Legal Considerations in Appraisal
What the exam tests
Legal questions test whether you can separate the rights being appraised from the physical property, and whether you recognize an encumbrance that changes the assignment.
Core concepts
- Bundle of rights: use, sell, lease, mortgage, give away, exclude. Real property is the rights; real estate is the physical land and improvements.
- Estates: fee simple absolute (most complete), leased fee, leasehold, life estate.
- Easements: appurtenant benefits a neighboring parcel and runs with the land; in gross is personal or commercial, such as a utility easement. An easement is a right, not possession.
- Encroachments: an improvement physically intruding on another's land is a title matter to resolve, not something to appraise around.
- Deed restrictions and covenants run with the land; zoning is public regulation that may create legally nonconforming uses.
- Liens (mortgage, tax, mechanics) affect title, not necessarily the market value of the fee simple; state what is included.
- Condominium: fee simple in the unit plus an undivided interest in common elements. Cooperative: corporate shares plus a proprietary lease - not a real property interest in most states.
Worked example
A recorded 40-foot utility easement crosses the rear 20 feet of a residential lot. Identify the interest first: the easement already burdens the property, so you appraise the fee simple subject to it. Measure the effect by comparing to lots without easements or by the market's reaction to the lost building envelope. Do not simply deduct the easement area at full lot value per square foot.
Traps
Appraising fee simple when the assignment calls for leased fee. Treating an assessment or title report as a value conclusion. Assuming a nonconforming use is illegal, or that an easement always equals its area times unit value.