Income Approach?

[Addie]

An appraisal can be made with or without a HC

If it’s as-is, which rights did you value? Not fee simples.

You say leased fee is on top of fee simples (or a version of that)

No. Leased fee + lease hold = fee simple rights.

Fee simple + leased fee cannot exist.

Again, from same posts.

“I'd like to know what their basis for disagreeing with that principle is, aside from "I've been doing this for 30 years, and this is how you do it." or "one has never questioned it," etc.”

 

[Addie]

Where I have disagreed with you Addie is that you have thrown around terms like "value of the fee simple leasehold,

Agree I have not properly communicated the value terms but I hope you get what I was trying to say.

 

[Deleted member 152047]

If it’s as-is, which rights did you value? Not fee simples.

You say leased fee is on top of fee simples (or a version of that)

No. Leased fee + lease hold = fee simple rights.

Fee simple + leased fee cannot exist.

Again, from same posts.

“I'd like to know what their basis for disagreeing with that principle is, aside from "I've been doing this for 30 years, and this is how you do it." or "one has never questioned it," etc.”

I wasn't referring to rights! I was referring to value, hence specifically adding (Value).

 

[Deleted member 152047]

Agree I have not properly communicated the value terms but I hope you get what I was trying to say.

You lost me for a bit in the middle to be honest, but I think we are on the same page now.

 

[J Grant]

I agree with you there Addie and I think your methodology is flawed J Grant. You have to use a hypothetical condition when developing an opinion of value for something that is contrary to what exists.

Clients esp lenders can require as is appraisals, in fact, URAR Fannie/Freddie will only lend on As Is properties...if the appraiser makes a HC , then the report is subject to the HC and the HC has to be satisfied (removing) the HC condition with an inspection or check off it has been satisfied to greenlight the loan.

The small income property appraisal has 3 approaches to value, sales comparison approach ( fee simple) , the income approach ( leased fee / market rents ) and then cost approach if developed, the appraiser reconciles them with no HC. for their as is opinion of market value One can argue the entire appraisal is an HC if one wants to , since there is no actual "sale" as of the effective date, the income approach can use market rents for a vacant property, and no crew is out there building the house on CA.

Since properties sell their fee simple ownership all the time with tenants and leases in place, why does a lease create a HC that does not exist in order to value the fee simple ?
Or do you mean the HC exists to value the fee simple as if vacant (not subject to contract rent ) but vacant with potential for market rent?

( imo Addie;s posts because while she has a good grasp on some points, she keeps mixing up in valuation issues with actual property rights and perhaps other posters are doing it as well )

 

[cpalub01]

If you guys want to continue down this rabbit hole, here's a fun discussion paper

https://www.appraisalinstitute.org/file.aspx?Document=Property_Symposium_Exp_12-21-17_-_Final.pdf

 

[Deleted member 152047]

I agree with you there Addie and I think your methodology is flawed J Grant. You have to use a hypothetical condition when developing an opinion of value for something that is contrary to what exists.

Clients esp lenders can require as is appraisals, in fact, URAR Fannie/Freddie will only lend on As Is properties...if the appraiser makes a HC , then the report is subject to the HC and the HC has to be satisfied (removed ) on by satisfying the HC condition on further date inspection or repair to green light the loan.

The small income property appraisal has 3 approaches to value, sales comparison approach ( fee simple) , the income approach ( leased fee / market rents ) and then cost approach if developed, the appraiser reconciles them with no HC. for their as is opinion of market value One can argue the entire appraisal is an HC if one wants to , since there is no actual "sale" as of the effective date, the income approach can use market rents for a vacant property, and no crew is out there building the house on CA.

Since properties sell their fee simple ownership all the time with tenants and leases in place, why does a lease create a HC that does not exist in order to value the fee simple ?
Or do you mean the HC exists to value the fee simple as if vacant (not subject to contract rent ) but vacant with potential for market rent?

If a seller's property is encumbered with a lease, they are not selling the fee simple estate. They are selling the leased fee interest as the fee simple estate is encumbered by a lease. The buyer will ultimately receive the full bundle of rights (fee simple ownership) upon expiration or vacation of the lease that is in place.

 

[Deleted member 152047]

If you guys want to continue down this rabbit hole, here's a fun discussion paper

https://www.appraisalinstitute.org/file.aspx?Document=Property_Symposium_Exp_12-21-17_-_Final.pdf

This is a different can of worms, but thought provoking nonetheless.

 

[J Grant]

If a seller's property is encumbered with a lease, they are not selling the fee simple estate. They are selling the leased fee interest as the fee simple estate is encumbered by a lease. The buyer will ultimately receive the full bundle of rights (fee simple ownership) upon expiration or vacation of the lease that is in place.

Respectfully, I disagree on this point. ]If a seller's property is encumbered with a lease, they are selling the fee simple estate because isn't that what gets transferred on closing date, the title and deed in fee simple to the property? That has to be a yes or no answer....in most closings the buyer gets a fee simple title, correct?

If there is a lease encumbering the property ( a leased fee interest), the buyer who purchases the property is aware of it. The buyer knowingly gives up one of the sticks of his bundle or rights ( right to occupy) in order to get a $ benefit from another stick of his bundle of rights ( the right to lease or rent a property). Presumably the buyer gets a positive cash flow but even if not, they might still want the property for investment potential.

The fact that a lease encumbers the property can add to , subtract from, or be equivalent to the value of the simple value . ( that is a valuation issue in the appraisal ).

 

[Terrel L. Shields]

If a seller's property is encumbered with a lease, they are not selling the fee simple estate.

What part of it did they not sell? The fact it is encumbered by lease isn't going to change the fee simple.