Bankruptcy filers must value their home at its fair market value as of the filing date, using methods ranging from formal appraisals to informal listings.
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 strip off junior mortgages. 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 bankruptcy forms on which you'll list all your property and its value, including real property, which is your real estate, including land and buildings affixed to it, such as houses. For example, if you have a house, your schedules must include its address and how much it's worth.
Determining Your Home's Value: 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 can use.
Formal Appraisal
Obtaining a formal appraisal is the most foolproof 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 visit your home, inspect it, and conduct a market analysis of your area. The appraiser will then provide a report indicating the likely fair market value of 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 another reason, you might be able to use the appraisal, but one more than a couple of months old may not hold up.
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 intend to strip a lien from your house, you will need a more precise valuation method.
Property Tax Assessments
For the most part, you should not use the home value as determined by your local property tax appraiser. Tax assessors' valuation methods often don't account for fair market value, rendering them 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 using Chapter 13, 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 might be sufficient.
