How to Value Your Home in Bankruptcy

Properly valuing your home in both Chapter 7 and Chapter 13 bankruptcy is important. In some situations, your home's value will determine whether you can keep it, or whether you can strip junior mortgages off. Here's how to value real estate in bankruptcy.

Listing Home and Real Property Values on Your Bankruptcy Forms

When you file for bankruptcy, you must complete forms, called schedules, that list all your property, including real property. Real property is your real estate -- it includes property such as land and buildings affixed to land, such as houses. Your schedules must also list the value of each item of property you own, so if you have a house, your schedules must list its address and how much it is worth. (To learn more, see Completing the Bankruptcy Forms.)

But how do you determine how much your home or other real estate is worth?

Fair Market Value

The legal standard for home valuation in bankruptcy is fair market value. Fair market value is the price at which your home would be sold in today's marketplace -- or, in the case of a bankruptcy filing, on the date you file your bankruptcy case. Therefore, if your home could reasonably be sold for $100,000 on the day you file for bankruptcy, the home's fair market value is $100,000.

Methods for Valuing Your Home

Determining fair market value is not difficult, but it can be expensive and time consuming. Here are some of the methods you may use.

Formal appraisal. Obtaining a formal appraisal is the most fool-proof method of valuing your house for a bankruptcy case, but it is also the most expensive. A formal appraisal involves hiring a real estate professional to come to your home, inspect it, and run an analysis of the market in your area. The appraiser will then provide a report that indicates the likely fair market value for your house. These appraisals can cost hundreds of dollars, but they are the most likely method to hold up in court. The appraisal must be recent, as market fluctuations dictate value; if you had your home recently appraised for a refinance or for some other reason, you may be to use the appraisal, but an appraisal more than a couple of months old may not hold water.

Formal market analysis. A formal market analysis is a step below an appraisal. A real estate professional will look at market conditions in your area and analyze recent home sales and current home listings in your area to determine what your house would likely sell for. A market analysis typically costs less than a formal appraisal, but is less compelling evidence.

Local listings comparison. A local listings comparison is something you can do yourself to determine your home's value. You review real estate listings in your neighborhood and estimate a value for your own home (taking into account the condition of your home) based on what other houses in your area are selling for. This is the least compelling method as far as proof goes. However, it might be sufficient if your mortgage is well over your home's value or if you intend to surrender your house. If you don't have a mortgage or if you intend to strip a lien off your house, you will need a more exact method of valuation.

Property tax assessments. For the most part, you should not use the home value as determined by your local property tax appraiser. Tax assessors' methods of valuation often do not take fair market value into account, which means they are useless for bankruptcy purposes.

Choosing the Right Method

Selecting the valuation method for your situation will depend on your purpose. The more important your home value is to your situation, the more thorough and formal a method you should choose.

For example, if you have a fair amount of nonexempt equity in your home or if you intend to strip second and third mortgages from the property, you should consider using a formal appraisal or market analysis. However, if you are certain your home has no equity (for example, if you only recently purchased it and used no down payment) or if you are surrendering your house in your bankruptcy, then the local listings comparison may be sufficient. (To learn more about lien stripping, see Your Home in Chapter 13 Bankruptcy.)