Home Valuation during a Divorce: Blaine, Minnesota

When dividing property in a divorce, one of the most challenging facts to determine is the home valuation.  

In a free market economy, the value of the home is determined by the buyer and seller agreeing upon a number.  That said, what is the value of a home that is not being sold?   Often one party in the divorce would like to stay in the home, and the other would like their “fair share of the equity” as they leave and establish residence elsewhere.   But the big question is:  how are we going to determine the value?   Here are some observations made over the years while mediating divorces.

There are three common ways to gather information about the value of a home:

1. County (or City) Property Tax Value

Although this assessment is intended to represent an accurate and equitable valuing and classifying of real estate property, the response of many homeowners when seeing the “tax value” of their home is:  “I am happy that I am only taxed on that amount, but I surely would not want to sell it for that amount.”

There could be a number of reasons for this valuation to be inaccurate, with the first two being:

a. The property tax value often lags 2-3 years behind market value.   In boom times, people think that they are getting a bargain on their taxes because they believe the value being added by market inflation is far greater than the taxed value.  This may simply be the one lagging way behind the other.   Similarly, during the recent market bust – the value of properties dropped faster than the taxed value. Either way, the tax value is simply not capable of responding to fluctuations in the market in real time and often lags far behind.

b. Without visually assessing the property, there is no way for the tax value to represent the true current condition (either positive or negative) of the property.  Your home may be recently renovated while your neighbor’s similar home has become rundown over the years.  Both homes may receive the same tax value, while a buyer may pay considerably more for one over the other.

2. Free Property Value Assessment

Many couples turn to their friendly neighborhood realtor and ask for a market assessment of their property.  They often receive two numbers… “We could list the property for X, but you may have to settle for Y”.  This leaves the couple wondering, “Which is the real value, or is it something in between?”  Also, these numbers will only be as accurate as the skill and experience of the realtor with your particular type of property and community.  A few realtors will inflate the figures thinking that if you perceive them  as the one who can get the most money for the property, you will list the home with them.

3.  Purchase a Property Appraisal

Most of us assume that this is the most accurate method of determining market value.  But there is no “perfect” appraisal.   Many appraisals are simply an assessment of whether or not the property should qualify for a certain mortgage dollar figure.  In these cases, the appraisal certainly has value to the mortgage company, but does not determine whether a buyer might pay more or less than this for the property.   In addition, two professional appraisers may come in with numbers that may be 2-4 percent apart.   Therefore, on a $300,000 property, two appraisals may be from $6,000 to $12,000 apart.

 

 What should divorcing couples consider to determine the value of their home?

The final answer is: there is not one easy answer.  The only way to determine the true value is to find a buyer and sell the house – and even then people will second guess and wonder if they should have waited for another buyer who would have paid even more for the property.  So what to do?

Consider these principles for your home valuation.

  • Get comfortable with the reality that there is no “right number” – appraisal is an inexact science.
  • Determine ahead of time to agree on some method of independent evaluation.  Whether it is the property tax number, a realtor’s assessment, or a professional property appraisal – or some combination therein.  The key is to agree ahead of time on which numbers you will use.
  • You can leave yourself an out.  Some clients have negotiated things like:  “if the appraisal comes in lower than a predetermined dollar figure, then they reserve the right to have a second appraisal.”

Important things to remember as you go through a divorce process.

  • Don’t spend more money fighting over this number than you stand to gain by “winning” this point – that is just shooting yourself in the foot.
  • Please don’t damage each other in a fight over the home value.  You have both already been hurt enough.
  • There are more important things than a few hundred dollars – for instance your children being able to have a positive relationship with both parents.
  • Choose to let the divorce process be a time of practicing a “friendly businesslike manner” toward one another.  This will reap huge dividends down the road.

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