Appraising life estate

[Elliott]

Calvin,
I've been asked to do life estates, but I always tell them I'll do the fee
simple and they can have some other expert figure it out from there or
to look it up in a table (some of the tables were determined by Congress,
scary!).

I think some HOs are doing life estates now to skirt Medicare/Medicaid assets
provision, though there is a 5-year look back provision. Tax planning would be
so much easier if we knew when we'll die.

Thanks for your response. I wonder if the OP got his question answered?

 

[jay trotta]

I would like to thank Conor for the input; I have not done a life estate for any record, but the theory appears typical and logical. Great niche work, I guess we won't be competitors any time soon, lots of jello floatin around on the previous nine pages.......ROFL

Although some agree and disagree, because appraisers are skeptical, I think we need to look at Reverse Mortgages; Commercial properties and bundled Life Insurance packages, as the sorts of "futures" in that business model. I believe all or most deal in estimated projections based on various theory and methods.

Anyone wants a good example of projections, take a peek at wall street over the past ten years, what were their projections ??
How bout that Real Estate market over the past 15 years ? Are there not investors in the 1-4 family market ? How were those folks (prospectors) looking at the marketplace over the past 5-8 years, growth oriented with projections from Bankers to MSNBC.

I'm looking at a job where there are a few Sales over the past 24 months, yet someone wrangled a whole lotta $$$$$$$$ outa that sucker a short time ago. I wonder how that projection came about.....hmmmmm

cheers

 

[PropertyEconomics]

PE said:



Also not true. If PE said that, I will bet that he never valued a life estate. But if he believes what he says, lets see a case study.

Respectfully submitted,

Conor LarkinView attachment 18500

Connor,

So if I am understanding you correctly you are saying that life estates, purchased by market participants in the open market, under similar conditions with similar life expectancies etc cannot be used as a measure ... lets just call it a test of reasonableness?

Im starting to get the understanding that its your way or the highway ... unfortunately as I have pointed out prior, it is also my opinion that your "outfit" is not without bias in their measurement. Whether that method may be right or wrong is of no consequence but rather its merely pointing out that there is potential bias.

Furthermore, in a prior post I pointed out that the laws of other countries, which you said your "outfit" valued all the time, contradict the methods you have shown here.

I am not aruging that the mathmatical formulas are incorrect but rather showing that there are other methods that can be considered and a prudent appraiser would explore all methods.

And for whatever its worth, and its worth nothing, I own a property in which a life estate has been granted to the occupants.

PE

 

[jay trotta]

PE - "And for whatever its worth, and its worth nothing, I own a property in which a life estate has been granted to the occupants."

Just a Question, are you a disgruntled "Life Estate Investor" ??

 

[Louis Pompeo]

Responses to PE

PE has the following questions and observations:

So if I am understanding you correctly you are saying that life estates, purchased by market participants in the open market, under similar conditions with similar life expectancies etc cannot be used as a measure ... lets just call it a test of reasonableness?

I never said that Life Estates sold in the open market. You did. I don't believe that I've EVER heard of a LIFE ESTATE selling. But if one did, it would be discounted even further than the original discount, which would render it not reflective of the life estate that I am valuing. Therefore, not comparable.

Im starting to get the understanding that its your way or the highway ... unfortunately as I have pointed out prior, it is also my opinion that your "outfit" is not without bias in their measurement. Whether that method may be right or wrong is of no consequence but rather its merely pointing out that there is potential bias.

I'm stating FACTS. You are stating THEORY. Flawed theory, with no basis IN or hopes of BECOMING reality. It's not a case of "My way or the highway." I'm stating the way its done.

Furthermore, my "outfit" is worldwide. We acquire, sell, trade, lease, exchange, manage, and mitigate billions of dollars of real estate annually. These actions are performed by a few hundred individuals located around the globe. Our regulations require us to sell, lease, buy, etc. at Fair Market Value, not for the terms most favorable to us. We don't beat anybody up on price. In the final analysis, we get beat up pretty regular on price and terms. If it were any other way, it would be all over the front pages of the press and on prime time TV. We go to great lengths to determine Fair Market Value in everything we do. We have a reliable and professional vetting process that insures that is the case. I'm part of that vetting process. As a matter of fact, I'm at the top of the heap in that process and I take offense at your allegations of our "bias at measurement." That statement is false, egregious, without merit, and could only be made by an idiot.

Additionally, most of our actions are contracted to private sector appraisers. There is a Scope of Work that requires them to value real property rights according to Fair Market Value, in accordance with USPAP, with the Uniform Standards for Federal Land Acquisitions, and in many cases, Public Law 91-646, the Uniform Relocation Act. This, along with our own stringent requirements, mandates valuation conclusions be at Fair Market Value. But supposedly, the hundreds of us and the thousands of contractors we use, all have a "secret handshake" and a whispered conspiracy to steal real estate from little old ladies and no one has reported it? PUH LEEZE!

Its idiotic statements like that from irresponsible people like you that gives hard-working, dedicated professionals an undeserved bad reputation.

You need to retract that statement and apologize. Not just to me, but to the entire forum, the Appraisal Industry, and humanity as a whole for being a worthless creep.

Furthermore, in a prior post I pointed out that the laws of other countries, which you said your "outfit" valued all the time, contradict the methods you have shown here.

You also said in an earlier post:

Finally ... you make note that your outfit values life estates around the world .... well lets hope you dont value them in England or Wales .... I direct you to the following:


The law of England and Wales no longer recognises the life estate at law in relation to land; instead the holder of legal title to the land (whether the freehold fee simple or a lease) will hold that land on trust first for the life tenant and then for the remainderman.

My outfit DOES appraise Life Estates around the world. There are 196 countries on this planet. Many of which are not democracies and the land is owned by the State. We also don't run into them there either. Whats your point?

By the way, your statement above about England and Wales is a cut and paste from Wikipedia. Why don't you give credit where credit is due? In addition to being an idiot, you're also a plagiarist?

Wikipedia? You want to argue with me about life estate valuation and you get your knowledge of life estates from WIKIPEDIA?

Lastly, there are some states in the U.S. that do not recognize Life Estates in the traditional sense. I guess that makes me a liar too, huh?

I am not aruging that the mathmatical formulas are incorrect but rather showing that there are other methods that can be considered and a prudent appraiser would explore all methods.

WHAT OTHER METHOD? YOU'VE SHOWED US NOTHING! NUT UP AND PUT UP OR SHUTUP!

And for whatever its worth, and its worth nothing, I own a property in which a life estate has been granted to the occupants.

This statement is worth less than nothing. How could YOU own a property (in fee) that a second party (life tenant) has a life estate? Then a third party has the remainderman interest?

It can't be done. Show us the deed.

 

[The Warrior Monk]

I never said that Life Estates sold in the open market. You did. I don't believe that I've EVER heard of a LIFE ESTATE selling. But if one did, it would be discounted even further than the original discount, which would render it not reflective of the life estate that I am valuing. Therefore, not comparable.

I'm curious as to how you deal with the issue of Market Value and the life estates. If this is a property type that never sells, and sometimes explicitly cannot sell (due to the terms of the agreement creating the estate), then it would seem to me that the property does not have a market value. As we know, not all types of property have all types of value. It seems to me that value should be another type of value, and that value would depend on a particular person that the property is being appraised for; e.g., life estate holder or remainderman.

Is this a case where there is no market value, but because of IRS and subsequent court decisions, a methodology has been accepted as an acceptable compromise?

 

[Louis Pompeo]

GREAT question, Dave

I'm curious as to how you deal with the issue of Market Value and the life estates. If this is a property type that never sells, and sometimes explicitly cannot sell (due to the terms of the agreement creating the estate), then it would seem to me that the property does not have a market value. As we know, not all types of property have all types of value. It seems to me that value should be another type of value, and that value would depend on a particular person that the property is being appraised for; e.g., life estate holder or remainderman.

Is this a case where there is no market value, but because of IRS and subsequent court decisions, a methodology has been accepted as an acceptable compromise?

For an answer, let me start with some excerpts from the Uniform Appraisal Standards for Federal Land Acquisitions:

"In acquiring real property, or any interest therein, it is United States’ policy to impartially protect the interests of all concerned. The Fifth Amendment of the United States Constitution asserts: “nor shall private property be taken for public use, without just compensation.” Since “the courts early adopted, and have retained, the concept of market value”3 as the measure of just compensation, the United States, as a matter of general policy, bases its land acquisitions on market value appraisals: “t is the duty of the state, in the conduct of the inquest by which the compensation is ascertained, to see that it is just, not merely to the individual whose property is taken, but to the public which is to pay for it."

Next, here is the definition of market value:

"Market value is the amount in cash, or on terms reasonably equivalent to cash, for which in all probability the property would have sold on the effective date of the appraisal, after a reasonable exposure time on the open competitive market, from a willing and reasonably knowledgeable seller to a willing and reasonably knowledgeable buyer, with neither acting under any compulsion to buy or sell, giving due consideration to all available economic uses of the property at the time of the appraisal."​

The courts have determined that when valuing a partial interest in real estate, e.g. a Life Estate and/or a Remainderman Estate, that the starting point for such a valuation is the Fair Market Value (or Market Value) of the whole, in Fee Simple. Then, the lesser estates are apportioned their respective values, which when added together, equal the value of the whole.

The Life Estate Valuation Method that I've provided in the case studies are what is recognized by the courts as a proper technique to estimate value of these lesser parts, which are derived from "Fair Market Value," therefore, by extension, these lesser part values are considered to be "Fair Market Values."

Please don't kill the messenger. All I can do is report the way it is, and thats the way it is.

 

[Calvin the Airedale]

Dear Mssrs Larkin and PE,

I'm not sure why such animus exists between you two. It has been so in prior threads also.

Clearly, it has gone too far.

Mr. Larkin, PE is neither an idiot or a worthless creep. In fact, most know him as a knowledgable gentleman. He's a good man.

America has a long tradition of it citizens being suspicious of its government, its intensions, its methods, its bureaucrats, and its public servants,especially in the west, where Uncle Sam is the largest land owner in many of the states. Right or wrong, to be so and to exercise such suspicion does not make one unpatriotic, uncivil, or an idiot.

One would think a man in your position would be accustom to the this attitude and conduct themselves with more graciousness than has heretofor been displayed.

PE, while Mr. Larkin often posts with a degree of pomposity that invites lambaste, he clearly knows his stuff. His experience and office deserve more respect than some are willing to give him. If he has a short fuse, he's probably at that point in his career where, like many of us, he refuses to suffer fools lightly.

Lighten up both of you!

 

[Louis Pompeo]

You know Cal, I used to like you. Thought you were a kindred spirit.

I refer you to my first post in this thread. Read it and tell me where I was pompous.

It was only after I was unjustly ridiculed by the nattering nabobs from the land of know-nothings that I responded with vigor and authority.

I've been accused of being many things in this forum. But never of not being fair. I'm also respectful of everyone, until I, my outfit, or the Appraisal Industry are attacked for no good reason.

We, as a group of professionals in an industry that has to suffer the slings and arrows of accusations from the public, from regulators, from elected officials, from our clients, are now expected to put up with baseless and unjust accusations of impropriety from within our own ranks?

No. Not today. Not ever.

Cal....go get a testosterone shot. Your getting that high pitch in your voice again.

 

[Calvin the Airedale]

You know Cal, I used to like you. Thought you were a kindred spirit.

I refer you to my first post in this thread. Read it and tell me where I was pompous.

It was only after I was unjustly ridiculed by the nattering nabobs from the land of know-nothings that I responded with vigor and authority.

I've been accused of being many things in this forum. But never of not being fair. I'm also respectful of everyone, until I, my outfit, or the Appraisal Industry are attacked for no good reason.

We, as a group of professionals in an industry that has to suffer the slings and arrows of accusations from the public, from regulators, from elected officials, from our clients, are now expected to put up with baseless and unjust accusations of impropriety from within our own ranks?

No. Not today. Not ever.

Cal....go get a testosterone shot. Your getting that high pitch in your voice again.

Dear Mr. Larkin,

My, my, what a thin skin.

FTR, whether you like me or not, I respect your office, experience and knowledge on the many topics you've posted on this past year. I have not been one of your detractors.

OTOH, posting in the third person, is an act of pomposity. Don't believe me? Ask around. That you might take such umbrage at the suggestion that this may be so only underscores the observation.

As per my level of testoterone, given your reaction to my observations, I surmise you aren't used to hearing as much from your circle of associates and peers. However, I have no problem telling those I respect, and am willing to be friends with, when they are acting like asses. Such an attitude is a requirement of those who wish to be friends or peers and not merely toadies or sycophants.