Help! Life Estate Appraisal

[deturner]

I need advice on doing a Life Estate appraisal. Where can I find the formulas needed to calculate the life value? What format is the report in? (narrative or form). How much more time should I plan to spend on this type of report versus a standard URAR?

I'm somewhat thinking it will be narrative and take about as long to complete as a condemnation appraisal.

I had a call today and need to give the person an answer tomorrow as to if I am willing to do it and what the cost will be. I may just refer her to one of the general appraisers I know locally.


Thanks
Dave in NC

 

[Pamela Crowley (Florida)]

IRS has a life expectancy chart, somewhere, I think.

Personally, I would pass this one.

 

[Richard J. Glesser]

The appraisal is definately narrative format and should be considered with 2 questions in mind: Do I have the competency? and Do I want to use this for a learning experience? Based upon your question, it appears the first answer is No. The answer to the second question determines whether you find a competent ( probably Certified General) appraiser to walk you through the appraisal and give you the needed insight and assistance or simply refer it to a Certified General. If you take it for the learning experience, remenber to charge enough to pay you're mentor also.

Good thing to learn but tough time to do it if your business is like most are right now. Good luck! :usa:

 

[Restrain]

First, unless it is unduly complex, you can do it on a URAR with extensive addendums. Just be careful how you write it. If it's a simple home, should be O.K.

Second, there should be on-line actuarial tables for probable life expectancy from which you can apply a holding period.

You can overkill on something like this. Just consider the client and the probable use as to whether or not to go with a narrative or URAR.

Roger

 

[Mike Garrett RAA]

Are you being ask to appraise a property that is encumbered by a life estate interest? If so, then you have a future value of a dollar problem which is covered in Fundamentals of Real Estate Appraisal by William L. Ventolo Jr and Martha R. Williams, 8th Edition 2001.

As I see it, you would do a standard appraisal and can report it on a URAR. Establish the value of the property as of the date of your inspection (effective date). In a cover letter you could cite life expectancy information (call your life insurance agent) and apply "future value of an annuity" as found on page 259 Direct and Yield Capitalization.

This becomes a complex appraisal assignment in that you must make some extraordinary assumptions. First you will be predicting appreciation or depreciation over a period of years. Secondly, you will be predicting the life expectancy of the "life estate interest". If you want to see what might be involved in that...look at your own life insurance policy and see all the charts and tables that are included.

Personally, I would pass on this type of an assignment but if I did have to do it, I would create a chart of values for say 3 years, 5 years, 10 years, 15 years, and 20 years. I would then create values assuming no appreciation and appreciation from 3% to say 6% per year. This could be done on a spread sheet.

Good luck!

 

[xm39hnu]

Originally posted by Mike Garrett, RAA@Jul 16 2003, 11:34 AM

Personally, I would pass on this type of an assignment but if I did have to do it, I would create a chart of values for say 3 years, 5 years, 10 years, 15 years, and 20 years. I would then create values assuming no appreciation and appreciation from 3% to say 6% per year. This could be done on a spread sheet.

Mike,
You're the second experienced appraiser I've encountered who has indicated that he would apply appreciation to some degree in calculating a life estate. I'm a relative newbie, going on three years' experience and about to sit for the certification exam, so I ain't no expert, and I'm not saying you're wrong. But why "appreciation?"

All the life cycle charts and textbooks tell us that, unless there's some renovation occurring, property depreciates. We do market extraction of depreciation in some cases. Ever done that and come up with a negative value? (Taking note that market extraction of depreciation will account for inflationary factors affecting value.)

Why would you assume appreciation of value?

 

[Farm Gal]

Jim:

Textbooks ain't real life.

Someone else is sure to slam the 'conservative' appreciation figure...

Look at Mike's location...

Colorado has hit the skids and gone negative values on occasion, for short periods of time, but appreciation has occurred over larger periods of time. Even if the homeowner performed little or no updating or preventative maintenance and limits changes to "needed repairs ONLY" fixing the roof leak etc...

Most homeowners DO a certain amount of updating and preventative maintenance. "assumes typical maintain and updating" is usually inserted into the report.

All boils down to two factors:

Know thy market.

and: it is all crystal ball gazing anyway .

You give it your best shot based on YOUR best numbercrunching and run with it. B)

Homes purchased 35 years ago in my parents neighborhood cost 22K, a recent estate sale (run down and pretty much a wreck) ran $450,000. Atypical of the national market? Sure... Unlikely to re-occur? Oh yeah. But I'd call that appreciation counter to your text example!

 

[Mike Garrett RAA]

You must be kidding...right? I bought my first house for $14,000 and sold it for $30,000. My second one I paid $17,000 and sold it for $80,000. Next I bought a condo for $23,000 and sold it for $80,000. No appreciation?????

No one would buy real property if it depreciated rather than appreciated. It is America's best opportunity. I think you should pass on the assignment for sure!

 

[airphoto]

Let us not confuse 'appreciation' with devaluation of our money supply .. just another form of taxation ..

 

[Farm Gal]

Bill:

If we add in terms of cash... would that satisfy? :lol: