Oklahoma Divorce | The Appraisal Minus the Mortgage Does Not Equal Equity
Friends, this is very important! Please read this very carefully!
In many dissolutions of marriage cases, some judges and attorneys may consider if they have the marital home in their case appraised, and then subtract the mortgage that is owed they will have an equitable number for the division of the equity dollars in the home.
This is not an accurate step to proving equity, and I will share with you why.
A Home Appraiser is Not a Licensed Home Inspector
A home appraiser is not a licensed home inspector, nor does the home appraiser provide an inspection of the home.
The appraiser provides a professional opinion of the value of the home based on what they visually see, current market analysis, and professional expertise.
In every home appraisal report there is a disclaimer from the licensed appraiser that states they are making no warranties as to the physical condition of the home.
The Additional Cost Factors Must Be Figured Into the Value of the Home
If the home must be sold before the divorce, during the divorce or shortly thereafter, home repairs and updates may be needed to prepare the home to bring the best possible price.
There will also be real estate sales commissions, property taxes, repairs and updates, home warranties, and closing costs. All of these costs must be considered to reach the true equity in a home.
Let’s take a home that appraises for $400,000. This same home has an existing mortgage of $250,000 and this existing mortgage will need to be paid off when the house is sold and closed.
Some of our friends in the legal profession suggest that $150,000 is the equity in the home. I disagree, and here’s why:
Let’s say that the air conditioners on the home need to be replaced at a cost of $15,000. Other needed repairs and updates will cost another $15,000. Real estate commissions will typically cost $24,000. and closing cost, taxes and insurance are another $5,000. All of these costs total $59,000.
The divorcing couple will need to pay these costs in order to sell this home, so our argument is that the true equity in the home is $91000, not $150,000… $400,000 – $250,000 (existing mortgage) = $150,000 – $59,000 (needed repairs and selling cost) leaves $91,000 in equity, not $150,000.