Appraising life estate

[Doug in NC]

Is appraising a life estate any different than appraising a standard owner-occupied fee simple appraisal? I have never run into this situation before, and have never had any training on the issue. Some fly-by-night AMC rep assured me that it is nothing to be concerned with, but of course, it doesn't involve any risk to her. *I turned the order down for this and other reasons, but I would like to hear from appraisers who are knowledgeable about this issue.

 

[Deleted member 77547]

As I understand it, a life estate is when the total rights of use, occupancy and control are limited to the lifetime of the designated party, or the life tenant. Then there is the remainderman who acquires the property after the death of the life tenant.

Your big question is can the property be sold openly and unemcumbered by the life estate? In order to sell the house you'll need the consent of the remainderman and if they consent and the life tenant is still living, then you have just sold a property with a limited bundle of rights because the life tenant has the right to stay until they die.

Depending on how the life estate is set up, this looks like it could be a partial interest assignment to me.

http://www.davidowlaw.com/pages/article1.cfm

 

[Elliott]

All you have to do is find 3 or 4 sales and a couple of listing of properties
that have similar life estate provisions (similar age of the beneficiary).
Piece of cake.

 

[Terrel L. Shields]

All you have to do is find 3 or 4 sales and a couple of listing of properties
that have similar life estate provisions (similar age of the beneficiary).
Piece of cake.

the key word is 'actuary tables'...discount it for the remaining estimated life of the occupant.

 

[nstanbru]

I did an appraisal of a life estate for the life tenant (his estate planning attorney hired me). In general, (some exceptions would apply) what was stated in post #2 applies. The remainderman could sell his interest but the life estate would remain intact for the life tenant. The opinion of value of the life tenant's interest was then used as the "buy out" figure. Proper recordations could then be done and the property could then be sold by the remainderman in fee simple. It was actually a "win/win" situation as the life tenant was no longer able to care for himself. The life tenant was able to relocate to an assisted care facility with enough money to last for his estimated life expectancy. To Doug: the AMC rep was clearly wrong and Obsolescent was correct, IMO.

 

[Mike Kennedy]

Doug - check your PM for info link.

 

[Pittsburgh Pete]

Like all valuation problems, it involves the present worth of future benefits. In residential appraising that involves the desire to live in and enjoy the house. A life estate merely reduces that period of enjoyment--actuarial tables are the best source for determining how long that period will be. Good luck.

 

[Elliott]

Aren't life estates the scam du jour to get around Medicare rules. Does
Fannie(FHA?) guidelines accept them and do they accept a look up in an
acturial table? What about the 'market?'

 

[Calvin the Airedale]

The life estate of the property is worth the property's present fee simple value, minus the present worth of the likely market value in the year in which the holder of the life estate is likely to die, as determined by an actuary.

Some years ago (about 25) a developer assembled land on a Broadview Rd in Seven Hills, OH to develop a K-Mart strip center. One of the land owners was a holdout. They sold the developer their back land but retained a life estate for their dwelling site (200' x 300") smack dab in the middle of the strip center frontage.

Here's where this story gets interesting. The life estate wasn't for the owner's life but for that of her dog! I don't know the particulars of the dog, its age at the time of sale, its breed or size. I do know that everyone, especially the developer, was convinced that the dog would cash in sometime in the next three to five years. The price paid, therefore, reflected only a 4+- year discount for the life estate.

That dog lived 15 years! I often wondered whether it was a "Weekend at Bernie's" situation. At any rate, the site is now memorialized by Burger King restaurant.

 

[Mr Rex]

Calvin, my experience was somewhat the opposite of yours. I appraised a piece of real estate subject to a life estate and the life estate holder was 99 years and a several months. Per the actuarial tables, he was supposed to live another 14 months or so, I forget the exact number. I of course included all this info in the analysis in the report and actually talked to the guy that was buying the remainderman's interest at some length about how I arrived at my numbers. Well, I went on my merry way and a year or so later noticed a familiar name in the paper that had died @ 101. I went and pulled my file, and the guy had died about 2 weeks past what the actuarial tables had indicated. I kinda wondered if he didn't have some help there at the end from the buyer after he exceeded his expected lifespan.