Colorado is an odd state, prior to last year, you were unable to buy full…
The Yampa River (in NW) Colorado was placed on “call”. This is the first time ever that a call has been placed. What does this mean to have a call on a river? How does this impact your real estate throughout the state? Could you get a call? What should you do before buying any real estate in Colorado? Do you know the magic number?
If you haven’t noticed, fall is starting a little early in the high country. This is not due to a cold front, but recent drought conditions throughout the state have stressed the trees causing leave to drop early. Why should you care? How does this impact real estate values? Are you impacted this year? What is the magic number?
The early fall is an important reminder of the importance of water in a state like Colorado. Water impacts every property owner and many business owners throughout the state. Colorado is different than many states as water, like mineral rights, are commonly separated from the property. Here is an excellent paper that fully explains water rights written by CU Boulder professors.
A good example is a property owner might have a creek flowing through their property. Although the creek is on their property that property owner has no rights to use any of the water, dam it, or alter it unless they have decreed water rights. The value of this creek is from a recreational standpoint (fishing, hunting, etc…) as opposed to agricultural value.
In order to build a house/residential property, water is required. You can either pay to hook up to a water district (if available) or drill a well. Just because you have a lot does not mean you can get water. I’ve seen numerous examples where people bought lots only to discover that water was not available. Ensure you call the water district to confirm the ability to get a well (or if an existing well that it is legal). Here is a link to the Colorado Division of Water where you can get more information.
The magic number:
In Colorado if your acreage is over 35 acres you have the right to drill a well for household/domestic purposes (and irrigate a small amount of land depending on the water district). If a parcel is less than 35 acres typically a subdivision plan is required (if it is a new development a water/augmentation plan would be required). If the parcel is less than 35 acres it is critical to confirm that you can get a well permit and that there is enough space to separate a well from the septic system (100 feet+).
Water rights are an asset just like a stock that can be traded, leased/rented, sold, etc… Water rights are critical throughout the state. For example let say you wanted to build a new development in Boulder county. Before going to far you would have to secure water rights for the development. You could go out and buy these from another water user or get annexed into a water district that has existing rights. Without these water rights the development is dead in the water.
Along with new development, many existing property owners already have water rights. For example, a property might have 6 shares in a ditch company that allows an owner so many gallons to irrigate a field or use for livestock. These rights can be conveyed with the property or separately sold (depending on the water district)
The recent drought highlights the risk to your water
The recent drought in Colorado (and most of the west) has severely reduced the amount of available water and could create significant risk to your water rights. This could also have severe impacts on your real estate values as water is critical in an arid climate like Colorado.
What is a call?
As mentioned above water rights go on the priority system. So, if a river/water right is running low, the last in line could have their water cut off. It is not last in line physically, but based on when the water right was acquired. For example there was a “call” on the Yampa river (Steamboat Today) meaning senior water rights can “take” water before junior water rights. If you had a farm with Junior water rights or livestock you likely will not have any water if there is a call. In the case of the Yampa, irrigation ditches are being shutoff for many users. This doesn’t just impact agricultural users. Cities also are the owners of water rights that could get curtailed due to droughts. This means that the city would either have to reduce their water consumption or go out to the market to try to secure more senior water rights. Senior water rights are getting expensive and these costs will no doubt be passed on to consumers. With the extreme droughts “calls” on water rights will become more prevalent. Here is a more in depth discussion created by professors at the University of Colorado with more details
Other impacts from a call due to low flows
Along with actual water right holders many businesses are also impacted. For example low water flows will prohibit rafting or angling in certain areas. Many cities like steamboat have banned any commercial activities on sections of the river due to low flows which has led to high water temperatures. As a business owner your business could be toast due to the recent droughts/low flows.
Water rights/or lack thereof can dramatically alter the value of a property. The value of water is dependent on the water district, amount of water, and priority of water. Commercial water is based on the priority system of when the water right was acquired. For example if you got your water rights in 1975, you would be junior to someone who has water rights from 1945. It is critical to ensure you have appropriate water for your intended use and if you are purchasing a property with water what the source and priority of the water right is. Please see below for some great resources from the state of Colorado and the University of Colorado that discuss water rights in Colorado in more detail if you have questions.
The early fall should serve as a stark reminder of how critical water is to real estate property values in Colorado. All property owners and affected businesses should understand the implications on their property/business.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is the recognized leader in Colorado Hard Money and Colorado private lending focusing on residential investment properties and commercial properties both in Denver and throughout the state. We are the Colorado experts having closed thousands of loans throughout the state.
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