FAMILY LAW ARTICLES
When you file for divorce, one of the necessities is dividing the community property, including the marital home. In some cases, one spouse might stay in the house and buy the other out. In other cases, especially if neither spouse can afford the home alone, they might elect to sell the home and split the profits. Either way, you must determine the fair market value of the marital home – or former family residence.
Ways to Determine Fair Market Value
The court will accept one of three ways to determine fair market value. The parties can agree on a price, though that is usually risky. Unless you are a real estate professional, you could easily overvalue or undervalue the home. If you plan on selling the house, this option is not acceptable – you are allowed permission if the parties plan on one spouse staying in the home.
The second method is to allow the bank to determine the value. If you plan to let one spouse stay in the home, they will need to take out a mortgage in their own name. The bank can determine a value and make the loan. This is also risky to the person giving up their interest in the marital home because the bank is not a real estate professional. The loan officer could also be a friend of the spouse buying the house, and there is nothing to keep the loan officer from undervaluing the home.
Banks always tend to undervalue the home because they will only lend what they believe the applicant can afford. Should something happen where the spouse cannot pay, the less money they lend, the less the bank will be out. That is a benefit if you are the spouse staying in the house – but not if you are giving up your interest in the home.
The third option is to hire a real estate appraiser. Be sure to choose one who has testified in court before and is willing to testify in court again – should your case go that far. Even if you are amicable and settling, you should use an appraiser that has previously testified in court.
The Best Time for an Appraisal
The sooner you can get the appraisal, the better. You can effectively speed up the divorce process if you have the value of your assets soon after you file. Because divorces sometimes take a long time and fair market value changes, you can obtain another appraisal or have the appraiser agree to update the assessment. Since they have already seen the home, the appraiser would most likely need to redo the comps instead of going through the whole process.
The cost of the appraisal – generally between $450 and $500 in 2021 – is money well spent because you know you are not getting shafted. In most cases, the appraiser will want his fee upfront – since the appraisal benefits both parties, they can split the fee. The other option is to have one party pay the total cost and deduct half of the price from the other party’s equity share.
The appraisal saves you money because you don’t have both attorneys going back and forth over the home’s value for you.