Property Valuation for Deceased Estate Purposes [2021]

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Paul Sundin, CPA

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If you are the executor of an estate that contains a home or other real property, it might just be the most valuable asset in the estate. Real estate markets can and do change quickly, and you need the date-of-death value. It gets harder and harder to estimate the value as time goes on. 

There are few options to determine the proper valuation. Just make sure you discuss the valuation strategy with your CPA and estate attorney.

You will need to get a valuation of what the property is worth. The value is essential for the following reasons:

  1. the value on the date of death is what will determine the ultimate gain or loss when the property is eventually sold. 
  2. the probate court may need it for inventory purposes of the deceased estate;
  3. the value may need to be divided between several beneficiaries;
  4. if the estate is valued more than the estate tax exemption, the valuation will tie directly into how much estate tax is paid.

Sell the property

One way to determine the value of a real estate parcel is to put it on the market and sell it quickly. In many situations, this is precisely what the heirs or beneficiaries want you to do.

If the real estate is sold within six months after the owner’s death, the selling price (and closing costs) is typically deemed the fair market value on the date of death. That assumes that the transaction was an arms-length transaction and not to a related party. 

If a friend to family member received a below-market price, then the valuation would not be acceptable. The beneficiaries might even complain about the low sales price. In addition, if the estate is audited, the IRS will likely challenge the value, and the result might be a gain on sale or additional estate tax liability.

Real Estate Agent Opinion

Typically, inherited real estate might be on the market for a while. The heirs are often going through the probate process or dealing with legal issues of the estate. 

But market conditions might require that the beneficiaries hold on to the property a while. Probate will often delay the process as beneficiaries must be notified, and the court must approve any sale. The property valuation for deceased estate purposes might take longer than you thought.

When the property is not sold, how do you get a solid estimate of the value of a home, condo, or even a parcel of land? The simplest way is to ask a couple of real estate agents to walk the property and give you a broker’s opinion in writing. They can review recent comparable sales and should be able to provide you with a solid estimate. Just make sure they have experience with real estate in a specific area. 

Real estate valuation is always a subjective issue. But even more so for deceased estate purposes. Valuations might be low in hot markets and a little high in falling markets. But you must have an independent valuation. Most agents are eager to give you a valuation hoping that they will be hired to sell the property at some point in the future.

Professional Appraisal

Depending on the size of the property and the size of the estate, it might make sense to get a formal appraisal. This will be the most reliable and defensible estimate. 

A licensed real estate appraiser should complete it. Appraisers have no incentive to inflate a valuation for a deceased estate. In addition, if the property is a commercial, industrial, or apartment building, the formal appraisal is that much more critical. 

Property Valuation for Deceased Estate Purposes

Remember that it is critical to determine the fair value of the property. There are too many interested parties that an inaccurate valuation can impact. Most importantly, the last thing you need is an IRS audit

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Estate CPA

Gilbert, AZ