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Appraising Life Estates

by Administrator on Jan 29, 2015 Special-Purpose Appraisal 4202 Views

Appraisers only rarely run into requests to appraise life estates, they are not typical and you can’t just put a quick blurb into your report and solve their valuation.  Thus life estate interest analyses usually require a narrative report or at least an attached narrative report addenda that details the life estate analysis.

If you have read any of the text books or other articles about appraising a life estate in a real property it looks like a relatively simple step-by-step process that almost anyone can follow and complete.  The problem is that appraising a life estate can become a lot more complicated once you discover more about it.  

A life estate interest can be established in any type of property.  Often life estates are conveyed in single-family homes to take care of someone that the original fee simple owner doesn’t want to see homeless or is concerned that without the protection of the life estate they may have to struggle with housing to survive.

Some life estates are conveyed when only a portion of a real property is owned.  It may have made sense to convey a life estate when a Will was written many years ago but time often sees changes in ownership interests.  So a simple life estate may become a relatively complex partial ownership interest analysis with multiple fee owners, multiple life estate owners and multiple remainder-men.

Some life estate documents are detailed and spell out who is responsible for taxes, insurance and maintenance while others are sparse, creating the life estate in only a few words, and do not provide detail.  The more assumptions that an appraiser has to make about a life estate the more likely it will be that his or her analysis will be questioned by the IRS or the courts.  Thus it is important to read the conveyance documents closely and if you have access to the estate attorneys talk to them about the details.  You can’t appraise an interest in real property if you don’t understand it.

Life estate appraisals rely on a market value opinion of the fee estate interest in the real property, an opinion of the market rental rate and the selection of a reasonable discount rate for a discounted cash flow analysis.  So having an appraisal report that concludes a current market value and a market rental rate is an important starting point.

If the assignment begins as of a retrospective date you must deal with all of the analyses beginning in the past and moving forward.  If there are requirements to provide retrospective, current and prospective values there may be a great deal of appraisal work required to complete the assignment.     

Using an appropriate mortality table is important, and the table that you use as a basis for your appraisal report should be made part of it.  Add the table to your Addenda.  Life estate appraisal sources also suggest including the Will or document that established the life estate also be included in the report.  I would go a step further and suggest appraisers include their appreciation tables, expense estimates and discounted cash flow analysis tables in their reports.  Why make readers guess about how you calculated the estate interest values?

There are some good books and articles published about the appraisal of life estates, if you are going to add this expertise to your skill set you should collect and read them.  Some good ones are available free online while others are text books and articles that you must pay for.

If you don't want to find yourself wrestling with monster analytic problems that you discover well after you start the assignment I suggest you take the time before you accept the assignment to review the life estate documents.  At least then you will know what you are getting yourself into before you begin.

2019 Update:  I had someone call me and ask why there was a problem expressed by a bank regarding lending money on a life estate interest even though both of the life estate interest holder and the remainder-man agreed to sign the mortgage.

If you think about it, foreclosing on a real property with a Life Estate interest has to be legally problematic. The party benefiting from the Life Estate occupancy fails to make a mortgage payment then not only the occupant but the remainder-man lose their interest in a property lost? That doesn’t sound right.

How can you legally borrow against an interest in property that you haven’t even acquired yet? It might be possible, but it sounds like a problem to me.

For more appraisal information contact Glenn Rigdon, MA, MRICS, ASA a Las Vegas / Henderson Nevada appraiser via email at or via his business website Horizon Village Appraisal (, or you can also click on “Contact Us” on the home page of this website.

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