Leased Fee

[Addie]

Technically, the real property interest is the fee simple interest, the leased fee interest may be considered personal property rights. If the leased fee interest may be considered personal property, this interest may not necessarily transfer with or contribute value to the real property being valued, and any contributory value should be removed.

Who holds the fee simple rights as of the effective date?

they exist yes. Not denying that.

 

[Basically Rectangular]

The landowner holds the fee simple rights.

 

[jay trotta]

Who holds the fee simple rights as of the effective date?

they exist yes. Not denying that.

You must be taking a Class....hmmm
Fee Simple Ownership vs. Leasehold Ownership
Some people want to own their homes, while others are just as happy renting...or they prefer to own a condo or townhouse. Fee simple ownership contrasts with leasehold ownership to cover these choices.
True leasehold ownership provides that you have full use and access to the property, but you don't actually own it. When you purchase a condo, you buy a given unit but not the land upon which the entire building is situated. Likewise, when you rent a home, you have full enjoyment of the premises but you don't own it so you, therefore, can't encumber it or leave it to your heirs in your will. And many leases impose restrictions on tenants, such as prohibiting pets.

Leasehold ownership can also apply to land. You might have the right to cultivate it for a set number of years, but you don't enjoy the same freedoms as you would if you had purchased it outright and had fee simple ownership. This, too, works something like a rental agreement. When the lease reaches its end date, the property reverts to the owner.

 

[J Grant]

Who holds the fee simple rights as of the effective date?

they exist yes. Not denying that.

The owner on the deed who bought the property and title passed to owns the fee simple rights as of the effective date. If it is rented, a tenant has a lease and right to use the premises for X years or months ( term of lease) as long as tenant pays agreed on rent. Whether the value of the property is affected by its being rented is a separate issue than who owns the property.

 

[Ken B]

Who holds the fee simple rights as of the effective date?

they exist yes. Not denying that.

Who cares who "holds" the rights? What is being appraised is the rights of ownership - those rights may be the leasehold, the leased fee, or the fee simple estate.

If a property is leased for 2 years for $1 a year and the value of the fee simple estate interest is $1 million dollars, what is the value of the leased fee interest if a market derived GRM is 135?

What is the intended use and intended user when utilizing a 1004 form? Does the OP know what a subordination clause is?

Should an appraiser identify to the client that a property is leased and, if known, the terms of the lease? Yes. Can the appraiser still value the fee simple estate interest in the property? Yes. Would an astute client (assuming one appropriate for use of a 1004 form) require the lease contain a subordination clause? Yes. Might the client adjust the LTV ratio downwards for a leased property compared to a property lacking a lease in place? Yes.

 

[Ken B]

For the appraisers that use the 1004 form.

On properties that are rented as of the effective date, why do you check the box you appraised Fee Simple rights and do the report As-is only?

Curious your answers.

Not judging, curious of the answer.

“You know what, I never thought about it”
“I feel pressured to”
“That has slipped my mind”
“It’s the way everyone does it”
“The form doesn’t have a spot for it”
“The form only has Leasehold, FNMA knows more than you”


This thread isn’t to bash anyone as I already know 100% of FNMA appraisers violate USPAP by appraising Fee Simple Rights As-is even though no one holds the Fee Simple Rights of the subject as of effective date.

So with that out of the way.

Why do you value Fee Simple rights when the scope of work you set should have been leased fee as-is at a min and leased fee as-is and hypothetical fee simple value all in 1 report on a 1004? (And referencing 2 workfiles but reported on 1004 report?

The highlighted must have been added after the original post. Why in the world would you create two workfiles if you are merely reporting the value of two interests in the same property if that is part of the same assignment?

 

[Gobears81]

a hypothetical condition is what I meant.

It does not require a hypothetical condition to value different property rights than what would actually be conveyed. Based on the premise of Vfs = Vlf + Vlh, if there is a lease considerably above or below market, one would need to determine the fee simple value to identify a property rights adjustment. Ad valorem appraisals are based on fee simple property rights, regardless of whether there is a 99-year lease or no lease, and it does not require a hypothetical condition to value this type of property rights for this intended use. Using fee simple for ad valorem was determined through court cases, not appraisers doing shoddy or misleading work.

You appraised the fee simple rights as of an effective date and not what the owner held? Yet you did it as-is?

So a property with a 4 yr lease. I appraise the fee simple rights via a check box, explain that its leased for next 4 years blah blah.

But wait? What’s the value???? OH no. You valued the fee simple rights as is. It’s under leased fee for next 6months-4yrs. These are the same values?

Residential leases that are four years are pretty uncommon, to say the least. They are probably out there, but as mentioned by multiple earlier posts, residential leases are predominantly 12-months or less, which would not complicate the leased fee vs fee simple issue. With that said, the "right to use" is lost in the bundle of rights when leasing and if a lease is in fact 4-years, a leased fee value could be necessary, depending on the intended use.

 

[J Grant]

Residential leases that are four years are pretty uncommon, to say the least. They are probably out there, but as mentioned by multiple earlier posts, residential leases are predominantly 12-months or less, which would not complicate the leased fee vs fee simple issue. With that said, the "right to use" is lost in the bundle of rights when leasing and if a lease is in fact 4-years, a leased fee value could be necessary, depending on the intended use.

RE we value the property rights identified in the appraisal- if we are valuing the fee simple interest, then even with a four year/atypically long lease we are still valuing the fee simple ownership rights. The impact on value from a longer term lease is a part of the market value analysis, but the rights of fee simple as being what is appraised is not changed

The right to use is not lost when leasing, it is traded, : aka right for owner to occupy is traded for income to owner from the lease . The fact that a new buyer might see that as a negative rather than a positive is a factor that can affect value, but it does not affect the bundle of rights itself.

 

[Gobears81]

RE we value the property rights identified in the appraisal- if we are valuing the fee simple interest, then even with a four year/atypically long lease we are still valuing the fee simple ownership rights. The impact on value from a longer term lease is a part of the market value analysis, but the rights of fee simple as being what is appraised is not changed

The right to use is not lost when leasing, it is traded, : aka right for owner to occupy is traded for income to owner from the lease . The fact that a new buyer might see that as a negative rather than a positive is a factor that can affect value, but it does not affect the bundle of rights itself.

I don't recall ever checking the "leased fee" box when doing 1-4 family residential, so we aren't islands apart on views, but don't really agree with this. Here is the definition of leased fee, per the Dictionary of RE appraisal:

An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the lessee are specified by contract terms contained within the lease.

Whether we call the right to use lost or traded for income is largely semantics, but it isn't there. I remember an income approach instructor with AI saying that if a property is rented, we ALWAYS need to have a leased fee value. I was pretty green at the time and at this point, don't really agree with his assertion, but it has still stuck with me over the years. The fact is that a four-year lease may very well shift the most likely purchaser and it could impact market value, so unless the scope of work mandates that we value fee simple, such as for ad valorem, then this impact can't be explained away as a "market value analysis", it is the difference between leased fee and fee simple

 

[Andrei Fin]

No hypothetical condition is needed. Fee simple is about conveyance. Let's say you own a property, it's in the middle of a short term lease, and you want to convey the property to a buyer or heir. Not only can you do that at will, but the lease won't even be recorded on the deed. The title will say "FEE".