Leased Fee

[J Grant]

The fact that a tenant has a lease to occupy a dwelling or unit in a building is not the same as a "leased fee "property rights that is conveyed to a buyer/owner.

Property A) is fee simple rights. The unit /units are vacant. The ownership is still fee simple. The rental units get rented to tenants. The ownership is still fee simple

Property B) is leased fee rights . The rental unit/units are vacant. The ownership is still leased fee. The units get rented to tenants. The ownership is still leased fee.

Leased fee or fee simple describes the property rights the owner gets on purchase, regardless of whether there are tenants with rental leases in place, or not. A rental lease is a lease to occupy and use premises for X time, it is not an ownership right to the premises ( typically)

 

[Basically Rectangular]

You do this under a hypothetical value right?

I don't think there is a need to state any hypothetical conditions in most residential situnations. It is a good question, because the rights are what they are, but I think the leased fee interest may have a greater impact on properties that are not SFR, things like industrial land leases, etc. The 1004 form is really designed for market value by sales comparison, the income approach section is maybe 2 lines, clearly insufficient for a proper income approach summary. I think that with regards to the 1004, checking the tenant box lets the intended user know that it is rented, they can ask for further analysis if required. The USPAP issue might be more relevant if using a general appraisal form, with regards to providing clarification of the ownership interest/rights.

 

[Gobears81]

I agree with Terrel's assertion, although in my market, most (non-commercial) leases are 12-months. The effective date of sale is the consummation date/ meeting of the minds date, rather than the closing date, and by the time you get the necessary inspection, appraisal, bank work, title work, repairs done for said inspection, as well as a gap in time for the closing date, there is a good chance that the lease expiration date isn't too far into the future, if it hasn't expired already. As for month-to-month leases, which aren't uncommon after the first 12-months are lapsed, a simple discussion with the tenant could allow them to vacate in fairly short order. The over-under consensus seems to be 12-months, in that if there are 18 or 24-months (or more) remaining on the lease, a leased fee value may need to be shown. That time period isn't set in stone, but if the lease is for more than 12-months, it might be worth discussing with the client.

 

[Ken B]

Ignoring the entire concept of intended user/intended use as it applies to a residential appraisal conforming to secondary market guidelines, let's ask a more interesting question.

Assume a SFR is leased with 2 months remaining in the lease term. Assume the property is located in a SFR subdivision with 95% owner-occupancy. Assume the return required by investors results in a price they would be willing to pay that is 15% lower than the price an owner-user would be willing to pay.

Who is the most probable purchaser? Owner-user or investor?

 

[J Grant]

Ignoring the entire concept of intended user/intended use as it applies to a residential appraisal conforming to secondary market guidelines, let's ask a more interesting question.

Assume a SFR is leased with 2 months remaining in the lease term. Assume the property is located in a SFR subdivision with 95% owner-occupancy. Assume the return required by investors results in a price they would be willing to pay that is 15% lower than the price an owner-user would be willing to pay.

Who is the most probable purchaser? Owner-user or investor?

The status of a property (vacant, owner occupant or rented ) does not determine HBU in a vacuum, it is for max $ productivity what market will pay. In your example owner occupants are paying more, so unless the seller is poorly informed, the seller would sell to an owner occupant rather than investor.

Being rented does not make a SFR with a tenant in place into an "investment property", it is still a SFR, even if rented for a typical lease 12 months, 2 years or month by month, or seasonal etc ( unless the tenant has such an onerous lease affecting marketability such as life estate or rent controlled 20 year lease etc.

For SFR with a tenant in place usually lender just asks for an income and expense statement to show if cash flow is break even, a profit or a loss.

 

[Mr Rex]

The leased fee interest, which is typically used in the industry, is equivalent to the fee simple interest of a property that is leased to others. ... It is only when current contract rents of the property being appraised are either below or above market rates that the traditional leased fee interest is being valued

 

[Gobears81]

The leased fee interest, which is typically used in the industry, is equivalent to the fee simple interest of a property that is leased to others. ... It is only when current contract rents of the property being appraised are either below or above market rates that the traditional leased fee interest is being valued

I remember hearing that appraisers are the only profession in the RE industry using the term "leased fee". Lawyers say "fee simple subject to leases" and most non-appraisers don't understand the meaning of the term.
With that said, leases can still have an impact on marketability. I mentioned in my earlier post that 12-months is somewhat of an arbitrary consensus cutoff for recognizing fee simple vs leased fee, but a two-year lease can deter many owner occupants from purchasing the property, regardless of whether the lease is at market, below, or above. Owner occupants have a different set of motivations, and even if the rents are $250 per month above market, the potential buyers will have to find housing elsewhere or delay their moving plans,, so even an above-market lease could have an adverse impact on value in markets where owner occupancy is predominant if it is a long enough term.

 

[Mark K]

Wow. The OP doesn't have a clue about how clueless he/she is. Perfect example of a little knowledge being dangerous.

This troll needs to find something better to do with its time.

 

[Mr Rex]

I remember hearing that appraisers are the only profession in the RE industry using the term "leased fee". Lawyers say "fee simple subject to leases" and most non-appraisers don't understand the meaning of the term.
With that said, leases can still have an impact on marketability. I mentioned in my earlier post that 12-months is somewhat of an arbitrary consensus cutoff for recognizing fee simple vs leased fee, but a two-year lease can deter many owner occupants from purchasing the property, regardless of whether the lease is at market, below, or above. Owner occupants have a different set of motivations, and even if the rents are $250 per month above market, the potential buyers will have to find housing elsewhere or delay their moving plans,, so even an above-market lease could have an adverse impact on value in markets where owner occupancy is predominant if it is a long enough term.

Its common here for a residential lease to be 12 months initially then goes to month to month. I agree that a lengthy lease affects Owner Occupants interest in buying a property. Investors not so much. If the lease is month to month not so much for owner occupants either as they now they can ask the seller to have the folks out prior to closing.

 

[CANative]

Even though the OP has a track record of being obnoxious, at least she is asking good (noob) questions.