Estate appraisal - Market Value or Fair Market Value

[AlwaysLearning]

I was hired by an executor to appraise a 2-flat. I completed few retrospective appraisals in the past, but this one is for an estate tax purpose. My questions are:

1) Do I have to use “Fair Market Value” as defined by IRS or can I use “Market Value” as defined (lets say) in regulations published by federal regulatory agencies pursuant to Title XI of the FIRREA? (It seems that in real estate appraising the correct term is “market value”)

2) Is there anything else to be included in the appraisal report to satisfy the IRS (besides the fact that the effective date will be date of death)?

 

[Wayne Tomlinson]

IRS only wants a simple market value. They want it to be truthful, they usually do not need it to include any of that great body of work that it appears that some put into their appraisals. ( On some earlier thread, someone said that their typical 1004 ran to near 20-21 pages)

Use the old 1004, or one of the alternative forms if you like, or use a narrative if you like. Even the are a government entity, they are not picky on method, but in these times, since they now actually have a force of review appraisers, it should be accurate.

Find from the administrator what date they want for the effective date. They are allowed to have a date as much as six months after the date of death.

In this market, going six months later could have quite an effect on the value in some markets.

That being said, presently estates are exempt up to one million $. That leave out most of us. It may be that they only want the appraisal to establish a basis, especially if they intend to keep the property for a long time.

I have been suspicious that some attorneys want an appraisal to help them to set their fee. In many jursidictions, the attorneyfee IS based on the value of the estate. If a house is worth $2 million it probably doesn't take the attorney much more actual effort than on one that is worth $150,000.

They aint like appraisals on contingency fees.

Wayne Tomlinson


Ask your client what they want.

 

[Wayne Tomlinson]

Referring to your post, please explain the difference if
Market value as opposed to Fair Market Value.

If there is a difference, is there also an Unfair Market Value?

Just wondering.

Wayne Tomlinson

 

[Terrel L. Shields]

On some earlier thread, someone said that their typical 1004 ran to near 20-21 pages)

The last one to leave our office was 23 pages...seems a typical minimum unfortunately.

I do narrative for estate. Wayne, you laid it out nicely. And yes the IRS will accept a date of either the DOD or 6 mo. later. You might consider using the definition of Market value used by the Dept of Justice from USFLA (Uniform Standards of Federal Land Acquisition) or a definition provided by the client.

You can look at the DOJ info at www.usdoj.gov/enrd/land-ack/data_part1.htm regarding some issues to consider and you can download USFLA from that site.

Point. - Fannie /Firrea certs are not particularly good and I would avoid them. Write your own.

The IRS has a 3 year timeframe to review a gifting tax return or estate and if they don't review it by then, then they won't.

 

[AlwaysLearning]

Wayne

In my opinion, there is no difference. “Market value” is often used interchangeably with “fair market value”, however in real estate appraising the correct term (I believe) is “market value”

I posted my questions as the IRS uses only the term “fair market value” and defines it as:
“Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.” (Publication 561)

Do I need to use their definition?

 

[Meandering]

Fair market value is an accounting term

Market value is an appraisal term.

They maybe similar but who did the client hire, the accountant or the appraiser?

 

[CBBoston]

We do a fair amount of work for a consultant and attorneys for estates and aquisitions of businesses with real property. FASB also have a fair market value that's worded slightly different that the IRS definition. You can go in circles what is fair market value vs market value until your head hurts. :Eyecrazy: For practical purposes the two terms mean the same thing. One estate attorney told us that the IRS rarely questions appraisals unless the values seem totally outrageous. It aslo helps to have those three initials after you name that many here hate so much.

 

[rbrienza]

I have used the GP forms since it is not for lending. Also, make sure that you name the IRS as intended user.

 

[PropertyEconomics]

If you are doing an appraisal for extate TAX purposes .. the defintion is FAIR MARKET VALUE as defined by the IRS.
The IRS is NOT the intended user, the estate is and you should not name the IRS as a user of the report. You may wish to name the attorney and or accountant as users of the report but the IRS should not be. Additionally, for the most part one should always be hired by the attorney of the estate as the appraisal then becomes attorney work product and is often not subject to discovery rules as it automatically is if the estate engages your services. Subtle differences but someday they may come in very handy for you.

I am constantly amazed at the misinformation on this forum. Fair Market Value is defined by the IRS and deals with the decedents gross estate. Do not make the mistake of providing market value. While the two numbers may in fact be the same under both definitions the DEFINITIONS ARE NOT THE SAME ...

One final piece of advice is to make sure with the accountant, attorney, or executor ... that you are appraising as of the date of death and not the alternate date of valuation which the IRS provides can be exactly six months after the date of death. This should be determined by the professionals handeling the estate as the ENTIRE estate must be valued as of the same day so the date of death or alternate date should be clarified.

And for a couple of others:

Fair Value is an accounting term.

Finally initials after your name have no meaning to the IRS ... its a rather simple assignment and as long as you get the value definition right and the date of value right as well as doing a thorough job you will be fine.

As for many of you ... really, with all due respect, learn about the important differences before you offer advice. Much here is absolutely wrong.

 

[AlwaysLearning]

Thanks PropertyEconomics

[FONT=&quot]I have been reading IRS publication 561 (Rev. April 2007) since my original post. The publication does have guidelines/requirements for real estate appraisals. It looks like this will be a 20+ page report after all (if one wants to satisfy the IRS guidelines of course). [/FONT]