Divorces almost always involve one or two issues that hinder the parties in their attempt to negotiate a settlement to divorce issues without a court room trial. One issue that is often the most problematic is the value of the family home. For most couples, the family home is their most valuable asset, even after deducting the balance due on the mortgage.
Also, the spouses may have differing emotional attachments to the house, especially if one of them contributed a sizeable share of the purchase price or made most of the mortgage payments. In such cases, the parties are unlikely to resolve the differences themselves, and they may find the services of a professional appraiser to be very helpful in arriving at an acceptable determination of fair market value.
What does an appraiser do?
Most professional appraisers follow the Uniform Standards of Professional Appraisal Practice (USPAP), a publication of the Appraisal Institute, that sets standards of practice and ethics for the appraisal practice across the nation. Under USPAP, the appraiser’s task is to provide an unbiased opinion as to the fair market value of the subject property (usually referred to as “the subject”) assuming a motivated and informed seller and a motivated and informed buyer.
How does the appraiser perform this task?
The appraiser’s first job is to inspect the property. The inspection involves a visit to the subject, careful measurement of the dimensions of the land on which the subject stands, and careful measurements of every room. Most appraisers use various types of digital equipment to determine the size of the rooms. Digital cameras are frequently used to make a documentary record of the condition of the subject. The appraiser will look for needed repairs such as a new roof or heating and cooling system.
Determining fair market value
Once the inspection is complete the appraiser will select an approach to value. Appraisers generally choose from three widely accepted approaches to value: income approach, replacement cost, and market value. The income approach is rarely used for residential property unless the subject contains a dwelling unit. The replacement cost approach is almost never used because material and labor costs increase almost every year. The most common approach is the comparable sales approach.
An appraiser can collect data on recent sales of homes from public records. Using these records, the appraiser makes a list of recent sales and their prices as set forth in these records. After making allowances for age, lot size, physical condition, necessary repairs, and similar factors, the appraiser can set a value for the subject based on sales of properties that are comparable to the subject. The appraiser then uses his or her knowledge of the local real estate market to adjust the initial estimate of fair market value to fair market value as of the specified valuation date.
Using the appraiser’s opinion
The appraisal report’s estimate of fair market value may be acceptable to both parties, and they can use it to negotiate a complete property settlement. In the alternative, the parties can use the appraisal report to negotiate the sale of the property to a third party. If the parties do not accept the appraiser’s report, the report itself becomes an item of evidence to be introduced at trial and considered by the judge.