Appraising life estate

[Terrel L. Shields]

Have some of these mushroom cookies, gramps...

As for Fannie Mae, I doubt they would be very keen on a Life Estate unless the LE holder gave up their right to the LE in the event of a foreclosure. Some old folks do that to let the buyer get a loan and end up in the street.

 

[The Warrior Monk]

Many lenders won't lend on a property with such a division of property rights.

Questions have to be answered before one can proceed with the assignment, most notably what set of property rights is being appraised.

 

[Lost Cause]

Kmartyr

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.

I know this is off-topic, but I can't believe you used that center for an example. I used to work in the Seven Hills Kmart (back in the late '70's).

 

[Louis Pompeo]

I teach Life Estate Valuation

Here is an excerpt from a one day seminar that I teach called "Partial Interest Valuation - Divided", for the AI.

This is an excellent reference on Life Estate Valuation that includes a case study.

Good luck,

View attachment Part 4 - Life Estates.pdf

 

[Elliott]

Thanks for the case study. Its always a good idea to present worth those
benefits of ownership. And as Jim Eaton said, don't attempt it if you can't
explain it in court.



From Wiki:

To calculate the actuarial present value we need to calculate the expected value

of this random variable Z. For someone aged x this is denoted as

in actuarial notation. It can be calculated as

where fT is the probability density function of T,

is the probability of a life age x surviving to age x + t and μ denotes force of mortality.
The actuarial present value of an n-year term insurance policy can be found similarly by integrating from 0 to n.

 

[hastalavista]

...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...

Isn't that kind of assistance in one of the congressional healthcare proposals?

 

[PropertyEconomics]

There are many threads on the Forum about life estates and there are different parts (interests to be considered) to a life estate. Knowing which interest of the life estate you are appraising is the start of the appraisal problem.

Until you identify which interest of the estate is the subject of the valuation ... there really is not much use even discussing how its appraised.

 

[Webbed Feet]

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.

<...snip.....>

Gosh, really? ....

:new_popcornsmiley:

 

[Louis Pompeo]

huh?

There are many threads on the Forum about life estates and there are different parts (interests to be considered) to a life estate. Knowing which interest of the life estate you are appraising is the start of the appraisal problem.

Until you identify which interest of the estate is the subject of the valuation ... there really is not much use even discussing how its appraised.

In the case study, the Life Estate is worth $257,944.

The Remainder Estate is worth $20,056.

The Fee Simple Value is $278,000

What other "Different part" would you be valuing?

 

[Webbed Feet]

In the case study, the Life Estate is worth $257,944.

The Remainder Estate is worth $20,056.

The Fee Simple Value is $278,000

What other "Different part" would you be valuing?

And other than pure theory, and a bunch of predictive conjecture, what market evidence is there that the value of one part, a different kind of estate from the other two estate types, is credibly represented by taking a current opinion of a fee value and subtracting the sum of an opinion of the value of different kind of estate?

It's like saying to start with a Mercedes, predict the estimated remaining life of Yugo and it's value at the end of that life (assuming here it is possible for cars to appreciate once they are considered antiques), calculate the present value of the future benefit of a hypothetical value of the Yugo, then subtract that from the present value of the Mercedes in order to arrive at the present value of a Volkswagon Thing.

Don't get me wrong. Love the case study! ... Great for tests! ... I just have reality issues expecting anyone to rely on the outcomes of actually trying to pull off doing things like predicting the future of real estate 2 to 80 years forward is all. In 1999 would we have predicted 20% to 30% or more rate of appreciation during 2005? Clearly, any measuring life with a limited remaining actuarial estimate would immediately cause a total lack of credibility. Only the cases with substantial remaining "measuring life" predicted existence possibly could have any statistical credibility at all.

And we have not remotely begun to scratch the surface of known health issues, of the entity that is the measuring life, being withheld from the real estate appraiser. Again, nice case study. I'd love to see what the trade thinks is needed in EAs and HCs to bring any credibility to the table when attempting one of these...

:new_smile-l: