Leased Fee Estate - Fee Simple, Leasehold, Or Other

[Fishing Girl]

I'm appraising a residential property for a purchase with a lease of over 2 years. The long lease definitely affected the value. Surprisingly, I found one sale with a similar long term lease. After doing a little research and discussing it with several appraisers, I determined it was a leased fee estate. On the 1004 there is an "other" option at property rights appraised but the consensus was to mark it leasehold. The underwriter came back with a comment that it was not a leasehold because of the ownership issue and that I needed to change it to fee simple and add commentary regarding the long lease and adjust the other sales at a separate line. Should I mark other and type leased fee estate or follow the underwriter's recommendation that I mark it fee simple and adjust at a different line?

 

[Michigan CG]

I think you are confusing some terms here.

A Leasehold interest is the value of the lessee has in the property. A tenant can borrow money based on the value of the leasehold. In residential this would mostly apply to people who own houses owned on leased land with very long leases.

The leased fee interest is the interest held by the owner who has a tenant. If rents are at market then the leased fee value is the same as the fee simple value.

An appraiser can value the Fee Simple value of a property that is leased. If the lease affects the Fee Simple then you would make an adjustment.

I am assuming that the person getting the loan is the owner of the house (landlord) and not the tenant who has the leasehold interest.

 

[The Warrior Monk]

The "as is" value of the property, which is ultimately what a lender requires, would be determined by determining the current value of the current and future benefits; i.e., the current value of the income stream plus the reversion.

 

[Fishing Girl]

Thank you so much. That's helpful.