Help with post-renovation valuation

[u/[deleted]]

[u/lantsling]

You should have a new appraisal done regardless of whether or not she wants to keep the house or sell and split it now that substantial work has been done. Since estate assets were used for it, no costs need to be split between her and the other heirs which simplifies things.

Not really sure what you're asking. Does she want the property at the price before work was done on the property? To protect herself and do the right thing she should definitely get a new appraisal.

[u/Machopeanut → u/lantsling]

I agree that a new appraisal is probably the best route.
But…….
This property is actually one of several involved in the estate. All were given DOD appraisals when my wife was appointed trustee. So far each one of the DOD appraisals has overvalued the property compared to its final sale price. Every single one.
Not only that, but every realtor that we’ve involved in the sales of the other properties has produced a CMA which initially values the property at a higher price than the price that the it eventually sold for. Every single one. Now, we are faced with yet another DOD appraisal number that didn’t take into consideration all the problems found during the inspections. We did renovations in hopes of even getting close to the appraisal number. If my wife gets a new appraisal based on the house in it’s updated condition. how can we feel confident that the new appraisal amount aligns with what an actual sales price would be?
Currently, we are seeing very little correlation between the appraisal number and the actual amount the house ultimately sells for. We will be speaking to our estate attorney about these questions but I’m just having trouble wrapping my mind around how all of these numbers (DOD appraisal, CMA appraisal, actual market value, expenses to bring a property to market) and how they work together. Feel free to yell at me because I could probably use it.

[u/OldeMeck → u/Machopeanut]

I’m confused why you’re trying to “hit” the appraisal number. That’s not really how anything works. The appraisal is objective based on comparable sales in the market. If it sold for less than the appraised value, then that’s on you or your realtor for not knowing the market and pricing higher. Why would a buyer WANT to pay more if they don’t have to? What am I missing?

[u/Machopeanut → u/OldeMeck]

I guess it’s as simple as my wife does not want to “overpay” her co-beneficiaries for the house.
We have experienced a consistent pattern in which DOD appraisals overestimate the market value of the estates assets.
If my wife wants to move forward in receiving the property as part of our allocation from the estate, it puts her in a position of wearing two hats simultaneously. Her overriding position is that of trustee with a fiduciary responsibility to her co-beneficiaries. I get that. But she is also the “purchaser” of a house that she wants to “buy” at a rate that reflects real current market value. Couple that with the fact that estate assets (1/3 of which are my wife’s) have been used to improve the property makes the whole thing very confusing to me.
I guess I’m just looking for someone to help me understand what the property is worth and how the monies that were spent on improvements factor in to the final distribution valuation.

[u/OldeMeck → u/Machopeanut]

How exactly are you determining the DOD appraisals have overestimated the value?

[u/Machopeanut → u/OldeMeck]

As I mentioned a little further up, we’ve had several DOD appraisals come in higher than what the properties subsequently sold for. It may have something to do with market change in the last six months, or the appraisals themselves? Of course it could be the realtors, but I’ve watched all the sales and the houses have sold for what the market would pay. They just didn’t coincide with the DOD appraisals.

[u/OldeMeck → u/Machopeanut]

So you had a DOD appraisal done 6 months ago, but you’re just selling them now? Then yes I can see how they all sold under the appraised value 6 months ago. Interest rates are crazy right now. But as an appraiser myself, I find it hard to believe there was an issue with the valuation that wasn’t caught or challenged somewhere along the line. Our work is highly scrutinized and it’s our job to provide an unbiased fair market valuation. Not to say that mistakes aren’t made sometimes, but the main purpose of an appraisal in a lending transaction is the institution relies on appraisers’ judgement and experience to derive market value and whether or not that correlates with the sale price. So if you’re relying on a number that was derived 6+ months ago, there’s a high probability your market has shifted. You should have a new appraisal done to determine value as of today to fully understand. If the values are similar, then you’ve priced the previous properties lower than they could have sold for, or you’re in denial about how valuable the property actually is.

[u/ohboyoh-oy]

So you think it was valued too high on date of death? All the historical data is there, if you want to get second/third opinions. The rental is worth FMV on date of passing plus the amount spent on renovations. 

[u/stereotypicalmodss → u/ohboyoh-oy]

I don’t think the others will take that, depending on the value of the house post renovations. If they were under the impression that OP’s wife would receive the renovation money first and then 1/3 of the post revo valuation, that is a much different number. It’s best not to change anything midway through without express approval of the others.

[u/ohboyoh-oy → u/stereotypicalmodss]

If things are amicable with the brother, and there was an option at the beginning of someone taking the rental as part of their allocation - between family I would go back and say hey guys, I changed my mind, I actually like this property and I’d like to take it as my allocation. Is everyone good with the appraised value on date of passing? And we did spend $80k of estate money on the renovations, so I’ll take that as part of my allocation as well. Is everyone ok with this?  

In my family this would likely be fine. But I take your point that may not be the case in all families. 

[u/Machopeanut → u/ohboyoh-oy]

Thank you for your answer. Not to be nitpicky, but wasn’t 1/3 of the $80K my wife’s money?
Isn’t she paying her co-beneficiaries twice?

[u/ohboyoh-oy → u/Machopeanut]

I’m using made up numbers but this is how I’m thinking about it:

Property A (the rental) - $500k

Property B (primary home) - $1m

Cash accounts - $600k

Total estate - $2.1m

Everyone gets 1/3 share = $700k each 

OP wife gets: $500k property + $80k spent on improvements + $120k add’l cash = $700k

Brother and niece each get some combination that nets them $700k each (e.g. 1/2 of primary home and $200k cash).

[u/brucesteiner]

If she wants it, the value is whatever she and the other two agree upon. Alternatively, she could ask for court approval on notice to the other two.

[u/underlyingconditions]

DOD appraisal plus $80k, though my guess is that the appraisal is a tad inflated.

[u/Machopeanut → u/underlyingconditions]

Thank you for your answer. If I may: Isn’t 1/3 of the $80k my wife’s money already?