Less than the Sum of the Parts

by Stan Choate, Appraisal Tech / Valuation Associate

A real estate appraiser is typically expected to appraise one thing: real estate. Houses, lots, farms, and buildings are commonly considered the only proper objects of their work. The idea that anything else would be relevant to an appraisal can be surprising to their clients and might even be viewed as suspicious. However, appraising real estate is not always as simple as looking at the dirt and bricks. Other factors do occasionally play a decisive role in the appraisal.

One such example is the idea of “interest.” This term is from the legal jargon which has developed around the ownership of real estate. The owner of a property, if he is the sole owner and has sole power over it, owns “fee simple interest” in a property, usually just called “fee simple.” Husbands and wife typically have that interest as “tenants in common.” Those are probably the most common forms of ownership and interest. However, many properties are not owned by one person, nor even by a husband and wife: they have co-owners of some sort. Various concepts have therefore developed to describe the many forms of co-ownership and their legal implications.

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“Partial interest” is one of those concepts. In cases when a property has multiple owners, they are often described as each having a partial interest in the property. This may be expressed as a percentage or as a fraction. A farm may have three owners, each having a one-third interest in the property. Another property might have three owners as well, but one of them owns 50% interest while the other two own 25% each. The matter becomes even more complex when one of the owners (but not all of them) wishes to sell his interest to someone else. The property then remains in the ownership of the other owners, but a new owner comes in with the partial interest he just purchased. Something similar happens when one of the owners dies and leaves his own interest to an heir.

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Appraisers are sometimes involved in these transfers, and in such cases they may need to appraise the partial interest being transferred. To many, this does not seem that difficult. They think, “Just take the market value of the property, divide it by the amount of interest, and you’re done.” This method is simple and intuitive, but not at all accurate to how the market treats partial interest. A normal market buyer actually does not want to pay as much for a partial interest, because such a property comes with strings attached—strings held by other owners. And so, the actual value of a partial interest is usually less than the dividend of the property and amount of interest. The appraiser must determine exactly how much less, or else he cannot give a reliable market value.

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Dealing with partial interests can be a tricky matter. We suggest that all of our clients consult a title company or attorney when questions arise on such issues. But for the actual appraisal, Spurgeon Appraisals is familiar enough with partial interests that we do not shy away from appraising them. We have always tried to develop the expertise necessary to meet the needs of our clients, whatever they may be.


Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.

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