The family home is often the most valuable asset in a divorce. If one party in the divorce is expected to keep the home and buy out the other party’s equity, the value assigned to the home could have a major impact on how the final settlement shakes out.
So, if this number on your Inventory & Appraisement is so important, where should it come from?
Let’s look at a few methods for valuing your home in a divorce.
Automated Valuation Models (AVMs)
Websites like Zillow.com use their proprietary algorithm and public data to estimate the value of your home. While this might be a good jumping off point, these services have some flaws.
Zillow.com doesn’t know if you made a major renovation, installed a pool, or if your 10-year-old roof needs to be replaced. AVMs aren’t good at accounting for the unique characteristics of your property and the value shown may differ widely from the home’s actual Fair Market Value.
Pros: Free and easily accessible
Cons: May not be accurate or account for unique features
Further Reading: Should I Keep the House?
Tax Appraisal
Another source to look at would be your county tax assessor collector’s opinion of value. Each year in the state of Texas, local tax assessor collector’s offices assess the Fair Market Value of your home and the land on which it sits.
If you’ve been diligent about protesting the county’s assessments each year, this value may be lower than your actual Fair Market Value. Conversely, if you’ve never protested the county’s assessment and your home is in significantly worse condition than the others in your neighborhood, the value may be higher than actual Fair Market Value.
However, if your home is in similar condition to others in your area, this may be a reasonable valuation to use.
Pros: Free and easily accessible
Cons: May under or overvalue your home by a meaningful amount depending on circumstances
Further Reading: Creative Home Equity Division Techniques in Divorce
Comparative Market Analysis (CMA)
Another option is to request a Comparative Market Analysis (CMA). A CMA is typically completed by a qualified real estate agent. They will start by selecting comparable properties in your neighborhood.
Properties may be identified as comparable if they are in the same development or school district, have similar square footage, have the same number of bedrooms and bathrooms, sit on a similarly sized lot, were built around the same time, and if they share any special features like a pool or garage.
Once comparable properties are identified their sale price is divided by their square footage to generate a price per square foot.
Next the agent performing the analysis will adjust for anything that could make your home more or less valuable like a recent renovation, larger lot, older roof, or deferred maintenance.
Based on those factors, the CMA will show a range of values for your property.
A CMA works well when the real estate market in your area is active with plenty of recent sales to include. A CMA may not work well in a market where few homes have been sold recently or if your home is very different from those in your area.
Pros: Free and provided by a real estate expert who knows your house and the surrounding neighborhood
Cons: May not work well in a market with few recent home sales or if your home is difficult to find comps for.
Professional Appraisal
The last option is to hire a professional appraiser to place a value on your home. The process that an appraiser goes through is structured, independent, and designed to give you the most accurate possible Fair Market Value for your home.
Appraisers in the US typically follow the Uniform Standards of Professional Appraisal Practice (USPAP) which require impartiality, objectivity, and fact-based analysis.
Your appraiser will first define the property to be appraised and the purpose of the appraisal. They will then inspect the property to understand its unique characteristics.
After that they will complete market research to identify comparable properties and study local market conditions. They will then apply the most appropriate valuation method and complete a written report with their findings.
A professional appraisal is an excellent way to determine your home’s Fair Market Value.
Pros: Allows an expert to render an opinion of value in context
Cons: Can cost on average $425 for the typical home and more if your home is very large
3 Steps to Dividing Assets in a Divorce
Other Factors
Regardless of how you assess the value of your home, there are other factors that may impact the value shown in your Inventory & Appraisement spreadsheet.
For example, if the home is to be sold immediately after the divorce, you may wish to deduct expenses like broker fees and Capital Gain taxes due on the sale from the value show on the spreadsheet.
If you’ve used an Automated Valuation Model, tax assessment or Comparative Market Analysis to value your home and know that it needs major repairs, you may wish to deduct the cost of those repairs from the value of the home.
Because your home may be the single more valuable asset in your estate, getting the value right is vital to reaching a fair and equitable agreement.
The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action.
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