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format & content of life estate appraisal

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tjennings2

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Freshman Member
Joined
Feb 28, 2002
In doing an appraisal of the value of a life estate, I plan to do a summary report format which client requested. Do the USPAP requirements for items such as identity of real estate and highest & best use apply to the underlying real property? Is the definition of value the same as the usual definition of market value used in residential appraisal reports such as URAR? I reckon that only the income approach applies - should I make it a limited appraisal for that reason, or can I call it complete since I consider the Cost & Sales Comparison approached not applicable to this type of appraisal?
I am appraisaing the value of a life estate granted to an individual to occupy the property. I appraised the market value of fee simple interests in an earlier report a couple of weeks ago. Now the attorney has asked for an appraisal of the value of the life estate. I understand the way to do the appraisal, and have arrived at a current market rent for the property (a residential house). If anyone has a suggested format for a report I'd appreciate the help. Also any advice in selecting a discount rate for the calculation would be helpful as well as a recognized source for life expectancy tables for a 60 year old male. I have found one at U. S. Dept of Health & Human Services web site and it lists ages as 59 to 60 as 20.0 years or 60 to 61 at 19.2 years. For 60, do I interpolate to 19.6 or use one or the other? Thanks, I realize this is a long post with lots of questions.
 

airphoto

Senior Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Pennsylvania
tj,

I flang a similar question out for consideration some time ago, and never got the first remark in response. On my very own, I handled it in this fashion ..

Was a 2-flat, 2-family w/74 year old survivor/boyfriend in life estate on upper floor.

Developed market data grid, without consideration of life estate and then developed market rent. Found life expectancy in IRS tables from irs.gov site. Used 10.0% cap rate based on other discussions that I'd seen mentioned on this site and capitalized forgone rental income for the life expectancy (came out to $21,000.00.) Entered that in the market data grid as the reduction in current market value attributable to the life estate encumbrance ..

Put the table of capitalization in the addendum, and referenced it in the second page of the URAR. Now the market data grid, cost grid (which includes functional adjustment for the life estate encumbrance) and income calculation all reconciled with the reported value.

Using IRS table keeps you square with IRS for estate purposes. In my case the two sisters were arguing over the value for 'buy-out' purposes.

Any and all comments on my methodology are welcomed ..
 

Eminent Domain

Junior Member
Joined
Jan 19, 2002
Professional Status
Certified General Appraiser
State
North Carolina
One method to use is by using tables published by the IRS. The IRS publishes several "Actuarial Values" books. I think what you are looking for is "Book Aleph" - Publication 1457 (7-1999). This is updated every ten years. Table S gives the "Single Life Factors Based on Life Table 90CM" and lists these for rates of 2.2% to 22%. Determining which rate is appropriate one should consult the Internal Revenue Bulletin published monthly (or weekly?) and check Table 5 this will give you the federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest as of the that publication date. The S Table provides the Life Estate precentage applicable as well as the Remainder percentage applicable at each incremental rate.

Hope this helps,

Bryan
 
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