Question for our resident real estate experts:
I am beneficiary of part of a house. It has been appraised within the last 30 days. I’m just wondering if it’s likely to sell for something close to appraised value. The tax assessment value is higher than appraised value, but I’m thinking the appraised value may be too high also. If it matters, it’s in a location between DC and Baltimore. It’s a small house, on 1.5 acres, but the house sits close to a busy 2 lane road.
Thanks in advance
Theoretically, it should sell for close to the appraised value. The appraised value is based on recent sales of similar houses. But there is no way to know until it is actually on the market. The value of a home is simply what a buyer is willing to pay for it. Sometimes a person will complain that their “$400,000” home is only bringing in offers of $350,000. That means the only place it is a $400,000 house is in their head. No piece of paper is going to determine the value of the home - until you have a contract and a settlement.
A small house on 1.5 acres might appeal to a developer who wants to knock it down and build 2-3 houses, depending on the zoning.
The real estate agent should prepare a market analysis of recent home sales and current listings to provide a rough idea of a likely sales price.
My suggestion is to interview several real estate agents that specialize in the immediate neighborhood. If you are intending to sell, they will gladly come to the property and give you a market analysis. Take the lowest value since it is probably the most realistic. Some agents will give you a high price to try to get the listing agreement.
If you are not intending to sell then you will have to go with “appraised” value as best bet. But ask to see appraisal report. Sit down and analyze the comparable properties they used. There are several issues with appraisers. They do not give a lot of value for condition. For example, if the house right next door, same location to the busy road and same lot size and similar size home was fully remodeled., new kitchens and baths, new roof etc. The appraiser will only give it about $40,000 more in value. Most buyers will usually pay a premium for excellent condition but appraisers do not give enough value.
So the answer is in the details of that appraisal report. They have to include details of the other sold properties and you can do some detailed research. Did the other houses sell really fast? Did they sell close to asking price? What deduction, if any, did they take off the other property’s value for location/noise issue?
A real estate agent preparing the house for sale should be able to present you with “comparables” no matter where you live. Those will reflect actual recent transactions. Looking at comparable price/square foot, you can extrapolate from there, taking into account specifics unique to your house and property such as location, condition, features, upgrades, etc. Most buyers will look at the same thing when evaluating their purchases.
Appraised values for tax assessments often lag market value and will depend on the speed at which the taxing authority reflects actual market activity. For example, in a taxing district nearby us, I’ve seen houses on the market for 8 figures that are still appraised at a few million on the tax rolls. Those owners are not going to complain to get their appraised values increased.
Likewise, in a declining market, owners file protests and get their appraised values reduced.
Edited: and if the house value is significantly different compared to tear-down value for the land, then it’s a different situation whereby potential use is another factor.
Thanks for the replies. The house will be sold at some point. The other person has said I can pay him an amount and then fix it up/sell it myself (I would pay to do anything except clean it out) possibly making more money. It was an offer of generosity, not trying to take advantage of me. But what I’m worried about is how it will work. For example, I need to pay inheritance tax, then possibly tax to put it in my name, and then assume 6 percent to sell it, plus minimal utilities and insurance. So it may not work out so well in the end.
@1214mom ,
If you are getting an inheritance (1/2 of the house), I would think that everything you receive is a “windfall.” What you ought to be planning to do is to structure the transaction in such a way as to:
(1) minimize inheritance tax (assuming MD has inheritance tax), otherwise there is no Federal inheritance tax (as distinguished from estate tax)
(2) assuming that the transfer of title occurs upon the owner’s death, you and the other heir should get a step-up in basis–so any gain upon the subsequent sale would be calculated based on the new step-up basis
(3) minimize any carrying cost related to the inherited asset assuming that you don’t want to keep it for long after you inherit–these would include the ongoing upkeep, payment of taxes, utilities, etc. + costs of selling the house
Thanks @AttorneyMother. You are absolutely correct… It’s all a windfall to me, for which I’m very grateful. I have to pay inheritance tax, the other person does not. (I’m not related, and in Maryland that’s the way it goes). It’s the things such as what you talk about in bullets 2 and 3 that I’m worried about. At first his offer seemed very “nice” to me, and for someone not used to dealing with money, if you do the math it’s a very generous offer. But once you start thinking about all the things that get added together, I could wind up not doing so well. Do you mind explaining what a “step-up” basis is?
@1214mom ,
Here’s an easily discoverable definition:
http://www.investopedia.com/terms/s/stepupinbasis.asp
Here’s another:
http://wills.about.com/od/termsbeginningwiths/g/steppedupbasis.htm
Just keep your reading simple and the salient issues will gel and you can better make your decision.
Thanks @AttorneyMother. Not sure why I didn’t just “Google” it. Sorry. 
No worries. 
It happens to the best of us.