One of the most difficult issues in a high-asset Michigan divorce – or in any divorce, for that matter – is the valuation and division of real property, especially the family home. Michigan divorce law requires that the assets owned by the divorcing couple be divided according to their fair market value. However, this rule can be difficult to apply because both parties may rely on their emotionally driven feelings about value.
Perhaps the most effective method of valuing and dividing real property and especially the family home is employing an experienced real property appraiser who is familiar with the local housing market.
What does an appraiser do?
The appraiser’s main job sounds simple: determining the price that a willing buyer will pay to a willing seller for the property in question (commonly referred to as the “subject”). If the parties can agree on which appraiser to hire, they will usually agree to split the fee for the appraisal.
After being retained, the appraiser will inspect the subject and its surroundings. During the inspection, the appraiser will make careful observations about the physical condition of the subject and any appurtenant buildings such as garages and storage sheds and the existing of any amenities such as a tennis court or swimming pool.
The appraiser will measure the dimensions of the structure and its individual rooms. With the advent of the digital age, most appraisers have turned to digital photography to make a visual record of the subject.
Choosing an approach to value
Appraisers use one of three approaches to value to reach their opinion: the three approaches are replacement cost, comparable sales, and income. The income approach is rarely used for residential property because residential properties rarely generate income. The replacement cost approach is used only for relatively new subjects because the cost of materials and labor will have significantly appreciated for older buildings. The most reliable and most commonly used approach to value for residential property is the comparison sales approach.
How the comparison sales approach works
Using information obtained from public records about recent sales of residential property, the appraiser will prepare a list of properties are comparable to the subject in size, amenities, and overall quality. The public records will also reveal the purchase price paid for each comparable property.
The appraiser next uses personal knowledge of the local real estate market to determine the fair market value of the subject. Occasionally this value can be expressed as a range of sale prices rather than a single price.
The appraiser will then prepare a written report containing his opinion as to fair market value of the subject. This report is usually shared with the other party and with the court. The report can used to resolve any dispute between the parties to the divorce about the value of the subject. If the parties cannot agree on the fair market value after reading the appraisal report, the report can be introduced as evidence at trial.