If you’re the spouse who’s going to keep the home after a divorce, you may receive two very different home appraisal values before you close the book on this chapter of your life. There’s a good reason why the values are different, so before your red flags go up, let’s discuss what’s really going on.
The divorce appraisal is used solely by your attorneys and the court. It has nothing to do with your ability to obtain a mortgage; instead, it answers the question, “What is the most a buyer might pay for this house?” Divorce attorneys use this type of appraisal to determine the high value of a home in order to divide the sum total of a divorcing couple’s joint assets equitably.
The divorce appraisal often—but not always—reflects a retrospective value, such as the value on the home’s purchase date, your wedding date, or some other relevant date, sometimes even the filing date of the divorce itself. This type of appraisal is called a “retrospective appraisal,” and since it reflects a past value, it rarely matches the mortgage appraisal’s value.
Lenders won’t consider the divorce appraisal because it focuses on the top end of the value range, which may not reflect any given buyer’s actual offer price or willingness to pay. The divorce appraisal doesn’t have to comply with federal lending guidelines, either (like Fannie Mae, VA, etc.) Instead, lenders use the mortgage appraisal to determine the value of your home.
The mortgage appraisal is used to evaluate the risk a lender will assume if they grant you a mortgage to buy the home. It tends to be a more conservative analysis that answers the question, “What is a buyer most likely to pay for this home?” Unlike the divorce appraisal, the mortgage appraisal must comply with strict federal lending guidelines, and where a divorce appraisal often reflects a retrospective value, the mortgage appraisal reflects the home’s value on the day the home is appraised.
The difference is simply this: one appraisal helps your attorneys determine a fair settlement price for the property, while the other assesses a lender’s risk before agreeing to lend you money to buy out your half of the home. While both appraisals are considered accurate for their purposes, the values are different because their calculations are based on completely different sets of priorities.
So, there it is. Now you know why your attorney’s appraisal and your lender’s appraisal don’t match. If you’d like more information, or if you’d like to have your own home appraised, please call me. I’ll be happy to provide you with a complimentary valuation and discuss the steps you can take to order a full property appraisal for your home.