The use of expert testimony regarding real estate valuations in divorce actions

Areas in which to use expert testimony in a divorce action are limited only by counsel’s creativity based on the unique challenges each case presents.

The most basic form of expert testimony in a divorce trial is real estate appraisal. Although the owner of a property can testify to its value, Nelson v. Leo’s Auto Sales, Inc., 185 A.2d 121 (Me. 1962), expert appraisals are admissible even though appraisals are by nature approximations. Runser v. City of Waterville, 355 A.2d 747, 751 (Me. 1976). There are essentially two types of residential real estate appraisals. The first, an opinion of value, is relatively inexpensive. A qualified real estate broker surveys the community to determine the listing and sale price of similar properties in the vicinity. Many realtors will perform this service at no cost if the result is obtaining the listing. Others may charge a modest fee of $50 to $100 for the opinion of value. In Murphy v. Murphy, 2003 ME 17, ¶¶ 6, 19, 816 A.2d 814, the court accepted a real estate broker’s testimony that he would suggest a listing price between $119,000 and $125,000 in order to sell the property at $117,000 and valued the marital home at $119,300.

While opinions of value may be admissible at trial, they are generally given little weight because the determinations are mostly subjective and do not adhere to real estate appraisal standards. Whenever real estate constitutes a significant part of the marital estate, a full real estate appraisal is the appropriate choice. Real estate appraisers generally focus their practice on determining the value of real estate for a variety of businesses, primarily banks and other financial institutions providing mortgages for property acquisition. The cost of a residential real estate appraisal in this area should be between $400 and $500. It is a wise investment. Real estate appraisers generally conform to the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal Foundation. Always look for this certification, since it will then conform to well-accepted and definable appraisal standards. The purpose of the appraisal is to determine fair market value. Under USPAP, the definition of market value is “[t]he most probable price which a property should bring in a competitive and open market under all conditions requisite to fair sale, the buyer and seller, each acting prudently, knowledgeably, and assuming the price is not affected by undue stimulus.”

The real estate appraiser’s primary tool is the identity of properties of similar nature within the geographic area which have sold on the open market within the previous six months. While real estate appraisal is a discipline, it is not a science and can be subject to significant variations based upon the selection of comparable sales. Generally, appraisers will look within the immediate area (one to five miles) for similar property. As the appraiser moves away from the location of the property, distance may undermine the comparison to the subject property. Likewise, after the real estate meltdown in 2008, financial institutions have insisted that appraisals be no older than six months for mortgage lending purposes. While older appraisals may still be admissible in a divorce, the fact that financial institutions require them to be no older than six months demonstrates the potential volatility as the appraisal ages. See Nadeau v. Nadeau, 2008 ME 147, ¶ 43, 957 A.2d 108 (the court did not clearly err in crediting an expert’s opinion that the value of the marital residence had decreased by $100,000 since the initial assessment by the parties due to a change in market conditions).

After comparable property has been identified, the appraiser must review a number of factors that include design, square footage, location, quality of construction and age of construction, among a host of other factors. Each factor then must be adjusted to make the property comparable to the property being valued. Generally, USPAP guidelines recommend that net adjustments are kept below 15 percent. Always look at the net and gross adjustments and determine whether or not the adjustments comply with USPAP and secondary market guidelines. Appraisers are required to disclose whether adjustments comply with secondary market guidelines for the financial industry.

Always read the section of additional comments to the appraisal report. The comments will disclose limiting conditions, assumptions, and zoning compliance, as well as adverse site conditions or external factors.

Appraisers in the State of Maine are required to be licensed by the Board of Real Estate Appraisers. Make sure your appraiser is currently licensed. There is also an online listing of appraisers, together with any complaints or adverse findings with respect to the appraiser’s practice. Always review online findings since they provide excellent material for cross-examination.

This article is the fourth installment in a series providing general information about the use of expert testimony and opinion testimony in divorce litigation.  The entire Chapter regarding the Use of Experts in Divorce Litigation was published by MCLE New England in February, 2016:  A Practical Guide to Divorce in Maine.  The Guide is available for purchase at the MCLE New England website.

Gene R. Libby

Gene R. Libby

Gene has a rich history of litigation experience over the last 30 years. He has tried over 100 civil and criminal jury cases to verdict. His practice focuses on a wide variety of civil and criminal litigation representing individuals and small businesses, including divorce, real estate disputes, small business litigation, elder law, personal injury, professional… Read more »