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The Value of Your Land Today
and into the FutureChoices Landowners Face
Lane Coulston 1
"SMALL HOMESTEAD - LARGE LANDSCAPE" 8 M
Financial compensation to landowners for conservation easements
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This deal saved a ranch! 11 is an exclamation rarely heard at the conclusion of a ranch real
estate transaction. Yet those were Zach Wirth 1S words as he closed the transaction which
compensated his family for protecting their ranch from rural subdivision. The Wirths, who live in
Wolf Creek, are the first Montana family to receive cash from a private individual for granting a
conservation easement.
Conservation easements are voluntary legal agreements which landowners make to restrict the
type and amount of subdivision and development which may take place on their property.
Landowners choose the restrictions to safeguard the agricultural productivity and ecological health
of the land.
In additional to protecting the future of agriculture and wildlife, conservation easements are
useful financial planning tools. To understand this financial planning role, first consider the sources
of land value. The top market price for a ranch generally reflects the high bids of speculators and
developers. Agricultural value -- the productive value of the ranch -- tends to be much less than
development value.
A common mis-perception is that conservation easements reduce ranch value from
development to agricultural levels. In practice, a conservation easement usually lowers ranch value
to a level between agricultural and development values. We call this level 11 0pen space value. 11
Many affluent ranch buyers look for scenic, spacious, and ecologically diverse ranches. They will
pay more than agricultural value for such properties, even if the land is under a conservation
easement. Development value, open space value, and agricultural value can all be determined by
a qualified appraiser.
The appraised reduction in market value resulting from the donation of a conservation
easement -- perhaps 25 to 35 percent of development value -- usually qualifies the landowner for
income and estate tax breaks. Yet many ranchers are 11 land-rich 11 but 11 Cash-poor, 11 and therefore
benefit little from income tax deductions associated with the donation of a conservation easement.
As part of their land use and financial planning, these ranchers may wish to sell, rather than
donate, a conservation easement. The landowner negotiates and grants the conservation
easement to a land trust organization.
Land trusts are private, nonprofit organizations with small budgets dependent on private
donations. They cannot afford to buy easements unassisted. However, the American Conservation
Real Estate Co. (ACRE) is working with land trusts to create a new market for privately 11 purchased 11
easements. This market is driven by buyers who have clear, motivating land ethics. Such people
strive to protect our natural heritage.
Conservation buyers understand that the demand for ranchette subdivisions threatens our
1
American ConseNation Real Estate, Helena, Montana.
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heritage of native plant and animal communities. They seek alternatives to honor lands which have
outstanding natural resource values. In return for a single homesite in a secluded location, and for
limited, low-impact recreational privileges, a conservation buyer may be willing to pay a rancher to
grant a conservation easement. The landowner creates value by choosing restrictions on future
development of the property.
Usually, conservation buyers cannot fully compensate a landowner for the loss of development
value due to a conservation easement. However, through their purchase, these buyers can help
ranchers get out of debt, buy out partners, or acquire more land. Conservation buyers have shown
interest in paying anywhere from $100,000 to $1,000,000 for this type of opportunity. On
especially large and valuable ranches, it may be possible to generate well over $1,000,000.
UNDERSTANDING THE "PRESENT-DAY VALUE"
OF A CONSERVATION EASEMENT
Granting a conservation easement means restricting certain rights that usually accompany the
ownership of land. Some of these rights may be worth a lot of money. Examples of potentially
valuable rights include the right to convert a working ranch to a vacation home subdivision, the right
to clearcut timber, the right to engage in mining and other forms of land resource development.
There are other privileges of land ownership which are ecologically significant but do not provide a
significant financial return to the owner.
The monetary worth of the various rights of land ownership can be appraised. Some ranches
are encumbered by deed restrictions which limit development, such as conservation easements or
agricultural zoning districts. Development of many other properties is limited only by the county
subdivision review process. Speculators and developers bid on ranches which do not have deed
restrictions, driving up the price of such properties. Qualified appraisers determine the market
value of development rights by comparing the sale prices of deed-restricted ranches with the sale
prices of properties open to development.
Different appraisal techniques may be employed to learn the value of other land ownership
rights. For instance, a timber cruise reveals the monetary value associated with different logging
practices and rates of timber harvest.
In the scenic Northern Rockies, the right to subdivide a working ranch into recreational
.. ranchettes .. is the predominant value of a conservation easement. People often use the terms
.. conservation easement value .. and .. development rights value .. interchangeably, because the two
values are so similar.
The landowners primary benefit from restricting development rights with a conservation
easement is peace of mind, knowing that the land will be preserved in the future. There can be
other benefits as well: income and estate tax advantages, or even an immediate influx of cash.
DIRECT MONETARY COMPENSATION FOR CONSERVATION EASEMENTS
11
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Many property owners are land-ri~h but 11 Cash-poor, 11 and as a result benefit little from income
tax deductions associated with the gift of a conservation easement. As part of their land use and
estate planning, some landowners seek to sell a conservation easement. The conservation
easement is negotiated and granted to a land trust organization.
Land trusts rely on the contribution of money, gifts of conservation easements, and of land by
private parties to support their work. They cannot afford to buy easements unassisted. However,
there is an emerging market for .. purchased .. easements by private individuals. This market is driven
by buyers who have clear, motivating land ethics. Such people endeavor to live their life in a way
that promotes and protects our natural heritage. They understand the conservation roles played by
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land trusts.
Like many people, dedicated conseNationists enjoy the open spaces, recreational
opportunities, and natural values of the Northern Rockies. However, the demand for ranchette
subdivisions threatens our heritage of native plant and animal communities. The purchase of a
rural ranchette is inconsistent with the open spaces we enjoy in the West.
ConseNation buyers choose to honor lands which have outstanding natural resource values. In
return for a single homesite in a selected location, and for limited, low-impact recreational
privileges, a conseNation buyer may be willing to pay the rancher to grant a conseNation
easement. The landowner creates value by choosing restrictions on future development of the
property.
Another market for purchased conseNation easements is supported by government agencies.
The US Fish and Wildlife SeNice at times has program money to purchase easements on wetlands
and associated uplands. The Montana Department of Fish, Wildlife and Parks has a small but
stable supply of money for securing easements which augment wildlife habitat and recreation
opportunities. They may request hunter and fisherman access, or negotiate limits on agricultural
activities to improve wildlife and fisheries habitat.
Each land trust organization has a different character, which is reflected in their easement
documents. The Nature ConseNancy emphasizes biological diversity. The terms of a Nature
ConseNancy easement often include specific protections for vulnerable plant and animal
communities. The Montana Land Reliance is a state-wide land trust which emphasizes open space
and agriculture, as well as wildlife and fisheries habitat. Local land trusts write easements to
maintain traditional land uses which contribute to the character of the community.
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