Appraisal Articles 2019 Free Appraisal Articles for Appraisers and the Public
There are many more people who pass from this world without a Last Will and Testament than you might imagine and their real property or real estate assets often end up being controlled by a Probate court. Appraisers usually become involved in a probate case through attorneys who need to get the real properties valued and sold.
Probate appraisals present a special challenge to appraisers because the eventual sale of a real property assets by the court, often through a real estate broker, can be slow due to negative market forces (a weak economy) and a market sale can take a relatively long time. Thus there is a motivation to resolve Probate by liquidating real properties and appraisers must consider that fact in their appraisal reports.
The way most probate cases are handled the judge is looking to equally divide the assets among the heirs, few heirs want a fractionalized interest in a real property, and statutes often require an equal cash distribution.
It’s important that an appraiser understand that probate courts are often looking for an appraisal that indicates a “cash value” of a property asset as of a retrospective date of death and not the “fair market value” of that asset on that date. While many parties may think that “cash value” and “fair market value” are the same, they are not.
The “cash value” of a real property on a date of death does not consider how long it would take to sell it under typical market conditions. Thus the “cash value” on the date of death would in my opinion be a "liquidation value" and not a "fair market value."
A market value opinion or fair market value opinion assumes that a real property will have a typical exposure time as part of the market value definition, but “cash value” in my opinion means that there would be no typical marketing time, and thus it is a liquidation value.
“Liquidation value” is defined in The Dictionary of Real Estate Appraisal, Fourth Edition as:
“The most probable price that a specified interest in real estate property is likely to bring under all of the following conditions:
Consummation of a sale will occur within a severely limited future marketing period specified by the client.
The actual market conditions currently prevailing are those to which the appraised property interest is subject.
The buyer is acting prudently and knowledgeably.
The seller is under extreme compulsion to sell.
The buyer is typically motivated.
The buyer is acting in what he or she considers his or her best interest.
A limited marketing effort and time will be allowed for the completion of a sale.
Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
The price represents the normal consideration for the property sold, unaffected by special or creative financing concessions granted by anyone associated with the sale.” (Source: AI Reports, Form 801.03, Liquidation Value Addenda)
Appraisers who become involved in probate cases should provide a market value or fair market value opinion and a Liquidation Value Addenda with their retrospective report that effectively expresses the “cash value” of the asset. That way there will be no question about exposure time / marketing time issues that are part of the market value definition.
Bill Rigdon, ASA is a real estate appraiser located in Henderson Nevada doing business as W Rigdon Appraisal Service, he can be contacted at email@example.com and his website URL is http://www.appraiserslasvegas.com
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