Land Lease vs Fee Simple -> reporting questions

[NJAPRAZE]

checked "other" and indicated [for clarify] : "SFR Dwelling with a Land Lease" ; as the dwelling is what is being appraised... was concerned by checking "leasehold" someone may incorrectly assume the land/site

 

[James Micozzi]

checked "other" and indicated [for clarify] : "SFR Dwelling with a Land Lease" ; as the dwelling is what is being appraised... was concerned by checking "leasehold" someone may incorrectly assume the land/site

SMH. Ok people. Lets go back to appraisal 101. A home built on land that is leased from the owner is a leasehold. Here is the definition of a leasehold estate, which would be the leasehold box on page 1.

leasehold estate

A form of real estate in which a tenant is allowed to construct permanent structures upon a parcel of leased land, and derive some use or income from said structures during the period of the lease. Leasehold estates usually involve long-term leases, ranging from 20 to 99 years. Land owners are able to have their property developed, with no out of pocket expenses. Instead of having to sell their land too soon, they retain their family’s rights to the land, while receiving a steady income stream. The tenant saves the initial land acquisition costs and may gain access to property that would be otherwise unavailable. The downside is, as the lease nears the end or its term, the tenant’s investment becomes uncertain, and the landlord is in a position to make demands for compensation, above the fair market price. Leaseholds are much more common in commercial real estate, but can apply to some residential properties as well.

 

[Dublin ohio]

checked "other" and indicated [for clarify] : "SFR Dwelling with a Land Lease" ; as the dwelling is what is being appraised... was concerned by checking "leasehold" someone may incorrectly assume the land/site

So are your comparable sales on leased land?

 

[TerryRohrer]

checked "other" and indicated [for clarify] : "SFR Dwelling with a Land Lease" ; as the dwelling is what is being appraised... was concerned by checking "leasehold" someone may incorrectly assume the land/site

Checking leasehold indicates there is an interest in the land that is being included in the valuation. Otherwise, you have personal property, akin to a manufactured home on a month-to-month rental arrangement.

 

[J Grant]

SMH. Ok people. Lets go back to appraisal 101. A home built on land that is leased from the owner is a leasehold. Here is the definition of a leasehold estate, which would be the leasehold box on page 1.

leasehold estate

A form of real estate in which a tenant is allowed to construct permanent structures upon a parcel of leased land, and derive some use or income from said structures during the period of the lease. Leasehold estates usually involve long-term leases, ranging from 20 to 99 years. Land owners are able to have their property developed, with no out of pocket expenses. Instead of having to sell their land too soon, they retain their family’s rights to the land, while receiving a steady income stream. The tenant saves the initial land acquisition costs and may gain access to property that would be otherwise unavailable. The downside is, as the lease nears the end or its term, the tenant’s investment becomes uncertain, and the landlord is in a position to make demands for compensation, above the fair market price. Leaseholds are much more common in commercial real estate, but can apply to some residential properties as well.

The problem is it does not fit the above definition exactly either. I changed my initial advice fee simple to leasehold but perhaps the Other box is the best option.

A form of real estate in which a tenant is allowed to construct permanent structures upon a parcel of leased land,

The owner of a house on a land lease is not a tenant. They are a property owner of the house AND their rights of a land lease. Their land lease transfers with the sale of the house. The homeowner must pay a monthly or yearly fee for the land lease but in return they pay lower property taxes - because they are only paying property taxes on the house. Usually the costs of tax savings vs land lease fee is a wash but with rising property taxes, they may end up paying less compared to the RE taxes they save on the land portion of taxes. But a land lease has the disadvantage of some buyers are wary of it and some lenders will not loan on it, which can affect marketability.

At reversion of land lease - in 60 years or whenever it runs out, the land owner can increase the rent if they want to, sometimes the land owner offers a buy out as well, The best comps are other homes on land leases. The proper check box is under site section on page one where it asks if site is subject to a land lease.

BTW in my area the land lease tend to be very reasonable. But I see listings in North or mid Fl with manufactured homes with crazy high land lease rates. Imo that is a poor investment but somebody buys them.

 

[NJAPRAZE]

Checking leasehold indicates there is an interest in the land that is being included in the valuation. Otherwise, you have personal property, akin to a manufactured home on a month-to-month rental arrangement.

excellent point; via the lease.... ty

 

[James Micozzi]

Checking leasehold indicates there is an interest in the land that is being included in the valuation. Otherwise, you have personal property, akin to a manufactured home on a month-to-month rental arrangement.

nope. read the definition. you are leasing the land from the owner, which gives you permission to build a residence, which you own, not the land owner. you will have to chose comparables of that have the same leasehold rights as the subject. not really that hard of a concept to understand. But obviously I am wrong given all the various posts . SMH

 

[Mark K]

exactly -- that's why I'm leaning towards Other-land lease [so a reader knows its an appraisal of the house without the land]

thoughts on how/where to report the land lease? in "HOA" field or elsewhere?

As others have stated... its a leasehold interest.

You should get the details/terms of the lease (would be a good idea to include a copy of it in the report) and summarize them in the report. There may/may not be a HOA but the HOA field wouldn't be the place to discuss it in any event. If the borrower is getting a 30 year mortgage I'm certain that the lender would want to see that the term of the lease extends to at least 30 years.

 

[TerryRohrer]

nope. read the definition. you are leasing the land from the owner, which gives you permission to build a residence, which you own, not the land owner. you will have to chose comparables of that have the same leasehold rights as the subject. not really that hard of a concept to understand. But obviously I am wrong given all the various posts . SMH

A lease conveys property rights to the tenant. The right to use the property, the right to enter the property, those are elements of the whole bundle of rights. Upon execution of a lease, the owner of the land conveys those rights to the tenant in the lease. Not really that hard of a concept to understand once you understand it, but until then it obviously can be somewhat difficult. Maybe less smacking your head would be helpful!

 

[Dublin ohio]

A lease conveys property rights to the tenant. The right to use the property, the right to enter the property, those are elements of the whole bundle of rights. Upon execution of a lease, the owner of the land conveys those rights to the tenant in the lease

So in the case of a residential leasehold. Where the land tenant builds the improvements on the vacant leased site. Who owns the improvements?