Why do I need an appraisal when I’m getting a divorce?
Appraisals are not done just for refinances or when purchasing a home. Anytime the value of real estate is needed an
appraisal can be used to determine its market value. One of these instances can be during a dissolution of marriage, or divorce. The attorneys involved in the case typically agree on a neutral appraiser, however there are instances when two appraisers may be chosen. There are a couple of different situations during a divorce that the market value of a home is needed so lets take a look at how an appraisal can be helpful.
Different scenarios still require an appraisal
There are a couple of different scenarios that can occur during a divorce. The first can involve the decision to sell the house and split the proceeds from the sale, less the costs associated with the sale. The second outcome would involve one of the parties that want to keep the house, in which case they would pay the other party for their ownership of the property. Even though each decision has a different outcome there is still a need for an appraisal and the fair market value of the home is determined from the appraisal so that either way each party receives an equitable distribution of the assets.
Two values may be needed
In some situations there may only be one value needed, which is as of the current date or date of the filing of the divorce, and in other instances two values may be needed. Two values may be needed if the home was owned by one of the parties before the marriage occurred, and if there has been a significant change in the value of the property since the marriage. This increase in value may have been the result of the couple using joint funds to pay for upgrades or additions. In this case two values must be determined, the first would be at the time of marriage before the improvements and the other at the time of the divorce, after the improvements.
What the appraiser will look for
The appraiser will visit the property and take detailed notes regarding the condition and quality of construction. Pictures will be taken and the home will be measured in order to determine the square footage or gross living area. If there are any defects in the home this will be taken into consideration and could have an impact on the final opinion of value. The interior of the home will be observed to note materials of construction and notable features that have an impact on value. These notes are then compiled and a detailed report is produced that describes the property and which also includes a minimum of three closed sales that compare favorably to the subject property. If there are any value related differences between the subject and comps (and there usually are) adjustments are made in either a positive or negative direction. A final value estimate is then reconciled from the adjusted value range provided by the sales. This value is what will be used by the judge to aid in making a decision in the divorce settlement. The main goal of course is to determine an accurate market value for the property so that an equitable division can be made between both parties.
Can I help you?
If you have any questions relating to appraisals used for divorce proceedings feel free to contact me by phone or email and I will do may best to answer your questions regarding this sensitive subject.
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Question: How does an appraisal itself allow the parties in a divorce to know how much equity is in a house? For example, when I refinanced my home two years ago, the appraisal indicated that the home was worth $325K. However, a relative sold a very comparable home a quarter mile away the same month as my appraisal. His home had listed for $324K. It eventually sold for $295K. Therefore, the true value of the home was what the market bore, not what the appraiser said it was worth. In the event of a home sale due to divorce, the difference between the appraisal and the actual sale price could be considerable and if one party to the divorce wants to retain the home by buying half the equity from the spouse, how is equity actually determined? On the market, the equity would be determined by the sale price net expenses such as real estate agent’s fees. Yet, in a divorce, the spouse who is selling their “share” of the equity is going to want to stick to the price based upon the appraisal. How is this reconciled in a divorce?
Thanks for the questions John, I’ll try to do my best to answer them for you. In regards to the equity in a home, that is calculated by determining what the market value of the home is less the amount owed on it. So if a home appraised for $100,000, and $75,000 was owed on it, then the equity would be $25,000. If one party to the divorce wanted to buy the other out they would pay them for their part of the equity, which would be $12,500 in this case. If both parties to the divorce want out of the house then the home would be listed for sale. After it sold, any outstanding balances owed on it would then be paid off through part of the proceeds and the balance would then be split. An appraiser tries to develop a value for the home based on what other similar homes have sold for, however when it goes on the market the value it sells for could be slightly different. Hope this was helpful.
Nice job, Tom. Divorce is something many people are going through right now. Sometimes it’s a domestic partnership or civil union that is dissolving too. I probably did three times as many divorce appraisals last year in my area in Sacramento, so it seems the improving economy has led to more divorces. It’s just so hard for everyone involved, and the tension between both parties is often very evident too when both parties are at the home. Sometimes it’s peaceful though.
Very true Ryan. I heard that during the hard economic times couples could not afford to get a divorce, but with jobs and money improving (in some areas) they are more willing to go through with the divorce. This is not a pleasant situation, however the appraiser can provide a way to settle things amicably.
Another great post Tom. Thank you for explaining why appraisals are so important in a divorce. In a divorce, one party usually thinks the house is worth much more than the other party and that can be the foundation for costly litigation. It is better to get an unbiased appraisal or an appraiser for each side to come in and settle the issue before it is too late and one party gets more than their rightful share.
Thanks for your input Gary, you always add great perspective. As you mentioned, the voice of an unbiased person is what the appraiser offers. This is so important when the two parties typically have their own interest at heart.