Mineral Rights Appraisal and Valuation Service
Are you looking for a mineral rights appraisal and valuation service? If so, this article is going to help explain why you should avoid mineral rights appraisal and valuation services. It’s common for mineral owners to want to know the value of mineral rights. However, a mineral rights appraisal is rarely going to be the right option for you. We will help guide you through mineral rights appraisal and valuation service at no cost to you in this article.
Mineral Rights Appraisal
A mineral rights appraisal service is designed to tell you the overall value of your mineral rights. This assumes that every drop of oil is extracted immediately. Most mineral rights appraisal services look at the estimated ultimate recovery (EUR’s). The estimated ultimate recovery is an estimate of how much oil and gas is actually below ground that you own. There are three major problems with a mineral rights appraisals based upon estimated ultimate recovery.
1. The estimated ultimate recovery is just that, an estimate. Even publicly traded oil and gas companies incorrectly estimate ultimate recovery. As the Wall Street Journal points out, some areas don’t produce the kind of oil that was previously estimated. When you get a mineral rights appraisal, the base number they are using to determine the value is simply going to be wrong. It is just an estimate and one that is subject to change.
2. Another major variable is the price of oil and gas. We hear a lot of mineral owners state that the price of oil and gas will certainty be higher in the future. However, that is not the case. It could be higher or it could be a lot lower. Renewable energy is slowly becoming a viable alternative to oil and gas. While it will take years for the transition to renewable energy to take place, this shift creates less demand for oil and gas. As the price of oil and gas shifts up and down, the ultimate value that can be recovered also shifts. Even if we knew for a fact how much oil and gas could be recovered, the price you get when you extract the oil and gas is unknown and can swing dramatically.
3. The time value of money plays a major role. Let’s use a simple example. Let’s say the price of oil is $50/barrel and we know for a fact (impossible) that your mineral rights are equal to 1,000 barrels of oil. This would mean that today, the value of the oil you own is $50,000 ($50 X 1,000). However, you will not be able to collect all of that money today because it takes decades to extract all of the available oil. In addition, it may take multiple wells to fully extract all of the oil. If the known value is $50,000 today, but it will take 20+ years to get $50,000 out of the ground, what would a mineral buyer be willing to pay today? Significantly less than $50,000! A mineral buyer will not spend $50,000 to recover (hopefully) $50,000 over the next 20+ years. There is a very steep discount applied to the current value because it will take years to fully recover the $50,000 that is below ground.
As you can see, with just three variables the value of mineral rights can shift dramatically. A mineral rights appraisal is basically a complete shot in the dark at the value. It is our opinion that a mineral rights appraisal is basically worthless. The estimated mineral rights value provided in a mineral rights appraisal never matches the real current market value. This is primarily due to the three factors listed above but also due to a many other factors beyond the scope of this article.
Mineral Rights Valuation
Another term similar to a mineral rights appraisal is a mineral rights valuation. A mineral rights valuation is basically identical to a mineral rights appraisal. However, some companies will provide you with an overall appraisal, and then provide you with a “current market value” based upon the discounted cash flow value. The mineral rights valuation that provides you with a current market value is helpful because it solves problem #3 above. With a mineral rights valuation they provide you with the appraisal showing the overall value, then apply a PV10 value to show you what the current value is when accounting for the time value of money.
The problem is that this type of mineral rights valuation is still wrong due to factors #1 and #2 above. They are still using an estimated ultimate recovery and they can’t control for the shifting price of oil and gas over time. These two factors alone are enough to make a mineral rights valuation that uses a PV10 value effectively useless to determine true market value.
Our Experience with Mineral Rights Appraisals and Valuations
At US Mineral Exchange our goal has always been to help mineral owners sell mineral rights for the highest price available. We have reached out to a number of mineral rights appraisal services. We have asked them to appraise properties that we sold on an open market in front of thousands of buyers. Every single service we contacted quoted a value that was 1. Way higher than true market value and 2. Not remotely close to the real value of what the property actually sold for.
If a mineral rights appraisal service could accurately tell you the market value, those services could make a fortune by simply modeling the value, offering mineral owners slightly less and making a huge amount of money selling at fair market value. The reality is that these mineral rights appraisals do not accurately or consistently estimate true market value.
Our hope was that mineral rights appraisals and mineral rights valuations could be a tool we would use to assist mineral owners in getting the best price. Unfortunately we have not found a mineral rights appraisal service that could create value for mineral owners.
How to Appraise Mineral Rights
The purpose of a mineral rights appraisal or mineral rights valuation is to estimate value. In most cases, a mineral owner wishes to estimate value so they know what it’s worth because they want to sell. Many mineral owners are looking for a mineral rights appraisal to help them understand what it’s worth so they don’t sell below market value.
The only accurate way to get a mineral rights appraisal is through legitimate offers. When a mineral rights buyer makes you a legitimate offer that is a true mineral rights appraisal. A legitimate offer to sell mineral rights is at least a ball park estimate of the true market value.
At US Mineral Exchange we can nearly always help you sell mineral rights for a higher price. An offer is a good estimate of value, but to get the best price possible you need to get the mineral rights in front of thousands of mineral buyers and let them compete. This is the only way to truly get an accurate mineral rights appraisal of the highest market price available.
If you want to sell mineral rights, US Mineral Exchange can help. Simply fill out the form at the bottom of this page to get started.
Mineral Rights Appraisal for Medicaid Qualification
If you are looking for a mineral rights appraisal or mineral rights valuation so that you can qualify for Medicaid, please check out our article about mineral rights and Medicaid.
The more information you can provide about your property the better! We can give you a better idea about the value of selling mineral rights if you provide more information. The most important thing we need is for you to answer the questions and provide your state and county.
If you have the required documents to list, providing those is extremely helpful!
Absolutely not! When you inquire at US Mineral Exchange we will not be putting any pressure on you to sell. We will help answer any questions you have whether you are interested in selling or not.
At US Mineral Exchange, we take privacy very seriously. We will NEVER sell your information or use it without your consent. When you send us documentation or tell us about your property, that information does not go outside our company without your consent. Even when you list a property for sale on our website, we strictly control who has access to the information about your listing so that only legitimate buyers will be able to see property details.
Many mineral owners make the mistake of getting an offer and quickly selling. They then accept an offer far below market value because they felt pressure to sell. There is nearly always a better price available.
We have two types of listings available to help you sell mineral rights for the best price:
Auction Listing – Our auction listings are for just 7 to 14 days. If you have an offer in hand you are seriously considering, an auction listing is a quick way to get a better offer and ensure a smooth closing process. Learn more about our auction listings.
Standard Listing – Our standard listings run for 30 days. These listings are ideal if you don’t have an offer in hand or you are not in a rush to sell. Learn more about our standard listings.
The reason that so many mineral owners decide to sell mineral rights at US Mineral Exchange is access to our large network of mineral rights buyers. Our goal is to help you get top dollar for selling mineral rights by getting your property in front of a huge audience of buyers. This allows buyers to compete against one another which ensures you get fair market value for selling mineral rights.
There are absolutely no cost to list your property. When you locate a buyer by listing your property with us, we are paid a commission directly by the buyers closing agent. This means you never have any out of pocket expenses ever. We only get paid if we can get you a better price than the current offer you have in hand.