How Much Does a Conservation Easement Reduce Property Values?

There are many reasons why landowners may want to place some or all of their land holdings in conservation easements.

Conservation easements are agreements between landowners and qualified organizations, such as state agencies or land trusts, that restrict the use of the property in order to protect its natural resources. Landowners also enter into conservation easements to prevent development on ranching or farmland, or to ensure environmentally sensitive portions of their land, such as forest or wetlands, remain in their natural state in perpetuity.

Placing land into a conservation easement has some financial considerations, though. In this article we’ll take a look at how conservation easements work and how they may reduce property values.

How Do Conservation Easements Work?

Landowners and qualified entities enter into conservation easements by drafting legal agreements that are recorded as deed restrictions. Landowners voluntarily assign a portion of their property rights to a qualified agency that is tailored to their conservation beliefs and personal values. These agreements delineate restrictions on the land in order to protect its natural resources or ensure it remains in its natural state.

Conservation easements are applicable to any future landowners, who are prevented from subdividing or developing the land. The agreement is typically filed at the county recorder’s office. Once filed, the landowner has legally conveyed certain property rights to the grantee, which now holds specific real property interests in the lands denoted for protection and conservation.

Landowners will still keep ownership of lands placed into conservation easements, along with any rights that weren’t included in the agreement. The nexus of the agreement is to protect certain uses and aspects of their land for future generations. There are some financial considerations associated with conservation easements. Read on.

Conservation Easements and Property Values

Land values typically change after it is put into a conservation easement. Prior to the conservation easement being recorded, there are two appraisals conducted on the property: one before the agreement is in place and the land is unencumbered, and another hypothetical one that considers the land in its restricted state after the agreement goes into effect. The value of the conservation easement is the difference between these two appraisals and provides a compensation value for the landowner.

Here’s an example:

Generally speaking, a conservation easement will lower property values between 25 and 60 percent. The amount of reduction in value depends on a host of factors, including what uses have been restricted, the type of land placed into conservation easement, and its location.

Land placed into a conservation easement has a lower fair market value because the easement restricts the owner’s rights to develop the land. Landowners can still realize appreciation on their land, but it will be from the reduced basis of the appraisal on the encumbered land.

Putting it all Together

Selling a conservation easement to a state agency or land trust can be a way for landowners to get some cash out of their land holdings while retaining ownership. There also can be tax benefits associated with conservation easements. It typically takes a long time – years even – for conservation easements to get recorded and funded, though, and they can lower property values by half or more depending on the restrictions placed on the land and other factors.

Landowners can tailor agreements to suit their conservation desires for their land. The agreement restricts land usage in perpetuity, but it also permanently reduces its fair market value. If you still have questions about conservation agreements and how they might affect your land, consider discussing your options and the pros and cons of conservation easements with a qualified land use attorney.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

Hypothetical examples are for illustrative purposes only.