appraising special ownerships and interests basic real estate appraisal: principles & procedures...
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17.1 CONDOMINIUMS AND OTHER SPECIALIZED HOUSING Condominiums Airspace + Interest in Common Areas Restrictions Homeowner’s Association (HOA) Conditions, Covenants & Restrictions (CC&R’s) Appraisal of Condos Emphasize the Sales Comparison Approach Consider Location, Amenities & HOA Dues 3 Page 563 © 2015 OnCourse LearningTRANSCRIPT
Appraising Special Ownerships and Interests
Basic Real Estate Appraisal: Principles & Procedures – 9th Edition
© 2015 OnCourse Learning
Chapter 17
STUDENT LEARNING OUTCOMES• List at least Four Less-Common types of
Homes; Define Each; and Explain What Special Problems Each Presents to the Appraiser• Define several Commonly-Marketed Types
of Partial Interests• Explain at least Three Ways in Which the
Appraisal Process is Different for Eminent Domain Appraisals 2
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17.1 CONDOMINIUMS AND OTHER SPECIALIZED HOUSING
Condominiums• Airspace + Interest in Common Areas• Restrictions• Homeowner’s Association (HOA)• Conditions, Covenants & Restrictions (CC&R’s)• Appraisal of Condos• Emphasize the Sales Comparison Approach• Consider Location, Amenities & HOA Dues 3
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PLANNED UNIT DEVELOPMENTS (PUD’s)• PUD’s originally based on a zoning concept
that allows flexibility in subdivision design• Ownership in the Fee Interest in the
individual lot, plus a shared interest in the common areas• Townhouse Styling is Common (but also
detached homes, zero-lot-line homes, etc.)• Appraisal Issues are similar to Condos, but
the Cost Approach may be applicable4
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COOPERATIVES
• Ownership• Shared Percentage in the Cooperative Association• Right to Occupy a Specific Unit• Right to Use of Common Areas• Approval by Other Owners Required?• Appraisal Considerations• Available Financing (may be limited)• What Transfers in a Sale? Equity Only?• Consider Market Acceptance
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VARIATIONS IN HOUSING DESIGN
Row Houses• Located on Individual Lots• Usually owned in Fee• Lack Side Yards (May share a party wall)• Problems include lack of privacy and
protection from fire (from adjoining unit)
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HOUSING DESIGN (Con’t)
Townhouses• Similar to Row House in Lack of Side Yards• Townhouse name applies to Building Style• Ownership to Fee Interest, plus Shared
Interest in any Common Areas (PUD or CID)• HOA usually exists (for common area and
exterior maintenance purposes)• Legally similar to a PUD
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HOUSING DESIGN (Con’t)
Zero-Lot-Line (Patio) Homes• Small Lots; Lacks Conventional Side Yards• Patio area often abuts wall of home next
door; faces a windowless wall for privacy• Orientation for specific homes may differ
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VARYING CONSTRUCTION TYPESManufactured Homes• HUD Classification of Mobile Homes built after 1976,
built to specific standards• It is a Housing Unit capable of being Moved• State Laws Differ as to Whether it is considered Real
or Personal Property• Structure and Foundation must meet Strict Standards
to Qualify for HUD / FHA Loans (Look for HUD seal on outside)• Appraisals based mainly on the Sales Comparison
Approach 9
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VARYING CONSTRUCTION TYPES (Con’t.)
Modular and Prefabricated Homes• Both are forms of Factory-Built Housing;
designed to reduce labor costs and time•Modular homes resemble mobile homes,
but without running gear & towing assembly• Prefabricated homes and components are
commonplace in conventional construction
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17.2 PARTIAL INTERESTSInterests Created by a Lease:• Leased Fee• Leasehold• Sub-Leasehold
Other Partial Ownership Interests• Life Estate• Undivided Interests in Commonly Held Property• Mortgaged Property• Time-Share• Easement
Detailed on slides that follow11
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LEASED PROPERTY INTERESTS
Leased Fee• The Owner’s Interest in the PropertyLeasehold• The Tenant’s Interest in the Property
In theory – the combined value of the two interests are generally considered to equate to the value of the whole (Fee Simple Interest) – but not always!
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WHO GETS WHAT?
Terms & Types of Leases• Time Period of Lease – Expiration? Options?• Rent Pattern – Flat, Step-Up, Percentage?Responsibility for Expenses (Who pays What?)• Gross Lease = Landlord pays all operating expenses• Net Lease = Tenant pays all operating expenses• Variations = Modified – Split or Shared
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VALUING LEASE INTERESTS
• If the Lease Terms (Rent) are Favorable to the Tenant – the Value of the Leasehold can be measured or estimated by:• Measure Favorable Rent Difference between
Market Rent and a lower Contract Rent• Apply an Annuity Capitalization Technique to
Discount the Favorable Rent over the Term of the Lease to indicate a Present Value Estimate
• .14
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VALUING LEASE INTERESTS (Con’t.)
Most Common Appraisal Problem is to estimate the Value of the Leased Fee…• The Value of the Property Subject to the Lease• Apply an Annuity or Yield Capitalization
Technique to Estimate the Present Value of Income Stream over the Term of the Lease; plus• Estimate the Present Value (PV) of the Reversion
at the end of the Lease Term• Leased Fee = PV of Income Stream plus PV of
the Reversion.15
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VALUING LEASE INTERESTS (Con’t.)
An Alternative to the foregoing Method of estimating the Value of the Leased Fee…• Apply Theory that the Combined Value of the
Leased Fee and Leasehold Interest = Fee Simple• Assuming this to be true…
Undivided Fee Simple - Leasehold Value Leased Fee• However, this may only be true in some cases
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VALUING OTHER PARTIAL INTERESTS
Mortgage Property• A Combination of the Lender’s Interest and the
Borrower’s Interest (Equity Interest)• A number of Capitalization Techniques can be
used to estimate one or both interestsTime-Share Ownership• Sales Comparison is complicated by issues
associated with time of year (seasonal), length of time, frequency (every year or every other year); and specific amenities of units, views, etc. 17
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17.3 EMINENT DOMAIN VALUATIONSEminent Domain = Government’s right to take private property, along with the payment of just compensationCondemnation = Government exercising their Power of Eminent Domain (police power)Just Compensation = The Fair Market Value of the Property Taken
Appraisals for Eminent Domain purposes are Complex, must Conform to Specific Law, and may involve Court Testimony
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EMINANT DOMAIN ISSUES & TERMS
•Condemnor – Agency Acquiring the Property•Condemnee – The Property Owner Affected•Personal Property – Typically No Compensation•Legal Setting – Testimony in front of Judge & Jury•Partial Taking – The part taken out of a larger parcel•Reminder Parcel – Part the Owner gets to keep• Larger Parcel – The property or “economic unit”
before the Condemnation (the Taking)19
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EXAMPLE OF A TAKING
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VALUES – DAMAGES & BENEFITSJust Compensation can involve four elements to consider:• The Value of the Larger Parcel (Before the Taking)• The Value of the Part Taken• Any Damage to the Remainder (After the Taking)• Referred to as Severance Damages
• Any Benefit to the Remainder (After the Taking)• Benefits are separated – General vs. Specific
Various Courts Differ as to how the foregoing Elements are Factored into the Valuation and Determination of Just Compensation 21
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CHAPTER SUMMARY
Appraisers are faced with a growing variety of appraisal assignments. Many of these assignments now involve unusual concepts in Ownership, Design, and Construction types. A common appraisal situation involves estimating the market value of the lessor’s and/or lessee’s interests in a given property.
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CHAPTER SUMMARY (Con’t.)
One of the most specialized areas of appraisal practice involves valuing property for eminent domain. Eminent domain often involves acquisition of only a portion of the property, called a Partial Taking. Here, the appraiser must consider the concepts of the Larger Parcel, the Remainder Parcel, Severance Damages, and General and Special Benefits, in order to reach a final value conclusion.
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IMPORTANT TERMS & CONCEPTSAirspace Condominium Mobile Home
Attached Housing Modular Homes
Condemnation Partial Interests
Conditions, Covenants & Restrictions (CC&R’s) Party Wall
Condominium Patio Home
Cooperative Prefabricated Components
Homeowner’s Association Prefabricated Homes
Just Compensation Row House
Leased Fee Time-Share Ownership
Leasehold Townhouse
Manufactured Home Zero-Lot-Line Home
Master Mortgage24
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