• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

Leasehold Appraisal Questions for property in Scottsdale

Status
Not open for further replies.

The Sheriff

Thread Starter
Member
Joined
Mar 21, 2007
Professional Status
Certified Residential Appraiser
State
Arizona
Working on a leasehold appraisal in Briarwood North in Scottsdale...

A couple of questions and premises thatI am working from...

My comps are all SFR leasehold properties, not fee simple properties.

I have a copy of the land lease showing that it runs through December 31st, 2079.

The ground rent is .1% of the sales price of the property... I also have a copy of the sales contract. On the 1004, would placing the prospective ground rent in the special assessments box be appropriate, or should I place the current ground rent in the box? Or should I just make a separate line item addendum in my narrative and leave the Special Assessments box blank?

Do I do a cost approach as the client requested it and determine land value from the market area? My brain says no cost approach can be performed adequately due to the ownership interest in the land (but this is my first).

Any other items that might be recommended are greatly appreciated that I haven't brought up.

This is obviously my first leasehold appraisal and trying to keep the corrections at a minimum. I did read a ton of the posts on through forum searches, but didn't see too many that were addressing the specific questions I had. I actually called my old trainer and asked him about it and he said he had only done one in Arizona...

Thanks!
 

The Sheriff

Thread Starter
Member
Joined
Mar 21, 2007
Professional Status
Certified Residential Appraiser
State
Arizona
Bumped for immediate help... come on ladies and gents... I know someone has done one of these puppies!!! Gracias!!!!
 

redfish

Senior Member
Joined
Sep 2, 2007
Professional Status
Certified Residential Appraiser
State
Michigan
Does the land lease have an automatic renewal after the term is up. What is the estimated remaining economic life of the improvements? I would look at fee simple ownership comps as well (for 5,6,7...) considered competing by the market in the subject's immediate area. Good luck hope the fee is nice.
 

The Sheriff

Thread Starter
Member
Joined
Mar 21, 2007
Professional Status
Certified Residential Appraiser
State
Arizona
There is nothing that states when the lease is up that it will be renewed based on the documentation I've read... it actually states a loan must not extend beyond the end of the lease date.
 

Ken B

Elite Member
Joined
Feb 18, 2004
Professional Status
Certified General Appraiser
State
Florida
Are you valuing the land or the improvements? What is the purpose of the appraisal?
 

The Sheriff

Thread Starter
Member
Joined
Mar 21, 2007
Professional Status
Certified Residential Appraiser
State
Arizona
Sale of the improvement on the property... a 3 bd, 2.5 bath, single story patio home with one common wall.
 

Ken B

Elite Member
Joined
Feb 18, 2004
Professional Status
Certified General Appraiser
State
Florida
Don't know if this will help or not, but it's the best I can do. Client obviously wants the cost approach for insurance purposes. You could value the land under a hypothetical condition that the property is held in fee simple. I would not categorize the land rent as a special assessment. I would think the lender would consider it as an expense when calculating the borrower's finances. If in doubt, ask the client. No harm in that.

FNMA's guidelines on leasehold appraisals:

http://www.allregs.com/efnma/index....=/&td=0&ti=0&tm=0&to=FNMA&tw=0&tv=0&tq=0&tx=/
 

The Sheriff

Thread Starter
Member
Joined
Mar 21, 2007
Professional Status
Certified Residential Appraiser
State
Arizona
Thanks... So far, I commented on the lease... I placed a note in the special assessment to see the lease and ground rent addenda that I typed verbatim from the lease provided by the lessor... now... gridding out my comps...
 

Kevin A. Spellman

Senior Member
Joined
Aug 30, 2003
Professional Status
Certified Residential Appraiser
State
Massachusetts
You can do a cost approach, but without a land value. The rights within the lease can be interpreted to the leasehold value. An example: If a leased property sells for $100,000 and the home and the utilities could easily be replaced for $50,000, but there is no leased land available to place a $50,000 home on, the lease could be interpreted to possess $50,000.

I have appraised over fifty leased land properties in the same 30 acres parcel with 300 homes and the cost approach is typically 50% or less than the value or the sales price. The cost approach is unreliable if a buyer cannot replicate a lease on a vacant parcel of land. The cost approach cannot be considered. Make sure there is no other inherited cost to sell such as a transfer fee for an endowment for the maintenance or replacement common areas. Are the yearly lease fees based upon the land area with the home also? You mention a 1% fee who is required to pay?
 

The Sheriff

Thread Starter
Member
Joined
Mar 21, 2007
Professional Status
Certified Residential Appraiser
State
Arizona
Thanks everyone for the help and also for making me consider other alternatives. There were three good leasehold sales in the previous nine months that I was able to work with, besides the subject property which had just recently sold. The two similar active listings also helped give me a solid idea where my opinion of value fell.

I basically stated the cost approach was irrelevant as the subject property is a leasehold estate with ground rent paid to the lessor.

Here is some other narrative from the report:

URAR : Neighborhood - Description

The subject's neighborhood is considered part of the core city of Scottsdale. East Mercer Lane is a quiet, residential street. Shea Boulevard, a local traffic artery, is within one mile, and offers access to schools, employment centers, recreational activities, and freeways. Property values for leasehold properties have been relatively stable in the previous six months based on resales in the subject's immediate market area. Demand for the area is average. The subject is served by the Scottsdale #48 Unified School District.

The subject's subdivision has a total of 44 improved lots. The homes were constructed between 1986 and 1992. An average property in this subdivision has 2,714 square feet with six rooms and nine bath fixtures. There are 37 residences with pools which is 84% of the total. There are 44 single story homes in this subdivision.

Lease and Ground Rent Addenda

The subject's subdivision is noted for being a leasehold interest subdivision. Per the lease provided by Herberger Enterprises, Inc, an Arizona corporation, the lease expires on December 31, 2079. The improved lots in the subject's subdivision are each subject to ground rent at a minimum of $290 per month. If the lessee sells his interest in the lease and the improvements located thereon or places or refinaces a mortgage or deed of trust upon the Leased Premises and/or the improvements located thereon, the monthly ground rent shall be, in the case of a sale, an amount equal to 0.1% of the sales price of the Lessee's interest in the Leased Premises and the improvements located thereon, and in the case of a placement or refinancing of a mortgage or deed of trust, an amount equal to 0.1% of the appraised or fair market value as determined by a certified appraiser in the state of Arizona of the Lessee's interest in the Leased Premises and improvements located thereon established by the mortgage lender for the purpose of such financing.


This report was a good learning experience... and it also made me realize there are many appraisers in the Phoenix metropolitan market that would struggle with a similar assignment based on my phone calls to friends in the industry. I guess if a report doesn't kill you, it will only make you stronger.
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks