Estate Tax Planning Appraisals and Partial Interest Valuations

Are you looking for a commercial real estate appraisal firm with expertise in the appraisal of real estate for estate tax planning purposes?  You have come to the right place. The appraisal of real estate assets or various real property interests, such as the valuation of fractional interests in real property, require specialized training and experience above and beyond that which is generally obtained by most commercial real estate appraisers.  Combine this with the need for retrospective (historical), prospective (future), and possibly current dates of value and the possible need to work with estate tax planning attorneys, accountants, or the I.R.S., and it becomes clear you should seek-out only the best appraisers for this most important of appraisal purposes.

Depending on the needs of the client, the assignment may oftentimes require not only the appraisal of certain real estate, but also the value of the partial interests of the assets which are vested among various members of a trust, family trust, general partnership or other agreements.  Large tax savings may occur when these assets are valued correctly.

Generally, a partial interest in real estate is worth less than its pro-rata share on a percentage basis.  For example, a 25% interest in a given real estate asset is generally worth less than 25% of the 100% market value of the real estate asset's value.  This is due to the two widely accepted factors that create this discount: a lack of marketability and a lack of control.  These two doctrines have been widely used for many years and continue to be accepted by the I.R.S. and other tax authorities. 

In short, the lack of marketability has to do with the difficulties in selling a partial interest in real estate.  This is due to state law regulations that make the sale of a partial interest difficult by such things as the regulations governing blue sky laws and various state-by-state securities laws.  Also, a purchase in a partial interest in real estate may have numerous particular risks and challenges for the purchaser.  Not the least of which are the difficulties in getting financing for a partial interest acquisition, or the fact that getting into a partial interest ownership position is likely to involve co-investing and co-managing with new and largely-unknown fellow interest holders.

The lack of control has to do with the fact that a partial interest holder has limited control over the management, disposition, and use of the asset(s). Further, the value of a partial interest may be adversely affected by the specific buy/sell language of the document that the partial interest holder is subject to.  This often occurs when a general partner creates a limited partnership agreement and makes the ability to sell your interest intentionally-difficult.  That is because the general partner usually wants to carefully control who the limited partners are, and who they will be in the future, until the time the partnership winds-down.

The 3 most common factors involved in analyzing a partial interest in real property are 1.) case law precedents in which the IRS has allowed these discounts, 2.) actual comparable sales of partial interests, and 3.) the costs to partition or force a sale to occur.




Eric L. Risberg, MAI, ASA, the founder of our company, has provided this service to clients in this specialized industry for nearly 20 years. He also provided testimony on partial interest valuations including complex real property interests.  He has established relationships with numerous tax planning attorneys, financial planners, and certified public accountants in the industry should the project require an expanded team approach or additional due diligence. Depending on the purpose of the appraisal, a detailed look at the three traditional approaches to value may be warranted. These comprise the income capitalization approach, sales comparison approach, and the cost approach to value. As discussed, the ownership interest being appraised may also require that a partial interest valuation also be done.



If you are looking to have an appraisal done for any type of real estate associated with an estate tax planning event, please contact Eric L. Risberg, MAI, ASA, for a free initial consultation and a fee quote. You may either call us at 415-531-1414, or, fill out the convenient and confidential short form on our web site and you will receive a call from us in a few minutes.

Advanced Appraisal International, Inc. is a San Francisco Bay Area-based commercial real estate appraisal firm that has valued billions of dollars of real estate across the United States and has conducted services internationally.  With nearly 20 years of experience, and an MAI and ASA accredited professional staff, the firm is one of the most innovative and experienced in all aspects of the most complex real estate and corporate valuation assignments.  Copyright 1995-2010.  Last Updated November 11, 2010.