Abraham Lincoln has famously stated that “a house divided against itself cannot stand”; and the disposition of the marital home is often one of the most contentious issues in a divorce case. In many cases, the marital home represents the couple’s most significant asset (other than retirement assets) and deciding how to distribute the property can be thorny, particularly as the mortgage lender will continue to consider both parties jointly obligated until the property is either sold or refinanced.
While liquid assets such as savings and brokerage accounts can quickly be converted to cash with minimal impact upon the value, equitably dividing real estate poses unique challenges, especially if one spouse desires to remain the home after the divorce and “buy out” the other spouse’s interest in the property. In such circumstances, it is important that the property be accurately valued.
In Massachusetts, there are three ways of determining the value of real property in connection with a divorce: (1) tax assessed value, (2) an appraiser, or (3) an evaluation by a realtor (“comparative market analysis”).
The least preferable manner of valuing real estate is to rely upon the tax assessed value, which is the amount a local public official has determined the home would sell for in order to calculate property taxes. In Massachusetts, the taxable value of a home is 100% of its “fair cash value”. While theoretically this should be what the home would sell for in a “normal” open market, it is important to note that “normal” is subjective, and would not take into consideration foreclosures or other unusual circumstances that would affect property prices within the market. Moreover, the tax assessed value in Massachusetts is generally lower than what the home would actually sell for.
A far better method of valuing real estate is to hire a certified real estate appraiser. Real estate appraisers estimate a property’s value by evaluating a number of factors such as location, condition, and unique characteristics. Once the property has been evaluated the appraiser will determine the approximate value by considering the results of the evaluation, other factors, and recent sales of comparable homes. The cost to hire an appraiser will vary, but the average is around $500.
Alternatively, parties may choose to have a realtor prepare a “comparative market analysis” of a property, as this is a cost-effective and generally accurate method of valuation. A realtor that is familiar with the market can evaluate the strengths and weaknesses of the property and estimate the potential selling price on the open market. Although testimony of a realtor will not be admissible at trial, when the parties are able to settle their case, this can be the most cost effective method of valuing the property as some realtors will provide this service for a nominal fee.
After the value of the property has been determined, the parties must determine how the asset will be divided. If one spouse wants to keep the home and “buy out” the other’s interest in same, the divorce decree should provide for that spouse to refinance the property by a date certain order to remove the other spouse from the mortgage. Usually the spouse that is keeping the home will need to compensate the vacating spouse for any equity that has accrued, either by refinancing or providing that spouse a disproportionate share of other assets comprising the marital estate.