An appraisal of a rented single-family home where the lease runs another four years at below-market rent is valuing which interest, from the owner's side?
Correct Answer
C) The leased fee interest, subject to the lease terms
Why this is correct: When a property is leased, the owner holds a 'leased fee' interest—the right to receive the contract rent and to repossess the property at the lease's end. The appraisal must reflect the lease's impact on value. Why the other choices are wrong: 'The unencumbered fee simple estate, wholly unaffected by the lease' is wrong because a binding lease is an encumbrance that affects value. 'The leasehold interest of the tenant' is wrong; that is the tenant's interest, not the owner's. 'A life estate measured by the lease' is wrong; a life estate ends upon a person's death, not a lease term. Exam tip: Leased fee = owner's interest subject to a lease. Leasehold = tenant's interest.
Why This Is the Correct Answer
Why this is correct: When a property is leased, the owner holds a 'leased fee' interest—the right to receive the contract rent and to repossess the property at the lease's end. The appraisal must reflect the lease's impact on value. Why the other choices are wrong: 'The unencumbered fee simple estate, wholly unaffected by the lease' is wrong because a binding lease is an encumbrance that affects value. 'The leasehold interest of the tenant' is wrong; that is the tenant's interest, not the owner's. 'A life estate measured by the lease' is wrong; a life estate ends upon a person's death, not a lease term. Exam tip: Leased fee = owner's interest subject to a lease. Leasehold = tenant's interest.
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