How to Divide Your Home Equity in a Divorce: What Do You Need?
Divorce is a difficult and stressful process. Not only will you feel the loss of a relationship, but you may also be dealing with legal and logistical hurdles. Splitting up real estate assets, even in the best of relationships, can cause distrust and resentment.
You don’t need to be a failure and you don’t have the burden of going through this process alone. The percentage of divorces in the U.S. is very near 50%. There are many people who have been through what you are going through. Professionals can help divorcing couples to sort out their financial divisions fairly.
This guide will help you decide if a home evaluation is right for you. We’ll also show you how to get one and what you need to do.
Richard Woodward of the Richard Woodward Mortgage Team NEXA Mortgage is a certified divorce lending professional with over 15 years of divorce lending and consultations. We are going to discuss the appraisal option and more in this post.
Start With a Free Home Value Estimate
We’ll give you a preliminary estimate of your home’s value within two minutes if you provide us with some details about the property. Although this is not a replacement for a home appraisal it can serve as a starting point.
What happens to your house when you divorce?
Divorce means that assets that you have shared are taken and divided so that your ex-spouse and you can move on. You must make timely decisions when you share a home.
Two options are the most common.
- Both of you move out and divide the proceeds in a sale of the home.
- One person remains and buys out the other to receive their share of the equity in the home.
Divorce Attorneys indicate that 95% of marriages end in the sale of a house purchased during the marriage. The equity is split 50/50. The remaining 5% of cases see the retaining spouse keeping the home and refinancing it in their own name.
How can you decide whether to sell or keep your home?
When deciding whether to sell your home and split the equity, or to let one of you divorcing spouses keep the house and buy out the other, there are many factors to take into consideration.
According to experts, selling the house and dividing the proceeds is the most common and easiest solution. Divorce Attorneys states that you don’t want your ex to be forced to work with you after the divorce. He has also seen situations become very unpleasant due to long-term real estate entanglements. Therefore, it is important to plan ahead and get prequalified to buyout the existing spouse early in the divorcing process.
Reasons to sell the house are:
- Both parties will be able to move forward easier if they have a financial clean slate.
- It is much easier to determine the percentage split than it is to agree on an exact value.
- One person staying longer than the other can affect their quality of life.
- There are legal and tax reasons such as the order of a judge to divorce the property.
- Both parties cannot afford to live in the house alone.
Most cases in which one spouse wants to buy out the other partner are not as complicated as one might think. This includes situations in which the home was bought before the marriage or where there are multiple real estate investments. They can also be motivated by sentimental or family-related reasons to keep the home.
Richard says that sometimes, couples are responsible for the disruptions to children caused by changing schools. This puts them in a more difficult situation when the house is being sold.
There are two reasons to keep the house and buy out the other:
- To minimize disruption, keep children in the same school district if there are kids involved.
- The land or the home is sentimental and adds value to one party.
- It was bought before the marriage. This makes it difficult to calculate the percentage split.
- You have enough assets to offset equity in your home such as a retirement plan or other property.
It doesn’t matter what case it may be, knowing the value of your home is a key factor in choosing the right option.
Do you really need an appraiser? It all depends on your situation. Other methods might be sufficient to determine the value. An appraisal could be the next step depending on the option you choose.
What should you do if your home is being sold in divorce proceedings?
When selling a home, the first thing to do is determine who owns it. The date the home was bought will determine what happens next.
The marriage resulted in the purchase of a home.
In most cases, proceeds from the sale of a home purchased during a marriage will be divided 50/50. This is sometimes misunderstood when comparing common-law states to community property states. Common law allows a married person to have separate property, but in the case of a marital residence, equitable division is usually used, which requires that the property be divided equally.
There are exceptions, but it is important to hire a divorce lawyer to ensure your case is handled without any problems.
Before the marriage, one person purchased home.
It is more difficult to determine the share of ownership if the home was bought by one person before the marriage. Richard stated that most people don’t know how to divide real estate purchased with premarital money. A professional must be familiar with the law and the methods of calculating the ownership.
Next, find an agent who has experience in selling divorce properties.
You have already decided on the percentage share of the proceeds. Both parties should be motivated to sell the house for the highest possible price. This makes it easier for an agent representing both of them to perform their fiduciary duties.
Richard stated, “It’s always difficult as a real estate professional to represent fiduciary obligations to both parties. But it is easier when both sides agree.”
Your real estate agent will perform a Comparative Market Analysis (or CMA) to determine the estimated value of your home.
A CMA will provide enough value information to help determine the listing price and sell the house if the percentage split has been agreed upon. You may not require a home appraisal in this case.
What happens if one spouse wants to keep the house?
Refinancers will usually end up paying a higher monthly payment, so they need to ensure that they can afford the mortgage.
The person may also choose to remain in the house to offset the loss through other assets. Richard says that you could also use assets such as 401ks and other investment properties or gifts from family members to offset your home equity.
To make any of these options viable, you will need to determine the property’s value. This can be challenging in volatile markets that are constantly changing. A home appraisal is a crucial part of this process. In a moment, we’ll discuss the timing of the appraisal.
What can you expect during the appraisal process?
To assess the value and condition of a house, appraisers must have completed extensive training. A licensed appraiser will visit your house and compare it to similar houses to determine the value. They will also examine factors like location, condition, size, and other relevant information.
A typical appraisal normally cost from $500 to $1000 depending on the size and value of the home. However, it is one of the expenses you should expect to have to pay in the event of a divorce involving joint property. The appraisal report usually is returned within one to two weeks. If the property is unique or expensive, it may take longer to get the appraisal results.
It is important to not confuse an upfront appraisal with an appraisal done for the buyer after the house has been sold.
An appraisal paid by the sellers prior to listing the home does NOT negate the requirement for the buyer to have an appraisal later on in the transaction. To ensure they don’t finance a loan that exceeds the property’s value, a lender will still require an appraisal for the refinancing spouse.
What happens if the divorced couple doesn’t agree on an appraisal?
Richard knows that problems can arise between divorcing spouses when they are unable to agree on a Realtor or appraiser. Not to mention the repairs needed before the sale.
The biggest problem with divorcees and home values is reaching an agreement on the appraise value. You can request a second appraisal if one of the parties is not willing to agree. Then you can compare them and see how close they really are. Richard says that if there is still no agreement, you can get a third appraisal and use the middle value
There are several options available to parties who don’t agree about the appraisal value:
- Each party has its own appraiser, and each takes the average value of both.
- To reach a mutual value decision, the parties engage a mediator.
- The parties decide to take the matter of the value of the home to court. A judge will make a decision. This may lead to a third, court-appointed appraisal.
It may not be as difficult as you think to find the right professional for your home appraisal. Referrals are always a good idea. A trusted list of appraisers in your area should be available to your real estate agent, lender, or attorney.
What can I do to prepare my home for an appraisal?
Remember that the buyout does not involve equal investment by both sides in getting the home appraised at the highest value. The existing spouse will want the highest appraised value while the retaining spouse will want the lowest value.
However, keep in mind that if you are refinancing to remove the existing spouse, the appraisal must be done in the process of refinancing and the appraiser must be randomly selected by the lender’s appraisal panel. We start our clients with a preapproval first, then as we near the court date, an appraisal can be done. Both parties must be agreeable to use this refinance appraisal.
These tips are for the party that receives the buyout. They will show you how to prepare your home to achieve its highest appraisal value.
- Make a home fact sheet that includes details about the materials used, schools and recent improvements.
- Minor repairs should be made so that the appraiser does not notice any pattern of neglect.
- Make sure your pets are not disruptive or annoying the appraiser.
- You can improve your curb appeal by mowing and tidying up your landscape.
What point in the process should the appraisal be received?
Richard explains that the divorcing spouse will divide his or her assets when the divorce decree is signed and made official. However, anyone who has been through a divorce knows how difficult it can be to reach an agreement on the final terms.
This can be problematic when valuing real estate as the market changes constantly. Richard says that market volatility has forced the lender to revalue houses. We have to revalue houses if things are delayed for more than three-four months because values could have changed dramatically in that time.
Experts agree that it is important to get an appraisal done as close to the court date or mediation in order to avoid any delays. It is possible to select the appraiser in advance and have the appraisal done once the divorce decree is finalized. This will ensure that the value of the property is accurate.
However, keep in mind that if you are refinancing to remove the existing spouse, the appraisal must be done in the process of refinancing and the appraiser must be randomly selected by the lenders appraisal panel. We start our clients with a preapproval first, then as we near the court date, an appraisal can be done. Both parties must be agreeable to use this refinance appraisal.
Conclusion: A home assessment can be a great way to keep the divorce proceedings fair and peaceful.
The type of home you want to appraise will depend on whether the property is being sold before the divorce or if one person intends on keeping it. It is important to reach an agreement regarding each party’s equity percentage if you plan on selling your home.
Partner with a top agent with experience in selling homes due to divorce. We are happy to provide a Realtor referral. Based on their performance history, we’ll match you up with three highly-rated agents close to you. You can choose the best for your needs.
An appraisal is a great way to ensure that everyone is on the same page and keeps things civil.
Our Home Valuation Estimator can help you determine the value of your home right now. This online tool is free and can give you a rough estimate of the value of your home in just two minutes.