For many going through a divorce, the marital home and other pieces of marital real estate are their largest assets. Whether or not the marital home or real estate should be retained and by whom is often a major issue in the divorce. What happens to the family home will ultimately depend on the facts of each case. If the spouse can agree between themselves regarding what will happen to the marital home and other real property, it is likely the court will approve such a settlement agreement. However, if the couple is unable to come to an agreement, the court will decide the issue. The emotional significance is especially significant when the issue becomes whether the children will continue to be able to live in the same home environment.
As divorce, almost by definition, suggests that parties will no longer be living together, this does not necessarily mean that parties need to separate their ownership of the marital home immediately. For example, parties may decide to “play the market” and delay the placement of a home on sale until a better selling period or until a child reaches a certain age, a degree is completed, or simply for an agreed-upon period of time.
The first thing in determining who will own a piece of real property after a divorce is to determine how much it is worth. This can be done in one of several ways. Some couples will use the home’s assessed value. However, these values can often be significantly lower than the actual current value of the house. If the parties need a precise value it is recommended to hire a licensed appraiser to obtain a full appraised value of the property. Another option is to hire a real estate expert to obtain an up-to-date market analysis of the property.
What Make a Divorce Appraisal Different?
Let’s face it, going through a divorce is an emotionally challenging time for everyone taking part. It involves many difficult decisions about the kids, investments and marital assets, including who gets the house. When it comes to the house and other real estate, the two most common choices are selling and dividing the proceeds, or one party can “buy out” the other. In either case, one or both parties will order an appraisal of the residence and other real estate holdings.
A divorce appraisal is not the same as your typical appraisal used for lending purposes. Some of the differences are:
- The divorce appraisal is likely to have a retrospective date of value, meaning the value of the property will be based upon a date in the past (perhaps the filing date, the date of marriage, the date of separation or the date of purchase) rather than the current date.
- In some cases the appraisal will provide both a retrospective value as well as a current value.
- Occasionally, in a divorce situation, the appraiser may be called upon to testify in court as an expert witness. As a witness, the appraiser may not be an advocate for either side of the proceedings, regardless of who may have hired him. The appraiser may only testify about the appraisal and the data/analysis contained therein.
- Since a divorce appraisal is not related to financing or lending, it does not have to comply with Fannie Mae guidelines (or UAD Guidelines).
- Typically, a divorce appraisal is completed on non-Fannie Mae forms such as the GPAR forms or it is written in a narrative format.
- In completing a divorce appraisal, the appraiser is bound the same confidentiality and USPAP requirements that he would be in completing a lending appraisal. That means that the appraiser cannot share information about the appraisal with any party other than his client and/or his client’s attorney unless legally required to do so.
Most attorneys’ primary concern when they order an appraisal is the final value and how it will affect their case. They are usually not too worried about how the report is presented, so long as it is defensible. Many attorneys are used to receiving residential appraisals on the URAR 1004 Form which is the most commonly used Form for residential appraisals.
Why give it a second thought, right? Wrong. This could prove to be a huge mistake.
FACT: The common URAR 1004 Form is not intended to be used for valuation matters other than mortgage finance. (It even says so right in the report.)
Yet, all too often, this is the “go to” Form for appraisers who may not be experienced performing appraisal for legal purposes. Their mistake could cost you your case.
Imagine being in court for a hearing and presenting your appraisal prepared on the URAR 1004. While the court may not know the nuances of the Intended Use of a URAR 1004, a savvy opposing counsel, township solicitor or expert appraisal witness could very easily point this out. Technically, the report is invalid as a result of the Form’s Intended Use being violated by the appraiser. The court could deem the report inadmissible and jeopardize your client’s case.
There is a simple solution. There are a number of general-purpose appraisal forms available to residential real estate appraisers that are also in compliance with USPAP*. They are typically called GPAR Forms (General Purpose Appraisal Report) and they address most residential usages (single-family, multi-family, and condo.) The Appraisal Association has even developed its own USPAP compliant GP Forms as have most appraisal software providers.
So, next time when ordering an appraisal; be sure to specifically ask your appraiser which Form they intend to use. If they say the URAR 1004, you need to insist that they use a GPAR Form or you run the risk of presenting an invalid appraisal.
Once the parties know the value of the house, then they can figure out the amount of equity they have in the house. Equity is the value of the house, minus the amount that is still owed on the mortgage. In other words, it is what the parties would take away if the house was sold today.
It is always important to work with an experienced mortgage professional who specializes in working with divorcing clients. A Certified Divorce Lending Professional (CDLP) can help answer questions and provide excellent advice.
If you’d like to start the process of getting a home, come see us at the Tammi Lindley Team. We are Portland’s premier mortgage lenders, offering hundreds of mortgage products so you can pick the mortgage that matches your needs. Contact us today and start the process of owning your dream home.