Real Estate Attorney and Divorce Attorney Blog(Vol I.6)
by Craig Franklin Chambers, Esq. The Littleton Lawyer.
As a divorce attorney and a real estate attorney in Littleton, Denver, Highlands Ranch, and the surrounding areas, home values often come into contention. A home is usually the parties' most valuable asset, especially now that the market is appreciating. The marital home value is an important issue in the equitable division of property in a divorce which is also a factor under the statute and case law in determining spousal maintenance or alimony.
The parties often use a licensed appraiser ----or each party hires their own appraiser--- or a licensed real estate broker to help determine the price of a home. The advantage of a appraiser is the appraiser is required to strictly adhere to the standardized appraisal guidelines. An appraiser has no future expectancy interest in a real estate commission earned by marketing the home. Judges often lend more credibility to the opinion of a professional appraiser.
The advantage of a real estate broker is his market analysis is usually free; and the broker has more experience with the whims of potential buyers in knowing first-hand what attracts or turns-off a buyer from a home or a specific area.
Realtors (and residential appraisers) use what is called the "fair market value" approach to price a home. Under this method, the valuation of a property is based on three recent solds of comparable homes. Realtors generally follow the appraiser guidelines of considering sold comparable properties within four miles of the subject property that have closed within six months.
It is better to compare the home being priced to other recently sold homes in the same subdivision or neighborhood. The more similar the features of the comparable sold homes are to the subject property, and the more recent the sales, the better.
Otherwise, the broker makes arbitrary adjustments, i.e. he adds or subtracts for condition, floor-plan, time, location, square footage, age, etc. While Realtors follow the general guidelines established by the standardized rules for appraisers, they also just make these adjustments based on their own subjective experience.
For example, is a house with central air conditioning worth $1,000 more, $2,000 more, than a house without air conditioning, or is there no difference? What about a house with new carpet? A new kitchen? A finished basement?
Is a house with a mountain view worth $5,000 more, $10,000 more, than a house without a mountain view or is there no difference? What about a house on a cul de sac? On a lake or a golf course or a park? How much less is a house worth if it sits on a busy street?
A real estate broker usually presents a "comparative market analysis" or a "CMA" to the seller when discussing the marketing and pricing of a home. While the CMA will show these adjustments, the valuations of the adjustments are subjective. The broker usually comes up with three different valuations based on the adjustments made to the three best comparable sold homes and averages them to arrive at a suggested price range to market a home. If the home doesn't sell within in a reasonable period of time, the seller can bring the asking price down.
The most significant underlying factor after considering the features for each home is the motivation of the seller. Real estate sales--like most things--are complicated, no, confounded---by humans. Does the seller want a quick sale or is he not in any hurry? Is it a divorce or an estate in which the seller has to sell? A seller who has purchased another home and has two mortgages is more motivated than a seller who owns his home free and clear and does not need to sell.
Despite the advice of the real estate professionals --- and it is usually advisable to get opinions or a CMA from three different brokers --- the pricing of a home is up to the seller. The seller can ask any price he wants for his home, but the buyers and the market determine what someone will pay for it. If the home is priced too high, the home usually sits on the market. If the home is priced too low, the seller usually gets multiple offers.
And the lender has the final say on a deal in which financing is involved. The lender protects itself by requiring its own appraisal using the fair market value method to confirm both the overall condition of the home and the value.