Real Estate

While Faraway Lenders Grapple with Fracking, a Word From Local Appraiser in the Trenches

A rig in ArlingtonThe New York Times ran an interesting story Thursday on the growing reluctance of banks to grant mortgages to owners of properties that have been leased for gas drilling in the northeast. Landowners often aren't giving banks a heads up before signing on the dotted line, and there's no telling what an impoundment for drilling waste does to property values -- something in which the lender has a vested interest.

Nor, for that matter, is it clear how they might react when (or if) the secret ingredients in that slurry drillers use to fracture rock are finally disclosed. The senior vice president of Tioga State Bank in Tioga, New York, has cautioned that intensive drilling, new to the region, hasn't been studied for its impact on property values. They're relative newcomers to the shale play. But they need only look to the southwest, at North Texas, for a case study on the inverse relationship between nearby drilling and home prices.

Unfair Park called up Steve Nichols -- a former Frisco city councilman, vice chair of the Texas State Libertarian Party and an appraiser who has gauged home values across North Texas in the midst of the Barnett Boom -- to get his two cents.

Basically, nearby heavy industry is never good for values, he said.

"When you're talking about airborne contaminants and possibly even groundwater contamination that are involved, it does have an impact on people psychologically," he said. "I've done appraisals in Fort Worth, where it's in close proximity to housing, and in the outlying areas, and I spoke to people adjacent and it's always their concern."

In real estate, perception is as important as reality. Now, take that, add a depressed housing market, and watch the bargain-basement prices properties near drilling activity will fetch.

"When you have a lot of housing inventory, why do you have to assume risk?" he said. "If this was a hot market and houses were being sold rapidly, a lot of people, out of emotion, will buy these because what else is available to buy?"

"The properties with negative influences are always the ones with big value impacts because there are too many choices."

But, outside of air and noise pollution caused by drilling, and the mysterious compounds in fracking solution, do tanking values impact municipalities at large? Should, for example, Dallas consider the impact on house prices as it endeavors to draw up an ordinance for drilling within the city limits?

"The thing people need to always realize, and the thing I try to stress -- and it's hard for city people and the council people to understand -- is that what happens when you're talking about a city, if it lowers property values somewhere in that city, you have to make that up somehow.

"When values go down, that's a drop in property taxes to the city. There's a fractional impact to everybody."