One-half Undivided Interest

[Steven Bonner]

An estate wants to know the market value of the decedants one-half undivided interest in a single family residence held as a tenant in common as of the date of her death.

I would like to hear some thoughts, suggestions, or comments on methodology to estimate any discounts related to the value of this interest from anyone with experience with this type of appraisal. Thanks guys.

 

[Dennis J. Black ASA IFAS]

Mr. Bonner,

Have have performed many appraisals of undivided fractional interests and authored a 4 hour seminar on the subject which debuted at the 2000 NAIFA Education Conference. My suggestion is to begin by reading the case Estate of Berg v Commissioner, 61 TCM 2949 (1991). That case addresses many of the substantive issues. I also recommend reading "Unsyndicated Partial Interest Discounting" published in the Appraisal Journal, authored by Walter H. Humphrey, IFAC and Bruce B. Humphrey, MAI. This will get you started down the path to understanding the appraisal problem. FYI, this assignments are not easy. The valuation of the pro-rata share is fairly straight forward but the discount requires much more work. Don't sell yourself short on the fee.

 

[Steven Bonner]

Mr. Black,

Thanks for your suggestions. I'm sure the recommended reading will be helpful. But it sounds like I am just not going to have the time to acquire the materials, read them and research this subject to the extent that may be necessary to adequately address the problem in a professional manner. Again, thanks for the info.

 

[Restrain]

You might do a little research for Texas Appraisers and contact an appraiser who works in Palestine, Texas. There has been a lot of land that was tied up in estates there. Attorneys have been purchasing some undivided interests (for very little) then partitioning the property. There should be some data in that area. Good luck.

 

[George W Dodd]

KISS (keep it simple stupid).

Don't read too much into the problem. Just do a full URAR appraisal and determine the value of the fee simple property, then let the accountant or executor do the math. If this is for an estate this method meets IRS guidelines.

Hope this helps.

 

[Dennis J. Black ASA IFAS]

Mr. Dodd,

In the case to which I referred, the court ruled in favor of the IRS largely based on the testimony of an appraiser. The estate had retained two CPA's that were also professors at universities, and they had no training as an appraiser. This is good solid work for appraisers. It is even mentioned in USPAP 1-2 (e) i.

 

[George W Dodd]

Mr. Black,

I've noted your response. I don't know what it means, but I have noted it.

 

[Dennis J. Black ASA IFAS]

Mr. Dodd,

What it means is appraisers are the ones that should be valuing the fractional interest, not an accountant, nor the executor. The assignment to which the original post eludes, is a fractional interest, not a fee simple interest. To lead the client to believe the pro-rata share of the fee simple interest is the Market Value of the fractional interest could be misleading. The amount of the discount must address "all relevant facts and circumstances" and thus is particular to each assignment.

 

[Pamela Crowley (Florida)]

I've never been involved in anything like this but would assume (uhoh) the the appraisal question is:

"How much would a typical buyer of the fractional interest pay for that fractional interest?"

Seems to me that the answer to that question would not necessarily be the fractional interest percentage of the total fee simple market value.

There are appraisers that specialize in this and I would make sure this assignment went to someone competent in this specialized field or make arrangements to work with one on this.

CYA by addressing the competency issue first.

 

[Dennis J. Black ASA IFAS]

Pamela,

You hit the nail on the head.