Income Approach?

[gregb]

A house leased for 1 month is appraised at fee simple value at the effective date of value. No question about whether it is appraised as fee simple.

 

[J Grant]

Your house is leased for 1 month. Appraiser values it at that days value. They said it was fee simple as of that day. Is this correct?

Let's separate things out. Appraisers can value whatever client wants...what it's worth to rent a property for one day, for example. But the valuation aspect and then WHAT is being valued. The WHAT has definitions.

Fee simple (definition ) is OWNERSHIP of a property. Mrs Smith gives Mr Jones $ and Mr Jones signs over title to a house and the lot house sits on. Most properties are owned fee simple. The exception, another form of ownership ( definition) is LEASEHOLD,- Mrs Baxter pays Mr Jones for title to a house but Mr Jones retains ownership of the land and Mrs Baxter pays Mr Jones a rent on the land..

A LEASED FEE interest is NOT a form of ownership, it is an interest in a property for a certain periods o time, that encumbers the property ( but hopefully yields a return). Mrs. Smith bought the house with fee simple title from Mr Jones. Mrs Smith rents the house for 2 years at $!,000 . month. The 2 year rental period is a LEASED FEE interest. The person renting does not own the property, they are renting a property owned by someone else, in this case Mrs Smith

Mrs Smith wants her house appraised for market value purposes. The appraiser would appraise the fee simple in the sales comparison approach and cost approach. The appraiser can add a third approach to value, the income approach, which appraises the house at what it worth relative to marker rents. The appraiser appraised the Fee simple interest ( return on rent ) in the income approach. .( appraising a property by income approach can be its own appraisals if client and appraiser want to do that , appraise a house by income approach only)i

Electing to rent a property which creates a leased fee interest does not "wipe out" or erase the fee simple interest. Mrs Smith still owns the house fee simple, but she elects to rent it, ( creating a leased fee interest ) , exchanging her right to occupy for term of lease for the rental money income.

When an appraiser says leased fee = fee simple they mean the value of leased fee can be the same or similar to the leased fee value, aka when the income approach value is equal to/equivalent to the sales comparison approach value.

(note definitions above are for example purposes , anyone can look up the Dictionary of RE or AI formal definitions)

 

[Meandering]

Maybe few answer because we’re not here to teach the GP terms that are readily findable on the internet. And maybe the excuse for a 1004mc was contrived so as to prove conformation to a computer’s prediction because even back when there were state and describe reports, market conditions and trends needed to be discussed, in a summary report, which is what a 1004 has always been. So to make the statement that appraisers were not discussing market conditions and trends, begs the question of why non-USPAP compliant reports were being accepted.

But when “over Valuation” is defined as any value opinion above a contract price, the motivations to make “fact based statements” really needs to be evaluated along side the supposed “facts”.

.

 

[bnmappraisal]

Notice how very limited ppl have chimed in. It’s because they never actually thought for themselves.

Wow. That's a pretty presumptive assumption

 

[Zephyr999]

Wow. That's a pretty presumptive assumption

Agreed...'grasshoppers' need to be teachable too.

 

[George Hatch]

Your house is leased for 1 month. Appraiser values it at that days value. They said it was fee simple as of that day. Is this correct?

Can be. Easily. It can also be the leased fee or the leasehold.

There are lots of different types of situations that can pop up. I just had a borrower present me with 5 leases for their property that I suspect to be false, in part due to the rents not corresponding to the unit attributes. He apparently expects me to just take his word for the income and apply a cap rate to it, except that I'm not going to do that. I'll report what I was told, and then I'll report the results of my rental surveys and comment to the fact that none of the tenants are credit rated, the leases have remaining terms ranging from 6-18 months, and that the prospective buyer as of today cannot reasonably expect to receive all of those rents or expect that any of the units will sign new leases at those rates once the current leases expire.

I run into this situation from time to time. It's sometimes more common to run into leases that are a little low in relation to the current rents - we still have to figure out the most likely basis a property will sell to an informed buyer. Sometimes I don't make that choice, but present the value both ways and leave the decision making to the decision makers.

Here's a pro tip: Some of the people on this thread write appraisal reports that you aren't even qualified to read, so before you presume to lecture them with Appraisal 101 basics you might give some consideration to the distinct possibility that someone who's been doing this for 15, 20 or 30 years may have seen some things you haven't even considered. .

 

[bnmappraisal]

Here's a pro tip: Some of the people on this thread write appraisal reports that you aren't even qualified to read, so before you presume to lecture them with Appraisal 101 basics you might give some consideration to the distinct possibility that someone who's been doing this for 15, 20 or 30 years may have seen some things you haven't even considered. .

*cough* WORTH REPEATING *cough*

 

[Addie]

Can be. Easily. It can also be the leased fee or the leasehold.

There are lots of different types of situations that can pop up. I just had a borrower present me with 5 leases for their property that I suspect to be false, in part due to the rents not corresponding to the unit attributes. He apparently expects me to just take his word for the income and apply a cap rate to it, except that I'm not going to do that. I'll report what I was told, and then I'll report the results of my rental surveys and comment to the fact that none of the tenants are credit rated, the leases have remaining terms ranging from 6-18 months, and that the prospective buyer as of today cannot reasonably expect to receive all of those rents or expect that any of the units will sign new leases at those rates once the current leases expire.

I run into this situation from time to time. It's sometimes more common to run into leases that are a little low in relation to the current rents - we still have to figure out the most likely basis a property will sell to an informed buyer. Sometimes I don't make that choice, but present the value both ways and leave the decision making to the decision makers.

Here's a pro tip: Some of the people on this thread write appraisal reports that you aren't even qualified to read, so before you presume to lecture them with Appraisal 101 basics you might give some consideration to the distinct possibility that someone who's been doing this for 15, 20 or 30 years may have seen some things you haven't even considered. .

Agree with everything you said. I think you are gold standard.

Tenant Occupied. Refi. Lease is for 1 yr. 6 months remain.

Do I need to tell anyone it was in leased fee/leased hold rights when I valued it? And not 100% fee simple? Or may I ignore it?

If you don’t want to teach. I understand. But understand this. I’m going into the field with or without this knowledge. Like most Appraisers. I’d prefer to learn the correct and true way. Not the “ 15%/20% way.

But if you wish the 15/20% way is the legacy....then count me as #60,000 in CA alone That was taught incorrectly.

 

[Addie]

Already know you all hate this AMC and every AMC. Pretty evident. But what about the chief appraiser who wrote this? Are they as dumb as I am?

Hey, @DWiley is chief at one of these clown colleges (99% users say, on this site ) (@DWiley) I respect AMC’s in the capitalism approach) and he is no joke. Guy is top 0.5%


http://valuationmanagementgroup.com/fee-simple-estate-vs-leased-fee-estate/

 

[Addie]

Wow. That's a pretty presumptive assumption

Maybe chim in at 10 years certified? Why don’t you? Cause you don’t know. This isn’t your fault. It’s how you were trained. This has zero to do with you. 100% how you were trained. (Of course you would never know something not taught)

@bnmappraisal In all your years of being a cert. you put in market rent definition and it’s source right? Didn’t think so. So where you trained properly? All your 1004/1007 have definition of market rent and it’s source? Be a man. Tell the truth.