How to value fractional interests in real estate
Abstract: Undivided fractional interests in real estate, such as tenancy-in-common (TIC) interests, can be a challenge to value. Generally, the process requires two valuations: an appraisal of the underlying real estate and then a valuation — applying traditional business valuation principles — of the fractional interest. This article first notes the difference between fractional and minority interests. It then lists some general factors in determining an appropriate discount for the fractional interest and explains how the discounted cash flow method can be used to value it. A sidebar explains how the availability of valuation discounts for TIC and other fractional interests in real estate leads to some valuable estate planning opportunities for married couples.