Life estate VS fee simple

[Fred]

I don't think a HC is even necessary. That gets blown away in SR1-2 where the appraiser simply identifies the real property interest to be appraised. Doesn't matter what interest the present owner has.

If the interest doesn't exist, it doesn't exist. By that logic you could appraise a two-story building as a ten-story building and claim the other eight stories are not hypothetical.

 

[Pat Butler]

A HC is not needed if the situation is covered elsewhere in USPAP. Using your example I'd identify the interest pursuant to SR1-2 then it's all done. If there is something contrary to what exists that's not covered in SR1-2 then an HC is required.

It's the same with a partial interest- that's covered by the required disclosure in SR1-2, so it's not necessary to use a HC for that either.

This happens all the time with builder owned properties. The builder might own the property in some sort of partnership interest with others yet the client will want us to value the fee simple interest. Who uses an HC for that? No one. That's because SR1-2 requires that we identify the interest being appraised. Once that interest is identified then an HC isn't necessary.

In any event, using a HC wouldn't hurt anything.

 

[Pat Butler]

Steve- in your example there is no other exemption in SR1-2, so an HC is needed. I'm specifically talking about characteristics that have to be identified in SR1-2 that therefore don't have to be identified elsewhere. It's a small list, but does include property rights.

 

[The Warrior Monk]

That's because SR1-2 requires that we identify the interest being appraised. Once that interest is identified then an HC isn't necessary.

I assume that you are referring to this:

An appraiser is not required to value the whole when the subject of the appraisal is a fractional interest, a physical segment, or a partial holding.

I read this to say that when the property exists as a fractional interest, physical segment, or partial holding the appraiser isn't required to appraise the whole.

Why?

Because the subject (partial holding, physical segment, or partial holding) actually exists, whereas the whole does not. In other words, no hypothetical condition is required to appraise what actually exists.

 

[PropertyEconomics]

These are fundamental differences and I don't think they can be resolved. When I spoke to the ASB board about it they stated it was a matter of methodology and USPAP does not regulate methodology. I agree.

Well it wouldnt be the first time they gave advice that will get your *** sued and before your board. I will tell you this Mr Klos .. they darn sure wont come to your defense either. They will point out that, it was your job and a requirement of USPAP to properly identify the rights appraised in the property (1), and then, when those you appraised are contrary to those that existed as of the date of your report, they will point out you should have realized that a hypothetical condition was in order and required according to USPAP (2).

I seriously urge those of you that think you can appraise something AS IF and not state the required hypothetical condition because the AS IS is something different, and those you that think Life Estates are held in fee simple estate .. to never ever ever appraise a property in which a life estate exists. Not only will you do a huge disservice to your client but you will also jeopardize your license in the process.

If you dont understand the steps necessary to appraise a life estate USPAP is also quite clear about that .. you lack the competency to complete the assignment (3).

Bummer .. thats three strikes regarding USPAP against you guys .. You are out. Sorry .. but thats how it goes.

 

[Mztk1]

The problem is we talk about rights like the theory of rights is cut and dry, that they either exist or not, like a superfund site or the upper 6 stories of a 2 story building. Rights are not tangible, rights are not something you can touch, feel or pick up, you can't smell them nor see them either. Their "existence" is in their claim alone. There are two main theories of rights, the "Will Theory", which Kant follows, and the "Interest Theory". These two camps have been duking it out for a very long time and the debates between them can get quite heated. The duck, Dave, PE and Steve have what is best decribed as an interest theory of rights. The interests in the fee simple title is split and therefore, poof, there are no more fee simple rights because it is the interest of rights that determine their existence. This is often criticized with the lottery argument, which is: I have an interest in winning the lottery but I have no right to it. The will theory on the other hand says (and I am using shorthand, these theories are much more sophiticated than I can put in a post), I can want that particular right for myself and exercise it, therefore it exists. This is more or less my camp. A buyer can want to buy the fee simple interest in a house, or a lender can want to lend on the fee simple interest in a house that is owned as a life estate and that will, or desire to own or lend on those rights - because it can be done - means those rights exist. The main argument against this camp is that it does not allow for unwaivable rights. For instance, I do not have the right to be a slave even if I want to be. Anyone who is married knows this argument is weak.

To warn about USPAP and state boards and then have to twist what USPAP says to make your point is disingenuous. USPAP does not say "Properly identify the rights appraised in the property". USPAP says "State the real property interests being appraised", and then it goes on to a comment:

"The statement of the real property rights being appraised must be substantiated, as needed, by copies or summaries of title descriptions or other documents that set forth any known encumbrances."

Therefore, in a life estate, checking "Fee Simple" and disclosing the known encumbrance of the life estate is adequate, and is what I do. Before threatening and questioning my capabilities with your theories on right and wrong, PE, please show me one case where a person lost their license or was disciplined by their state for identifying the rights appraised as "Fee Simple" while disclosing that the title is encumbered by a life estate sans an HC.

In the meantime, I'll be waiting.

 

[Fred]

Well it wouldnt be the first time they gave advice that will get your *** sued and before your board.

Who knows what was asked? This discussion seems like it is considering the matter of property rights aprpaised, if they answered that something is a matter of methodology, maybe they didn't get the right question.

 

[Fred]

The problem is we talk about rights like the theory of rights is cut and dry, that they either exist or not, like a superfund site or the upper 6 stories of a 2 story building. Rights are not tangible, rights are not something you can touch, feel or pick up, you can't smell them nor see them either.

The idea isn't to play Greek philosopher word games with "intangible" and confuse existence with physical existence. If you have to go to such existential extremes, it should indicate to you that you have wandered off the reservation.

At least when I say rights exist, it means they are rights that the seller can transfer them in the market place. In this case, it means the holder of the life estate can transfer the life estate and the remainderman can tranfer his interest. It means that absent an agreement - at the time of the appraisal - neither can transfer the other's interest. The right to transfer both interests at the same time doesn't "exist."

To warn about USPAP and state boards and then have to twist what USPAP says to make your point is disingenuous. USPAP does not say "Properly identify the rights appraised in the property". USPAP says "State the real property interests being appraised", and then it goes on to a comment:
"The statement of the real property rights being appraised must be substantiated, as needed, by copies or summaries of title descriptions or other documents that set forth any known encumbrances."
Therefore, in a life estate, checking "Fee Simple" and disclosing the known encumbrance of the life estate is adequate,

First off, there is no encumberance of the life estate. If anything the life estate is the encuberance of the fee simple. I don't know if you just misspoke or that is the premise of backward reasoning.

Part of the problem with your reasoning that you - again - confuse reporting with development. The point we keep hitting on is not the disclosure ("statement" as you called it) of what property exists somewhere in the report, but that you appraised what doesn't exist. It's like you don't take the point.

 

[Mztk1]

At least when I say rights exist, it means they are rights that the seller can transfer them in the market place. In this case, it means the holder of the life estate can transfer the life estate and the remainderman can tranfer his interest. It means that absent an agreement - at the time of the appraisal - neither can transfer the other's interest. The right to transfer both interests at the same time doesn't "exist."

It is not going off the reservation at all, Steve, it is the facts and when looked at from the other side, I can say the same thing. The Fee Simple rights are the rights a buyer can purchase in the market place or a lender can loan on in the market place. And in our case a buyer can purchase, and a lender can loan on, the fee simple rights to a property encumbered by a life estate if those holding the rights to sell or mortgage are ready, willing and able, just like he can buy or loan on the house next door that is not in a life estate if the owner is ready, willing and able. The rights are there to be purchased, or loaned on, and that is not a hypothetical.

 

[PropertyEconomics]

USPAP says "State the real property interests being appraised", and then it goes on to a comment:

"The statement of the real property rights being appraised must be substantiated, as needed, by copies or summaries of title descriptions or other documents that set forth any known encumbrances."

Jim ... this statement is pretty clear to me ... even USPAP says that copies or summaries of title descriptions may be used to SUBSTANTIATE the real property rights.
Let me ask it this way ....

The holder of the life estate refuses to sign away their rights for any mortgage purposes ... as a result the remainder estate is the only "right" the remainderman has ... what estate are you appraising then? Will you remain convinced you can appraise the "fee simple estate" which does not exist as of the date of your report without statement of a hypothetical condition?