Valuing the Marital Home
“Americans would sacrifice just about anything to own a home — it is one of their highest priorities in life.”1 Through booms and busts in the real estate market, that underlying sentiment has remained a consistent and integral part of the American meme. For most families, the single, largest investment they will ever make is buying a home.
In marital dissolution proceedings, one of the preliminary — and frequently litigated — issues in equitable distribution revolves around the marital home’s value. How much is the family house, and all that is bound up with it, truly worth? Of course, all property is unique.2 Nevertheless, in a contested dissolution action, the court must determine a home’s monetary value in order to complete an equitable distribution of marital assets and liabilities.3 This article explores some of the legal issues surrounding valuation of the marital home and real property.
Defining Fair Market Value
One could imagine a variety of approaches to value a house and its underlying land. The law in marital dissolution proceedings, however, as in many other areas of the law, relies upon the market.4 That is, the property’s value “depends on the price it would bring in [a] hypothetical market transaction.”5 The price derived from this hypothetical exercise is commonly referred to as the fair market value of property.
Definitions for fair market value have varied over the years, ranging from the succinct, “arm’s length transaction,”6 to the more expansive: “[T]he amount of money which a purchaser willing but not obliged to buy the property would pay to an owner willing but not obliged to sell it, taking into consideration all uses to which the property is adapted and might in reason be applied.”7
The most comprehensive definition of fair market value, however, can be found within the Uniform Standards of Professional Appraisal Practice (USPAP), a compilation of guidelines, rules, best practices, and professional standards promulgated by The Appraisal Foundation that has been adopted throughout the United States:8
Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
1. buyer and seller are typically motivated;
2. both parties are well informed or well advised, and acting in what they consider their best interest;
3. a reasonable time is allowed for exposure in the open market;
4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.9
Divining the most probable price for a property’s fair market value poses an interesting challenge in the law. On one hand, the analysis inherently requires elements of speculation; but then, it is a prediction that has the benefit of some long-established and widely tested means.10 Analytically, the concepts of underlying market value are easily articulated as broadly stated principles, but value itself is ordinarily understood in terms of numbers. Or, as Judge Fletcher of the Third District aptly put it, “[a]ll of this is well and good, of course, but in order to translate words into dollar amounts there must be mathematical formulae to consider, and, of course, there are.”11
Florida courts, following the lead of USPAP and real estate appraisal practice, have embraced three such formulae, or approaches, to valuing real property: 1) the market or sales comparison approach; 2) the income approach; and 3) the cost approach.12 Each method will be examined briefly in order to provide an overview of how appraisers (and courts) have approached the valuation process for real estate. It is important to note here that these approaches are not exclusive of each other; to the contrary, appraisers frequently employ and correlate all three approaches, albeit with varying emphasis, in a process known as reconciliation to derive an overall fair market valuation for real property.13 With that in mind, we could liken fair market value to a portrait hanging on a faraway wall, where we have three different lenses through which to look at it: Each should be tried, all might be needed, but one could end up providing the clearest view.
• Sales Comparison Approach — The sales comparison approach, as its name implies, looks to other sales of similarly situated homes from which to derive fair market value. More technically, the sales comparison approach has been defined as:
A process of analyzing sales of similar recently sold properties in order to derive an indication of the most probable sales price of the property being appraised. The reliability of this technique is dependent upon (a) the availability of comparable sales data, (b) the verification of the sales data, (c) the degree of comparability or extent of adjustment necessary for time differences, and (d) the absence of non-typical conditions affecting the sale price.14
It is probably the most easily understood and intuitively persuasive of the three approaches, particularly for residential homes. To draw a simple example, suppose the Jones family and the Smith family each live in similar three-bedroom, two-bathroom houses on the same street when the Smiths sell their home to a third party in an arm’s length transaction. All things being equal, the price the Smiths are able to sell their home for could be an indicator of the approximate price the Jones family could expect to receive if they decide to list their house for sale.
Those who have ever reviewed a residential appraisal when buying a home will likely recognize this approach by its extensive compilation of information concerning other houses; that is, relatively recent sales of other similar, comparable properties (or, “comps,” as they are sometimes called in appraisal vernacular), which are identified and described at some length within the appraisal report.15 The selected comparable sales will yield a valuation created by weighing each transaction, assigning a dollar or percentage adjustment to reflect any qualitative or quantitative differences between the comparable sales and the subject property, and then reconciling a market value or range of values.16 Assuming there is reliable information concerning recent transactions for similar properties, the sales comparison approach can be a highly useful and predictive measure of a marital home’s value.17
• Income Approach — The second approach appraisers frequently utilize in valuing real estate examines the potential income produced by a property. That is, the anticipated profits from the property are analyzed, and then capitalized, in order to determine a value as of a specified date. An eminent domain treatise explained the method this way:
Under the income approach, an appraiser or other witness calculates the economic rent the property will command in the open market, deducts normal operating expenses to arrive at net operating income, and then capitalizes the net operating income by a rate of return to arrive at an opinion of fair market value.18
“Capitalizing,” in this context, simply means an appropriate arithmetic method “[t]o convert periodic payments into an equivalent sum or sum in hand.”19 For those who work better from mathematical renderings, the Florida Supreme Court summarized the income approach in the following formula:20 Net Income/Overall Rate of Return (Capitalization Rate) = Value
Especially useful for measuring commercial or rent-yielding properties, appraisers still frequently consider a form of the income approach when calculating the value of a marital home. applying a “gross rental multiplier” to the rent a home would likely bring, an appraiser can offer another view of fair market value for a rentable residential property.21
• The Cost Approach — Finally, as it is often a constituent part of appraisal practice, the cost method of valuing real property merits a brief mention. Essentially, the cost approach analyzes a hypothetical reconstruction of a property by combining elements of construction pricing, accounting, and land valuation together. The three-step process underlying the cost approach has been summarized as follows:
First, the land is valued as if vacant…. This is generally accomplished by using comparable sales data. Second, the reproduction or replacement cost of the structures or improvements are estimated. This is calculated by determining current prices of all materials, labor and necessary overhead…. Finally, accrued depreciation must be estimated and deducted from the total amount.22
The cost approach, according to one text, “[i]s particularly useful in valuing new or nearly new improvements and properties that are not frequently exchanged in the market.”23 Its usefulness in that one, defined context, however, does not necessarily carry over into others. Ordinarily, this approach is most applicable when there is no comparable sales data available for the property24 — a situation that would be unusual in many single-family home markets. Thus, for a variety of reasons, the cost approach is perhaps the one most frequently criticized within legal proceedings for its perceived shortcomings, particularly as it relates to valuing a residential home.25 Again, though, common appraisal practice will amalgamate all three valuation approaches with different degrees of reliance and emphasis.26
Evidence of Fair Market Value
Turning now from the abstract approaches of real estate valuation, the evidence a court may consider when determining fair market value can be as varied as the methods of measurement. There is a wide range of potential sources from which a court can draw to value a marital home. Some of the more frequently occurring evidentiary sources proffered in marital dissolution proceedings are addressed below.
• Owner Testimony — It is not uncommon for a husband and wife in a dissolution action to have no evidence available to them concerning the value of their home, other than what they think it may be worth. Of course, most people hold no formal training or experience in real estate transactions, much less appraisal valuation techniques. So one might assume that these litigants would be precluded from offering what amounts to opinion testimony about something as complex as fair market valuation of real estate.27 In fact, the law provides a special exception for an owner’s testimony about the value of his or her property.
Ordinarily, “[a]n owner of property is generally qualified to testify about the value of his own property.”28 This rule, which has a long history in Florida law,29 is premised on the assumption that most owners know their own property, often better than anyone else, whether from having paid the cost of its purchase, having lived on it, having improved it, or having looked after it day after day. The familiarity engendered by possession and ownership of property permits the lay owner to testify about its value in the form of an opinion.30
The case of Stephens v. Stephens, 959 So. 2d 388 (Fla. 1st DCA 2007), provides an example of how persuasive an owner’s testimony can potentially be. In Stephens, a husband and wife owned a vacant lot in Alachua County. The wife’s expert appraiser testified that the lot was worth $218,000, but the trial court found that the comparable lots the appraiser relied upon in reaching his opinion were all much larger in size than the lot the couple owned.31 The appellate court then directed the trial court to enter a $120,000 value for the property, the amount the husband testified he believed the lot was worth, instead of the appraiser’s inflated valuation.32
But the First District Court of Appeal would later expound upon the limits of an owner’s testimony in Craig v. Craig, 982 So. 2d 724, 729 (Fla. 1st DCA 2008):
[It] is based upon an owner’s presumed familiarity with the characteristics of the property, knowledge or acquaintance with its uses and purposes and experience in dealing with it…. [An] owner must be shown to have knowledge regarding the property and its value sufficient to qualify him…. The presumption that an owner is sufficiently familiar with property to give an admissible opinion as to its value is a fragile one. If it be shown that the owner…does not have such familiarity, the opinion evidence is not admissible.
Thus, the husband in the Craig case could not render (nor the trial court accept) his opinion testimony about the future value of the parties’ two vacant lots, based upon his anticipation of a string of complicated development and rezoning applications that he hoped to prevail upon.33
In that same vein, the owner must actually testify and provide some predicate for the valuation he or she offers. The Second District Court of Appeal in Tucker v. Tucker, 966 So. 2d 25 (Fla. 2d DCA 2007), reversed a trial court’s equitable distribution of a townhome when the parties listed competing values in their respective financial affidavits, but offered no testimony or substantive basis for how they had reached their valuation numbers. Both the majority and concurring opinions in Tucker noted the paucity of the evidence, when the wife “presented no testimony about the current value of the townhouse” and the husband’s valuation “was not based upon his own opinion of value, but was in fact based upon an opinion provided to him by a realtor who performed a simple and cursory market analysis of the property, sight unseen” (which the trial court had excluded).34 As Judge Altenbernd pointed out, a disagreement between co-owners about the value of real property does not, in itself, require an expert’s testimony to resolve, but an owner’s testimony must still rise to the level of competent, substantial evidence about the property’s value for the trial court to fashion an equitable distribution.35
Before leaving the subject of owner testimony, there is an important evidentiary point in real estate valuation that is worth mentioning. In the context of equitable distribution, some appellate courts have fashioned what appears to be a prohibition against (or, at least, a very strong aversion to) trial courts “splitting the difference” between two proffered values of real property.36 In other words, if one spouse believes the marital home is worth $300,000, while the other offers an opinion that it is only worth $100,000, and no other evidence of value is available, the trial court cannot simply pick the mid-point of $200,000 when fashioning an equitable distribution of the property. In this scenario, the court is left with only two alternatives: declare the home to be worth $100,000, or triple that amount. As the Second District warned, parties “run [a] risk” if they “fail to present evidence other than their personal opinion as to value,” because “a trial judge ordinarily must choose between those values.”37 This prohibition is usually couched in terms of the F.S. §61.075(3) requirement that factual findings in a contested equitable distribution must be based upon “competent substantial evidence.”38 Presumably, the courts feel that simply computing the mean of two owners’ value opinions falls short of that metric.
Without argument, splitting the difference between competing ends could lead to a distorted view of a property’s fair market value in many cases. Still, it is unclear why, in a marital dissolution, the finder of fact cannot deviate from conflicting valuation opinions about real property, while it would be free to do so in an eminent domain case, a proceeding that has something of a reputation for “the all too frequent compromise verdicts” that split the difference between a condemnor and condemnee’s valuations.39 Given the inherent inexactness of ascribing value to land,40 and the prominent role that comparative averaging of values plays in professional appraisal practice, one could argue that, in some cases, it might be appropriate for a trial court to value marital real estate somewhere between a husband and wife’s conflicting valuations.41 Perhaps the statute’s requirement of competent, substantial evidence could still be fulfilled in this context as long as the trial court can ground its determination on the evidence presented and a thoughtful balance between the proffered values.42
• Real Estate Appraisers and Brokers — Spouses in dissolution proceedings will sometimes rely upon real estate professionals to evaluate the fair market value of their home. Broadly speaking, Florida law has been receptive toward expert testimony concerning the fair market value of a residence.43 Whether a particular individual is qualified to render such an opinion is, of course, subject to the court’s determination of whether he or she has sufficient “knowledge, skill, experience, training, or education” about real estate valuation.44 While there are a myriad of facets and niches in the real estate industry, most family law litigants resort to an appraiser, or sometimes a real estate broker, when they hope to proffer expert testimony concerning real property value.
In Florida, real estate appraisers most often fill the role of valuation experts in contested real estate disputes. Appraisers are licensed and regulated by the Florida Department of Business and Professional Regulation’s Real Estate Appraisal Board.45 Some appraisers may also hold special designations from the preeminent appraisal trade organization in North America, The Appraisal Institute, such as the MAI or SRA certifications (although neither designation is necessary for an appraiser to be qualified as an expert).46 After suitable qualification and voir dire, if any, by the opposing party, a real estate appraiser’s testimony typically proceeds like any other expert’s, with the focus of the examination and cross-examination often revolving around the suitability of the appraiser’s chosen comparable sales, the familiarity with the subject property, the propriety of the selected capitalization or rental rates, and so forth. The participation of expert appraisers in dissolution actions has shaped many equitable distributions by their valuation of marital real estate.47
One of the impediments litigants with limited resources may face when engaging an appraiser in dissolution proceedings is the cost. Obtaining a real estate appraisal for most residential properties is not a terribly expensive undertaking.48 But absent a stipulation of the parties, the appraisal report (like any other expert report) would seem to fall within inadmissible hearsay,49 requiring a spouse to pay for the appraiser’s preparation and time testifying as an expert witness at trial.50
The case of Witchell v. Londono, 707 So. 2d 796 (Fla. 1st DCA 1998), however, may cast this intuitively clear prohibition into a questionable light. In Witchell, the purchaser of an apartment complex defaulted on a promissory note, and the seller reclaimed the property pursuant to his foreclosure rights under the note.51 One of the principal issues on appeal in Witchell was whether the trial court properly credited the market value of the foreclosed complex against the purchaser’s indebtedness by relying on an appraisal report of the property’s value submitted by the creditor. It is not clear from the opinion what testimony the appraiser provided at the trial beyond affirming that he created the appraisal;52 what is clear is that the trial court admitted that report into evidence and accepted its statement of fair market value:
The [trial] court also determined that the appraisal report was admissible, and accepted the appraiser’s opinion that the mortgaged real property had a fair market value of $2,800,000.00 on the date of the foreclosure sale. The trial court then calculated the amount due under [the note], based upon the terms of the note and the parties’ agreement, and entered final judgment in favor of Londono and against Witchell in the amount of $575,855.52.53
In a brief observation, the appellate court affirmed the admission of the appraisal into evidence, characterizing it as part of the trial court’s discretion to admit evidence:
We conclude that the trial court did not abuse its discretion in admitting the property appraisal report into evidence. The appraiser here testified that the underlying facts and data supporting his opinion were contained in his report. The appraiser’s report here sets forth the facts and data underlying the appraiser’s opinion as to value of the subject real property, in accordance with generally accepted property appraisal standards and methodology.54
The Witchell case cannot be read to create any kind of special hearsay exception for real estate appraisals. First and foremost, nothing within the opinion purports to craft a categorical evidentiary rule about appraisals. Secondly, the appraiser in Witchell was present to testify at the trial; indeed, the appellate court noted that the debtor failed to examine him about the facts or data in his report.55 Finally, no other reported Florida decision has applied Witchell ’s holding concerning the admission of the appraisal report in any other context. Still, family law practitioners should remain vigilant about the evidentiary repercussions of appraisal reports — and the failure to assert appropriate objections over their use at trial.
Besides real estate appraisers, experienced real estate brokers might have considerable familiarity with market prices for residential homes, particularly in the markets where they conduct business. Like appraisers, brokers are also licensed by the Department of Business Professional Regulation, but through the Florida Real Estate Commission.56 Although not as common an occurrence, occasionally, a party in a dissolution proceeding will retain a real estate broker to offer an opinion of fair market value for a marital home.57 As long as the broker satisfies the requisites of qualification, there is no reason why a broker with sufficient training, experience, and preparation could not opine about the probable price of a marital home in a dissolution action. That said, the recognized methodologies of real estate valuation remain constant. It is never sufficient for an expert in any field to offer an opinion based on nothing more than speculation, a feeling, or a hunch.58 Thus, whatever his or her training or credentials may be, any third party who would purport to offer an opinion of fair market value must be able to ground that opinion within the proper valuation approaches.59
• County Property Appraiser Valuations — Every county in Florida has an elected property appraiser who is tasked with assigning “just value” (a term held to be synonymous with “fair market value,” less transaction-related costs)60 for all property within their jurisdiction that is subject to taxation.61 In the advent of the Internet, most elected property appraisers maintain a publicly accessible database that provides a means to search assessed properties, which can show the market value the appraiser has ascribed for a given tax year. The temptation to correlate the market value reported by the property appraiser to a home’s current fair market value is understandable. Unfortunately, the valuations are by no means equivalent. For a variety of reasons, the county property appraiser’s valuation of most single-family homes will likely understate the property’s true fair market value.62 Indeed, as one commentator bluntly summarized, “[t]ax assessment values are seldom reliable as accurate measures of current real property values.”63
Nevertheless, family law courts are allowed to consider the property appraiser’s reported market value of a marital home under certain circumstances. For example, in Smith v. Smith, 896 So. 2d 818 (Fla. 5th DCA 2005), the trial court was called upon to divide the value of approximately 27 acres of property near St. Augustine. Neither spouse, though, offered any testimony about the property’s value other than the county property appraiser’s assessment.64 The appellate court affirmed the trial court’s reliance on the property appraiser:
In fact, the only evidence of the value of the Moultrie Heights property was its assessed value. Although section 61.075(3)(b) requires the court to value significant assets, and fair market value is the standard method of evaluating such an asset, no evidence of the fair market value was presented. Thus, the trial court did not abuse its discretion in determining the wife’s share based on the assessed value because that was the only evidence of value presented.65
More recently, the Fifth District appeared to broaden the availability of the county property appraiser’s evaluations in the case of Hernandez v. Hernandez, 109 So. 3d 806 (Fla. 5th DCA 2012). In that case, the appellate court affirmed the trial court’s use of the property appraiser’s assessed value where the parties had presented conflicting affidavits of value concerning a second home, and the appraiser’s assessed value fell within the range of the affidavits’ values.66 It remains to be seen where the courts will eventually draw the evidentiary boundaries around what is clearly a convenient and cost-free, but possibly imprecise, source of value information about residential properties.67
• The Internet (and the Rise of Zillow) — Finally, it is worthwhile to conclude with a few thoughts about the intersection between valuation disputes and the World Wide Web. No one could overstate the massive commoditization of knowledge, of all kinds and qualities, which the Internet has unleashed. In real estate, one can amass an astonishing amount of data about property, ranging from the transactional data of recorded instruments to aerial pictures of a parcel’s topography and improvements. Perhaps not surprisingly, with the ease of accessibility to all this information, a variety of real estate valuation services has flourished on the Internet. One in particular, the website Zillow.com, has proven especially popular in recent years as both a source of real estate listings and a self-proclaimed evaluator of real estate values.68
Zillow.com offers what it styles as a “Zestimate” of market value for an impressively broad range of properties. The Zestimate, according to Zillow’s website, is:
Zillow’s estimated market value, computed using a proprietary formula….
The Zestimate is not an appraisal and you won’t be able to use it in place of an appraisal, though you can certainly share it with real estate professionals. It is a computer-generated estimate of the worth of a house today, given the available data. Zillow does not offer the Zestimate as the basis of any specific real-estate-related financial transaction. Our data sources may be incomplete or incorrect; also, we have not physically inspected a specific home. Remember, the Zestimate is a starting point and does not consider all the market intricacies that can determine the actual price a house will sell for.69
Obviously there are a number of evidentiary obstacles a trial court faces if a litigant seeks to introduce information about real estate values that are culled from such an Internet service. To take Zillow.com as an example, there are levels of hearsay between whatever the stated value is on the website and the owner testifying in court, a questionable predicate underlying the website’s “proprietary formula,” and repeated, express disclaimers within the website about relying on its valuations. No Florida court has upheld the use of Zillow.com, or any similar website, for ascertaining real estate value in a contested proceeding.70 In sum, these kinds of valuation sites provide a convenient service for individuals entering or exploring the real estate market; but they should be taken at their word, so to speak, and confined to their stated function. In the case of Zillow.com, that is to offer the public a “starting point in determining a home’s value,” not a definitive claim of valuation for a court of law to consider.
The marital home, often the most significant marital asset in a family, can also be the most variable in terms of its valuation. Courts and practitioners should keep in mind the theoretical approaches as well as the evidentiary issues of real estate valuation when confronting this important component of equitable distribution.
1 Federal National Mortgage Association (Fannie Mae), National Housing Survey 1, 8 (1992). This was among the prefatory observations reported in one of Fannie Mae’s first published national housing surveys.
2 Daniel P. Selmi, The Contract Transformation in Land Use Regulation, 63 Stan. L. Rev. 591, 601 (2011) (recounting “traditional property maxim” that “all property is unique”).
3 Fla. Stat. §61.075(3) (“In any contested dissolution action…any distribution of marital assets or marital liabilities shall be supported by factual findings in the judgment….”). Under subsection (3)(b), the trial court must provide, within its findings, an “[i]dentification of marital assets, including individual valuation of significant assets….” Cf. Kaaa v. Kaaa, 58 So. 3d 867, 872 (Fla. 2010) (to apportion marital, passive appreciation of nonmarital property’s value, “[f]irst, the court must determine the overall current fair market value of the home.”).
4 For example, fair market value is used as a measure of damages in eminent domain proceedings, contractual or tort claims involving real property, and in title insurance claims. See System Components Corp. v. Florida Dept. of Transp., 14 So. 3d 967, 976 n.11 (Fla. 2009) (quoting United States v. Miller, 317 U.S. 369 (1943)) (“An owner of lands sought to be condemned is entitled to their ‘market value fairly determined.’”); Bisque Associates of Florida, Inc. v. Towers of Quayside Condo. Ass’n, Inc., 639 So. 2d 997, 999 (Fla. 3d DCA 1994) (In case of negligent maintenance of condominium plumbing, “Where the cost of repair exceeds the value of the property in its original condition, or where restoration is impracticable, the measure of damages is diminution in value.”); Hillsboro Cove, Inc. v. Archibald, 322 So. 2d 585, 586 (Fla. 2d DCA 1975) (noting title policy limitation in purchaser’s lawsuit against seller and title insurer for loss of 30 feet of property, as “[i]n case of any loss to the owner by reason of a defect…affecting only a part of the guaranteed property, the measure of damages…shall not be a greater fractional part of the declared value of the property as stated in this guarantee than the proportion which the property affected by said defect…bears in value to the entire property covered by this guarantee.”).
5 Steven Scott Stephens, Florida Family Law §11:12 (2012 ed.).
6 In re Brown, 402 B.R. 19, 31 (Bankr. M.D. Fla. 2008) (debtor’s prepetition sale of business real estate in connection with divorce decree “was an arm’s length transaction for fair market value”); First Union National Bank of Florida v. Goodwin Beach Partnership, 644 So. 2d 1361,1366 (Fla. 5th DCA 1994) (Sharp, J., dissenting) (“A sale made under time pressure, or one which is not clearly ‘arm’s length’ can be rejected as not true ‘fair market value.’”).
7 See American Reliance Ins. Co. v. Perez, 689 So. 2d 290, 291 (Fla. 3d DCA 1997) (citing City of Tampa v. Colgan, 163 So. 577, 582 (1935)). See also Walter v. Schuler, 176 So. 2d 81, 86 (Fla. 1965) (noting the “classic formula” of fair market value as “the amount a purchaser willing but not obliged to buy, would pay to a seller willing but not obliged to sell”); 4 Nichols on Eminent Domain §12.02 at 12-62 through 12-70 (rev. 3d ed. 1996)).
8 USPAP’s authority to define appropriate standards of real estate valuation is unquestionable. As part of Title IX of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, 12 U.S.C. §3331, et seq. , every state was required to establish programs for the licensing and certification of real estate appraisers. Pursuant to 7 C.F.R. §761.7, USPAP became the applicable “appraisal standards” mandated under that act. 12 U.S.C. §3336. In Florida, USPAP is recognized under Fla. Stat. §475.628 (“The [Florida Real Estate Appraisal Board] shall adopt rules establishing standards of professional practice which meet or exceed nationally recognized standards of appraisal practice, including standards adopted by the Appraisal Standards Board of the Appraisal Foundation.”); and F.A.C. §61J1-9.001 (“All registered, licensed, or certified appraisers shall comply with the 2012-2013 Uniform Standards of Professional Appraisal Practice (USPAP), effective January 1, 2012, which is incorporated by reference.”). For further information about USPAP, see Appraisals Standards Board, Uniform Standards of Professional Appraisal Practice, http://www.uspap.org.
9 USPAP Advisory Opinions 2010-2011 Edition, A-105.
10 See Powell v. Kelly, 223 So. 2d 305, 308 (Fla. 1969) (noting that deciding which of the various methods of appraisal to use is an act of judgment: “The appraisal of real estate is an art, not a science.”); Florida Eminent Domain Practice and Procedure §9.71 (7th ed. 2008) (“The more the concept of fair market value is examined, the more it becomes obvious that it is an extremely elastic one. For over 150 years the courts have been attempting to adopt practical evaluation standards, often on an ad hoc basis.”).
11 American Reliance Ins. Co. v. Perez, 689 So. 2d 290, 291 (Fla. 3d DCA 1997).
12 State, Dep’t of Transp. v. Powell, 721 So. 2d 795, 798 (Fla. 1st DCA 1998) (in eminent domain proceeding, noting that “there are three recognized standard approaches to appraisal, i.e. , income approach, market approach, and cost approach…”); Perez, 689 So. 2d at 291 (internal quotations omitted) (construing home valuation under insurance policy, “These are the three well recognized guides to appraisal: (1) the cost approach; (2) the comparable sales and (3) the income or economic approach.”) ; Dade County v. Miami Herald Pub. Co., 285 So. 2d 671, 672 (Fla. 3d DCA 1973) (observing that county property appraiser “employed the three basic appraisal approaches in arriving at his valuation — cost approach, market or sales comparison approach, and the income approach”).
13 Indeed, one appraiser complained, “Most courts do not seem to understand that each of the three approaches to value is an integral part of the valuation process.” J.D. Eaton, Real Estate Valuation in Litigation 158 (2d ed. 1995). Cf. Havill v. Lake Post Properties, Inc., 729 So. 2d 467, 471 (Fla. 5th DCA 1999) (“The application of appraisal principles to any given property requires an exercise of judgment.”).
14 Eaton, Real Estate Valuation in Litigation at 197 (quoting American Institute of Real Estate Appraisers, et al. , Real Estate Appraisal Terminology 160 (rev. ed. 1981)).
15 Federal guidelines contain a succinct summary of what must be included in an appraisal report using the sales comparison approach: “Documentation of each comparable sale shall include the name of the buyer and seller, date of sale, legal description, type of sale instrument, document recording information, price, terms of sale, location, zoning, present use, highest and best use, and a brief physical description of the property. A plot plan, or sketch, of each comparable property should be included, not only to facilitate the reader’s understanding of the relationship between the sale property and the subject property, but also to locate the sale property in the field. This information may be summarized for each sale on a comparable sales form and included in this section or in the addenda of the report. As noted, a photograph of each comparable sale shall also be included. A comparable sales map, showing the relative location of the comparable sales to the property under appraisal shall be included, either in this section or in the addenda of the report.” See Uniform Appraisal Standards for Federal Land Acquisitions §A-17 at 22 (2000).
16 Eaton, Real Estate Valuation in Litigation at 197-207. The old real estate maxim, “location, location, location,” accounts for only one of the factors appraisers are supposed to consider when comparing sales of other properties. The other factors include the property rights conveyed, the financing terms of each sale, the conditions of each sale, market conditions and the time of each sale, and the physical characteristics of the properties. Id. at 207.
17 See Brett R. Turner, Theories and Methods for Valuing Marital Assets, 25 J. Am. Acad. Matrim. Law. 1, 24 (2012) (“The most persuasive valuation method is usually comparable sales…. [E]vidence of the sale price in actual market transactions speaks directly to fair market value.”).
18 5 Nichols on Eminent Domain §19.01 (1991).
19 Black’s Law Dictionary 210 (6th ed. 1990).
20 Bystrom v. Whitman, 488 So. 2d 520 (Fla. 1986).
21 A Louisiana appellate decision provided a good summation of how the income approach and the gross rental multiplier may be applied to residential property. In City of Shreveport v. Bernstein, 391 So. 2d 1331 (App. Ct. La. 1980), the City of Shreveport sought to condemn a landowner’s property to include in a public park. The property was occupied by four “shotgun” woodframe duplexes, which had historically been rented to tenants. Reviewing the compensation award, the court explained: “The process of gross income multiplication converts gross income into a value estimate by means of one operation by multiplying the gross income by a factor. For example, if in a specific district comparable unfurnished apartment houses, providing the same kind of service, were moving on the market at a certain multiple, such as 7 times the gross rental plus services, then the value of the subject property could be said to be 7 times its income schedule.” Id. at 1333 (internal quotations omitted).
22 7 Nichols on Eminent Domain §20.03 (1991).
23 The Appraisal of Real Estate at 80 (10th ed. 1992).
24 Karen Powell, A Historical Perspective on Montana Property Tax: 25 Years of Statewide Appraisal and Appeal Practice, 70 Mont. L. Rev. 21, 32 (2009) (“The cost approach is generally used for residential property when comparable sales data is unavailable due to the uniqueness of the subject property or a lack of sales of comparable properties in the area.”).
25 Eaton, Real Estate Valuation in Litigation 158 (2d ed. 1995). One U.S. district court practically indicted the cost approach as part of the “battle of abstractions” in the “jargon of the [appraisal] trade”: “Here an expert is called upon to give his version of the sound value of the building by estimating what it would cost to reproduce it, and then deducting a fair amount for depreciation. This ‘method’ is perhaps the most excellent example conceivable to demonstrate that none of such abstractions ought to have a place in the search for market value, generally speaking…. But on broader grounds…it is apparent that the reproduction method is in itself absurd in the ordinary case, because even in ordinary times it is ridiculous to suppose that anyone would think of reproducing this or any like property, and that same thing would be true in the vast majority of cases, I should think.” See U.S. v. 49,375 Square Feet of Land in Borough of Manhattan, 92 F. Supp. 384, 387-388 (S.D.N.Y. 1950).
26 See Eaton, Real Estate Valuation in Litigation and accompanying text of note 13.
27 Fla. Stat. §90.702 (“If scientific, technical, or other specialized knowledge will assist the trier of fact in understanding the evidence or determining a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education may testify about it in the form of an opinion….”).
28 Tucker v. Tucker, 966 So. 2d 25, 26 (Fla. 2d DCA 2007). See also Charles W. Ehrhardt, Ehrhardt’s Florida Evidence §701.1 at 713 (2013 ed.) (“An owner can testify to the value of his or her property although the witness is not qualified as an expert.”).
29 See Atlantic Coast Line R. Co. v. Sandlin, 78 So. 667, 668-669 (Fla. 1918) (owner of goods purchased from harness company could testify as to their value, collecting cases).
30 Fla. Stat. §90.701; Ehrhardt, Ehrhardt’s Florida Evidence §701.1 at 713 (2013 ed.).
31 Stephens, 959 So. 2d at 389.
33 Craig v. Craig, 982 So. 2d 724, 728-729 (Fla. 1st DCA 2008) (noting how “[r]eal estate development has become a complicated undertaking”).
34 Tucker v. Tucker, 966 So. 2d 25, 26, and 28 (Fla. 2d DCA 2007).
35 Id. at 28; Fla. Stat. §61.075(3) (in contested dissolution actions, “any distribution of marital assets or marital liabilities shall be supported by factual findings in the judgment or order based on competent substantial evidence….”).
36 See, e.g., Valentine v. Van Sickle, 42 So. 3d 267, 278 (Fla. 2d DCA 2010) (if no other evidence is presented besides the owners’ opinions, “the trial judge ordinarily must choose between those values”) (quoting Tucker v. Tucker, 966 So. 2d 25, 29 (Fla. 2d DCA 2007) (Altenbernd, J., concurring)); Torres v. Torres, 883 So. 2d 839, 841 (Fla. 3d DCA 2004) (reversing and remanding to trial court to determine marital home’s valuation. “However, we caution the court that a valuation based on the average of the difference in the parties’ valuation is not a valuation based on the evidence.”); Solomon v. Solomon, 861 So. 2d 1218, 1221 (Fla. 2d DCA 2003) (reversing trial court’s valuation of marital home that appeared to split the difference between the values offered by each party). But see Moon v. Moon, 594 So. 2d 819 (Fla. 1st DCA 1992) (affirming trial court’s valuation of marital home that was within the range proffered by the husband and wife, when the trial court had “questioned the parties as to the location of the property and problems with the property.”).
37 Valentine, 42 So. 3d at 278 (quoting Tucker v. Tucker, 966 So. 2d 25, 29 (Fla. 2d DCA 2007) (Altenbernd, J., concurring).
38 See Solomon, 861 So. 2d at 1221.
39 See Joseph P. Suntam, Direct Examination of a Valuation Witness , SP007 ALI-ABA 321 (2009).
40 See, e.g., National Environmental Policy Act (NEPA) Implementation Procedures, 74 Fed. Reg. 63407, 63408 (Dep’t of Interior 2009) (noting that land valuations “can be highly subjective and land appraisals are understood to represent an art, not a science”); Andrew W. Schwartz, Reciprocity of Advantage: The Antidote to the Antidemocratic Trend in Regulatory Takings, 22 UCLA J. Envtl. L. & Pol’y 1, 68 (2004) (“An appraisal is an opinion of value, rather than a scientific measuring process.”).
41 See Turner, Theories and Methods for Valuing Marital Assets, 25 J. Am. Acad. Matrim. Law. at 15-16 (2012) (emphasis added) (“Because the court cannot value property without evidence it is normally restricted to the range of the valuation evidence…. Within the range of the evidence presented, the trial court has considerable discretion in choosing a value.”). Cf. Jones v. Jones, 51 So. 3d 547, 549-550 (Fla. 1st DCA 2010) (in deciding liability value of promissory note, which wife contended had been contrived by husband, trial court was not bound by “rigid requirement” to “value the note at either zero or its face value, rather than apply a Solomonic formula by splitting the difference or choosing some other value between those two figures”); Moon, 594 So. 2d at 822. It should also be noted that mathematical averaging is a necessary component of professional appraisal practice. Indeed, much of an appraiser’s analysis of fair market value under the sales comparison approach relies upon weighing and averaging multiple values to derive a single valuation range or number.
42 It may be that the appellate courts have merely rejected the reflexive or unthinking use of a mean — that is, the adding and halving of two competing ends — that some trial courts could be tempted to fall back upon when faced with conflicting valuations from property owners or appraisers. If so, perhaps the method ought not to be rejected, but rather its unjustified or unexplained application. Cf. Moon, 594 So. 2d at 822.
43 John W. Reis, Measure of Damages in Property Loss Cases, 76 Fla. B. J. 32, 34 (Oct. 2002) (“Generally, the use of expert testimony [for proof of lost fair market value] is preferable.”).
44 Fla. Stat. §90.702.
45 See generally Fla. Stat. §§ 475.610-475.631.
46 The MAI certification is more commonly associated with commercial real estate appraisers, while residential appraisers are more likely to pursue the SRA certification. Interestingly, neither MAI nor SRA is an acronym or abbreviation for anything.
47 For example, in Ingle v. Ingle, 689 So. 2d 314 (Fla. 5th DCA 1997), it appears that a husband and wife actually retained three experts, between them, to testify about the value of their marital home (which ranged from $215,000 to $315,000).
48 In 2010 it was reported that most home appraisals cost between $300 and $700. See Ron White, What Are the Costs of a Home Appraisal?,
49 Fla. Stat. §90.803(6); Rose v. ADT Security Services, Inc., 989 So. 2d 1244, 1249 (Fla. 1st DCA 2008) (security expert’s report could not be considered in motion for summary judgment as hearsay); McElroy v. Perry, 753 So. 2d 121, 125 (Fla. 2d DCA 2000) (quoting Charles W. Ehrhardt, Florida Evidence §803.6 at 695 (1999 ed.)) (IME report inadmissible, and noting, “In discussing this hearsay exception, Professor Ehrhardt points out that when a record is made for the purpose of litigation, its trustworthiness is suspect and should be closely scrutinized, and that most of the time, the report of an expert made for the purpose of litigation is not admissible under section 90.803(6).”); Brown v. International Paper Co., 710 So. 2d 666, 668 (Fla. 2d DCA 1998) (handwriting analyst’s report was inadmissible hearsay). See also Fla. Stat. §90.705(2) (providing adverse party an opportunity to conduct voir dire examination of an expert prior to any proffer of opinion).
50 As one appraiser summarized his experience: “When the attorney tells the appraiser, ‘this is only a divorce case, so you won’t be called to testify,’ the appraiser generally can double the odds of winding up on the witness stand.” Eaton, Real Estate Valuation in Litigation at 504.
51 Witchell, 707 So. 2d at 797.
52 Id. at 799 (noting that, at trial, the debtor had elected not to examine the appraiser as to the facts or data underlying his opinion in the appraisal report).
53 Id. at 798.
54 Id. at 799.
55 Id. Thus, there may have been something of an implicit waiver justification underlying the court’s holding.
56 See generally Fla. Stat. §§475.001-475.5018.
57 Cf. Taber v. Taber, 626 So. 2d 1089 (Fla. 1st DCA 1993) (appearing to accept husband’s use of a real estate agent to opine about the marital home’s market value, but noting that the deduction of closing costs from the valuation was inappropriate absent evidence of an imminent sale). See also Kalb v. International Resorts, Inc., 399 So. 2d 196 (Fla. 2d DCA 1981) (noting value testimony of real estate agent who had participated in transaction to purchase motel).
58 See, e.g., M.A. Hajianpour, M.D., P.A. v. Khosrow Maleki, P.A., 932 So. 2d 459, 464 (Fla. 4th DCA 2006) (“When the expert’s opinion is based on speculation and conjecture, not supported by the facts, or not arrived at by recognized methodology, the testimony will be stricken.”); Petticrew v. Petticrew, 586 So. 2d 508, 509 (Fla. 5th DCA 1991) (business valuation expert could not opine that he could sell business for more than its $500,000 appraised value because his “expression of confidence in his ability to broker property was obviously speculation”).
59 The case of Bishop v. Bishop, 47 So. 3d 326, 330 (Fla. 2d DCA 2010), provides a good example of how appraisal methodology may be critiqued in a dissolution proceeding. In that case, the wife’s more recent appraisal, “the only appraisal that was presented by live testimony through an expert real estate appraiser,” valued the marital home at $340,000. The trial court’s judgment, however, reflected the husband’s proffered valuation, which was buttressed only by his opinion of value and an earlier appraisal. The appellate court reversed, and recounted the shortcomings of the husband’s appraisal: “[T]he Wife’s expert noted that the Husband’s appraisal does not identify the appraiser’s professional qualifications or state that he is a member of the appraisal institute. Further, the sales utilized were not recent, and no adjustments were made for the decline in the real estate market which, the expert testified, was continuing to decline at the time of trial.” Id. at 331.
60 Powell, 223 So. 2d at 308 (citing Walter v. Schuler, 176 So. 2d 81 (Fla. 1965)). See also Fla. Stat. §193.011.
61 Fla. Const. art. VIII, §1(d).
62 Eaton, Real Estate Valuation in Litigation at 521 (“[T]he assessed value of property is usually arrived at using mass appraisal procedures…. The [individual] appraiser’s estimate of value, on the other hand, is specific to the individual property, is based on all the approaches to value, and is probably much better documented than the assessed value.”). See also note 67.
63 4 Edward F. Koren, Est. Tax & Pers. Fin. Plan. §35:16 (2013).
64 Smith, 896 So. 2d at 820-823.
65 Id. at 823 (internal citation omitted).
66 Hernandez, 109 So. 3d at 807.
67 Cf. Hobus v. Crandall, 972 So. 2d 867, 869 (Fla. 2d DCA 2007) (Altenbernd, J., concurring) (commenting on former husband’s sale of marital property to himself under marital settlement agreement: “Given that the agreement did not forbid a sale to the former husband and the former husband sold the property to himself for its market value as determined by the [county] property appraiser, I concur in this reversal.”). To the extent a court relies upon assessment data, it should be cognizant of the impact of the mass deductions made for all assessed property reported by elected property appraisers to the Department of Revenue within their annual DR-493 forms. The DR-493 form reports deductions from fair market value in consideration of nontaxable transaction costs as required by
Fla. Stat. §§193.011(1) and (8).
68 The author has witnessed, on more than one occasion, a party in a dissolution proceeding attempting to introduce into evidence printouts gleaned from Zillow.com, ostensibly to buttress their opinion about a marital home’s value.
69 See Zillow, What is a Zestimate?, http://www.zillow.com/wikipages/What-is-a-Zestimate/.
70 One federal district court dismissed an attempt to utilize Zillow valuations in a class action contamination case in remanding the case back to state court. See Allen v. Monsanto Co., 2010 WL 8752873 at n.8 (N.D. Fla. 2010) (“As for the so-called Zillow values that [d]efendants offer as an alternative source of the housing values the court will grant the motion to strike as to these values.”).
Matthew C. Lucas is a circuit judge in the 13th Judicial Circuit of Florida, Family Law Division. The author thanks Todd D. Jones, MAI, CRE, FRICS, for providing insightful comments about appraisal theory and practice for this article.