Divorces have many painful issues, ranging from child custody to child support. One of the most difficult issues is the valuation and disposal of marital assets, and this issue can become especially difficult if it involves the marital home. If a couple has lived in a house for many years – say, more than 10 – each of them will have strongly held opinions about the value of the house. A professional appraiser can resolve such difficulties by providing an unbiased and neutral opinion of the value of the property. Understanding the methodology of a modern professional appraisal may help one or both parties accept an appraisal as a useful alternative to endless arguing and an expensive court trial to determine the value of the home.
Hiring an appraiser
Most experienced divorce attorneys are familiar with local appraisers and can recommend a person who is reliable and whose fees fit within the budget of the couple. Before signing an appraisal contract, both parties should interview the appraiser and measure their personal comfort with the appraiser and his or her approach to the task of valuation. Most reputable appraiser belong to the United States Appraisal Institute, and they also abide by the United States Professional Appraisal Practices (USPAP), a set of rules that determines professional and ethical practices in the appraisal of real estate.
Approaches to value
Qualified appraisers will select one of three methods to determine value. These methods include replacement cost, market value, and expected income approach. Replacement cost is rarely used because the cost of labor and materials has increased rapidly over the last 10 or 20 years. Most homes are not used for commercial purposes, and the income approach to value is almost never used unless the property contains a number of residential units.
The most commonly used approach to value for residential real estate is the market approach.
How the market approach to value work?
Before beginning the appraisal process, the appraiser will visit the site and make a thorough inspection of all interior and exterior spaces. The appraiser will carefully note various features of the property, such as number and size of bedrooms, size and features of the kitchen, The appraiser will also note any structural or appearance issues that must be cured before the property can be marketed.
After making the internal and external inspections, the appraiser will review records of local sales properties that are comparable in size and condition to the property being appraised. The appraiser will identify those properties that are most similar to the subject property and after making allowances for quality of construction, appearance, and various amenities, determine the value of the subject property. This value will then be reported to the persons who hired the appraiser – usually the divorcing spouses.
Using the appraisal report
The parties can use the appraisal report to help them determine a fair price for the subject or use the appraiser’s opinion to assist them in negotiating a price with a third party. If the divorcing parties are unable reach an agreement on a sale to a third party, the report can be used as evidence at trial if the parties cannot agree between themselves on the value of the property.