Fee Simple vs Leased Fee

[Peter LeQuire]

IF we're talking about an appraisal developed in accordance with secondary mortgage market standards and reported on the FNMA/FHLMC report forms, it is the fee simple interest that is to be appraised. While we might wax apoplectic about what the lender/client is actually getting, and about what we ought to do to make sure that our report isn't misleading about property interest appraised, I believe that the required scope of work for GSE work requires that we appraise the fee simple interest, unless, of course, the improvements are on leased land. If the assignment is not a secondary market-related transaction, the scope of work should address the matter of property rights appraised and the client and the appraiser ought to have the same understanding of what they area.

 

[Howard Klahr]

Peter sort of brought this back to where it should have gone.

To begin, the standard 1004 form does not have a check box for Leased Fee, it is only Fee Simple and Leasehold (refering to leased land). Therefore, the only time a check box of lease fee would be indicated is if the appraiser marked other and placed lease fee in the decription.

Also, the references that the lease term is less than one year while a factor, the remaining term plays a considerable role. If the existing lease was just signed (even if only for 1 year) and rent was considerably either above or below market rent this would impact market value. So while fee simple value may be the requested value, disclosure of the lease and the current terms are appropriate.

 

[PropertyEconomics]

IF we're talking about an appraisal developed in accordance with secondary mortgage market standards and reported on the FNMA/FHLMC report forms, it is the fee simple interest that is to be appraised. While we might wax apoplectic about what the lender/client is actually getting, and about what we ought to do to make sure that our report isn't misleading about property interest appraised, I believe that the required scope of work for GSE work requires that we appraise the fee simple interest, unless, of course, the improvements are on leased land. If the assignment is not a secondary market-related transaction, the scope of work should address the matter of property rights appraised and the client and the appraiser ought to have the same understanding of what they area.

I do not believe that GSE work can or does override USPAP in what an appraiser MUST DO .... and that is properly indicate those property rights which actually exist.
In the case of undivided interests in realty, they can be appraised as fee simple under the hypothetical condition the fee simple interest is present.

Form speak does not dictate appraisal methodology .. USPAP dictates that an appraisal cannot be misleading and that property rights must be identified as they exist as of the date of appraisal.

One can easily appraise the fee simple interest ... if they state .. The market value of the fee simple interest in the property, if it existed, would be $X ... however, recognition that the property is held in undivided interests by multiple parties is a requirement ... thus use of a hypothetical condition would be required to meet the clients requirements.

 

[Ben Davidson]

Lee,
More State Boards need people like Larry Disney. I have known Larry almost 14 years and he has an open door policy. He is a great fighter for the industry and a great asset for Ky Appraisers. The board recently moved to my city. They are actually located 2 floors above the PVA. I was able to walk in and set down without an appointment to talk to him. He is a great asset!
Ben

 

[residentialguy]

Peter sort of brought this back to where it should have gone.

To begin, the standard 1004 form does not have a check box for Leased Fee, it is only Fee Simple and Leasehold (refering to leased land). Therefore, the only time a check box of lease fee would be indicated is if the appraiser marked other and placed lease fee in the decription.

Also, the references that the lease term is less than one year while a factor, the remaining term plays a considerable role. If the existing lease was just signed (even if only for 1 year) and rent was considerably either above or below market rent this would impact market value. So while fee simple value may be the requested value, disclosure of the lease and the current terms are appropriate.

Good catch...Excellent post!

 

[Hacienda]

please...... keep it fee simple... you are confusing land ownership/rights

 

[Michigan CG]

please...... keep it fee simple... you are confusing land ownership/rights

Fee Simple is not always the answer to an appraisal. You have to remember appraisal 101 and the Bundle of Rights. If a property is encumbered by a long term lease, above or below market Fee Simple is not always the answer.

One may own the land and improvements but encumbrances can be influences on value.

 

[PropertyEconomics]

One can own the land and not the improvements and still be in a leased fee situation ... the devil is in the details and not paying attention to the details are what gets one in trouble.