Partial Interest Appraisal


Often, the ownership of residential or commercial real estate isn't cut and dried. Jon Jones might own a property outright, by himself, unencumbered by liens or mortgages, leases or easements. But he 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 deed restriction on the property stipulating that the real estate must never be used as a gas station or never contain a structure more than two stories in height. There are thousands of ways that the 100% "bundle" of rights in real estate might be distributed.

Anything less than full ownership in real estate, called "fee simple" in deeds and conveyances, by a single person or entity is a "partial interest." At Schnepf Ellsworth Appraisal Group LLC 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, dissolutionment of a partnership, IRS 706 estate tax filling, estate planning, partion 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 will 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.


For more information, contact us.