6.1 Public and Private Restrictions

Why Restrictions Matter on the AQB Exam

AQB Exam Content Outline Area II (Property Description) requires mastery of rights to use, including public restrictions and private restrictions. Fee simple ownership is the largest estate commonly appraised, but it is never unlimited. Sovereign powers (PETE—police power, eminent domain, taxation, escheat) create the public side of those limits. Private parties create additional limits through instruments recorded against title or physical conditions on the ground.

For the National Exam and for real assignments, you must answer three linked questions:

1. What property rights are being valued (fee simple, leased fee, easement interest, partial interest)?
2. What legal constraints—public and private—limit use of those rights as of the effective date?
3. How do those constraints affect market value and highest and best use (HBU)?

A beautiful site zoned for apartments is not apartment land if a recorded deed restriction forever bans multifamily use. A house with a perfect floor plan still sells differently if a utility easement runs through the only place a buyer would put a pool. Restrictions are valuation data, not abstract law trivia.

Public restrictions are deepened in Section 6.2 (zoning and entitlements) and Section 6.3 (taxation). This section focuses on the private tools—and on how public and private limits work together when you test legal permissibility.

Easements

An easement is a nonpossessory interest that gives someone a right to use another’s land for a defined purpose. The land burdened by the easement is the servient estate (it serves the easement). When the easement benefits another parcel, that benefited parcel is the dominant estate.

Appurtenant Easements

An easement appurtenant runs with the land. It attaches to a dominant tenement and burdens a servient tenement. When either parcel is sold, the easement typically transfers with title unless terminated by the instrument’s terms or by operation of law.

Classic example: Lot A has no street frontage. Lot B grants Lot A a 20-foot access easement across Lot B’s side yard to the public road. Lot A is dominant; Lot B is servient. A later buyer of Lot A still needs the easement; a later buyer of Lot B still takes subject to it if it is valid and of record (or otherwise binding under local law).

Appraisal implications for appurtenant easements:

• Dominant estate: Access or utility rights may increase utility and value relative to a landlocked or underserved parcel.
• Servient estate: The burdened strip may lose development flexibility, privacy, or buildable area. The market may apply a discount if the easement is intrusive (driveway traffic, visible utility lines) or if it blocks a logical building envelope.
• Scope of work: Read the easement document—purpose, width, location, exclusivity, maintenance duties, and whether it is perpetual or term-limited.

Easements in Gross

An easement in gross benefits a person or entity rather than a dominant parcel of land. Many utility, pipeline, and railroad rights-of-way are easements in gross. There is a servient estate, but often no dominant tenement in the classic two-parcel sense.

Classic example: An electric utility holds a permanent easement in gross to maintain poles and lines across the rear 10 feet of residential lots in a subdivision. Each lot is servient; the utility is the easement holder.

Appraisal implications:

• Utility easements along rear lot lines are often market-accepted and may have little measurable effect if they match neighborhood norms.
• Large transmission corridors, high-pressure gas lines, or surface facilities can create stigma, setback constraints, or buyer resistance—possible external obsolescence or site utility loss.
• Do not assume “easement = automatic large discount.” Measure market reaction with paired sales or listing commentary when material.

Dominant vs Servient — Exam Recognition Table

Creation, Duration, and Related Interests (Exam Level)

Easements may be created by express grant or reservation in a deed, by necessity, by prescription (hostile use over a statutory period—jurisdiction-specific), or by implication from prior use. Termination can occur by release, merger of dominant and servient titles, abandonment (fact-intensive), expiration of a stated term, or other legal doctrines.

Distinguish related concepts you may see in stems:

• License: Personal, usually revocable permission to use land; not an interest in real property like a typical easement.
• Profit à prendre: Right to take something from the land (minerals, timber)—broader than a pure use easement.
• Right-of-way: Common label for an access or corridor easement; still analyze dominant/servient and appurtenant vs in gross.

Partial interests: Appraising the easement interest itself (for example, a utility acquisition) is a partial-interest problem. Appraising the fee subject to an easement is the more common mortgage assignment. Know which rights the client needs.

Covenants, Conditions, and Restrictions (CC&Rs)

CC&Rs are private land-use controls common in planned developments, condominiums, and many modern subdivisions. They may regulate architectural style, fencing, parking, short-term rentals, exterior colors, pets, business use of homes, landscaping, and common-area obligations. Homeowners associations (HOAs) or condominium associations often enforce them through fines, liens, and injunctions.

Critical exam rule: Legal permissibility for HBU requires checking both zoning and private restrictions. If zoning allows a home office clinic but CC&Rs ban all commercial activity, the private restriction can control market behavior even though the public zoning looks permissive.

Covenants vs Conditions vs Restrictions (Vocabulary)

In older deed practice:

• A covenant is a contractual promise about use or maintenance.
• A condition may make title or an estate dependent on compliance (for example, a condition subsequent)—rare and highly technical in modern practice.
• A restriction is a general term for limits on use recorded against the property.

On the National Exam, the practical point is that recorded private use limits bind successors when valid, and market participants price properties subject to those limits. You do not need to litigate the ancient estate-law taxonomy; you do need to recognize that private documents can shrink the bundle of rights.

Deed Restrictions

A deed restriction is a private limit placed in a deed (or a chain of deeds) that runs with the land. Examples include a restriction to single-family residential use only, a prohibition on subdividing, a setback stricter than zoning, or a ban on certain businesses. Deed restrictions may be standalone or part of a broader CC&R regime.

Appraisal workflow:

1. Identify restrictions in title work, prior appraisals, plats, or client-provided documents.
2. Determine whether the restriction is still enforceable (some expire; some are poorly drafted; discriminatory racial restrictions are void and unenforceable).
3. Analyze whether the restriction changes the most probable use buyers would consider.
4. Select comparables with similar private constraints when the restriction is material, or adjust for differences when data support it.

Worked micro-example: Two adjacent one-acre lots are both zoned for duplexes. Lot 1 has no private restriction. Lot 2’s 1985 deed restricts use to “one single-family dwelling.” If the market’s HBU for unrestricted lots is a duplex and residual land value is higher for that use, Lot 2 may be limited to single-family HBU. Treating the lots as perfect substitutes because “zoning is the same” would be an error.

Liens

A lien is a financial claim against property used as security for a debt or obligation. Liens do not usually change the physical highest and best use the way zoning does, but they affect title, marketability, sale proceeds, and sometimes buyer motivation in comparable sales.

Appraiser takeaways:

• Market value opinions for lending usually assume clear title / fee simple subject to typical exceptions, not a fire-sale of equity after liens. Still, unpaid taxes, HOA delinquencies, or distress can explain conditions of sale for comps.
• A property sold under lien pressure may not be a clean market-value indicator without adjustment or rejection.
• Do not confuse a lien (money claim) with an easement (use right) or an encroachment (physical intrusion).

Encroachments

An encroachment exists when an improvement illegally or improperly extends onto another’s land or into an easement—for example, a garage that crosses the lot line, a fence on the neighbor’s side, or a deck into a utility easement.

Why appraisers care:

• Survey and title risk: Lenders may require removal, redesign, or an encroachment agreement/insurance endorsement.
• Cost to cure: Moving a structure can be expensive; the market may discount by cure cost plus risk if cure is uncertain.
• Marketability: Some buyers walk away; others negotiate price.
• Legal exposure: Possible injunction, damages, or forced removal depending on facts and state law (including possible adverse possession or agreed boundary doctrines—fact-specific).

Exam scenario pattern: A recent survey shows the subject’s detached garage straddles the rear lot line by two feet. The correct appraisal response is not to ignore it. Identify the encroachment, consider effect on value and marketability, and apply a market-supported adjustment or extraordinary assumption/hypothetical condition only when the assignment and USPAP rules allow and the report discloses them properly. For pure ECO knowledge items, expect the concept: encroachment is a physical title/use problem that can reduce value or require cure.

Effect on Value and Highest and Best Use

Highest and best use analysis asks what use is legally permissible, physically possible, financially feasible, and maximally productive. Restrictions operate primarily on the legal test—and then cascade into feasibility and value.

Integrated Worked Scenario

Subject: 0.35-acre interior lot in a first-ring suburb. Zoning: R-2 (duplex allowed). A recorded 1950s deed restriction limits the lot to “one single-family residence.” A 15-foot sanitary sewer easement in gross runs along the rear. A neighbor’s shed appears to encroach one foot onto the subject based on a new survey. HOA CC&Rs (recorded 2005 when the area was replatted for common maintenance) ban home-based customer traffic and require architectural approval for additions.

Analysis steps:

1. Public legal use: Zoning allows duplex → duplex is not barred by police power alone.
2. Private legal use: Deed restriction limits to single-family → duplex is not legally permissible under private law unless the restriction is released, expired, or unenforceable.
3. Easement: Rear sewer easement reduces rear-yard buildable depth; a large addition might be impossible without variance and easement accommodation from the utility.
4. Encroachment: Neighbor’s shed creates a title/survey issue that a prudent buyer will price (cure by neighbor, boundary agreement, or discount).
5. CC&Rs: Even a single-family HBU must respect architectural controls and use bans that affect accessory dwelling units, clinics, or STRs.
6. Value: Comparables should be single-family lots/homes with similar private constraints when possible. Using duplex land sales without adjustment would misstate the subject’s rights package.

Common Exam Traps

1. Zoning-only legal test. Private restrictions can veto a use zoning allows.
2. Swapping dominant and servient. The dominant estate benefits; the servient estate is burdened.
3. Calling every easement “appurtenant.” Utility corridors are often in gross.
4. Treating CC&Rs as government zoning. They are private, even when they feel regulatory.
5. Equating liens with easements. Liens secure money; easements grant use.
6. Ignoring encroachments because “the house is fine.” Survey defects affect marketability and lender decisions.
7. Assuming any restriction destroys all value. Markets often absorb ordinary utility easements and standard HOA rules with little price effect—measure materiality.

Study Discipline for Restrictions

When you read a vignette, list public limits, private limits, and physical encumbrances in three columns, then state the rights appraised. That habit prevents half-right answers that mention zoning but miss the deed restriction that actually controls the question. Restrictions are how the exam tests whether you appraise real property rights—not just buildings and dirt.