable develop­
ment rights.

A life estate is defined as the total rights of use,
occupancy, and control of a specified property
limited to the lifetime of a designated party. The
designated party is generally known as the life
tenant and is obligated to maintain the property
in good condition and pay all applicable taxes
during the term of the life estate. Life estates can
be created in several ways:

• by operations of law
• by wills
• by deeds of conveyance

For example, a fee owner may leave a will that
gives farmland to his widow for her remaining
lifetime and, at her death, passes the land on to
their children. Thus, the widow acquires a life
estate and functions as a life tenant with the chil­
dren becoming the remaindermen. The income
stream flowing to the life tenant is normally the
basis for valuing a life estate. An appraiser can
estimate the duration of the income stream by
consulting actuarial tables, which indicate the
expected remaining life of the tenant. Once the
duration of the income stream is set and the net
operating income from the estate is established,
an appropriate market discount rate can be
selected and applied to estimate the value of this
property interest.

Obviously, the income from a real property
interest subject to a life estate would be dis­
counted at a market rate derived from other,
similar real estate interests. For example, if actu­
arial tables indicate a 15-year life expectancy for
the life tenant, a 15-year discount period would

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Peer-Reviewed Article

be applied to the reversionary interest of the
estate. Life estates are common in rural areas
where parents sell their property to their chil­
dren and retain a life estate in the buildings and
a small acreage around the structures. The value
of the whole property depends on when the
buildings and acreage are rejoined with the
remainder of the property. The contribution of
the portion containing the structures and acre­
age would be discounted at an appropriate mar­
ket rate and added to the remaining value of the
unencumbered property.

An easement is an interest in real property
that transfers use, but not ownership, of a por­
tion of an owner’s property. Easements usually
permit a specific portion of a property to be used
for identified purposes, such as access to an
adjoining property or as the location of a certain
utility. Surface easements are the most common
easements on agricultural property. Subter­
ranean and overhead easements are used for
public utilities, fiber-optic cables, subways, and
bridges. Other easements such as conservation
easements and scenic easements may prohibit
the owner of the underlying fee simple estate
from certain uses of the property without giving
the holder of the easement any possessory inter­
est in the real estate.

Clearly a property or entity that enjoys the
benefit of an easement gains additional rights,
while a property that is subject to an easement is
burdened. The easement attached to the prop­
erty benefitted is referred to as an easement appur-
tenant. The property whose owner acquires an
easement is known as the dominant tenement. The
property that is subject to the easement is called
the servient tenement.

A conservation easement is a typical example
of a contract between private parties, in which a
land owner enters into an agreement with, say, a
conservation group that limits the future use of a
portion of the owner’s property, often to ensure
that some natural environment will not be devel­
oped. The property owner hands over certain
specified rights of use and may receive a tax
deduction. In exchange, the conservation group
may or may not pay compensation (and offer
ongoing property tax savings). An example of an
easement created by prescription might be a right
of access granted to the public who for many
years have used a trail as a shortcut through a
parcel of privately owned land. Prescriptive ease­

ment cases often require proof similar to that
found necessary for adverse possession. Open
space easements can inhibit the overall use of a
property. The basic procedure for valuing these
easements is similar to the procedure applied in
eminent domain appraisals—i.e., the value of the
property before the easement is compared to the
value after imposition of the easement.

Transferable development rights (TDRs)—
sometimes referred to as severable use rights
(SURs)—became popular in the real estate
industry during the 1970s. A TDR is a develop­
ment right that is separated from a landowner’s
bundle of rights and transferred, generally by
sale, to another landowner in another location.
Some TDRs preserve property uses for agricul­
tural production, open space, or historic build­
ings. In this arrangement, a preservation (or
sending) district and a development (or receiv­
ing) district are identified. Landowners in the
preservation district are assigned development
rights that they cannot use to develop their own
land but can sell to other landowners in the
development district. The landowners in the
development district can use these transferred
rights to build at higher densities than zoning
laws in the development district would normally
permit. Development rights may also be trans­
ferred to land trusts or governmental agencies to
curtail development and preserve environmen­
tally sensitive properties.

Physical Interests

The partition of real property among physical
interests can include vertical interests, such as air
rights above the surface of the land, and subsur­
face rights, such as an ownership interest in an oil
or gas deposit below the surface. For rural prop­
erty that will be used for agricultural purposes, the
water rights related to a particular parcel can have
a significant effect on the productivity of that
land and thereby the value of the real property.

The most common vertical interests in real
property are subsurface rights and air rights. A
subsurface right is a right to the use of and profits
from the underground portion of a designated
property. Air rights are the property rights associ­
ated with the use, control, and regulation of air
space over a parcel of real estate.

The vertical division of real property is signifi-

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Identifying Rights and Interests to Be Appraised in Rural Property

cant because engineering advances have dramat­
ically affected land use and, therefore, highest
and best use considerations. Congress has
declared that the federal government has com­
plete and exclusive sovereignty over the nation’s
airspace and that every citizen has “a public right
to freedom of transit in air commerce through
the navigable air space of the United States.”2
Many states restrict the ownership and use of
subsurface areas, such as underground aquifers
and oil or gas reserves.

Mineral Rights
Minerals include, but are not limited to, several
broad categories including sand and gravel, pre­
cious metals, stone, clay deposits, gemstones, oil
and gas, and quarry types such as building stone.
Essentially, minerals is a term used to refer to any
subterranean commodity that has or may have
economic value.

Mineral rights consist of the right to extract
some or all minerals contained in or below the
surface of a property. Mineral rights may be
granted with surface rights or without surface
entry because the “mineral estate” is the domi­
nant tenant in most states. When mineral rights
are severed from the surface, the owner of the
mineral interest has a right to occupy the amount
of surface area that is reasonably necessary for
extraction purposes. In these cases, however, the
mineral rights holder must pay the market value
of the surface acres occupied and any damages. In
some areas, the surface damage income is greater
than the owner’s share of the mineral income
from royalties.

A mining right for a specific tract of land is a
right to enter and occupy the land for the purpose
of extraction, either by underground or surface
methods. In some instances, this right may also
include the use of vegetative resources, such as
timber, on the surface for the extraction process.

Types of Ownership
Substantial mining and quarry properties are own­
er-operated. The owner may have purchased the
property from another private party or by patent­
ing a mining claim. The development or transfer
of the mineral rights in privately owned (fee title)

land is accomplished within the framework of state
laws relating to property titles, sales and convey­
ances, leases, licenses, and contracts. Private rights
are typically subject to federal or state statutes
relating to conservation, wildlife and wetlands
mitigation, taxation, safety, and other matters.

When fee title is not owned, leases provide the
vehicle for mining lands owned by private parties
or federal and state agencies for specified types of
minerals. Leases between mining operators and
private owners have the following characteristics:

• They may include a purchase option.
• Lease payment may take the form of a roy­

alty based on production.
• The rights may be subject to abandonment

or forfeiture.
• Written leases may cover subletting.

Leases between mining operators and public own­
ers have the characteristics illustrated in Figure 1.

Figure 1 Characteristics o f Leases
between M in ing Operators
and Public Owners

• The state “land commission” or a similar agency has
jurisdiction over all mineral operations on state-owned
lands or lands that contain minerals reserved by the state.

• Mining operations on public lands are subject to
assessment as possessory interests just as possessory rights
for other purposes are assessed for tax purposes.

• A permit or lease to prospect for minerals other than
oil and gas may be required by the state.

• Leases include a production agreement, which will likely
call for reclamation bonds and possible escrow for road
work, utilities, and other requirements.

• The right to extract minerals on federal lands may be
obtainable by lease or permit from the Secretary of the
Interior, as opposed to filing a claim or patenting.

• Federal mineral deposits subject to “leasing” include
coal, petroleum, natural gas, phosphates, oil shale,
sodium salts, and potash.

• Federal “permits” are available for extracting pumice,
clay, sand and gravel, and other “common varieties.”

2. The A ir Commerce Act o f 1926 (formerly 49 USC 171 et seq.), the Civil Aeronautics Act o f 1938 (formerly 49 USC 401 et seq.), and the
Federal Aviation Act o f 1958 (see 49 USC 401).

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A royalty originally was the rent or tax paid for
the privilege of mining. In the United States, a
royalty is a reservation to the lessor or seller of a
portion of the minerals, or proceeds from their
sale, at no cost. There have been many sales of
mineral properties in which the seller retained a
royalty interest even though title changed hands.
The royalty is actually part of the production
costs (gross royalties are typically deducted from
net sales). The royalty should be included in
valuing the leasehold estate when it can be accu­
rately determined and is not contingent on
unknown future commodity prices, profit levels,
or other intangible measures.

Valuations of minerals may entail analysis of
the following:

• a patented claim
• an unpatented claim
• a mill site
• in-place reserves (i.e., proven and probable

reserves)
• structures only (leasehold or improvements

held in fee)
• an operating mine

Patented mining claims are legally equivalent
to a fee simple title acquired from the United
States under the 1872 mining law. A patent is the
conveyance by the United States of title to a citi­
zen, in a situation in which the property was in
the public domain and is being conveyed into pri­
vate ownership for the first time. A patent is the
equivalent of a quitclaim deed from the sover­
eign. All valuable mineral deposits (i.e., gold, sil­
ver, iron, lead, copper, and other metals plus many
nonmetallic items like gypsum, limestone, and
rare earths) on or in public domain lands, not
withdrawn from mineral entry, are open to explo­
ration, occupation, and patent. Patented claims
are subject to taxation since they are, in effect, fee
property. They can be mortgaged or sold like any
other fee interest. Lands not open to mining
claims include federal lands not in the public
domain—e.g., acquired lands, public domain
lands withdrawn from mineral entry, privately
held lands, patented town sites, and land deeded
to the state for unpaid taxes.

Unpatented claims are, in effect, the right to
explore and produce locatable minerals under
the 1872 mining law. No application for a patent
is necessary to operate a mine on public domain
land. In most cases, a legal opinion is required as

backup to determine the disposition of unpat­
ented claims. Unpatented claims include mill
site claims, lode claims, and placer claims. Lode
claims must be based on the discovery of a valu­
able mineral deposit. Lode claims may include
extra lateral rights, if they include the top or
apex of the vein or lode. Each lode claim is lim­
ited to about 20 acres (600 feet x 1,500 feet, or
slightly more than 20 acres) regardless of the
number of locators. A placer claim may be
located on all other types of valuable and identi­
fiable mineral deposits. The placer location must
also be based on a discovery, but a discovery that
is not in a vein or lode formation. The maximum
size for a placer claim is 20 acres per person.
However, an association placer may contain 20
acres per associate, up to a maximum of eight
associates, and 160 acres in a single claim.

Mill site claims may be located on a maximum
of five acres of nonmineral land in conjunction
with either lode or placer claims for the purpose
of milling or processing the mineral. If the min­
ing claim is forfeited or abandoned, the right to
the mill site may also be lost, unless it is used for
custom milling.

Ownership of Oil and Gas Deposits
Oil and gas properties tend to be more compli­
cated than other mineral entities because of the
wide range of ownership interests that may be
encountered. Ownership can be broken down
into several categories. It is necessary to know
what type of ownership is being evaluated in the
appraisal process. Various ownership interests are
described in Table 2.

To further complicate many oil and gas proper­
ties, vertically segregated mineral ownership may
exist. One company may have a leasehold inter­
est in a given mineral property down to a certain
depth below ground level, such as 8,000 feet
below the surface, while a second company may
have the leasehold for all zones below 8,000 feet.

Water Rights
The legal right to water is as important to the
value of a property as the physical source of the
water. A water right is a right to a definite or con­
ditional flow (quantity) of water, generally for
use at stated times and in stated quantities, for
irrigation, livestock consumption, real estate
developments (subdivisions), hydroelectric power
development, and other uses. Water rights vary

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Identifying Rights and Interests to Be Appraised in Rural Property

Table 2 Ownership Interests

Mineral owner The person or entity possessing title to the mineral property. The mineral owner may or
may not hold title to the associated surface of the land. In this case, the mineral estate is
considered severed from the surface ownership.

Leasehold owner The person or entity holding a lease on the mineral estate w ith the right to extract the
oil and gas reserves present.

Royalty interest owner That portion o f the produced oil and gas retained by the mineral owner as partial
compensation for leasing to the leasehold owner. This is normally a percentage of the
gross production and is subject only to severance and income taxes.

Overriding royalty interest That portion of the produced oil and gas generally retained by a third party or parties
owner as compensation for services or subleasing of a particular mineral property. This is also

normally a percentage o f the gross production and is subject only to severance and
income taxes. This interest is created from or carved out o f the leasehold interest.

Working interest owner The party who pays 100% of the costs of production. Working interest owners are
usually, but not always, the leasehold owners.

Reversionary interest Sometimes called a back-in, a reversionary interest is an interest that will revert normally
to the leasehold owner at a predesignated time, such as pay out of the drilling and
completion cost of an oil or gas well. This interest is usually an option to continue with
a given overriding royalty, or to convert that interest to a larger working interest.

Net revenue interest The net revenue to the working interest owners after all production costs, royalty, and
overriding royalty interests have been paid

greatly throughout the United States and are
affected by numerous compromises, exceptions,
and changes. Most water rights, however, are con­
trolled by state law. Many disputes occur because
of the fluid nature of water and the fact that laws
were passed without scientific knowledge of the
interdependencies of the water cycle.

Surface W ater Doctrine
Laws regarding surface water rights in the United
States are complex primarily because of differ­
ences in the availability of water. The riparian
doctrine is applied in states where water has his­
torically been plentiful. In the most arid states,
water rights are based on the doctrine of prior
appropriation. Some states employ both doc­
trines, with the appropriative doctrine being
dominant. The major differences between the
riparian and appropriative doctrines of surface
water are summarized in Table 3.

The riparian doctrine of surface water is based
on English common law and gives the owner
of the land bordering a lake or stream the right to

use the water on the contiguous land. The ripar­
ian right exists solely because the land is located
next to a natural water supply, and the right to the
surface water resides in the ownership of the land.

The riparian owners up and down the stream
have equal usufructuary rights. The term usu­
fructuary refers to the “use of the fruits.” In other
words, the riparian owners up and down the
stream are entitled to share the water for reason­
able use without seriously diminishing the quan­
tity or quality of the water used by other owners.
The owners’ rights are equal, regardless of loca­
tion along the stream or the time when each
property was purchased. The riparian doctrine
does not define “reasonable use” or guarantee
any particular quantity of water. The resulting
uncertainty can lead to legal conflict among the
owners along a watercourse. Reasonable use is
determined in a particular case only when one
party brings suit and the court makes a decision.
As long as the practical application of riparian
rights is confined to areas where the supply of
water generally exceeds the demand, all users

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Table 3 Summary o f Riparian and A ppropria tive Rights to Surface W ater

Riparian Right Appropriative Right

Prevails in eastern United States Prevails in western United States

Is based on English common law Assumes public ownership of water

Is linked to land ownership and physical contiguity Is acquired by diverting water for beneficial use
and meeting specific Ideal requirements

Entitles user to reasonable use, without materially
diminishing quality of watercourse; “right to simple
usufructuary while it passes along”

Entitles user to physical consumption of a certain
amount of water for specified land

Entitles user to equal sharing Entitles user to consumption on a seniority basis;
“first in time is first in right”

Depends on ownership of land in physical proximity
to water and transfers automatically with the land

Is a real property right, separate from right to land
and separately transferable

are able to share the available water and there
is no need to specify quantity or reasonable use.

A riparian right can be lost by selling the land
next to the water, leaving the remaining land cut
off from the supply of water. Similarly, the right
can be lost if the stream shifts or moves away
from the riparian land. A riparian right can also
be lost by condemnation or by failing to prevent
someone else from diverting water for a certain
number of years, as set by the statute of limita­
tions (prescription).

Under the doctrine of prior appropriation,
water is owned by the state and may be granted
for beneficial use through appropriation. Appro­
priative surface water rights are acquired by use
and the performance of certain legal require­
ments, as directed by the state, the county, or an
irrigation district. These rights apply to a specific
quantity of water and often to particular times of
use, places of use, and methods of diversion.
Unlike riparian surface rights, which depend on
the ownership of land in physical proximity to
water, appropriative surface rights can entitle the
owner of the water right to surface water that is
not contiguous to the land on which it is used. In
addition, the owners of appropriate surface rights
are entitled to consume or use the appropriated
quantity of water, provided that the use for the
water is beneficial. The oldest water right has
precedence over more recently acquired water
rights. Simply stated, first in time means first in

right. This means that in times of scarcity, the
holder of the oldest right is entitled to a full
quantity of water before any is given to later
holders. This principle of seniority clearly differs
from the equal sharing of water in the riparian
doctrine. Many appropriative water rights can
also be transferred independently of the land.

Although the details vary with state regula­
tions, the usual pattern for establishing appropri­
ate water rights is:

1. The landowner files an application to use
a certain quantity of water on specifically
designated land, taking the water from a
designated diversion point.

2. The landowner proves beneficial use for
this water.

3. The appropriate authority in that state
grants a decree or adjudication.

The water rights may be evidenced by a con­
tract with the Water and Power Resources Ser­
vice (formerly the US Bureau of Reclamation),
with the Secretary of the Interior, or with a public
utility water distributor. Water rights may also be
given by an individual state certificate or decree,
by shares of stock in an irrigation company, or by
location in an organized irrigation district. These
agencies differ widely in administration and the
terms on which water is granted. Appraisers must
therefore be aware of the different regulations,
local considerations, and any changes in the reg-

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Identifying Rights and Interests to Be Appraised in Rural Property

ulations. If water is obtained from public agen­
cies, the laws governing use can be changed, and
that change can put limitations on the number of
acres for which federal water can be used. For
example, the Reclamation Act of 1902 specified
that federal water can be provided for only 160
acres per owner (320 acres for a farm couple). The
Reclamation Reform Act of 1982 increased the
acreage limitations to 960 acres for a family farm.
The act also affects the use of federal water on
corporate-owned lands, methods for calculating
the cost of water used on excess acres, and the sale
of lands in excess of the acreage limitations.

Private agencies can also change the cost of
water, the terms of delivery, or the dependability
of delivery. For this reason, appraisers should be
aware of the management practices of the agency,
the condition of indebtedness, the type of pay­
ments or assessments, and any shares or voting
rights accorded the owners of water rights. The
members of a private irrigation company could,
for instance, vote to raise the individual assess­
ments on water rights, with a corresponding
increase in the expenses of the irrigator depen­
dent on this water. These organizations usually
keep records of the amounts, timing, and costs of
water used by irrigators, which can be employed
by appraisers in estimating the amount, suffi­
ciency, dependability, and expense of the water
used for a particular tract of land.

To maintain an appropriative right, the owner
must demonstrate “beneficial use.” An appropri­
ative right can be lost by condemnation, pre­
scription, abandonment, or nonuse for three to
five years, depending on state law. With regard to
water, the general rule is, “Use it or lose it.”

G roundw ater Doctrines
Most state groundwater laws were developed
after the surface water laws. Sometimes, ground-
water doctrines follow or are combined with the
surface water laws of a state.

Resembling the riparian doctrine for surface
water, the absolute ownership doctrine states that a
landowner can take as much water as desired from
beneath the owned land. The water is considered
part of the landowner’s soil. The reasonable use
doctrine is a modification of the previous principle
because use of groundwater can affect the water
supplies of other landowners. This modification
limits each landowner to reasonable use, recogniz­
ing equal rights to groundwater resources. A fur­

ther modification of the reasonable use doctrine is
the correlative rights doctrine, which states that the
landowner’s use must be correlated with the use of
others, especially during times of water shortage.
When water is in short supply, each landowner is
entitled to groundwater in proportion to the per­
centage of land he or she owns in relation to the
other lands overlying that groundwater supply.

Under the doctrine of prior appropriation,
groundwater, like surface water, belongs to the
people of the state and is subject to appropriation
for beneficial use through a priority system simi­
lar to that used for surface water. In 1959, Hawaii
passed a groundwater use act providing for regu­
lation of groundwater withdrawals from desig­
nated areas by a state commission.

O ther W ater Rights
A neighbor may gain prescriptive rights by openly
diverting water to which others have prior rights.
If the diverted water is used without interruption
for the number of consecutive years prescribed by
state law and other legal requirements are met, a
prescriptive right against the original owner is
granted. A prescriptive right may be lost in the
same way—i.e., it may be prescribed by someone
else openly diverting the water for the specified
period of time. A vested right is a clause in appro­
priation law that protects the rights of persons
who appropriated water for beneficial use before
the passing of appropriation laws. A vested right
can also be lost by lack of use.

The water rights in a particular location can
affect the value of property in different ways. In
an appraisal of irrigated property, an appraiser
must know whether the water rights are appurte­
nant to the land or transferable separately from
the land. If they are separate, the legal source,
conditions, terms, and value of the water rights
should be known and noted by the appraiser. If
water rights are not transferred with the land, the
property’s value may decline significantly and its
highest and best use may be changed.

Financial Interests

An exceedingly common division of the complete
bundle of rights in real property is the separation
created by equity and debt ownership interests—
i.e., a property with a mortgage. The availability
of capital for investment in rural property has a

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Peer-Reviewed Article

significant effect on the frequency of sales and
consequently on the prices asked and achieved in
the market. In individual transactions, the financ­
ing terms are of great concern in the valuation
process, particularly if the financing terms for
transactions of comparable properties differ greatly
from the financing terms for the property being
appraised, requiring a significant adjustment to

the sales prices of the comparable properties in the
application of the sales comparison approach.

Rural property includes several primary prop­
erty types and uses, each with its particular capital
needs and sources. Rural property valuers need
to be aware of how the availability of capital
influences the property market and how capital
requirements are met.

Additional Resources______________________________
Suggested by th e Y. T. and Louise Lee Lum Library

Appraisal Institute
Lum Library External Information Sources [Login required]
• In fo rm a tio n Files— A g ricu ltu ra l properties

• In fo rm a tio n Files— Land and site

• In fo rm a tio n Files— P roperty rights

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