APPRAISING SPECIAL OWNERSHIPS AND INTERESTS

Chapter 17

Airspace condominium

Attached housing

Compensable damage

Condemnation

Condemnee

Condemnor

Conditions, Covenants, and

Restrictions (CC&Rs)

Condominium

Cooperative

Fixtures

Homeowners’ association

Just compensation

Larger parcel

Leased fee

Leasehold

Manufactured home

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CHAPTER TERMS AND CONCEPTS

Master mortgage

Mobile home

Modular homes

Partial interests

Partial taking

Party wall

Patio home

Prefabricated homes

Remainder parcel

Row house

Severance damage

Take parcel

Time-share ownership

Zero-lot-line home

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CHAPTER TERMS AND CONCEPTS

LEARNING OUTCOMES

1. List at least four less-common types of homes, define each, and explain what special problems each presents to the appraiser.

2. Define several commonly marketed types of partial interests.

3. Explain three ways in which the appraisal process is different for eminent domain appraisals.

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TYPES OF OWNERSHIP

CondominiumsOwnership:Airspace + Interest in common areaRestrictions: oCC & Rs

Appraisals:oEmphasize sales comparison approachoCompare amenities with competing projects

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TYPES OF OWNERSHIP

Planned Unit Developments (PUDs) Zoning concept allows subdivision design

flexibility Ownership is the fee interest + shared interest in

the common areas Townhouse styling is common

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TYPES OF OWNERSHIP

CooperativesOwnershipoPercentage of cooperative associationoRight to occupy specific unitoRight to use of common areasoAmenities similar to condominiums

AppraisalsoConsider available financingoConsider what transfers in a saleoConsider Market acceptance

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OTHER HOUSING DESIGN

Row Houses Located on individual lots Lack side yards Usually owned in fee Problems involve lack of privacy, fire

protection

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OTHER HOUSING DESIGN

Townhouses Similar to the row house in lack of side

yards Townhouse name applies to the building

style Ownership is the fee interest plus shared

interest in any common areas Homeowner’s associations are usually

involved Legally similar to the planned unit

development

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OTHER HOUSING DESIGN

Zero Lot Line (Patio) Homes Small lots; house lacks conventional side

yards Patio often abuts wall of the house next

door Lack of privacy may pose problems

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VARYING THE TYPE OF CONSTRUCTION

Manufactured Homes HUD classification of mobile homes built

after 1976

Built to meet Federal Manufactured Construction and Safety Standards

Structure and property must meet strict standards to qualify for FHA loans

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VARYING THE TYPE OF CONSTRUCTION

Modular and Prefabricated Homes Both are forms of factory built housing

Modular homes resemble mobile homes but without running gear

Prefabricated components are now commonplace in conventional construction

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PARTIAL INTERESTS

Interests Created by Leases Leased Fee

Leasehold

Sub-leasehold

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PARTIAL INTERESTS

Other Partial Interests Life Estates

Undivided Interests

Mortgaged Properties

Timeshares

Easements

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PARTIAL INTERESTS

Defining Leased Interests Leased Fee = The owner’s interest in the

property

Leasehold = The tenant’s interest in the property

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TYPES OF LEASES

Types of Leases Flat/Straight lease Step-Up lease Percentage leaseResponsibility for Expenses Gross Lease = The landlord pays all

expenses Net Lease = the tenant pays all expenses Variations = Responsibility is often divided

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VALUING THE LEASEHOLD

Valuing the LeaseholdEstimate the Tenant’s favorable rentoDefined as market rent less contract rentoConsider the terms of the lease

Apply annuity or yield CapitalizationoUse a financial calculatoroCapitalize for the term of the leaseoArrive at a market value opinion

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VALUING THE LEASED FEE

Valuing the Leased Fee (Method #1)

Estimate the annual net operating income

Apply annuity or yield capitalization

Use a financial calculator

Capitalize for the term of the lease

Add the discounted reversion (Value at the end of the lease ) using a calculator

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VALUING THE LEASED FEE

Valuing the Leased Fee (Method #2)

Appraise the Undivided Fee conventionally

Subtract the value of the leasehold estate

The result is the value of the leased feeoNot always a valid method

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EMINENT DOMAIN TERMINOLOGY

Eminent Domain The government’s right to take private property with “just

compensation”

Condemnation The court action under eminent domain

Condemnor The agency acquiring the property

Condemnee The property owner

Partial Taking The part taken out of a larger parcel

Remainder Parcel The part the owner will get to keep

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EMINENT DOMAIN TERMINOLOGY

The Larger Parcel The economic unit from which the “Take” parcel is a part

Severance Damage The loss in value to the remainder parcel due to the take

Compensable Damage Legally compensable value loss

Benefits General – those shared by the community at large Special - those affecting only the remainder parcel

Just Compensation Generally 1) the market value of the “Take” parcel plus, 2) the

market value damage to the remainder parcel

SUMMARY

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Appraisers are faced with a growing variety of appraisal assignments. Many of these assignments now involve unusual concepts in ownership, design, and construction. A common appraisal situation involves estimating the market value of the lessor’s and/or lessee’s interests in a given property. 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 take. 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.