Most Texas couples who are contemplating a divorce soon learn that Texas is a community property state. In other words, all assets acquired by either spouse during the marriage are considered to be jointly owned. When a couple chooses to end their marriage, the court must first determine which assets are “joint assets” and subject to the community property rules, and which assets are “separate assets” which are not subject to the community property rules.
For most couples, the family home is the asset with the greatest value, and dividing this asset can be the biggest problem in dividing the couple’s assets. Many high-asset couples retain a professional appraiser to assist with the valuation process.
The role of an appraiser
An appraiser’s basic task is to prepare an unbiased estimate of the fair market value of the property, assuming that both seller and buyer are motivated participants in the transaction and that both are equally informed about market conditions. Most reputable appraisers in Texas subscribe to what are known as “USPAP” rules; the acronym means “uniform standards of professional appraisal practice.” The rules are promulgated by the Appraisal Institute, and they require all firms who subscribe to them to perform their jobs fairly and equitably and without bias or favoritism.
The appraisal process
After being retained (by one or both parties), the appraiser visits the property to be appraised. The property is usually referred to by the shorthand term “the subject.” The appraiser makes a careful visual inspection of the exterior and interior of the subject.
All rooms are carefully measured, and important improvements are noted in detail. Such improvements may include a modernized kitchen, an owner’s suite, or an entertainment room. Most appraisers use up-to-date digital equipment to make and record their observations.
Physical status
One of the appraiser’s most important tasks is to note the absence of important maintenance, such as a roof that is in good repair, an exterior that does not require re-painting, and the presence or absence of a wet basement. The appraiser will also note the presence of amenities such as a tennis court, a swimming pool, and additional car ports.
Approaches to value
Once the appraiser finishes the inspection of the subject, the next step is choosing an approach to value. Appraisers employ three basis approaches to value: income, replacement cost, and sales comparison. The income and replacement cost approaches to value are rarely used for residential properties because these approaches do not provide a reasonable estimate of fair market value. The replacement cost us usually far higher than the other two approaches due to significant inflation in the cost of labor and materials. The income approach is not used because most residential properties do not prove enough data to make a reasonable estimate.
Most appraisers choose the sales comparison approach to value in preparing their final estimate of the subject’s fair market value. This approach relies upon the sale price of homes that are similar to the subject. The appraiser’s conclusion is then embodied in a carefully written report that contains the supporting data relied upon by the appraiser. The report can be used by the parties to negotiate an agreeable division of the home’s value or it can be used by the judge in valuing and dividing the couple’s community assets. The report can also be used as a negotiating tool if the couple decides to sell the home to a third party and divide the net proceeds. The choice of an appraiser and the reliability of the opinion as to value should be reviewed with the couple’s (or each party’s) attorneys before it is shared with third persons.
