Valuing an undivided partial interest under a joint tenancy

[bodenstein]

We have been asked to estimate the value of the undivided interest held by one of two siblings in a single family home. They each held a "joint tenant with survivorship" interest in the property, which has now passed to one of the siblings on the death of the other sibling. The surviving sibling, for tax or estate purposes, needs the estimated market value of the deceased siblings interest in the property AS IF he/she were still alive.

Clearly the value is something less than one-half of the fee simple value. Can anyone provide some guidelines or point me in the right direction for this type of valuation? Thanks.

 

[hastalavista]

As an appraiser, you need to support the partial interest discount by market data. Accountants may be able to apply a 15% discount at whim, but not so an appraiser.

You can search your data sources for partial transfers and try to follow-up with the parties involved.
My commercial mentor specializes in partial interest valuations. I've worked with him for 7-years or so now. He won't share that data with me (and I cannot blame him).

Good luck!

 

[Amy Perkins]

We have been asked to estimate the value of the undivided interest held by one of two siblings in a single family home. They each held a "joint tenant with survivorship" interest in the property, which has now passed to one of the siblings on the death of the other sibling. The surviving sibling, for tax or estate purposes, needs the estimated market value of the deceased siblings interest in the property AS IF he/she were still alive.

Clearly the value is something less than one-half of the fee simple value. Can anyone provide some guidelines or point me in the right direction for this type of valuation? Thanks.

I think that you will have to find at least one sale that is an estate sale with two heirs. In my experience, it is usually between 5-20% depending on the market with a standard of 10% in a balanced market. Adjust for everything else and then extract out an adjustment for the estate sale (call and see if there were unrepaired items affecting the price). If you have an estate sale but it is not comparable, compare it to another sale and in the addendum you can note this is a match paired analysis. Compare the two line by line and extract out your adjustment and you can now apply that percentage across the board if necessary. I would be careful using older sales in a changing market as this may skew your results. This is a market sensitive adjustment and the adjustment should increase in percentage if the market declines and vice versa. I sometimes will match pair several to see what the going discount rate for a partial interest is for a given market.

 

[Amy Perkins]

You are lucky there are only two, it gets harder to find data for many heirs.

 

[Noreen]

I would also check with the Department of Revenue in your state regarding "Home Rule" requirements and IRS regulations as are applicable to estate evaluation. In NH, I would look to probate court to zero in on like properties/probate filings in your general area.

 

[Michigan CG]

It would take a ton of research to do it RIGHT. Fee $2,000.

 

[Terrel L. Shields]

Clearly the value is something less than one-half of the fee simple value

Why? That is not a given. In fact, if not adversarial relationship, such property usually sells as two sellers, one buyer. Courts will not allow divorcing couples try to discount the property for same reason. Otherwise a discount is a crap shoot.

 

[Pam Wyant]

Thought the purpose of joint tenancy with survivorship was that it didn't have to go through the estate process. But I'm not an attorney, so I guess I could be wrong.

 

[Elliott]

I'd leave developing a discount for a partial interest to the accountants and attorneys. I usually say, "I'm just a simple appraiser that can go into the market and find sales where arms length transactions of full, fee simple interests were conveyed. There is a ton of theories and case law on the subject and its beyond the competency of most of us meatball appraisers.

Just one of dozens of articles:

http://www.sbgbusinessvaluation.com/R.Seamanarticle.htm

 

[bodenstein]

Thank you all for your help on this.

Jerry