Appraisal might just be one of the hottest words in real estate post-pandemic.
Last March, I wrote about the rare opportunity to refinance long-term debt at some of the lowest rates in history. (You can read that story, "Market Turmoil Presents Rare Refinance Opportunity" here: https://www.dtnpf.com/…)
Later that summer, I took my own advice and refinanced my home. As part of that process, we had to have our home appraised. It was fairly painless. That wasn't for a friend of mine, who was in the process of buying a home on 40 acres in rural Wisconsin. Her closing was delayed for months because of the sheer volume of appraisals and the number of certified appraisers in her region.
I think if both of us had our homes appraised today, we'd see the influence of the pandemic-driven home buying spree on our property values. Indeed, it's already shown up on my tax assessment. Yay.
Farmers might be currently feeling the same way about their farmland. Land sales, particularly at auction, are unseasonably hot right now, jumping from years of steady-to-lower to near-record prices in a matter of months. (For more, please read "Unseasonably Hot Farmland Market Challenges Records Set in 2013-14" here: https://www.dtnpf.com/…)
But just because the market is hot, or you think the valuation has changed, doesn't mean you need an appraisal. According to a recent release from the Iowa Chapter of the American Society of Farm Managers and Rural Appraisers, there are four common reasons to consider getting one:
1. Financing. "Most lenders require an appraisal to be conducted to ensure the property being mortgaged can be sold if the buyer defaults on the loan," ASFMRA said.
2. Estate Valuation/Tax Planning/Gifting. "Many estates are appraised to determine a new tax basis. The date-of-death value is needed for this valuation to calculate capital gains tax at a later date, when beneficiaries sell the property. You also need to know the total value of assets in an estate to determine whether or not the estate will be subject to federal or state tax," the release states.
"Some estates call for heirs to split assets evenly. An appraisal is usually needed to determine the total value and a fair split for each beneficiary. A certified appraisal is also needed for tax planning and gifting purposes. Typically, shares or minority interests in real property are gifted, which transfers wealth to the next generation and ultimately reduces the taxable estate of the donor. A gift made to the next generation may also incur fewer taxes due to the specific person being in a lower income tax bracket."
The Biden administration has proposed a number of changes to things like stepped-up basis, and an article in the Wall Street Journal earlier this week explained that while some people are looking for creative ways to mitigate the potential impact of these changes, others are taking a more wait-and-see approach. It was an interesting read, and you can find it here: https://www.wsj.com/…
3. Divorce. ASFMRA said the division of assets in a divorce situation needs to be based on current fair market value of the property, which requires an appraisal.
4. Potential Sale. "Owners of real property may wish to obtain an appraisal prior to marketing their property for sale. A certified appraisal is not necessarily needed in this instance but can be a more reliable valuation as the appraiser must have no bias or future interest in any property being appraised," the release states. Another option would be to get a broker price opinion, which is the estimated value of a property as determined by a real estate broker and is not representative of an official appraised value.
So, do you need an appraisal? It depends on what you're planning.
Katie Dehlinger can be reached at Katie.firstname.lastname@example.org
Follow her on Twitter @KatieD_DTN
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