Should You Obtain an Appraisal or a Comparative Market Analysis During a Divorce?

When divorcing, assessing the value of the marital home and other real estate is a critical part of the settlement process. The question is, what is the best method to determine this value?

Appraisal vs. Comparative Market Analysis (CMA)

The two most common methods for valuing real estate are obtaining an appraisal from a licensed appraiser or having a real estate professional provide a Comparative Market Analysis (CMA). Both methods offer an opinion of value, but the primary difference is perspective.

Appraisal: Completed by a licensed residential appraiser who bases their opinion of value on recent comparable home sales data. CMA: Completed by a licensed real estate professional who bases their opinion of value on what the property may sell for in the current real estate market. While both opinions are valid, it’s crucial to understand the perspective of each and how they apply to the marital home. For example, if one spouse is retaining the marital home and refinancing, an appraisal may be the better option. Conversely, if selling the marital home, a CMA may be more suitable.

Divorce Appraisal vs. Traditional Mortgage Appraisal

A divorce appraisal differs from a typical mortgage appraisal. Here are some key differences:

Non-Agency Compliance: Divorce appraisals do not need to comply with agency guidelines or UAD Guidelines. They are often completed on non-agency forms like the General Purpose Appraisal Report (GPAR) form or written in a narrative format.

Attorney's Concern: Most attorneys prioritize the final value of the appraisal and its defensibility in court over the presentation format. The most common appraisal form is the Universal Residential Appraisal Report Form (URAR 1004).

Form Matters: The URAR 1004 Form is not intended for valuation matters other than obtaining mortgage financing. Using this form for legal purposes could result in a non-defensible appraisal, potentially causing the court to deem the report inadmissible.

Solution: Use general-purpose appraisal forms compliant with USPAP, known as GPAR Forms. These forms are suitable for various residential uses, including single-family, multi-family, and condo properties.

Important Considerations in Appraisal Reports

Statement of Assumptions and Limiting Conditions: Each standard appraisal form contains a general notice of assumptions and limiting conditions. It’s essential to note that a licensed appraiser provides an opinion of value for residential real estate only and is not a surveyor, inspector, title representative, or engineer.

Title Report: Rely on a current title report to verify ownership and outstanding liens against the property during divorce proceedings.

Property Survey: If there are questions about property lines or out-buildings, hire a surveyor.

Home Inspection: If the appraisal report indicates potential property condition issues, such as mechanical concerns or needed repairs, obtaining a complete home inspection is advisable.

Mortgage Lender Requirements

Note that mortgage lenders cannot use the appraisal acquired during the divorce settlement process. Each lender must use a lender-owned appraisal ordered directly by the mortgage company during the mortgage process. If mortgage financing is required as part of the settlement agreement, such as an equity buy-out, it is in everyone's best interest to involve a Certified Divorce Lending Professional (CDLP®) to begin the mortgage process. This ensures that the same valuation is used throughout the process.

Conclusion

Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process can help divorcing homeowners set the stage for successful mortgage financing in the future.

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