Negotiating a divorce property settlement can be complicated, and it can be difficult. But it doesn’t necessarily have to be. You want your settlement to be determined based on true, accurate and complete information, and as expected, the best possible outcome depends on having the most experienced appraiser that focuses on high quality to best represent your interest. Because real estate is often the largest investment in someone’s life, it is vitally important to work with an experienced and qualified expert divorce appraiser throughout this process. Here is a recent article on what can be huge differences between appraisal quality, which is even more important in a divorce appraisal.
Going through a divorce is an emotionally challenging time for everyone involved. When it comes to the marital home, the two most common choices are selling and dividing the proceeds, or one party can buy out the other.
Differences in a Divorce Appraisal
A divorce appraisal is not the same as an appraisal used for lending purposes. Some of the key differences are:
- Since a divorce appraisal is not related to financing or lending, it does not have to comply with Fannie Mae (purchase or refinance lending purposes) guidelines (or UAD/lending guidelines).
- A divorce appraisal is completed on non-Fannie Mae (lending) forms such as general-purpose appraisal forms or it is written in a narrative format.
- A divorce appraisal is possible to have a retrospective date of value, meaning the value of the property will be based upon a date in the past (perhaps the filing date, the date of marriage, the date of separation or the date of purchase) rather than the current date.
- In some cases, a divorce appraisal will provide both a retrospective
value as well as a current market valuation.
- In completing a divorce appraisal, the appraiser is bound by the same strict confidentiality and USPAP (Uniform Standards of Professional Appraisal Practice) requirements that they would be when completing a lending appraisal. This means that an appraiser cannot share information about the appraisal with any party other than his client and/or his client’s attorney unless legally required to do so.
- It is not uncommon, in a divorce appraisal, to have the appraiser be called upon to testify in court as an expert witness. As an expert witness, the appraiser may not be an advocate for either side of the proceedings, regardless of who may have hired them. The appraiser may only testify about the appraisal and the data/analysis contained therein.
Due to their potentially litigious context, a divorce appraisal may cost more than a typical appraisal used for a real estate purchase or refinance. Because of the scrutiny of multiple parties, much more data and analysis are contained in a divorce appraisal, which is also done to a much higher level of expertise.
Your attorney (we have recommendations if you need one) has probably already told you that you will need a professional real estate appraisal of your home. Home valuation isn’t something that a mediator or a judge can undertake. In fact, a divorce appraisal is considered by many appraisers to demand the most experience and expertise of all the different types of appraisals.
What You Need Most in a Divorce Appraisal
You will need an experienced and reputable expert appraiser that will give an unbiased, arms-length, and stand-alone valuation of your property. Often times your attorney will leave the choice of appraiser up to the two of you. To save time and money, a possible best scenario might be to agree to hire a single appraiser.
Negotiating a divorce property settlement depends on a fair, impartial and accurate assessment of the value of the property to be divided.
Here is a summary of how the appraisal process typically may work.
The appraisal process begins when the appraiser performs an appraisal property inspection. This typically takes from one to two hours. The appraiser will take measurements, look into crawl spaces, check for updates to plumbing, electricity, windows, and mechanical systems and do a visual inspection of every major feature of both the exterior and the interior of the home. This fact-gathering part of the appraisal inspection involves looking at significant features and conditions that may require a higher or lower value than is the norm for the market area. Sometimes, features that a homeowner greatly values may not contribute to the home’s value in proportion to the price paid for them. Common examples of this may include highly finished basement amenities, custom decks, or extra garages.
After the appraisal inspection has been completed, the appraiser compares your property with three to six (or more) similar comparable properties (comps) in the surrounding market area that have recently sold. The sales prices of the sold homes are the basis that is used to determine the final valuation. A sales comparison grid is utilized to separate and analyze the major features of each home and to create an itemized comparison between your home and each of the comparable sale homes. This detailed analysis will likely include comparisons of the number of bedrooms and bathrooms, square footage, view and/or locational amenities, general condition, and quality determinations related to the level of upgrades and/or remodeling, in order to make dollar-based adjustments in each category between the subject home (your property) and the comparable homes.
After the adjustments have been determined, the final valuations for each comparable property should result in adjusted values that are very similar to each other. Supporting commentary and detailed information should be included which explains the methods and techniques which were used in each part of the comparison analysis. An appraisal should be able to be read and understood by the intended user(s) without incorporating industry terminology or concepts that may be difficult to understand or confusing to the typical reader. An overly complicated appraisal is as bad as a simplified appraisal and is a disservice to everyone involved.
A quality appraisal will summarize and reconcile all of the information and analysis within the appraisal report in order to arrive at a credible and well supported final valuation. This requires using the professional expertise and judgment to give the most consideration (weight) to the comparable homes that have the most similar features and amenities, and are subject to the same market influences, which the subject is. This final conclusion is a market-based value for your home that reflects the most likely a cash buyer would typically pay for your home in open market conditions.
Appraising is a highly regulated profession. Appraisers are required to adhere to the utmost practice of fairness and objectivity through USPAP (Uniform Standards of Professional Appraisal Practice).
Key Points of a Divorce Appraisal
Here are a few factors to be aware of when you’re dealing with real estate appraisals.
Residential real estate appraisals are primarily based on recent comparable sales. Although several appraisal techniques are available, the market comparison approach is considered to be the one most favored as it utilizes “proof” which is extracted directly from the market activity of similar homes. To determine fair market value, an appraiser will look at the property in question, making special note of any unique features. Then, the most similar comparable properties that have recently sold in the same market area will be selected and analyzed in great detail. The larger amount of recent sales that there are to compare to, the more confident you can be that these sale prices reflect actual market conditions.
Many times, there may be one or two homes that have a particularly low or high price, which is considered to be outliers that are not representative of a typical sale for the market area. This is why appraisals use multiple properties to analyze – one sale does not define a market. The comparable sales, in conjunction with any special features of the subject property, are used to determine a valuation dollar amount that represents the appraiser’s best assessment of fair market value for your property.
Make sure you use an appraiser who’s knowledgeable in the local market. If your financial portfolio includes real estate in different markets, it is very important to engage appraisers who are familiar with those markets. There are vast differences between appraisers. For detailed examples of this, and why it’s important to you, please see my website summary page here; Appraisal Quality. Make sure you hire an appraiser who has expert knowledge of the market in which you’ll be selling.
If you may need to determine what a property was worth at a certain time in the past (a retrospective appraisal), different factors come into play. For example, you may want to show that the property has gained value over your marriage, perhaps due to improvements that were made to it over the years. For this, you will need good estimates of its fair market value then and now. However, on the contrary, a retrospective appraisal could also be valuable if you sell a property at a loss and need to determine how much of that loss was incurred during the marriage.
Of course, fair market value is only part of the story. Once you have determined the fair market value, you’ll need to subtract the existing mortgages to find out what your current equity is in the property.
Who Pays For An Appraisal?
The fee for the appraisal is paid for by the divorcing parties, which is sometimes evenly divided unless each party orders a separate appraisal. Appraisers collect their fees in different ways. By popular demand, we have implemented accepting major credit cards as a payment option. This is a 100% secure transaction in which we never have access to your credit card information. Contact us for details.
In a contested divorce, spouses sometimes want their own separate appraisals. If two appraisers reach different values, a judge might compromise between them and divide the value of the home between the value range if they are reasonably close in value. In this case, spouses usually had paid for their own appraisals. In more amicable divorces, you might decide to use one appraiser and divide the cost between you.
A good appraiser will also have a wealth of information available to you in order to better guide you through the appraisal process. Although dealing with the appraisal process can appear to be a monumental task, it does not need to be overwhelming or difficult. A high-quality expert appraiser, like a good attorney, should handle all of the details efficiently for you, behind the scenes, and provide you with a credible and thorough appraisal which leaves no room for conjecture or doubt.
We are always available for a free consultation to discuss appraisal topics for the greater Denver Colorado market areas. We specialize in the Aurora Colorado market, however have worked in every market area as a full-time independent appraiser since 2001. We can be easily contacted using the contact form on this page.