The Art And Science Of Appraisals In Divorce
Everything can hinge on the value of the house. From equity buy-outs, division of retirement accounts, and support allocation, if a spouse wants to keep the house, it can be the linchpin for all asset and monetary division. And yet, it’s one of the most contested elements in a case.
Just when you thought you’d put a lid on the battle of establishing a value for the house in divorce, your client calls you in a panic because they got a new appraisal that debunks everything they’d agreed to. Don’t worry—we will explain why that happens, and offer a solution to address it.
Why are appraisals so different?
In any given neighborhood, because no two properties are alike and the market is always fluctuating, there is a range of value. Family law appraisals that attorneys typically order often utilize the highest possible value approach, which places the emphasis on the topend of the value range. “What is the most a buyer would possibly pay for this house?” is the lens, and the data then supports that approach. This appraisal does not have to follow federal lending guidelines, such as Fannie Mae, Freddie Mac, FHA, or VA, which use a different lens.
A mortgage appraisal is the eyes and ears of the mortgage lender for the sole purpose of evaluating their risk. As such, appraisers must perform a conservative analysis and instead of taking the highest possible approach, they analyze the most probable. So the question here is “What is a buyer most likely to pay for this house?” Appraisers must follow the federal guidelines in this analysis.
These two appraisals will likely lead to different valuations. Often, the family law appraisal will trend higher, but not always, depending on when the analysis is performed. Overall market fluctuations can be a slower moving needle, but in one single neighborhood, one or two comps can skew the data more dramatically. A seller who has an urgent need to sell may slash their price in lieu of time, which affects the whole neighborhood.
The solution: Don’t let the mortgage appraisal—or any singular statement of value—unravel the negotiation. A CDRE will perform a comparative market analysis as well to give another data point. Before the mortgage appraisal is performed, explain why it might come in lower than the other appraisals, so that your clients have context: the mortgage lender is incentivized to mitigate its risk, so these appraisals tend to be conservative.
© DENISE FONTYN, CDLP, with the Divorce Real Estate Institute, Inc.
Katina Farrell, CDRE is an experienced Realtor & Managing Broker who specializes in real estate transactions, with expertise as a trained Certified Divorce Real Estate Expert and a Certified Negotiation Expert. She handles the sale of real property in family law cases as a neutral expert. To schedule a complimentary chat and discover more ways Katina can help you resolve the real estate challenges plaguing your divorce cases, call: 720-295-8848 or email: [email protected].