Fee Simple vs Leasehold

[Fred]

For the Record .. Steven Hawking may just have the greatest mind of modern times.

If you say so. but is there a place for such a mind here or would it be prone to what was called earlier in this thread as - over analysis. After all, appraising isn't rocket science.

 

[xm72mhd]

Edd,
Assemblage is exactly what the proposed transaction contemplates: assembling the tenant's interest and the landlord's interest into one interest.

Nice try but not the same as in the concrete sense, Steven. These title interests are not appearing and disappearing, they are deforming and reforming. So that's what I'll use, "reformulation" and not assemblage.

 

[xm72mhd]

Edd .. you havent paid attention .. IM NOT GOING TO INVOKE A HC ... Im going to appraise the property in Leased Fee Interest, analyize if the Leasehold Interest has any value .. and report my findings to my client in accordance with proper appraisal practice as I see it.

OK, So you are not appraising the fee simple as the question asked for, but something different called a Leased Fee. Do yu expect that a Leased Fee and the Fee simple are worth the same?

 

[PropertyEconomics]

Edd... I am going to appraise the appropriate interest in the property that is present as of the date of my inspection. I am going to advise my client that the lease in place precludes, IN MY OPINION, analysis of the property in Fee Simple interest without use of a HC ...
I do not know whether there will be a value difference or not .. it depends on the term of the lease ... my suspicion, and its only a suspicion is that there is no difference in this instance ... but the existance of the lease and the terms of the payments being applied as a downpayment would need to be analized. Until I have done that I wont know if the fee / leased fee values are the same or not.

 

[xm72mhd]

Edd... I am going to appraise the appropriate interest in the property that is present as of the date of my inspection. I am going to advise my client that the lease in place precludes, IN MY OPINION, analysis of the property in Fee Simple interest without use of a HC ...
I do not know whether there will be a value difference or not .. it depends on the term of the lease ... my suspicion, and its only a suspicion is that there is no difference in this instance ... but the existance of the lease and the terms of the payments being applied as a downpayment would need to be analized. Until I have done that I wont know if the fee / leased fee values are the same or not.

I got it. And that is because the fee simple interest does not exist. Remember to make that assertion when someone you have respect for can take the time to explain.

For the rest of you, I recommend caution before you make the assertion in a situation such as this that the fee simple can't be appraised without a HC because it does not exist. I do not believe that is accurate.

 

[Joyce Potts]

If you say so. but is there a place for such a mind here or would it be prone to what was called earlier in this thread as - over analysis. After all, appraising isn't rocket science.

For the record, I'm the one who gave the Steven Hawkings nickname to Santora.

It was meant as a compliment, for the most part.

 

[Michigan CG]

FWIW,

I am still in the FEE SIMPLE boat with a HC or two and disclosure of the lease.


No comments needed....still working here....

 

[PropertyEconomics]

For the record, I'm the one who gave the Steven Hawkings nickname to Santora.

It was meant as a compliment, for the most part.

Joyce so was my comment to him .. but he doesnt take compliments well.

 

[PropertyEconomics]

I got it. And that is because the fee simple interest does not exist. Remember to make that assertion when someone you have respect for can take the time to explain.

For the rest of you, I recommend caution before you make the assertion in a situation such as this that the fee simple can't be appraised without a HC because it does not exist. I do not believe that is accurate.

Edd we have to stop somewhere ... but you still havnet told me this ...

Is the definition of Fee Simple .. an unencumbered estate?

Is the estate in the property being appraised encumbered?

What estate are you appraising then?

 

[Steve Owen]

I think that we are appraising the rights of the current owner of record as of the effective date, and if the appraisal is for a purchase, the seller will convey his rights to the real estate to the purchaser.

If the purchaser already has some rights to the real estate, then he will then own the sum of the rights after closing the transaction.

This is where a lot of you are over-analyzing. Appraisals are a product that is purchased by a client. They are judged based upon their intended use.

What is the intended use?

It is to protect the lender and provide basis for a lending decision.

In fact, in this situation, the meeting of minds happened at the excercise of the contract. That is why USPAP requires you to analyze the purchase contract, so you won't make this mistake.

You are appraising the interest that will exist upon closing. Doing anything else will not protect the lender and would be misleading. It is really that simple.

So, Property Economics... you used the term "unencumbered." If the property had a loan against it, that loan would have to be satisfied before it could close. When you appraise it would you appraise as encumbered by the loan? Of course not. What is going to exist at closing is the borrower having a fee simple interest. Appraising anything else in this case would be pointless.

The only way this really gets complicated is because Fannie doesn't allow the use of an HC. Technically, that should probably be done. BUT, appraising the leased fee interest is not what the client wants... they want to know the value of what they will have if they have to take it back... look at the purchase contract.

Also, someone said that the borrower is buying out the leased fee interest. That is really not true. In these lease to purchase deals, the lease ends at the point the purchase option is excercised. Therefore, the borrower is buying fee simple interest... the leased fee interest really does not exist anymore at the point in time the purchase agreement was made.

Technicallity is getting in the way of common sense here. Judge the appraisal on its intended use, as USPAP requires, and you will have no choice but to appraise the fee simple interest.