Life estate VS fee simple

[Mr Rex]

But it does not preclude the ability to appraise the "fee simple" rights of a dwelling.

Nothing precludes me from analyzing any one of the many permutations of definition of market value of any property. But if I am analyzing the fee simple value of a property subject to a lease, I better make a declaration of HC without the lease, and if I am asked to provide Fee Simple value for a piece of property subject to a Life Estate, I damn well better reveal and analyze the effect of the Life Estate.

 

[Pittsburgh Pete]

Pete ... the fee simple interest will not be realized again until the holder of the life estate dies. Lets assume for a moment that the life estate holder is 25 years old ... and lets assume that the actuarial tables say this person will live for another 50 years ... and lets assume there is a 30 year mortgage on the property ... and lets assume the owner of the property (the remainder man) doesnt make their first payment. And lets assume the life estate holder does not sign the mortgage or relenquish their rights.
Are you telling me the lender is going to foreclose on the fee simple interest in the property when its occupancy and use remains encumbered by the life estate for another 50 years?

I have no idea how the bank would proceed with a foreclosure in such a situation; however, they'd have to be totally nuts to lend on such a situation unless the 25 year old was terminally ill! However, they can lend in such a situation; see my previous post #24.

Again both the "remainder man" and the "occupant" have fee simple interests in the property with one being only temporary in nature.

As a practical matter, the bank would probably only consider lending in such a situation if the occupant or holder of the life estate was elderly. Given advances in medical science, it's certainly a crap shoot.

 

[Pittsburgh Pete]

Nothing precludes me from analyzing any one of the many permutations of definition of market value of any property.... and if I am asked to provide Fee Simple value for a piece of property subject to a Life Estate, I damn well better reveal and analyze the effect of the Life Estate.

Amen Rex--see, you and I can agree on something.+

 

[Mztk1]

Jim .. how do you get around the "as is" requirement when the fee simple estate doesnt exist on the property you are appraising?

There is nothing to get around. With the URAR it is clearly expressed in the scope of work.

The life estate affects title, the definition of market value states title will be passing from seller to buyer and in the statement of assumptions it says "The appraiser assumes that the title is good and marketable and will not render any opinions about the title".

Is the title being transferred going to be encumbered by the life estate or is there an agreement in place? I don't know and I won't render an opinion about it, I simply appraise the fee simple interest in the property because that is my scope of work. Now because I am aware that the house is a life estate property I clearly state that in the report. But that is it, I do not appraise the title as encumbered because that would by definition be rendering an opinion about the title (an appraisal is an opinion). Further, my scope of work as contained in Fannie's guidelines, requests that I appraise the fee simple interest or Leasehold (pick one). I am clearing indicating in the report that the rights being appraised are "Fee Simple" so I am not being misleading.

We had this discussion before, concerning the leased-fee, and I wrote that guy from the appraisal standards board who told me within 10 minutes of my email that there was nothing wrong with what I was doing. I know you didn't like the way I worded the question, but the way I worded it was based on how it concerned me. This is all tied up in the same problem and though I am outnumbered by at least 4 to 1 on the topic, I am certain my advise on the matter is valid. Now if I were appraising a property without the scope of work of the URAR and Fannie guidelines, that would be something different, but in this example - the problem that started this thread - we are not.

 

[PropertyEconomics]

Amen Rex--see, you and I can agree on something.+

Pete you talk out of all sides of your mouth and apparently have never appraised a life estate before.

 

[Pittsburgh Pete]

Encumbering with a lease is a right of the owner of fee simple too. A utility easement, even 5' of the property line, encumbers the property and the owner has no choice; so does the deed restrictons from the HOA.

If the owner of a fee simple interest leases his property it becomes a leased fee interest. In residential real estate as with most apartment buildings the leases are short in duration and as such normally have minimal impact on value. In such instances unless the lease is for numerous years at a rental rate significantly varying from market rent, the fee simple value and the leased fee value are generally very simple.

The only difference is the present value of the difference between the actual rent and market rent.

 

[PropertyEconomics]

There is nothing to get around. With the URAR it is clearly expressed in the scope of work.

The life estate effects title, the definition of market value states title will be passing from seller to buyer and in the statement of assumptions it says "The appraiser assumes that the title is good and marketable and will not render any opinions about the title".

Is the title being transferred going to be encumbered by the life estate or is there an agreement in place? I don't know and I won't render an opinion about it, I simply appraise the fee simple interest in the property. Now because I am aware that the house is a life estate property I clearly state that in the report. But that is it, I do not appraise the title as encumbered because that would by definition be rendering an opinion about the title. Further, my scope of work as contained in Fannie's guidelines, requests that I appraise the fee simple interest or Leasehold (pick one). I am clearing indicating the report that the rights being appraised are "Fee Simple" so I am not being misleading.

So you are telling me that the life estate doesnt effect value and that you are appraising the property "as is" which really is "as if" the life estate didnt exist? :Eyecrazy:

 

[Pittsburgh Pete]

Pete you talk out of all sides of your mouth and apparently have never appraised a life estate before.

I most certainly have and please explain how I'm speaking out of both sides of my mouth. don't quite follow there PE.

 

[Fred]

The report isn't asking me to identify the rights the borrower is in possession or will be obtaining with the sale.

My scope of work tells me to identify which rights I am appraising,

You have some inscrutable jargon. Reports don't ask anything. SOW doesn't tell the appraiser, the appraiser determines the SOW.

 

[Mztk1]

Nothing precludes me from analyzing any one of the many permutations of definition of market value of any property. But if I am analyzing the fee simple value of a property subject to a lease, I better make a declaration of HC without the lease, and if I am asked to provide Fee Simple value for a piece of property subject to a Life Estate, I damn well better reveal and analyze the effect of the Life Estate.

The lease-fee vs fee simple debate was a couple of months ago and I took that to the guys at the appraisal standards board. I was told I can appraise the fee simple interest of a property that is leased without making it a hypothetical condition. I wish I still had the email but my computer crashed and I lost most that was in it.

In my opinion, you guys are over-parsing. Sometimes great thinkers over think and it takes the more simple minded to tell the forest from the trees.