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The Need for Estate Appraisals

by Administrator on Apr 10, 2015 Estate and Probate Appraisals 1032 Views

The baby-boomers, a group estimated at 78 million Americans born between 1946 and 1964, is  finally working its way toward the end of the proverbial “snake” and with that movement through time comes a tremendous corresponding movement of real estate and personal property assets and many of those assets will require appraisals. 

There are appraisals required when transfers are going to be made, when a property is going to be listed for sale, when assets are being value for tax purposes, when there are partial interest or fractional interest owners and when a property is going to be gifted. 

Appraisers often become involved when assets are going to be conveyed by an owner seeking to mitigate the large tax burden that may be due on their estate upon their death and other appraisals are sought after a party has died.  Date of death appraisals are often used to establish a new basis in a property.    

Some estates are liquidated as part of Probate because heirs can’t be identified or none of the heirs are interested in acquiring the asset or assets.  It’s important for appraisers to understand the difference between a market value and a liquidation value, and to communicate that difference to the attorney and / or the representative of the estate.  If a 6 month marketing time is typical to sell a real property asset, say a parcel of land, and you are asked to value it with a 30 day marketing time, the value you are seeking is a liquidation value and not a market value.

It is often the case that there are multiple or fractional interest owners in a property.  At times the fractional interests were established prior to Probate and there are times when Probate Court creates the partial or fractional interests.  Appraisers must often consider what the appropriate discount or discounts are for a lack of control and / or for a lack of marketability.  The first step in the process is usually determining the value of the underlying asset (like a parcel of real property) on a fee simple basis assuming it is debt-free.

Once the fee simple estate interest is established the subject property’s fractional interests can be analyzed.  Appraisers must understand what investment risk and return elements change as an investor moves from fee estate ownership to the particular fractional ownership interest being analyzed.  Discounts increase when the risk of ownership increases or when returns to the property decrease.

There are a number of sources and analyses that can be used to establish defensible discounts for undivided interests in real property and this short article does not attempt to discuss them at length.  It is important to note that the IRS can hold the activities of an owner against them regardless of what any analyst determines.  If for example it is my opinion that a 20% discount is appropriate for a lack of marketability but the owner has proactively marketed or listed the interest at 100% of market value, the IRS has concluded that the property should not be discounted.

Appraisers involved in estate valuation generally understand that Probate and IRS related appraisal assignments are often fraught with important details that can make a major value difference.  Working with Probate Attorneys, CPA’s and CFP’s is important for appraisers since they are usually the individuals who originate estate appraisal assignments.

If you are looking for an estate professional a real estate appraiser is often a good initial contact person since appraiser’s have usually worked with a few of them and we can refer you to individual who we and other parties have had good experiences with.         

For more appraisal information contact Glenn Rigdon, MA, MRICS, ASA a Las Vegas / Henderson Nevada commercial real estate appraiser via email at grigdon@cox.net or via his business website Horizon Village Appraisal (http://www.horizonvillageappraisal.com), or you can also click on “Contact Us” on the home page of this website.

Article source: http://www.appraisalarticles.com/Estate-and-Probate-Appraisals/4544-The-Need-for-Estate-Appraisals.html

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