An undivided interest in real estate is an interest in real estate held by two or more people, each of whom has an undivided interest. This interest is also referred to as a common-tenancy interest, tenants in common and fractional interest.
The fair market value (FMV) of an undivided interest is less than its pro-rata share of the value of the property because the owner of the undivided interest does not have control over the management and disposition of the property. This makes the interest less desirable to a potential buyer and consequently less marketable for the owner. This is an unusual valuation problem, and the concluded discount can be contentions. Working with specifically qualified appraisers is important for estate planning, partner buyouts, and other situations where such fractional interests are commonly found. ABA provides its members with unique training and support for this type of valuation which is not normally found in business valuation organizations.
The entire property is first valued by a real estate appraiser. ABA member appraisers are specifically qualified to integrate the real estate facts with the discount analysis to produce supportable opinions of value. Their reports integrate the real estate appraisal’s facts and provide an unusually high level of assurance to the client.