Even though California is a community property state, dividing assets in a divorce can prove to be a contentious problem. If a couple has acquired significant amounts of real property during their marriage, each of them is entitled to 50% of the value of the property. Liquidating the holdings can provide a simple method of arriving at a 50/50 division, but in many cases, some or all of the holdings cannot be sold without a significant loss in value. In such cases, an appraisal of the value of real property by a qualified appraiser can aid the process of property division.
Certified real property appraisers use widely accepted standards for arriving at the value of a parcel of real estate. The appraiser’s first step is to correctly identify the parcel whose value is being determined. The second step involves identifying the highest and best use of the property. Once these questions have been properly answered, most certified appraisers ask and then answer three questions:
- What is the replacement cost of the property?
- What is the present value of the property’s income stream over the rest of its useful life?
- What is the market value for the property?
Replacement cost is simple the amount of money required to acquire the real property and build existing improvements from scratch. For older properties, this method rarely provides an accurate value. Present value determination uses the capitalization method (dividing net income by the return expected by a seasoned investor) to determine present value; this method usually works best for income-producing property. The market value approach uses sales of comparable properties to determine the price at which the property will sell on the open market. This approach is most commonly used for homes and other non-income producing properties. An experienced appraiser will examine the result in each of the approaches to value and select the one that, in his or her opinion, provides the most reliable estimate of value.
Anyone who is contemplating seeking a divorce after a marriage that has accumulated large amounts of community assets may wish to consult an experienced attorney about valuation and appraisal techniques. Such a consultation can provide a helpful preview of the valuation process and the likely outcome of dividing the assets.
Source: thisMatter.com, “Real Estate Appraisal,” accessed on Oct. 2, 2017