Leased fee or fee simple?

[Zoe]

I suppose they pay the remainder upfront, rather than periodically. Or, terminate the sales contract.

The issue is whether this is actually a lease. Looking up the definition of lease in the Dictionary of RE Appraisal:

"A contract in which the rights to use
and occupy land, space, or structures are
transferred by the owner to another for
a specified period of time in return for a
specified rent."

Key word in the above is owner. If the buyer is taking ownership, they have the full bundle of rights attached, so they would not have to pay rent for the right to use. The more that I think about it, the more that I think that rent payments are not the appropriate term here.

That should be in the terms of the lease and the contract. It is not unusual for a tenant to pay rent past the sales date to a certain date. If the terms of the lease is in the new owner's favor and in the contract, then lender will probably be happy if you do fee simple. Does that make sense?

 

[Zoe]

That is like when a property is sold and somebody says possession will be granted on such and such date. If the new owner has a leasehold interest in the lease? Then it depends on the term of the below market leasehold interest. Because it could impact the fee simple interests.

 

[Zoe]

Another thought. Sometimes the penalty to break a lease is worse than keeping the lease and paying the rent for the remainder of the lease.

 

[J Grant]

I am appraising a property that is being purchased for a certain amount, but the buyer is required to pay additional monthly payments to the seller for several months. The client is adding those payments to the initial outlay to determine the effective price.

The sales contract refers to these payments as additional rent, and the buyer is the current tenant. But, the buyer would own the property outright after the initial outlay (what binds them to paying after, not sure). For that reason, this would not be a CFD, nor is that mentioned in the contract.

Adding the monthly payments to the initial outlay results in a market-oriented price. I could just appraise this property fee simple and treat the additional payments as a sale condition, though my logic feels a bit flimsy no matter which direction to take, so wanted to get some other thoughts here (ie is this leased fee and would the sale conditions impact the valuation)?

You are way overthinking it.

The subject is a fee simple ownership in deed and legal property - correct? ( a property does not change according to a sale contract or who the buyer is). If it was a refinance, the subject would be fee simple I assume.

A tenant paying a few month's rent is a condition of sale between the buyer and the seller. Why is making it a "market-oriented price "on the table -the appraisal is the opinion of market value. If the sale price is inflated to cover the additional rent, then comment on it. If the OMV is below or above the sale price the rent from tenant could contribute to that

 

[Zoe]

You are way overthinking it.

The subject is a fee simple ownership in deed and legal property - correct? ( a property does not change according to a sale contract or who the buyer is). If it was a refinance, the subject would be fee simple I assume.

A tenant paying a few month's rent is a condition of sale between the buyer and the seller. Why is making it a "market-oriented price "on the table -the appraisal is the opinion of market value. If the sale price is inflated to cover the additional rent, then comment on it. If the OMV is below or above the sale price the rent from tenant could contribute to that

Your half right. The buyer and seller agreed to this. So, the seller still has a lease interest in the subject property that the buyer agreed to?

Do you get it?

Is that lease recorded in the deed in public records?

 

[Zoe]

If that lease is not recorded in public records, the seller and buyer are like on their own.

They would need a lien recorded on the subject property before the mortgage from the lender was recorded.

 

[Zoe]

If you client is lender, do fee simple. They already have title opinion and title insurance before they hired you.

 

[J Grant]

Your half right. The buyer and seller agreed to this. So, the seller still has a lease interest in the subject property that the buyer agreed to?

Do you get it?

Is that lease recorded in the deed in public records?

MV in the appraisal is based on the typically motivated buyer and seller - not whatever price or terms a named individual buyer and seller negotiated in their contract ) commenting on it and appraising the property.

 

[Zoe]

MV in the appraisal is based on the typically motivated buyer and seller - not whatever price or terms a named individual buyer and seller negotiated in their contract ) commenting on it and appraising the property.

Okay, I'll play you at your risk. If I offer the buyer as seller a 5 year lease half of market rent, am I typically motivated?

Doesn't matter if the bank has a mortgage in front of whatever the buyer and seller agreed to in the contract. The appraiser already knows the disclosed seller concessions in the contract.

Your right on do fee simple interest with MV definition and effective date if client is a lender.

 

[J Grant]

Okay, I'll play you at your risk. If I offer the buyer as seller a 5 year lease half of market rent, am I typically motivated?

Doesn't matter if the bank has a mortgage in front of whatever the buyer and seller agreed to in the contract. The appraiser already knows the disclosed seller concessions in the contract.

Your right on do fee simple interest with MV definition and effective date if client is a lender.

No YOU are not typically motivated above, but the MV in an appraisal is not based on what YOU do - it is based on what the property should transact for in th open market with a typically motivated buyer and seller (

MV is an appraisal model, which is why it can differ from an actual price on a contract.