Kay Rhodenizer – February 2017
When married couples (or unmarried couples with a registered domestic partnership agreement) separate and are not selling all their jointly owned real estate, judges usually order the partner keeping the real estate to pay the other half the current market value. The Nova Scotia Matrimonial Property Act does not apply to non-registered domestic partnerships, but it is not unusual to apply similar principles to value any jointly held real estate.
There are also associated deductions from the value to be shared (“notional disposition costs”). These include the estimated amount of real estate commission and legal fees that would be paid if the property was sold, costs to migrate title into the computer registry system if migration hasn’t already occurred and all applicable HST. If the property would attract capital gains tax if sold, a deduction for estimated capital gains may also be applied.
Disagreement on real estate values slows down settlement negotiations and/or increases Court time and without agreement on value, one cannot agree on notional real estate commission and/or capital gains taxes to be deducted.
Sometimes one or both parties want to use a tax assessment, mortgage appraisal or realtor’s opinion to establish shareable value, but judges are most persuaded by market valuations done by qualified appraisers.
Mortgage appraisals are based on the lender’s criteria to determine a conservative market value to maximize debt recovery if there is a mortgage default.
Tax assessments are rarely based on actual property inspections. They may reflect estimated market value increases if an improvement required a building permit, but won’t reflect unpermitted improvements (interior flooring upgrades, etc.) unless an assessor was made aware of these. Tax assessments also lag behind current market conditions (2017 HRM residential assessments reflect the physical state of property as of January 1, 2016).
Realtors may inspect a property before giving an opinion and have a good sense of local market conditions but are not formally trained appraisers and often their opinion letters contain little information about how they calculated market value.
Market valuations are done by trained appraisers following industry-specific guidelines. They view and document the property’s interior and exterior condition and compare it to other similar properties. They use this and other information to give an opinion on current fair market value. That said, appraising property is an “art not a science” with room for legitimate differences of opinions. I generally advise clients not to be surprised by a 10% – 15% difference between valuations, but even “splitting the difference” (as judges often do) is usually the best way to establish value for negotiations and/or Court.
Market valuations are relatively inexpensive especially considering that real estate is often one of a couple’s most significant assets. Without a good sense of true market value the party purchasing the other’s interest in a property may be paying too much or too little.