Selling a House With a Shared Water Well

The well is on your land and next door has been drawing from it since before either of you bought. Or the reverse. Nobody has ever fallen out about it, there is no paperwork, and the arrangement has worked for thirty years. Then your buyer applies for a mortgage and a set of requirements appears that has nothing to do with whether the water is good.

This article covers what lenders actually require of a shared well, the flow rate that catches rural Oklahoma properties, what a shared well agreement has to do, and how to fix the position before it stops a sale.

Why an arrangement that works can still fail

The thing to understand first is that lenders are not asking whether the well works. They are asking whether the buyer will still have water in ten years if the neighbours fall out.

Thirty years of goodwill is not a document, and goodwill does not transfer with the deed.

An informal arrangement dies with the people who made it. The buyer's lender knows that, which is why the requirements below centre on recorded agreements binding future owners rather than on water quality, which is a separate question our article on well water testing in Oklahoma covers.

What each programme requires

FHA. Under HUD's handbook, a shared well may serve only existing properties that cannot feasibly be connected to an acceptable public or community water supply. It must be governed by a shared well agreement that is legally binding upon the signatory parties and their successors in title. And it must be capable of supplying at least three gallons per minute for an existing well, or five for new construction, over a continuous four-hour period.

VA. Requires a recorded well-sharing agreement binding current and future owners, together with a permanent easement for access and repairs. VA guidance refers to wells serving two or more properties rather than setting a specific property limit. VA also does not want the borrower, or anybody connected to the transaction, collecting the water sample; that has to be a local health authority or an independent third party.

USDA. A shared well must serve no more than four living units or properties unless approved and enforced by the local code authority, must have a valve on each dwelling, and the recorded maintenance agreement together with evidence of water rights must be kept in the lender's permanent file. As with FHA, the properties must be ones that cannot feasibly connect to a public supply.

The common thread: recorded, binding on successors, and adequate for everybody it serves. An arrangement failing any of those three is where deals stop.

The flow rate, which is the quiet deal-killer

Water quality gets the attention and flow rate stops more sales.

Three gallons per minute sounds modest until you consider that it has to be sustained over a continuous four-hour period. Plenty of older Oklahoma wells, and wells drilled into low yield formations, produce one or two gallons per minute. Day to day that is invisible, because the pressure tank absorbs it. Under a sustained draw it is not.

If the well serves two or three households, the arithmetic gets harder rather than easier, and the test is about whether the supply is adequate for all families served.

This is worth establishing before you list rather than discovering during underwriting. A flow test is a straightforward thing to commission and it either removes the question or tells you what you are dealing with while there is still time.

What the agreement has to do

Where one does not exist, or exists as a page somebody typed in 1994, this is the work.

1. Identify the properties served and the well's location by legal description, not by "the well behind the barn"
2. Grant a permanent recorded easement for access to the well and the lines, for maintenance and repair. Without this, the household that does not own the ground has no right to fix anything
3. Allocate costs for electricity, maintenance, repair and eventual replacement, with a mechanism for deciding on major work rather than requiring unanimity on everything
4. Deal with failure. Who acts in an emergency, and how somebody who pays alone recovers a share
5. Bind successors in title, which is the whole point and the thing an informal note never does
6. Record it, because an unrecorded agreement is not what the programmes are asking for

Getting neighbours to sign is easier before anybody is under contract. Once a closing date exists, the neighbour who is not selling has no urgency and occasionally realises it.

The alternatives worth pricing

Connect to a rural water district, where one is available. It removes the entire question permanently and it is frequently the answer on properties near a district line. Our article on rural water districts in Oklahoma covers how they work and what connection involves.

Drill a separate well. Expensive, and it ends the shared arrangement entirely. On a property where the shared well is the only obstacle and the buyer pool is otherwise good, price it against the discount you would otherwise take.

Sell to a buyer who is not borrowing, which is the last section.

What to disclose

A shared well, the absence of an agreement, a known dispute, a known flow problem and any failed test all belong on the disclosure form. Our article on Oklahoma seller disclosure requirements covers the position.

The one to be particularly careful about is describing the arrangement as fine because nobody has ever argued. That is a statement about the past which a buyer may take as a statement about their future.

Where we come in

If the neighbours are reasonable, get the agreement recorded and sell normally. An attorney's fee and a couple of signatures turn a property that financed buyers cannot touch into an ordinary rural listing, and the difference is worth far more than the cost. It also permanently improves both properties, which is a genuine argument to put to the neighbour.

Where a cash sale genuinely fits: the neighbour will not sign, the flow rate cannot meet the requirement, connection to a district is not available or not affordable, or you are out of time. We buy without a lender, so none of these programme requirements enter the transaction. Our page on selling a house with acreage covers land-heavy property and our page on selling land in Tulsa covers bare ground.

The short version

• Lenders are not asking whether the well works. They are asking whether the buyer will still have water if the neighbours fall out
• FHA requires a shared well agreement legally binding on signatories and their successors in title, and at least 3 gallons per minute for an existing well over a continuous four-hour period
• VA requires a recorded agreement binding current and future owners plus a permanent easement, and will not accept a sample collected by the borrower
• USDA limits a shared well to four living units or properties absent local approval, and requires a valve on each dwelling
• Flow rate stops more sales than water quality does, and it is worth testing before you list
• The agreement must identify the properties, grant a recorded easement, allocate costs, deal with failure, bind successors and be recorded
• Get neighbours to sign before anybody is under contract
• Connecting to a rural water district removes the question permanently where it is available