The house can often become a point of contention in a divorce, especially when it comes to placing a value on it. The house is often the linchpin in a divorce as it typically is the biggest asset. Additionally, it’s not uncommon for the parties to disagree on the value. Unlike an investment account that probably has a bottom line, there is no specific dollar amount attached to a property until it actually sells. At the end of the day, it’s worth what a buyer is willing to shell out. So, it comes as no surprise that speculating on value before putting the house on the open market can be tricky. Today I will discuss 3 different types of valuations and how they can be used in the collaborative process to help move things along for you and your clients.
Before we go too far down the rabbit hole, I would like to point out the obvious; an appraisal, FMV, and CMA are all simply opinions on value. Educated opinions, but opinions nonetheless. One could get 5 different reports on a single property and end up with 5 different values. With that said, each strategy uses a different process and the analysis of the property through a different lens and they all have benefits/drawbacks and are valid options for placing a value on a property depending on the circumstances.
Appraisals
In an appraisal, the value is determined by looking at comparable properties near the subject property and adding or subtracting value due to an abundance or lack of specific features. For example, if the subject has a 2-car garage and “comparable-1” has a 3-car garage, the appraiser may subtract 10k from the sale price of “comparable-1” to equalize the value between the two properties. It is a very logical valuation that has dollar and cents attached to adjustments. The approximate cost is around $600-$800.
Benefits
Has a very concrete approach, so it can be a powerful tool when fighting a logical battle. Has a very formal report that lays out all the adjustments and shows a more mathematical approach to the value. This method is widely used as a valuing tool. An appraisal gives an exact dollar amount opinion to the value of a property.
Drawbacks
Focused on more concrete aspects for value rather than subjective aspects like layout or overall sale-ability of the house on the open market. The open market can be finicky and hard to predict, but at the same time has a very real impact on the value of a house. Adjustments to value for the subject property features are usually educated estimates. There is an art to these adjustments and it isn’t a perfect science.
Fair Market Value
Fair market valuation is completed by a Realtor and is an in-depth analysis of what the house might actually sell for if it were put on the open market. This is a formal report, based on subjective and objective data and is complete with a written description of how that value was reached. Once again it is an opinion, but it looks through the lens of a buyer, more so than a mathematical strategy. The approximate cost is about $300-$400.
Benefits
This method is intended to determine what the asset might actually sell for if it was sold to a buyer. When valuing a home, there are factors that can only be accounted for through the experience of interacting with buyers and sellers in the open market, so FMV takes into account market trends, comparable property values, as well as buyer tendencies and how specific features may affect the overall value in a buyer’s eyes. A FMV gives an exact dollar amount opinion to the value of a property.
Drawbacks
It doesn’t have specific mathematical adjustments, so it is less concrete than an appraisal. A FMV report is more subjective and based on experience and market knowledge. This strategy may be more challenging to logically argue or defend due to the subjectivity of the report.
CMA
A CMA is a quick report that a Realtor puts together without actually going out to the property. It has a formal report and a written description of how that value was reached. The cost for this is typically free.
Benefits
This type of report is usually free, which can be very useful if both sides are agreeable and want to save some money. Turn around time is usually within a couple hours to a couple days. Can be useful to gain knowledge of value for the property early on in the divorce process, even if there is no intention of actually using this report during the collaboration process.
Drawbacks
It is very challenging to place an accurate value on a house and it is hard to make a strong argument for value considering the person who compiled the report never stepped foot inside the house. Gives a range of value rather than a specific dollar amount.
Depending on the people involved and how contentious the case is, when working through the collaborative process, these valuation methods all have benefits and drawbacks and are valid options for valuing a property. At the end of the day though, any valuation is an opinion and there is some level of subjectivity. So, without actually selling the house, a simple understanding that no valuation is perfect may have to suffice in order to release this sticking point and keep things moving forward smoothly.
Meet Daniel Gomer
Daniel Gomer is a Certified Divorce Real Estate Expert and is proficient in the sale of real property in family law cases. Along with the CDRE Certification, Dan also holds a Real Estate Collaborative Specialist (RCS-D) designation. He is a neutral, unbiased, third party with extensive knowledge, skill, training, and experience in negotiating sensitive, high conflict, and complex real estate transactions. With over 8 years of experience and over 100 homes sold throughout Denver Metro, Daniel has been able to leverage his experience as a teacher, coach, real estate investor, market trend enthusiast, Realtor, entrepreneur, and student to help people navigate challenging real estate sales transactions.
For more information please visit Your Castle Real Estate website www.dangomer.com