Why Realtors Should Care About Water Rights

10/12/2015 | NANCY ZALUTSKY

Why Realtors Should Care About Water Rights
Nancy Zalutsky

Nancy Zalutsky | Water Rights Specialist | Bio

Water rights can be one of the most valuable aspects of a Montana property. If, or how, those water rights are tied to a land parcel can mean all the difference to that value, not to mention the potential financial loss to both a buyer and their realtor if the water rights have been severed before the purchase. While this article focuses on real estate in Montana, similar situations could arise in most Western states. If you’re a realtor, land buyer, or bank lender anywhere west of the Mississippi and you’ve thought about water rights, but don’t know quite enough or even where to start, then read on. And, stay tuned for similar commentary on other Western real estate markets.

Montana law requires a Water Right Disclosure in order to transfer land.  Unless the property is served by a public water supply, the seller must state whether there are appurtenant (linked) water rights recorded with the Montana Department of Natural Resources and Conservation (DNRC) and whether all, part, or none of the water rights transfer to the buyer. You should know the answers to these questions before listing or showing property in order to better serve clients, avoid surprises at due diligence or closing, and enhance your reputation. If you are a buyer, ask about this early in the process. I’ve seen properties with unknown water rights listed as dry land, and I’ve seen sub-par water rights listed as high quality. Eventually, a buyer finds out – it’s better for all parties if they don’t learn the hard way.

The Water You May See Is Not Necessarily the Water You Are Buying

Water rights are appurtenant to land, so it is as important to be aware of the water as it is to know about the house, barn, fixtures or easements. Water is part of the property and affects its value in the same way as a new building or an existing road or pipeline easement. In short, it’s important to have a basic understanding of this valuable asset. (See, Need Land Value? Just Add Water)

You cannot assume that property has water rights even if there are ponds or irrigation on site or a stream running through it. Land can be irrigated with water purchased from a water users or ditch association, with water from an unauthorized diversion or through a private agreement with a neighbor. If you allow a buyer to unknowingly purchase a property with illegal water, you will undoubtedly hear from the unhappy new landowner.

Early 20th century Montana landowners often developed springs on their property to create ponds, unaware they were required to file a claim or acquire a permit for the ponds. Unfortunately, the new owners may discover this oversight when they try to transfer or obtain a permit to stock fish. Water information is particularly essential for the buyers who are not familiar with western water rights regulation. Prospective purchasers and new landowners often wonder if they can build a pond or water the lawn with water from the stream running through their property. The buyers won’t be in for an unfortunate surprise if they understand they aren’t buying the stream flowing through their parcel.

Purchasers often retain an attorney or a consultant to perform due diligence for water rights, and a realtor is not expected to provide that sort of in depth analysis. Still, a sale could fall through if due diligence research reveals substantial water right defects, thus it pays for a realtor (and buyer) to have a basic understanding of water rights on a property before an offer is submitted

Water Wells ≠Water Rights

In Montana, well drillers must file a well log with the Ground Water Information Center (GWIC), but that does not create a water right. The owner of a small well, like one to supply a household, may not be required to file for a water right for the well. The use of the well can continue, but the new owner will not have a water right with a priority date. Since water users “line up” by priority date in order to use water, this leaves the unregistered well owner at the end of the line. If use from the unregistered well is affected by subsequent water development, a water user without a priority date has no recourse for this interference. This situation can be easily fixed by finding the well log from a search and filing it with the DNRC. The priority date will be the date of the DNRC filing, so if you have the information, it is easy to work with the seller to file the well before listing the property.

Devoting some resources to researching water on a property can provide huge value to your buyer. It is not uncommon for water rights appurtenant to a property to be recorded under variations or misspelling of the owner’s name or a completely different name. Occasionally, a domestic well may have been omitted from the transfer of assets to a trust or corporation, or it was never recorded with the DNRC. If the land went through probate, foreclosure or tax sale years ago and the water was not transferred to subsequent landowners, a simple owner search is fruitless. Water Sage allows you to use more comprehensive spatial searches to find relevant water rights, even if the owner name is misspelled or even erroneous.

The best way to find all the water rights appurtenant to land is a place of use (POU) search.  Until recently, searching the POU was a laborious section by section examination over an entire property. Now, you can perform that search in minutes using Water Sage. Just use your mouse to draw a box around the property and Water Sage will retrieve the records for you, even if they are not in the ranch owner’s name. Water Sage shows that the property below uses water from a water users association along with water rights held by the landowner. This is an important detail to disclose to a buyer and a simple, but effective way for a realtor to go above and beyond.

MT Water Sage

Water Sage includes land parcels, so you can determine if water rights are appurtenant to the property without a separate search.  Any water right with a POU overlapping a parcel means that it may be appurtenant and thus significant to the land. Viewing land parcels makes it easy to determine if water rights might be shared with other users. If you are listing part of a large property, Water Sage can help you find out if the seller should be transferring, splitting or reserving the water rights.

Improve Your Marketing Materials with Water Sage Images

Once you have identified the water rights that transfer with the property, you can print detailed summaries and abstracts for each one, and even create a Google Earth file for your customer. By clicking on the Export button, you can save the results to an Excel spreadsheet or a map via Google Earth (Kmz) or GIS (shapefile). This information from Water Sage creates an impressive and valuable report to give to a prospective buyer.

Whether you are the agent representing the buyer or the listing broker for the seller, you don’t want to miss important information about the water and water rights used on the property. Before listing property, determine if the property has water right defects and how they can be remedied. Prior to showing property, familiarize yourself with the streams and ponds on the property or water used by the seller and create a water rights report for the buyer. Understand which water rights irrigate various fields and fill ponds and reservoirs. You might even want to see how many upstream water rights are diverting out of an adjacent stream that adds aesthetic or recreational value to a property. These precautions can help you and your client avoid costly and time-consuming surprises. Contact Water Sage if you want to search for water rights or call us and we’ll prepare a report for you.