How to get TIC(Tenant In Common) sale comparables

[Juframo]

Hi fellow appraisers. I have an underwriters' request to provide three sale comparables to be TIC sales comparables. First time in my career such a request comes through my plate. Any ideas?

 

[Elliott]

My first reaction is, 'impossible.' Based on my knowledge of limited partnerships, 50-50 is equivalent to market value. Anything less than 50% should be discounted. IRS has tables (I will try to find them) but they aren't market oriented, they were pulled out of the air by Congress.

I would ask the UW, WHY? Its not what appraisers do and 'comparables' are probably impossible.

 

[shrubberyvaluation]

Hi fellow appraisers. I have an underwriters' request to provide three sale comparables to be TIC sales comparables. First time in my career such a request comes through my plate. Any ideas?

They should not be dictating what is the most comparable.

 

[Fernando]

I never did a TIC appraisal. Not common except in San Francisco.
TIC are just waiting to be condominiums via lottery system. Once becoming a condo, value goes up.
Appraiser needs to understand how TIC works in SF.

 

[Elliott]

From Perplexity on the discount for partial ownership:

The IRS allows for a fractional interest discount when valuing partial ownership of real estate due to two primary factors:
lack of control and lack of marketability. These discounts reflect the challenges in managing or selling a partial interest in a property. The actual discount percentage varies based on the specific circumstances of the ownership, property, and market conditions.
Typical Discount Ranges
• Discounts for fractional interests generally range from 15% to 67%, with most cases falling between 25% and 35%.
• Factors influencing the discount include:
• The size of the ownership share.
• The number of co-owners.
• The cost and feasibility of partitioning the property.
• The type and use of the property.
• Market conditions and financing availability.
IRS Requirements
• The IRS requires a qualified appraisal by a certified appraiser to substantiate the discount applied to a fractional interest.
• While the IRS has sometimes argued for limiting discounts to the cost of partitioning, courts have often recognized larger discounts due to broader marketability and control issues.
For your 40% ownership, the exact discount would depend on these factors and would need to be determined through an appraisal. Historically, discounts in this range often fall within 25% to 35%, but specific circumstances could lead to higher or lower adjustments.


Send these to the UW:

Tax Court Uses Cost-to-Partition Approach to Value Fractional Interest Discount

A recent Tax Court case provides a road map for calculating the fractional interest discount in the absence of credible comparable sales data.

www.thetaxadviser.com

https://www.valbridge.com/wp-content/uploads/2021/02/White-Paper-Fractional-Interest-Discounts_May-2020.pdf

 

[Fernando]

Is your subject a TIC? Why is reviewer asking for TIC comps?

 

[Tom D]

And where do you find that info. Me being confused, what type of property is this.

Isn't a coop tenants in common

 

[Fernando]

If subject is a TIC and appraiser didn't use TIC comps, shame on the appraiser!

 

[J Grant]

And where do you find that info. Me being confused, what type of property is this.

Isn't a coop tenants in common

A co-op is a form of ownership where the tenants buy and own X # of shares stock ( the building is a stock corporation) and, along with X shares, a lease to use the premises of Apartment # A, the premises that their sperm life shares represent. A co-op is a physical building and acts like RE, but technically, the form of ownership is not RE; it is shares of stock.

The e # of shares a buyer owns represent along with a % interest in the common areas- each owner can sell their stock shares on the open market ( though many co=ops are run by a board and have strict rules wrt board approval ) - that said, every owner owns their shares and and can sell it on the open market, which is not the same as tenants in common.

Some people buy in a co-op because it can impose regulations on who buys since it is privately held stock and not subject to many of the other housing laws.

 

[J Grant]

TIC sounds like a form of negotiated partnership among owners and not a property type - the client sounds confused. - yeh, like lets find comps owned by divorced couples - or such.