When a family member passes away, his or her relatives can be overwhelmed quickly. Not only are they grieving, but they must also take care of the legal obligations and paperwork necessary to settle the deceased’s estate. And because real estate properties are usually the most significant financial asset of the deceased, establishing their fair market value is a priority.

Whether the plan is to sell the property, pass it on to the designated heir(s), or estimate how much obligatory taxes will be paid on the estate, it is important to know the exact worth of the property at the time of the owner’s death. If the estate is going through probate, an accurate inventory of the decedent’s possessions—including any real estate properties—is required.

In any case, the most reliable way to find out the fair market value of a home is to order an estate appraisal, also known as a time-of-death appraisal or probate appraisal. Here is everything to keep in mind regarding this critical element of any estate settlement procedure.

What Is an Estate Appraisal?

After a death, it is often necessary to establish an exhaustive list of the deceased’s possessions, including what is often the most valuable asset: real property. Even if the deceased had a will, a time-of-death appraisal may still be required to settle his or her estate. This unique appraisal type is employed to distribute the estate equitably among the heirs, to plan the estate’s future, and to calculate the estate tax incurred.

If probate is necessary—as is the case when the owner passes away intestate (without a will) or when issues arise regarding the existing will—the court usually demands a detailed inventory of the estate, including the cash value of the decedent’s home as of the date of his or her death.

As such, the executor of the estate or the legal representatives should be prepared to order an estate appraisal promptly. To do so, they need the assistance of a professional real estate appraiser. Licensed real estate appraisers are neutral third parties with no interest in the future sale of the property. They produce objective reports that are defensible in court and will resolve disputes over value that may emerge later.

Understanding the Estate Appraisal Process: A Practical Way to Ease Probate Burdens

In most cases, an estate appraisal assesses the property’s value as of the deceased’s date of death (DoD). The effective date of the appraisal is not the day the appraiser inspected the property (which is usually the case in other forms of appraisal), but prior. This type of appraisal is known as a retroactive appraisal or historical appraisal and is ordered months, or even years, after the property owner passed away. To determine property value, the appraiser needs access to information regarding the property such as retrospective photographs, a detailed list of the improvements made since the decedent passed away, and other supporting documents.

Additionally, the cost of an estate appraisal depends on many factors, including the size and location of the property. Occasionally, any of the following conditions may elevate estate appraisal prices: the retroactive appraisal requires extensive research by the appraiser, the information is not easily accessible, or the effective date is in the distant past.

The appraiser will inspect the property without taking into account the improvements that may have been made after the decedent’s death, and he or she will compare it to properties in a similar condition that sold proximate to the date of death. Although it is not always immediately required (if the property is held in a living trust, for instance), a date-of-death appraisal will likely be needed at some point.

Estate Appraisals and Taxes: The IRS Are Also Involved in Inheritance

When an estate has a transfer of ownership due to death or inheritance, the Internal Revenue Service will demand the homeowner’s relatives provide an appraisal showing the property’s market value. The property is usually appraised as of the deceased owner’s date of the death; however, the IRS may permit an alternate valuation date (AVD), which is up to six months after the date of death of the owner. A time-of-death appraisal is pertinent if the market has declined and the estate has decreased in value over time. Two appraisals are required in this case: one based on DoD and another with an AVD.

If the property is placed in a trust, the IRS will insist on an appraisal after the death of the final grantor, to determine the value of the estate and establish the basis of the property held in trust. The IRS uses the information obtained to confirm whether or not (a) the estate value exceeds the currently enacted exemption amount ($11.4 million for 2019) and (b) the estate is subject to estate tax, commonly known as the ‘death tax.’ The federal tax code allows estates to exclude a portion of value in a tax year—up to a certain threshold—from being subject to estate tax. Estates may also be subject to state taxes, depending on the state of residence of the decedent; these state estate taxes often have a threshold level lower than federal.

Knowledge Is Power: A Summation of the Estate Valuation Process

Overall, estate appraisals are often necessary, mainly because they are essential to facilitating estate settlement and help solve many issues preemptively. When family members are actively mourning, the last thing they need is an insensitive approach to property valuation, which will only further compound their sorrow. To avoid the emotional consequences of drawn-out property valuations, the first step is to create a comprehensive record of the deceased’s assets. Secondly, the heirs, executor, or attorney should order an appraisal. Before doing that, however, they should seek professional help to determine what kind of appraisal they need (typically a retroactive appraisal or historical appraisal). Lastly, it is worth noting that the IRS will get involved at some point; hence, the grieving heirs should prepare for this eventuality. The best way to proceed is for inheritors and their representation to brace for potential litigation and the IRS’s participation by equipping themselves with relevant and timely information on value and the estate settlement process.

If you’ve ordered an estate appraisal before, what are your recommendations for someone currently facing this situation?

The post Estate Appraisals in Massachusetts: Everything You Need to Know appeared first on Boston Appraisal Services.

What is the process when private real estate is needed for public projects? ‘Eminent domain’ is the label frequently used to describe that process, and its basis lies in the U.S. Constitution. All U.S. states, including Massachusetts, have their respective statutes regarding the state taking private real property. Although eminent domain’s application has expanded in recent decades, it is now a contentious issue in many regions. This latest controversy means appraisers currently have a critical role in the eminent domain field, working for private property owners and public entities. When eminent domain plays a part in an appraisal assignment, both the appraiser and client need to be aware of the unique requirements of this kind of practice.

What Is Eminent Domain?

‘Eminent domain’ is the legal term for a government’s legal authority to take private property and convert it to public use. The process of eminent domain is also called condemnation. This power is granted to American governments by the Fifth Amendment of the U.S. Constitution, which also requires that a government that takes private property must offer the property owner equitable indemnity. Courts have traditionally considered just compensation as fair market value for the property taken. The U.S. Supreme Court has defined fair market value as “… the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”

Dissecting Massachusetts’ Property Condemnation Laws

Massachusetts law further regulates eminent domain within the state. That law does not limit the kinds of uses for which governments can employ eminent domain. In 2005, the U.S. Supreme Court upheld a government’s right to condemn real estate for private development. The decision sparked debate about appropriate uses for eminent domain. Contested uses include those for private redevelopment, sports stadiums, and recreational trails. The issue often revolves around whether the term ‘public use’ includes public improvement or public benefit. Since 2005, 44 states have enacted laws that limit their uses of eminent domain. Massachusetts is not one of those states.

Redevelopment funded by government is sometimes called ‘urban renewal.’ Areas targeted for urban renewal are often described as decayed or blighted. Massachusetts, Vermont, and Maine have specific laws regulating the urban-renewal process. Massachusetts’ Department of Housing and Community Development administers an urban renewal program to help municipalities establish redevelopment authorities.

Similarly, local governments often constitute specific boards or authorities to oversee redevelopment projects in their areas. The Boston Redevelopment Authority directs urban renewal in defined areas of a city, totaling about 3,000 acres. There are similar authorities throughout New England, including in Bangor, Lewiston, and Springfield.

Eminent Domain Expertise

An appraiser can provide a value estimate either for an eminent domain authority or a property owner. When working for the condemning authority, the appraiser may have a role in estimating project costs, preparing appraisals to establish just compensation offers, or serving as an expert witness in court proceedings. Likewise, the appraiser might be retained by the owner or the owner’s attorney after the appraiser has estimated value for a property owner. If the property owner and condemning authority can’t negotiate just compensation agreeable to both parties, they usually proceed to court. In that situation, the appraiser is often seen as an expert witness, and he is almost always hired by the owner’s attorney.

Appraisal assignments for eminent domain require special training and experience. The appraiser must be familiar with valuing partial property rights, such as easements and rights-of-way. He should also be well-informed about the applicable laws of where the taking occurs: these may affect both the market value definition and the admissibility of comparable sales. In an eminent domain court case, the appraiser acting as an expert witness may be asked to provide court testimony. This service demands the appraiser possess excellent public presentation skills and thorough knowledge of court procedure.

Advice for Consumers and Practitioners

Eminent domain has a specific and complex history. The U.S. and Massachusetts both have laws governing the taking of private property for public use. The traditional application of eminent domain is for building highways, utility lines, and public safety projects. Eminent domain also has a role in urban renewal, where a local government seeks community improvement by acquiring and redeveloping a property. Expanded use of eminent domain—for individual developers, sports facilities and trail corridors—has gained public scrutiny. Appraisers serve the eminent domain process by providing estimates of fair recompense, for public entities and private property owners. This service is a specialized area of appraisal practice. Appraisers need extra training to be competent in eminent domain issues and public testimony. Sometimes, an appraiser’s most crucial role is advising a prospective client to seek legal help before ordering an appraisal for just compensation.

The post Eminent Domain Issues in Massachusetts & New England appeared first on Boston Appraisal Services.