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Dear Real Estate Adviser,
My brothers want to buy me out of my parents’ home, which is paid off. We each own an equal share: one-third. What do we use to arrive at the property value: a bank appraisal, real estate appraisal or tax assessment?
— Larry F.

Dear Larry,
Tax assessments and property appraisals don’t always represent the true market value of a home, though an independent home appraisal (which runs $300-$450) from a time-tested and well-referred appraiser can be used as one factor to arrive at property value.

CMA the best source of information

The most weight in my book, however, should go to a comparative market analysis, or CMA, from an active veteran real estate agent who will be more up to date on the market than just about anyone else. Most such agents will do this for free to try to win you over as future clients, though some may charge a nominal fee since your family likely won’t be using an agent in this transaction. The agent’s CMA will consider curb appeal, condition, architectural style, lot size, number of rooms, location, market supply/demand and similar comparative sales (comps).

A bank-ordered appraisal, which tends to come in at about 10% under the home’s value anyway, probably won’t be necessary as your brothers should be able to easily get a home-equity line of credit to cash you out since the place is already paid in full.

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Limitations of a tax assessment

As for using a tax assessment as a measure, there’s really no way to accurately value a home without going in, and taxing districts don’t — and can’t — do that. Plus, tax districts tend to overvalue or undervalue homes en masse based on general local economic factors that may not even apply to your neighborhood. It is, to say the least, an inexact science, and tax assessors will be the first to admit that.

If the deal is completed with cash — as is likely and there’s no closing — you will simply be able to complete and sign a quitclaim deed that transfers your interest in the property to your brothers upon receipt of the funds. Even if you and your brothers have a good relationship, it’s still a good idea to have a basic contract written up explaining the sale terms. Some of these deals can get convoluted when repairs and upgrades are already in the works because those expenses will have to be factored into the property value. That’s a problem since most upgrades and repairs don’t translate dollar for dollar in a home’s value, although they do impact its salability.

Hire professionals to help

In the event of that or other complications, you may want to seek the help of a real estate attorney or similarly qualified professional. And to avoid surprises, I’d also suggest that you and your brothers each consult with tax preparers to determine how this transaction will affect your individual tax returns.

I do hope all goes well and that this continues to be a friendly transaction. Invest your proceeds wisely, please — ideally into another home. Good luck.

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