Dividing assets can be the most complex and contentious issue in a California divorce, especially if either spouse has been previously married or if the couple owns significant assets. Before deciding whether to retain an appraiser, a spouse on the cusp of a divorce should understand the basics of the appraisal process.
What does an appraiser do?
Most professional appraisers in California must adhere to an ethical code known as Uniform Standard Appraisal Practices (USPAP). This code specifies acceptable appraisal techniques and defines unethical practices. The appraiser’s job is to determine the reasonable fair market value of assets that are presented for evaluation. The appraiser assumes that the value would be agreed to by a willing and informed seller and motivated and informed buyer. Appraisal techniques vary somewhat depending upon the asset that is being valued. Because the most common and most valuable asset in most divorces is the family residence, the techniques of appraising real property are the most important.
The three approaches to value
In valuing real estate, an appraiser will use three approaches to value.
The first approach is the replacement cost approach. In using this approach, the appraised attempts to estimate the cost of replacing the real estate using current prices for labor and materials. Because the costs of these components have usually been increased by inflation since the house was built, they do not provide a reliable indication of current market value for either residential or commercial property. Instead, an appraiser will use one of two additional approaches to value. In using the income approach to value, the appraiser will estimate the net income produced by the property in a single period, either a month or a year. The appraiser will then discount this income stream to present value by using an established interest rate. The most common approach to value is the comparable sales approach. In using this approach, the appraiser will obtain the sales prices for properties in the same neighborhood who size, amenities and other factors make it comparable to the subject property. The value of these “comparables” will be adjusted upward or downward depending upon their desirability. The appraiser will then compare the results of the comparison to value to determine the fair market price of the subject property.
Anyone who is wondering about the valuation of community assets may wish to consult an experienced divorce lawyer for advice on the suitability of retaining an appraiser.