Fee Simple vs Leased Fee

[Ben Davidson]

This is a question that no one can ever seem to agree on. I notice many residential appraisers do not even think about it. If you are apprising 1-4 family that is currently under lease, it technically is a leased fee interest. As soon as you note a leased fee interest the client (AMC) will kick it back and require it to be fee simple. I am pretty sure the person with the checkbox at the other end does not even know the difference. Unfortunately I have found many residential appraisers don't know the difference either. So, what is the answer? Is a single family house, duplex, tri-plex, or four-plex leased fee or fee simple interest when leases are in place and you are appraising it? I have spoken with the KY Real Estate Appraiser's Board in regards to it and have heard their opinion and how they will deal with it. I will give you their answer later. In your own office are you doing it correctly? Have you ever even thought about it in the past? I am very interested to hear what other's opinions are.

 

[Lee Lansford]

Residential leases are generally short-term (+-1 yr.) leases and, I believe, such is fairly significant to the topic at hand.

I suppose one could opine to any one of the interests: leased fee, leasehold, or fee simple.

That stated, I believe that the appraiser is not going out on the proverbial limb by appraising the fee simple interest.

 

[Jerry Bone Jr]

If you are apprising 1-4 family that is currently under lease, it technically is a leased fee interest.

Even though the owners interest is Leased Fee, perhaps the assignment is to appraise the Fee Simple interest. Or vise versa.

 

[AnonApprsr]

Residential leases are generally short-term (+-1 yr.) leases and, I believe, such is fairly significant to the topic at hand.

I suppose one could opine to any one of the interests: leased fee, leasehold, or fee simple.

That stated, I believe that the appraiser is not going out on the proverbial limb by appraising the fee simple interest.

Exactly. I have not came across a 2-4 family property that had greater than 1 year leases.

 

[residentialguy]

Exactly. I have not came across a 2-4 family property that had greater than 1 year leases.

What about rental SF (1 unit) homes? Many have 2 year leases.

 

[AnonApprsr]

Not personally, no. And around here, there are more TAW Single Family homes that are rented for the summer or winter depending on when the owner wants to use it. At least on the South Shore, South Coast, and Cape.

 

[Terrel L. Shields]

The lessees have accrued no value in the property in such short time frames. The leased fee would equal the fee simple but it does not hurt to mention that the ownership rights are leased to the tenants.

 

[Ben Davidson]

I think all of you all hit it on the head. In speaking with the Appraisers Board, the executive director (SRA) said you can appraise them in Fee Simple interest but make the client aware in an addendum that the property is encumbered by a lease. The Board noted the leases on month to month carry no significance. In KY we have many homes, especially the larger homes, which are currently being leased on 2 and 3 year terms until the market comes back. Those properties throw a little bit of a curve ball but anything up to a year really does not affect the property, especially if it is leased under 1 year and at market rent. I really appreciate everyone's comments. It is good to hear what others think.

 

[Lee Lansford]

I think all of you all hit it on the head. In speaking with the Appraisers Board, the executive director (SRA) said you can appraise them in Fee Simple interest but make the client aware in an addendum that the property is encumbered by a lease. The Board noted the leases on month to month carry no significance. In KY we have many homes, especially the larger homes, which are currently being leased on 2 and 3 year terms until the market comes back. Those properties throw a little bit of a curve ball but anything up to a year really does not affect the property, especially if it is leased under 1 year and at market rent. I really appreciate everyone's comments. It is good to hear what others think.

I believe that the person who you reference is Larry Disney and he is a good man (as is Illinois' Brain Weaver). I have been privileged to be in the same room a couple of times when Larry was the featured speaker and he definitely holds the attention of those in attendance.

 

[CANative]

In speaking with the Appraisers Board, the executive director (SRA) said you can appraise them in Fee Simple interest but make the client aware in an addendum that the property is encumbered by a lease.

It seems we make the client aware as soon as we check the occupancy box on Page 1. I think they probably know it before we do since the client talked to them about their property before telling us to appraise it.