Partial interest valuation & Fractional Interest
Often, the ownership of residential or commercial real estate isn’t cut and dried. One might own a property outright, by himself, unencumbered by liens or mortgages, leases or easements. But he/she might also own it as a “joint tenant” with his wife, Mrs. Jones. The Jones’ may lease some of the property to another party. They may have signed an agreement to give up any subsurface or mineral rights they have in the property in exchange for cash. There may be a restriction in the deed stipulating that the residential or commercial real estate must never contain a structure more than two stories in height. There are many ways that the full bundle of rights in real estate might be distributed.
Anything less than full ownership on a residential or commercial property — called “fee simple” in deeds and conveyances – by a single person or entity is a “partial interest.” We appraise partial interests. It’s a specialty and discipline that takes unique expertise and training, to deliver an opinion of value on a partial interest.
When might you need a partial interest valuation?
In divorce, dissolution of a partnership, IRS 706 estate tax filling, estate planning, partition action, corporate dissolutions, inherited estate, trust, and wills & probate issues you might need to fairly value one party’s interest in real property. Sometimes, particularly in partnership situations, it’s not simply a matter of appraising the entire property and dividing by the number of owners. A fractional share of property may sell at a discount to reflect lack of control, costs of and barriers to sale including blockage issues. You need the judgment of a professional appraiser.
You might need the value of rents or leases on a property, but not the underlying value of the real estate. This is more complicated than it sounds, and isn’t just a matter of how much a tenant is currently paying. A professional, well trained appraiser will examine rents in the market to determine fair market value of rents or leases. If a tenant is paying below market value, they might have a leasehold interest. If they’re paying over market value, discounting the excess rent over the lease term at the appropriate discount rate may depend upon the credit worthiness of the tenant and the stability of the income stream. There are many things requiring the professional judgment of an expert appraiser that factor into the calculation.
You might need to know the value of a proposed or existing easement. Basically, an easement is a right to use property, without owning it. How much is it worth to your neighbor to build a driveway across part of your property for entry to and exit from his property, rather than an alternate route that may be more costly to build? Moreover, an encroachment of a fence, scenic view easement, structure, or road requires in depth research and analysis.
Because there are so many ways the bundle of rights to a property can be divided up, you may not even know, when ordering a residential or commercial appraisal, that you might need a partial or fractional interest valuation. Therefore, you should be sure the company you hire is qualified to perform a fractional interest valuation. At AppraiserValues.com, we can provide appraisers who are experience in this type of an appraisal. Browse our website to learn more about our residential and commercial real estate appraisal qualifications, expertise and services offered in Orange County, San Diego, Los Angeles, San Bernardino, and Ventura Counties.