JM2187
Junior Member
- Joined
- Jan 30, 2002
- Professional Status
- Appraisal Management Company
- State
- Pennsylvania
Just about every appraisal I've seen where the property is "leasehold" the appraiser typically compares the subject to similar leasehold properties, or if these are unvailable makes dollar adjustments for the ground rent. The final value is typically consistent with the "indicated value by sales comparison.'
However based on my review of the revised Fannie Mae Selling Guide, it appears that a significant change is being mandated (see below), instructing the appraiser to hypothetically consider the subject as "fee simple" in the sales comparison approach (even if similar leasehold properties are used for comparison) indicating a "fee simple" value as the "Indicated Value by Sales Comparison" and then checking the "subject to" box, adding the text "See attached Addendum for development of capitalization rat and an expanded discussion of the comparable sales used and considered," and then providing a final value as the "leasehold value" (which would then be inconsistent with the sales comparison approach...).
Am I reading this right?
If I am, can anyone explain to me how this makes any sense when good leasehold data is available for comparison?
Thanks.
Joe
Section 312.03 – Determining the Leasehold Value
To determine the leasehold value of the subject property, the appraiser must first convert the annual income from the community land trust's ground lease into a leased fee value by dividing the income by the market-derived capitalization rate. The appraiser should then reduce the estimated fee simple value of the subject property by this leased fee value to arrive at his or her opinion of the leasehold value of the subject property.
Example: Assume that the annual ground rent from the community land trust's ground lease is $300, the market-derived capitalization rate is 5.75%, and the estimated fee simple value of the subject property is $100, 000.
· $300 annual rent/5.75% capitalization rate = $5,217.39 (rounded to $5,200)
• $100,000 fee simple value - $5,200 leased fee value = $94,500 (leasehold value)
Because our appraisal report forms do not include space to provide all of the details required for appraising a property subject to a leasehold held by a community land trust, the appraiser will need to attach an addendum to the appraisal report to provide any information that cannot otherwise be presented on the appraisal report form. On the actual appraisal report form, the appraiser should indicate "leasehold" as the property rights appraised, provide the applicable ground rent paid to the community land trust, show the estimated fee simple value for the property in the "sales comparison analysis" grid, and report the "leasehold value" as the indicated value conclusion. The appraiser should also check the box for "subject to the following repairs, alterations, or conditions" and add the following at the end of that statement: "See attached addendum for development of capitalization rate and an expanded discussion of the comparable sales used and considered."
However based on my review of the revised Fannie Mae Selling Guide, it appears that a significant change is being mandated (see below), instructing the appraiser to hypothetically consider the subject as "fee simple" in the sales comparison approach (even if similar leasehold properties are used for comparison) indicating a "fee simple" value as the "Indicated Value by Sales Comparison" and then checking the "subject to" box, adding the text "See attached Addendum for development of capitalization rat and an expanded discussion of the comparable sales used and considered," and then providing a final value as the "leasehold value" (which would then be inconsistent with the sales comparison approach...).
Am I reading this right?
If I am, can anyone explain to me how this makes any sense when good leasehold data is available for comparison?
Thanks.
Joe
Section 312.03 – Determining the Leasehold Value
To determine the leasehold value of the subject property, the appraiser must first convert the annual income from the community land trust's ground lease into a leased fee value by dividing the income by the market-derived capitalization rate. The appraiser should then reduce the estimated fee simple value of the subject property by this leased fee value to arrive at his or her opinion of the leasehold value of the subject property.
Example: Assume that the annual ground rent from the community land trust's ground lease is $300, the market-derived capitalization rate is 5.75%, and the estimated fee simple value of the subject property is $100, 000.
· $300 annual rent/5.75% capitalization rate = $5,217.39 (rounded to $5,200)
• $100,000 fee simple value - $5,200 leased fee value = $94,500 (leasehold value)
Because our appraisal report forms do not include space to provide all of the details required for appraising a property subject to a leasehold held by a community land trust, the appraiser will need to attach an addendum to the appraisal report to provide any information that cannot otherwise be presented on the appraisal report form. On the actual appraisal report form, the appraiser should indicate "leasehold" as the property rights appraised, provide the applicable ground rent paid to the community land trust, show the estimated fee simple value for the property in the "sales comparison analysis" grid, and report the "leasehold value" as the indicated value conclusion. The appraiser should also check the box for "subject to the following repairs, alterations, or conditions" and add the following at the end of that statement: "See attached addendum for development of capitalization rate and an expanded discussion of the comparable sales used and considered."
