Nobles Law Firm

Putting a value on real estate in uncertain markets

question-markOne problem I have run across in divorce cases has to do with putting a value on real property. Real estate values are more than a bit difficult to hit accurately these days due to volatility in the market, so what can a lawyer do to make sure a client’s property is valued at what it is worth?

That is an important question to answer and getting it wrong could hurt a client’s best interests and a lawyer’s reputation.

Unfortunately, there is no universal way to determine what a piece of property is actually worth. James O. Wyre, a lawyer with the Bankruptcy Professional Center in Conway (BankruptcyJW.com) said the first question a lawyer needs to ask is what the standard is in the field where the property value is relevant.

In Bankruptcy, for example, Wyre said the emphasis is on liquidation. That being the case, using the traditional fair market value analysis to determine how much the property is worth might not be sufficient. He said fair market value is often based on the notion of how much the property should sell for if given time to sit for up to a year and be marketed properly so as to bring in as many prospective buyers as possible.

When a property is liquidated in bankruptcy court, Wyre said the traditional fair market value analysis is usually tossed out the window in favor of a “90-day rule” – what price will the property bring if sold within three months? That 90-day price will almost always be substantially less than what a traditional fair market value analysis will produce.

But how can that 90-day price be determined? Wyre said looking at county tax assessments is a good place to start and there are more than a few Realtors and appraisers out there who can provide that price.

David Nixon, an attorney with the Nixon Law Firm in Springdale (NixonLaw.com), said that 90-day rule can work in divorce cases where separating couples simply want to get rid of real property and divide the proceeds. He pointed out people are usually in a rush to get rid of property in those situations, so there is nothing wrong with aiming to liquidate homes, land and even personal property such as vehicles that people want to sell quickly.

When it comes to keeping assets, however, Nixon said looking at the traditional fair market value can be very helpful. If a husband and wife are dividing assets and the wife wants to keep the family home, it can be more equitable to determine the fair market value of that home when it comes to dividing assets equally.

Still, a major problem with fair market value in current real estate markets is that they can change quickly. In Arkansas, sales prices have trended downward all year long so that value can change very quickly. Another problem in volatile markets is that prices can start trending up quickly, too. In cases that can take months to resolve, fluctuating prices can be more than a bit problematic.

This column was authored by Ethan C. Nobles and originally appeared in the Sept. 2, 2014, edition of the Daily Record in Little Rock.

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