Appraising water rights is easier said than done. Here are four reasons why:
1. Water represents a dynamic resource continually changing in space and time. Sound familiar? Just imagine the 3rd priority water right on the stream under the prior appropriation doctrine. You can appraise this water right at a high value one year and find out it is not available the next year, due to low water conditions.
2. Uncertainty regarding the quantification and administration of water rights. Many Western state’s ongoing adjudication processes have yet to settle the differences between water right claim abstracts and actual water.
3. The water market is young. A limited number of comparable sales fail to create an accurate baseline for water values.
4. The four most popular appraisal methods a) land price differential, b) income capitalization, c) comparable sales and d) replacement cost- all have their drawbacks. But, we will save that topic for a later discussion.