Fee Simple vs Leasehold

[PropertyEconomics]

I do not believe that the FEE is owned by two but that portions that make up the fee can be held by others .. which is the EXACT thrust of this posting.

And its not nice to ask but not answer.

 

[xm72mhd]

I do not believe that the FEE is owned by two but that portions that make up the fee can be held by others .. which is the EXACT thrust of this posting.
OK, that is where we need to start.
And its not nice to ask but not answer.
Not my problem, I'm only trying to be courteous not nice. And at this point I am asking questions to find out what you are thinking.

The fee can be owned by two or more people or entities, but let's limit this to the example before us. If the lessee in this case does not own the leasehold, then how do characterize his/her interest? And once the lease is in place what interest does the former owner of the fee own?

 

[PropertyEconomics]

Edd ... honestly .. being treated like im a third grader is not going to work here .... You know very well what my position on this is ....

The Owner has LEASED HIS FEE ... he now holds the LEASED FEE interest in the property .....

And yes the FEE can be held by two or more entities .. but that is NOT what we have here ... and you well know that.

The question was asked by the poster and deserves to be answered which is what I have been doing .. with all due respect ...

WHAT DOES THE SELLER OWN ... WITH THE LEASE IN PLACE ...

And honestly you have no reason to not be nice and courteous ... this isnt a life or death situation where you should become mean, name calling, and beligerent ... and NO YOU HAVENT ... but to insinutate that you could be something other than nice or courteous is not right.

These questions, IMHO, are EXACTLY what makes the FORUM so good. This is about learning ..... and its a very thought provoking question and as you can see there are several on both sides.

 

[Karl]

Another thread that shows that AVM's are as good as Appraisers, Many experienced appraisers in this thread & many various opinions, seems Appraisers can't even get on the same page about the job we're SUPPOSE to know. Who is to say, who's right & who's wrong. Probablly the ONLY one is, a court of law WHEN /IF there becomes a problem with the loan.

 

[PropertyEconomics]

Karl .. this is how we learn ... its just a discussion of HOW one views things ... Im still waiting for the rest of the response but if you have ideas please state them.
THIS IS WHAT WE SHOULD DO HERE ... in my opinion.

 

[Fred]

This is not what sould be termed a tenant buy-out

The tenant is buying out the landlord. What’s the problem with the term? Too apropos?

So, you are recommending that a lease purchase must be appraised prospectively? I don't

Not at all. In fact, I wrote,
"Here, it is likely the issues often involved in a tenant-buyout are not part of the assignment."

What some call "over-analysis" is merely "analysis" to others.

Necessary analysis - to avoid appraising the wrong interest or using a hypothetical condition that is at odds with the supplemental standards that prevail in most bank appraisals.

As far as I know from reading reports, articles and a text on the subject, I have the simplest and most direct approach to divided interests I have seen. I am going to try to state why in the next section.

There are simply two owners of the fee simple

That is why I said before, once the term “leased fee” enters, confusion sets in. There are some who recognize “leased fee” as a figure of speech, a label applied to the fee simple interest when there is a lease. There are others who recognize that the creation of a lease and a “leased fee” entails a termination of the fee simple. That’s why my explanation of the divided interest and the possible subject’s (landlord’s interest, tenant’s interest and re-combined interest) studiously avoids use of the terms leased fee and fee simple, and thus avoids the irreconcilable semantic tangle that follows.

The fact that a property is divided into two interests is far more important than how it is divided. So many threads in the post continue to state “the property” without adequate recognition that the real estate is divided into two properties. A leased usually divides rights by time, but a lease can also divide rights geographically, for example, with one person having the right to use one side of the property and another person having the right to use the other side in perpetuity. If one partial interest (tenancy) is buying out the other, and the parties need the as if re-assembled value, it is a simple matter to just use a hypothetical condition and appraise the assembly. But again, that can be become a problem if the client is a bank looking to finance the purchase, because hypothetical appraisal conditions are outside of federal banking regs.

 

[Bill_FL]

Edd ...
I think this is not as complicated as everyone is making it ... the SELLER cannot sell something he DOES NOT OWN .. he has granted use and quiet enjoyment of the property to another ... HE DOESNT OWN THE PROPERTY IN UNENCUMBERED FEE ...

I realize the purchaser will be reassembling the bundle of rights ... but unless the lease is abolished as part of the purchase contract .. the seller will be selling his interest in the leased fee estate. He cannot sell something he doesnt own.

Im not trying to make this complicated ... but the facts are the facts ... was the property leased as of the date of contract ... YES
If so ... the seller cannot sell the fee simple interest in the property .. he doesnt own it.

Could you please find me a deed that shows a transfer of any property, in any estate other than the fee simple estate? I have looked at several thousand deeds over the years and have never found one that said the seller is selling the leased fee estate on a leased property.

 

[xm72mhd]

Edd ... honestly .. being treated like im a third grader is not going to work here .... You know very well what my position on this is ....

The Owner has LEASED HIS FEE ... he now holds the LEASED FEE interest in the property .....

And yes the FEE can be held by two or more entities .. but that is NOT what we have here ... and you well know that.

The question was asked by the poster and deserves to be answered which is what I have been doing .. with all due respect ...

WHAT DOES THE SELLER OWN ... WITH THE LEASE IN PLACE ...

He/she owns the leased fee

And honestly you have no reason to not be nice and courteous ... this isnt a life or death situation where you should become mean, name calling, and beligerent ... and NO YOU HAVENT ... but to insinutate that you could be something other than nice or courteous is not right.

These questions, IMHO, are EXACTLY what makes the FORUM so good. This is about learning ..... and its a very thought provoking question and as you can see there are several on both sides.

All that is taking place in this situation is the merger of the leased fee and the leasehold into the fee simple. It is no more a hypothetical than a buyer and seller agreeing to transfer ownership. Under the circumstances of the buy-out there is no reason to speculate whether the merger of the two ownerships effects the market value or not. That is all that is going on. There are currently two owners of the fee simple. The landlord and the tenant. We could get into the discussion as to how the option fits in here, but that is not necessary. Anybody who makes it more difficult than a merger and extinguisment of one of the severed ownership is causing themselves grief that isn't at all necessary. On your form, just list the owners as the same as two parties to the transaction, if that is all there are, and be done with it. It is really just that simple.

I don't intend to be nice in the sense that I conduct myself according to what you have determined for me, however courtesy prevents me from responding to the remainder of the post. You don't need it and I don't want to.

 

[PropertyEconomics]

All that is taking place in this situation is the merger of the leased fee and the leashold into the fee simple. It is no more a hypothetical than a buyer and seller agreeing to transfer ownership. Under the circumstances of the buy-out there is no reason to speculate whether the merger of the two ownerships effects the market value or not. That is all that is going on. There are currently two owners of the fee simple. The landlord and the tenant. We could get into the discussion as to how the option fits in here, but that is not necessary. Anybody who makes it more difficult than a merger and exdctinguishment of one of the severed ownership is causing themselves grief that isn't at all necessary. On your form, just list the owners as the same as two parties to the transaction if that is all there are and be done with it. It is really just that simple.
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Edd .. with all due respect .. the tenant does not OWN THE FEE ... I must humbly say you are way wrong in this instance.
IF ... the tenant has ownership interst in the FEE .. can he go mortgage it WITHOUT the approval of the OWNER? NO

You are appraising the property PRIOR to the date of the merger of the interests. If you wish to appraise it as fee simple by all means .. do so .. but you are absolutely wrong in my opinion.

See the emphasis above and you will have answered your own question ... LEASED FEE and LEASE HOLD ... being merged ... you cannot appraise FEE SIMPLE becasue it doesnt exist until it is in the same ownership ... and right now its not .....

 

[Fred]

Another thread that shows that AVM's are as good as Appraisers, Many experienced appraisers in this thread & many various opinions, seems Appraisers can't even get on the same page about the job we're SUPPOSE to know. Who is to say, who's right & who's wrong. Probablly the ONLY one is, a court of law WHEN /IF there becomes a problem with the loan.

Excellent point. And I would say the problem is far more acute among general appraisers where divided interet properties are common. I have been to court to argue these, on one of them, the value difference was 9 to 1. I'll bet you can't find two residential appraisers who can get that far apart on a house.

There are a couple of landmark threads in here that illustrate this. One, is done as a poll. It was split down the middle whether to captialize market rent or contract rent. Another thread, on leaseholds, popped up about six months ago, at the same time I had a case involving a leasehold. In that theard, the original poster got four different solutions in the first five responses.

In the case I was working at the same time, there were three apraisals in the discovery material, none which got the property rights correct and none appraised the same rights they defined. One cited two pieces of real estate, but appraised one, and appraised it as if there was no leasehold, not even subtracting the substantial land rent in the expenses. The second, identified that there were two properties, that there was a leasehold, stated the appraisal was for the tenant's interest - but added the tenant's interest (in one parcel) to the landlord's interest (in two parcels) spouting some theoretical mumbo jumbo in pursuit of what I call forcing the approaches into equality. The third identified one parcel and that there was a leasehold, but capitalized gross income instead of net.

So, the second appraisal was 70% higher than the first and the third was 230% higher than the first. In my view, none of them appraised anything that was actually owned by either party although one of them appraised what was owned by both and called it something that was owned by one of them.

This is significant, because even given a perfect market and perfect data, these instances show appraisers would be reaching vastly different conclusions.