Sharing a Well? Why a Handshake Agreement May No Longer Be Enough When Selling Your Property

For years, many rural property owners have shared wells with neighboring properties based on nothing more than a handshake agreement. Everyone understood who used the well, who paid the electric bill, and who was responsible when something needed fixing.

But times have changed, especially when it comes to selling real estate.

Did you know that many mortgage lenders require a formal, written Well Share Agreement before they will fund a buyer's loan?

This is something we have encountered numerous times in rural real estate transactions throughout Iowa and Wisconsin. Unfortunately, it's often a detail that gets overlooked until a property is under contract and everyone is preparing for closing.

And that's when things can get complicated.

What Is a Well Share Agreement?

A Well Share Agreement is a written legal agreement between property owners who share a common water well. It establishes the rights and responsibilities of everyone using the well and helps protect each owner's access to a reliable water supply.

While neighbors may have operated under a verbal understanding for decades, mortgage lenders often want something more concrete.

A properly prepared agreement may address several important questions:

• Water Rights: Who has the legal right to use the well, and which properties are included in the agreement?

• Maintenance and Repairs: Who is responsible for maintaining the well, pump, pressure tank, and other equipment?

• Shared Expenses: How are repair and replacement costs divided among property owners?

• Electricity Usage: If the well operates on electricity supplied through only one property's meter, how is that usage calculated? How are the costs divided, and how does the owner paying the electric bill get reimbursed?

• Well Replacement: What happens if the well fails or needs to be replaced? Who pays, and how are those decisions made?

• Access Rights: If the well is physically located on one owner's property, how do the other owners access it for maintenance, testing, or repairs?

• Future Ownership: What happens when one of the properties is sold? Does the agreement automatically transfer to the new owner?

  
  

These are all questions that should be answered before a problem arises, not when you're days away from closing.

Why Mortgage Lenders Are Paying Attention

When a buyer purchases a property using mortgage financing, the lender wants to ensure the property has a reliable and legally protected water supply.

If the home relies on a shared well, the lender may require documentation confirming that the buyer has the legal right to continue using that water source.

Depending on the loan program and lender, a written agreement may be required, and additional documentation or recorded easements may also be necessary.

Without the required documentation, the lender may refuse to fund the loan until the issue is resolved.

Think about that for a moment. You could have a perfectly good home, a qualified buyer, completed inspections, and an agreed-upon closing date, only to discover that a missing Well Share Agreement is holding up the entire transaction.

The Problem With Waiting Until Closing

Here's a situation that can happen more often than people realize.

A seller accepts an offer on their rural property. The buyer completes inspections, the appraisal is finished, and everything appears to be moving along smoothly.

Then the lender asks for the Well Share Agreement.

The seller responds, "We've never had one. We've shared that well with the neighbors for 30 years and never had a problem."

Unfortunately, that explanation may not satisfy the lender.

Now the seller must contact the other property owners, determine who is responsible for what, potentially involve an attorney, and get everyone to agree to the terms.

What happens if one of those owners doesn't agree? What if the person who owns the property where the well is located doesn't want to sign? What if nobody can agree on how to divide the electricity or repair expenses?

What should have been a simple closing can quickly turn into a complicated situation that delays or potentially jeopardizes the sale or even a refinance.

One Electric Meter, Multiple Properties. Who Pays?

One issue that deserves special attention is electricity.

In many rural shared-well arrangements, the well pump is connected to the electrical service of just one property, even though multiple households use the water.

For years, the arrangement may have been that one neighbor pays the electric bill while the others contribute an agreed-upon amount. Or perhaps nobody has ever calculated the actual cost.

But what happens when that property sells?

A written agreement should explain how the electricity costs associated with operating the well are determined and divided. This might involve a separate meter, an agreed-upon calculation, or another method acceptable to all parties.

The important thing is that everyone understands their financial responsibilities, and those responsibilities are documented.

My Advice to Rural Property Owners: Be Proactive!

If you own property that shares a well with one or more neighboring properties, don't wait until you have a buyer to start asking questions.

Before listing your property, find out whether a written Well Share Agreement already exists. If one does, make sure it is current, properly executed, and addresses the existing arrangement. You may also want to verify whether it has been recorded and whether it meets the requirements of the buyer's lender.

If no agreement exists, consider working with a qualified real estate attorney to establish one.

And remember, just because a shared-well arrangement has worked for the past 30 or 40 years doesn't necessarily mean it will meet today's mortgage lending requirements.

We've Been Down This Road Before!

At Riverstone Real Estate Services, we've encountered our fair share of shared-well situations over the years.

Fortunately or unfortunately, depending on how you look at it! we've gained quite a bit of experience helping property owners work through these situations and navigate the process of getting agreements in place.

Some are fairly straightforward. Others involve multiple property owners, decades-old verbal arrangements, questions about ownership, and disagreements over responsibilities.

One thing we've learned is that it's much easier to address these issues before a property goes on the market than when everyone is waiting to close.

Sometimes the biggest challenges in a real estate transaction aren't with the home itself. They're the little details that have gone unaddressed for years.

Thinking About Selling a Property With a Shared Well?

If you're considering selling rural property in Iowa or Wisconsin and share a well with neighboring properties, let's talk before you list.

We can help you identify potential concerns early and connect you with the appropriate professionals to get the necessary documentation in place.

A little preparation today could save you significant frustration tomorrow.

Disclaimer: This article is based on our experience with rural real estate transactions and is intended for general informational purposes only. It is not legal, lending, or water-system advice. Mortgage requirements vary by lender and loan program, and shared-well agreements should be reviewed or prepared by a qualified real estate attorney familiar with applicable state laws. Property owners should consult their lender, attorney, and other appropriate professionals regarding their specific circumstances.