312.03: Determining the Leasehold Value

To determine the leasehold value of the subject property, the appraiser must first convert the annual income from the community land trust's ground lease into a leased fee value by dividing the income by the market-derived capitalization rate.  The appraiser should then reduce the estimated fee simple value of the subject property by this leased fee value to arrive at his or her opinion of the leasehold value of the subject property.

Example: Assume that the annual ground rent from the community land trust's ground lease is $300, the market-derived capitalization rate is 5.75%, and the estimated fee simple value of the subject property is $100,000.

•    $300 annual rent/5.75% capitalization rate = $5,217.39 (rounded to $5,200)

•    $100,000 fee simple value -- $5,200 leased fee value = $94,800 (leasehold value)

Because our appraisal report forms do not include space to provide all of the details required for appraising a property subject to a leasehold held by a community land trust, the appraiser will need to attach an addendum to the appraisal report to provide any information that cannot otherwise be presented on the appraisal report form.  On the actual appraisal report form, the appraiser should indicate "leasehold" as the property rights appraised, provide the applicable ground rent paid to the community land trust, show the estimated fee simple value for the property in the "sales comparison analysis" grid, and report the "leasehold value" as the indicated value conclusion.  The appraiser should also check the box for "subject to the following repairs, alterations, or conditions" and add the following at the end of that statement: "See attached addendum for development of capitalization rate and an expanded discussion of the comparable sales used and considered."