Leased Fee or Fee Simple - That is the Question

[PropertyEconomics]

I would like to see the terms Economic Obsolescence and External Obsolescence separately defined and used ... In my opinion they are not the same.

 

[ETex2]

Re: economic obsolescence and external obsolescence are not the same

I agree 100%

I haven't seen "Market Approach" used for quite some time until I reviewed a report a couple of months ago and an appraiser even older than me used it. I seem to recall that the Society (SREA) used the term more commonly before it merged with the AIREA and the "Appraisal Institute" emerged.

 

[David Mescon]

I would like to see the terms Economic Obsolescence and External Obsolescence separately defined and used ... In my opinion they are not the same.

I second that motion.

 

[Pittsburgh Pete]

With all due respect, your expression either meaningless, or a contradiction in terms (depending on how one looks at it). It makes as much sense as saying "leased fee disregarding all existing leases".

I'll pass this along to the head of the appraisal department at PNC Bank. Have had this discussion with them before and they prefer fee simple subject to existing leases.

I think what prompts some to label it as such is that the leases in such instances are very short term. The longest on the date of the appraisal would most likely be one year with others ranging from less than one month to a year. Their impact on the value is somewhat transitory and typically minimal. Many would see that labeling it as leased fee gives too much credence to the minimal impact of the leases in place.

Love how some can be so certain and condescending while speaking out of their .......!

 

[Pittsburgh Pete]

I would like to see the terms Economic Obsolescence and External Obsolescence separately defined and used ... In my opinion they are not the same.

I'll pass that along to the AI so that they can edit The Dictionary of Real Estate Appraisal (5th edition).

 

[PropertyEconomics]

I'll pass that along to the AI so that they can edit The Dictionary of Real Estate Appraisal (5th edition).

I take this to be a sarcastic comment that you dont agree ....??

 

[Pittsburgh Pete]

I take this to be a sarcastic comment that you dont agree ....??

You betcha! In the Dictionary of Real Estate Appraisal they are considered the same.

However, I do prefer to call the condition "economic obsolescence" if it is a locational issue (bad market area with higher vacancies than the norm) that impacts the property's cash flow. If the condition arises from an "unsavory" condition nearby the property, I prefer to label it "external obsolescence." In either instance, the condition impacts the ability of the property to generate income. They are, although the terms have subtle nuances, one and the same.

 

[PropertyEconomics]

You betcha! In the Dictionary of Real Estate Appraisal they are considered the same.

However, I do prefer to call the condition "economic obsolescence" if it is a locational issue (bad market area with higher vacancies than the norm) that impacts the property's cash flow. If the condition arises from an "unsavory" condition nearby the property, I prefer to label it "external obsolescence." In either instance, the condition impacts the ability of the property to generate income. They are, although the terms have subtle nuances, one and the same.

Pete I disagree ... as a general rule external obsolescence is not cureable .. economic is almost always cureable with time. I believe, and you apparently agree in your "labeling" they do not represent the same things ... AI aside .. even you dont agree in your own practice with them being considered the same.

 

[Pittsburgh Pete]

Pete I disagree ... as a general rule external obsolescence is not cureable .. economic is almost always cureable with time. I believe, and you apparently agree in your "labeling" they do not represent the same things ... AI aside .. even you dont agree in your own practice with them being considered the same.

Beg to differ--I simply think one term has a different nuance than the other but they are interchangeable.

FYI--neither is curable--i.e. cannot be cured by the subject property owner because the condition is outside of (or external to) his property. I'm assuming that your "external" issue is a neighboring property for example that detracts from the subject. That property can "go away" over time as highest and best use changes. A junk yard may lie on ground valuable enough that remediating and redeveloping is an option. The condition is then "cured." In no instance can the condition be cured by the subject property owner taking actions on his own property.

 

[David Mescon]

Personally, I would prefer the term external be used for tangible items, such as the 7-11 next door, and economic be used for intangibles, such as those related to an area's economy. Utilization of the word economic is, IMO, a misnomer when applied to tangible sources of obsolescence external to a subject property.