Divorce at Altitude: A Podcast on Colorado Family Law
Divorce at Altitude: A Podcast on Colorado Family Law
A Deep Dive into Real Estate Appraisals during Divorce with Kevin Kerns | Episode 181
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Real Estate Appraisals in Divorce
In this episode of Divorce at Altitude, Ryan Kalamaya is joined by certified real estate appraiser Kevin Kearns to discuss the role of real estate appraisals in Colorado divorce cases. Because the marital home is often one of the most valuable assets in a divorce, determining its fair market value can have a major impact on the financial outcome for both spouses.
The episode also explores how appraisals work specifically in divorce litigation. Kevin discusses the difference between using a joint appraiser versus having each spouse hire their own expert, and why a well-supported appraisal can often reduce disputes and save both parties money. Ryan and Kevin also touch on more advanced issues, such as retrospective appraisals for determining the value of a home at the date of marriage, updating older appraisals when the market shifts, and why websites like Zillow are not a substitute for a professional valuation.
Guest Information
Kevin Kearns is a certified residential real estate appraiser with more than two decades of appraisal experience. After beginning his career as a musician and teacher, Kevin transitioned into real estate appraisal in 2001 and has been practicing ever since. Over the years, he has developed substantial expertise in residential valuation, including appraisals involving unique properties, high-value homes, acreage, and horse properties.
Episode Highlights
Why Real Estate Appraisals Matter in Divorce
Ryan and Kevin explain why the marital home is often one of the most important assets to value accurately in a divorce case.
What an Appraisal Really Is
Kevin describes an appraisal as an estimate of market value based on comparable sales and what a typical buyer would be willing to pay.
How Appraisers Inspect a Property
The conversation covers what Kevin looks at during an inspection, including the home’s condition, updates, layout, location, and neighborhood characteristics.
The Importance of Comparable Sales
Kevin explains how he selects comparable properties and why the principle of substitution is central to credible appraisal work.
Neighborhood and Market Knowledge
The episode highlights why appraisers need to understand local market nuances, such as school districts, traffic, neighborhood boundaries, and buyer preferences.
What is Divorce at Altitude?
Ryan Kalamaya and Amy Goscha provide tips and recommendations on issues related to divorce, separation, and co-parenting in Colorado. Ryan and Amy are the founding partners of an innovative and ambitious law firm, Kalamaya | Goscha, that pushes the boundaries to discover new frontiers in family law, personal injuries, and criminal defense in Colorado.
To subscribe to Divorce at Altitude, click here and select your favorite podcast player. To subscribe to Kalamaya | Goscha's YouTube channel where many of the episodes will be posted as videos, click here. If you have additional questions or would like to speak to one of our attorneys, give us a call at 970-429-5784 or email us at info@kalamaya.law.
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DISCLAIMER: THE COMMENTARY AND OPINIONS ON THIS PODCAST IS FOR ENTERTAINMENT AND INFORMATIONAL PURPOSES AND NOT FOR THE PURPOSE OF PROVIDING LEGAL ADVICE. CONTACT AN ATTORNEY IN YOUR STATE OR AREA TO OBTAIN LEGAL ADVICE ON ANY OF THESE ISSUES.
Hey everyone. I'm Ryan Kalamaya.
Amy GoshcaAnd I'm Amy Goscha.
Ryan KalamayaWelcome to the Divorce at Altittude, a podcast on Colorado family law.
Amy GoshcaDivorce is not easy. It really sucks. Trust me, I know. Besides being an experienced Divorce attorney, I'm also a Divorce client.
Ryan KalamayaWhether you or someone considering Divorce or a fellow family law attorney, listen in for weekly tips and insight into topics related to Divorce co-parenting. And separation in Colorado. Welcome back to another episode of Divorce at Altitude. This is Ryan. This week, I'm joined by a guest. He is a certified real estate appraiser, and we're going to be talking about real estate appraisals. These are they frequently come up during divorces. Our guest, Kevin Kearns, has a fair amount of experience with divorces and appraisals in divorces Amy and I have talked on various podcasts and one of the most valuable assets in a divorce is often the, house, the marital residence and so when we talk about Eric and Melanie Wolf, our hypothetical divorce clients one of the biggest questions that both parties are going to have to deal with is how much is their house worth? And that's particularly true with the run up of real estate over the last couple of years, but before I go on let's hear a little bit more from our guest and who he is Kevin, welcome to the show.
Kevin KernsHi, Ryan. Thanks for having me on. I appreciate
Ryan Kalamayait. Yeah, no, looking forward to the conversation. We've talked previously about in other cases, and I. We've learned a lot in our conversations, but, to give a baseline for peace people some context, can you tell a little bit about who you are and your experience and how you got into appraising real estate in divorces?
Kevin KernsSure. I was actually a musician and teacher for about 20 years out of high school. And Just decided to make a career change. My brother was an appraiser. He trained me in 2001 and I got my appraiser license in 2001. So I've been appraising for 23 years. And I've been doing legal work, divorce work estate planning work for the last 13 years.
Ryan KalamayaAnd, you said appraisal and we're talking about real estate. Can, for, to set the table for our listeners, can you tell us what in your mind, what is an appraisal and what goes into that? Process for people that, don't know, or just so that we have a firm understanding going forward.
Kevin KernsSure. An appraisal is essentially an estimate of market value of your house based on the sales of similar homes. And the thing to remember is that the housing market is a market. It's created by the buying and selling of real estate. And buyers and sellers, they get together. A buyer will make an offer. There'll be a negotiation and then A sale price, will be consummated and the sale will be consummated. And so when you appraise a house for instance, a dissolution of marriage, we're appraising it within a fictitious context of a transaction like that, because it is a market. We're just not looking at a house and saying the house is worth this much, or we think it's worth this much, but we're recreating that transaction between a buyer and a seller because it is a market. Okay, so that's where we start. And so when I get an assignment, there's a couple of factors. Obviously there's the house itself. There's understanding what the house offers the market, okay? And by the market, I mean a potential buyer, right? If you're listing your house for sale, you may have an open house and buyers will come by. What does your, both positive amenities and negative amenities, does your house offer? The market and to determine that we usually start off by doing an inspection of the property and we go out and We'll measure the improvements. That's what we call the house Improvements or a detached garage anything that's built on the property. We'll measure them because public record is not always accurate and We'll take a lot of photographs to document condition and updating but when I first arrived to a property All appraisers will get out of their car and they'll take a front side photo of the house and they'll take a street photo of the street. And then most of the time you just go in and you ring the doorbell and you start performing your inspection. But one thing I do that I don't think a lot of appraisers do is they, I stand out on the street and I start a stopwatch and I just stand there for 60 seconds. And I count how many cars drive in front of this house. Over that 60 second period, noting the time of day, it may be morning rush hour, evening rush hour, middle of the day, but I count them and I look up and down the street and I, I'm looking at how many people are walking their dogs or how many people are mowing their lawn or shoveling the snow in their driveway. I Think this is important because it's important to a buyer. They're going to live in this house. They're going to drive up the street and this is going to be their house, maybe for the next 10 years. And those things are important. How does it feel? Houses are bought and sold, bought on a motion, and location is an important facet of that. So I do spend a little time just absorbing my location. Standing there, how busy is the street? And then I go in and, you'll measure the property. And then I like to experience the house from the perspective of a potential buyer. I'm pretending I'm a buyer and this is an open house. And so I'll go into the house and, sometimes you walk into a house and you go, wow, that's amazing. And that's what they call in the real estate industry as the wow factor. And then maybe you walk around the corner and there's the kitchen and it's 70s oak cabinetry with avocado for Micah countertop. And you go, Well, I'll have to update that maybe in the next five years, and as you're walking through, every time you go, wow, the price goes up in the buyer's head. And every time you go, yeah, I don't really like that. It comes back down. So it's this roller coaster of What the house offers me as a buyer, you walk out into the backyard, outdoor living spaces are important. You can say, Oh, I'd love to entertain on this patio or what there's a great place for my dog or my kids to play. And so that's what you're doing when you're doing the inspection is not just how many bedrooms, how much square footage. What's the condition? How much updating? All of those are very important, but you really have to get into how does this property appeal to me as a buyer? Compared to say the next six I'm going to walk through, that are on my list of open houses.
Ryan KalamayaRight. And we'll talk about the comparable sales because that's one of the foundational principles of what you do, but for, people that, may have, just to as a reminder, if Eric and Melanie Wolf are going through a divorce, They, they can have a joint appraiser and Kevin, you've been a joint real estate appraiser where both parties agree. All right, we're going to have Kevin value the house. Let's say they live up on, the hill or near in Boulder and you'll. Understand. All right, like college kids, I'm going to stand on the corner and watch all the college kids. If it's a Saturday, and coach prime and the buffs are at home, and there's drinking games out in the front yard that might appeal to a particular buyer. Right? Or, I was just talking with my parents. I grew up in Longmont. A big thing for some people now are the airplanes and the noise coming from the, the airplanes and you can't get that, but it's like when, whenever someone travels to, Italy or California, you are like, could I live here? It's like that experience of. Being, traveling and living there. You do that on a daily basis, but it comes in the form of a report and that appraisal report, a lot of people have seen it for, refinance or to buy a home, you gotta get an appraisal. But in a divorce, Eric and Melanie will get a report and if. It could be that you are either a shadow expert or a retained expert, a rebuttal expert. And so your role can be a little bit different. We'll go on and talk a little bit about that, but you know, the comparable sales. Can you tell us a little bit about what comparable sales? Because do you actually go through? The, the stopwatch and for each comparable sale and experience, and certainly you're not doing walkthroughs, but walk us through what comparable sales are and why they matter for appraisals.
Kevin KernsYeah, I think the most important. Aspect of a comparable sale is that it needs to meet what we call the principle of substitution, which means if I'm a buyer and I really want the subject property and I put an offer in it, on it, and someone beats me out, right? I didn't get the house. Well, the comparable sales should be the next best house for that particular buyer to want. Obviously, if they wanted the subject, then they should want. This house, so it should be similar in square footage, should be similar in bedroom count it should be in a similar neighborhood, if that's possible. You talked about airport noise and stuff. That's one reason why we like to stay as close to the subject as possible, geographically, because if the airport noise is driving me crazy, it's driving my neighbor crazy too, and probably everybody within a mile or two. And so that's why we don't go five miles away or on the other side of the city to find comparable sales. Make sense? Right. And,
Ryan Kalamayafor you, you and I were talking before the show, in, in terms of Denver, there, there can be, there's a pretty big difference between Cherry Creek. And if you're in the Cherry Creek school district and the one street over, or like just across Colorado Boulevard, you can be in a different. Neighborhood. And so can you talk a little bit about those comparable sales and why, using your familiarity with the neighborhoods, why that's important?
Kevin KernsYeah. Selecting comparable sales, like I said, you have to be in the mind of the buyer and, what a buyer wants living in Lodo. Low high or downtown Denver. And what they need is very different than Highlands Ranch. A garage bay in downtown Denver could be worth $60,000. They sell 'em on the MLS for $60,000. Right. Whereas a third garage bay a, you already have two car garage, a third garage Bay and Highlands Ranch is worth very little. And and then talking, you do have to know your neighborhoods because, and your school districts. And sometimes even a school. There's a South Denver elementary school called Slavin's. It's a K 8. And, I mean, if you're in the Slavin's district, Your house is worth 100, 000 to 150, 000 more than if you're across the street and your kid can't go to sleep. It's crazy, and yet, it's the market, and you have to understand that. And you have to understand, sometimes when you cross over a major street, you're in a different, you're appealing to a different market. There's a difference between Congress Park and Cherry Creek. And Hilltop, these neighborhoods, they're all in Denver. They all shop at Trader Joe's, but they're very different. They were built at different times. They have different quality of houses. It's a different living style. And you just want to make sure that you're pulling comps from a market that the subject is participating in. Okay, and I think,
Ryan Kalamayait's what you are saying, Kevin, it underscores the importance of finding of when Eric and Melanie are going through that divorce process, making sure that the appraiser knows that is familiar with the neighborhood or the product could be familiar with the product. Okay. Aspen real estate is its own thing. And, compared to us, a very large house in Cherry Hills that used to be owned by one of the Broncos, that is that, and that is where you you're in that high end front range, market. And the other thing, when you were talking about buyers and sellers, this. Episode in particular is focused on residential real estate. There are real estate appraisers that specialize in commercial, where they really look at the rents in the income and all of that. And that's a whole other, beast, but you are focused on the residential component. And in particular that, that front range high end market.
Kevin KernsYes. And my licensure, if you want to appraise, Car washes in apartment buildings. That's a different level of licensure from the state. I am a residential licensed appraiser. And what that allows me is one to four units. I can do up to quadplex houses. I can do vacant land. I can do, most appraisers can do townhouses, condominiums and single family homes, whether they're attached or detached. And like I said, land, but we can't do eight unit apartment buildings and we don't appraise 7 11s and Taco Bells, things like that. riGht,
Ryan Kalamayaright. Well, so Kevin talk about, so we understand the process where you visit the rapport or visit the subject property and do the analysis and, like you, one thing, we talked about the market trends. And when you are. Valuing a property in mid or late 2023, that's going to be drastically different than two years ago when interest rates, were very low and the market was a little bit, different with with COVID. And you'll talk about those trends, but when you talk about it you do so in a report. So can you walk us through what's the process that you undertake to write the report?
Kevin KernsSure I talked about the inspection of the property and seeing what the subject offers the market. The other half of really is the research into the market, because the number one factor that impacts value is simply the market itself. I mean, you can buy a house for 500, 000, do nothing to it. And three years later, you're selling it for 600, 000. Why? Because the market went up. I mean, you can even beat it up, and treat it poorly. And it still goes up. Conversely, you can buy a house for 500, 000, update the kitchen and the bath and put 60, 000 into it. And three years later, you're selling it for 400, 000. Why? Because the market went down and it ate all of your updates. So the market is the most important factor. Now in a nice stable market, yes, the nicer updated fixed up homes sell higher in the neighborhood than the fixer uppers. We all know that. And sometimes depending on the neighborhood, that spread could be very drastic. The difference between a fixer upper and a nicely remodeled home.
Ryan KalamayaSo Kevin, when you're writing the report, you're going through the market and you're distinguishing, all right, Congress Park is just really hot right now for whatever, like, it's just appealing to, millennials are moving and the remote work and that. Might particularly appeal. And so that's gonna for, that's gonna come into your report. What other aspects are you gonna put into your report?
Kevin KernsYeah, well just returning a little bit to the market analysis, so you're looking at the market, not just the trend in median values. But also supply and demand. How much inventory is there? What are interest rates that affects supply and demand? And how long does it take to sell a house? For years, you'd put the house on the market on a Thursday and it was under contract, you'd have a, you'd have an open house on Saturday. It was under contract on Sunday. Well, when interest rates doubled last fall, they just sat there. And all of a sudden it was on the market for two weeks and three weeks, which in a normal market really isn't that long. But for what we were used to seeing four days, people were going, there was chaos. There was chaos in the market. So you have to understand the trends. And the other thing about the Denver market is there are seasonal aspects to it. The market tends to be strong from March, April, May, into the point where kids go back to school in August. That's the selling season. Then even under normal, nothing impacting the market in any special way, we tend to see values stabilize, if even dip in October, November, December. People just don't sell houses, as many houses in November in Colorado. Because everything's covered with snow and they can't see their gorgeous gardens and their landscaping and things like that. I mean, I mean, it's a, it's an actual factor and then it's not until about March that, we can, when the market will start to pick up and we'll be able to understand what direction the market is going. So we have those seasonal components to our market. So when you're doing trending data, you have to really look at year to year. What was median value now? But You don't want to say, well, what was median value in the spring or the summer? What was it the same time last year? But markets do move quickly. So I tend to use six month trending data. Okay, so once you've done your data and you're trending and you know what the market is doing and how healthy or poor it is, and you know what the subject property offers, that's when You begin the report, you put all of those items in your report, and then you start your comparable sales search. And, there's lots of different ways to approach it, depending on the neighborhood. But you just start looking. And, I'll typically go through 40, 50, 60 comparable sales, and then I'll look through them and then some of them you can get rid of really early on and I'll narrow it down and I probably get down to about 12. Comparable sales that I want to look at. And then I'll look through all the photographs that are in those listings. I can see the kitchen and I can see the master bath and I start demarcating those even further. Wow. This looks just like my house. Look at that kitchen. And I can look at my kitchen and say, wow, it's like the same kitchen. I like that. I'll put it in the key pile. And then once I get down to somewhere in single digits, four to nine comps, I will put them in the grid. The Comparable Sales Grid, that's how we determine value using Comparable Sales, and I'll adjust them for the differences, okay? Between the subject and the that comp and I'll adjust them all. And then, and then you just look at them and you start looking, okay. There's a big cluster. Four of them are really showing a nice tight value here. Let's see why, this one's 80, 000 higher. Why is that? Oh, well, it backs to open space and has mountain views. I didn't catch that at first. So I don't want to use that because my property doesn't back to open space. So you get rid of that, and then you narrow it down and you delete some of them, take them out of your report, and then you look at it. And the goal here is to build an argument. For your estimated value, what the comparable, they should tell a story, you want a superior comparable sale that adjusts downward in the grid. You want one or two inferior comparable sales that adjust upward. And what that does is it creates a floor and a ceiling for your valuing. If you have three comps and they all adjust upward from let's say 400 to 500. Well, maybe your house is worth 800, 000 and you're just using three comps that are really bad comps. You need this bracketing of the value. You need a floor and you need a ceiling. And then you also need the bracket. You want a house that's maybe a little bigger. Let's say I'm a 2, 000 square foot house. You want a 2, 200 square foot house and an 1, 800 square foot house. And, Don't really like to mess with condition. If I have a gorgeously updated home, I want to use gorgeously updated comps. I don't want to use a fixer upper and make an adjustment for that. You shouldn't have to do that. And that said, the basic tenet is the more you have to adjust a comparable sale, the less value it is in providing an estimate of market value for your subject.
Ryan KalamayaYeah, and I think it's really important for listeners to understand because that is 1 of the things that I learned from Kevin was I'd seen a lot of appraisals and then, brought in Kevin on a rebuttal engagement and he walked me through, some of the weaknesses in this. Reputable appraisers rapport. And I had never heard that before in terms of bracketing, having a higher and a lower. It makes total sense to me. And I think when people, when they look at the appraiser, the appraisal report, then they can, and it's always one of those things. I've talked about it with parenting experts. I've talked about it with business valuation experts. A lot of what you. experts do, there is an art and then there's a science. The science is, this is how much this house sold and, this is how much it was per square foot. You can't really argue with, something that sold a year ago for a, a particular amount on a particular date. The art comes, is that the right selection and here's why, and then also Those adjustments of that house a year ago, the market has changed. So we're going to adjust it because the market has changed. But then, comparing apples to apples and which is, it's really hard, especially when you get into these unique properties, if you are talking about something that is, a townhome. In a particular neighborhood where there's, 15 different, it's a fairly liquid market. That's a little bit easier for you as a real estate appraiser, right, Kevin? I mean like when you have like a lot of comparables that have sold just recently compared to that, really unique property that sold for several million dollars because of, some equality that, that, there's just not as many sales in that range.
Kevin KernsThat's right. I mean, I lived on a two and a half acre horse property for many years that I was an appraiser, and I specialize in those. And so when you're doing, when I'm appraising a 60 acre horse property out by Elizabeth or East of Parker or out by Bennett, um, you may go 20 miles for a comparable sale. Fannie Mae wants every, your comparable sales to be within a mile, which really doesn't even make sense inside the city. But when you're out there, there probably hasn't even been a sale of a house within a mile in the last 10 years, or there might not be a house within a mile. And so you go where you need to go. You go where the market is for that type of property,
Ryan KalamayaI think it's helpful to have, and one thing I want to talk about is the divorce, having an appraiser that has some divorce experience or that is familiar because, let's face it, Kevin, like, if you come up with a very high value for the, the house that Melanie Wolfe is going to keep, and that, that works well for Eric, he's happy with that number because it's going to go in on her side of the ledger and the divorce. Well, Melanie is attorney, she's It's going to start looking at Kevin's report and trying to poke holes in it. And, it's helpful to understand what goes into that process, because if Melanie hires another appraiser, and they come in with, a 200, 000 difference, below you. You then, you can go to trial and it becomes a battle of the experts and you then tell the judge, Kevin, and I'm curious, if you can comment on, the, what the process is like to testify as an appraiser, because it really becomes like, hey, judge, I stood on the sidewalk and I. Listen to the cars and watched all the people and then the other appraiser. He didn't he or she didn't do that. And it's that the thought that goes into those those reports, I think, is important for people to understand in the context of divorce. So I'm wondering if you can maybe comment on, appraising Real estate, you mentioned Fannie, Freddie, that's for loans and there's a, the process by which you appraise is a little bit different, even though, you're still an appraiser. Can you maybe talk a little bit about, appraising property in a divorce?
Kevin KernsYeah, going back to being on the stand, really all I'm doing is defending what I did. The other guy needs to defend what he did. And one of the things that I do in building my argument in my appraisal report is I'm making sure that every sentence I write. Should be read and needs to be read by the user. It's important for the argument that I am building. I don't put a lot of fluff. Fannie Mae wants a lot of fluff. Then there's a lot of, there's a lot of, this is what the comparable sales approach is and how you do it. And this is what the cost of, and those are in reports. Well, my job is not to educate people on how to appraise, it's to appraise. It's to come up with a value and it's to defend that value. So I am defending my own. Now, occasionally, Ryan, there's, I'm in a rebuttal, situation where I've rebutted another report and then I can speak to the other report as well, and so I'll talk about, differences and how we approached it and, tHe biggest thing is really getting back to what we talked about at the beginning. If you look at what are the, what drives value in a particular house, well, that's an appraiser's decision to make. Maybe it's the view. Maybe it's the location. Maybe it's, it's different things and how much value you put on those amenities will change your ultimate estimate of value. So sometimes you can have very good, there's an appraiser in town who's a fantastic appraiser. And he's been doing it a little longer than I am. He does a lot of divorce work. He's a little bit of a mentor and a colleague and we're very good friends, and we've been up against ourselves in court a lot. And our values have been different and it's just because. We're looking at the subject and we're giving a little bit different value to different amenities and that forces you to maybe use a different comp or maybe go to a little bit different area. How much is backing to that open space worth? anD so it's not that an appraisal is bad or two appraisals are bad because they're 80, 000 or a hundred thousand dollars apart. You have to look at the emphasis. So I, I choose that, and I can actually use a little example. When I get a lot of rebuttal, one thing I'd like to do is just look at, just glance at what did my comparable sales sell at? What were their sale prices? It's right there at the top. Well, if comp number one sold at 495, and then I looked over, I just saw this last week, comp number two sold for 900. And I'm like, now, wait a minute. Does the subject property compete against 490, 000 houses, that market, or does it compete against 900, 000 market? I mean, it's, once again, it's that substitution, that concept of substitution. It doesn't Operate in both of those markets at the same time. One of them's right. And one of them isn't. Right.
Ryan KalamayaAnd you can have bracketing, but it could be that there's, 600, 000 and, 445, 000 or 450, 000. We don't need to go to extremes. And but you, what you were referencing, and one thing we were talking about before recording this, Kevin, was that, I'd seen, one of the reasons I wanted to have this episode is that there was a recent. Case in Vail where Vail, the town of Vail condemned or took over a big piece of property and they had to pay for it because it's a takings. And so they got into a dispute with Vail Resorts on how much this piece of property was worth. And each side had their own appraisals. And they were the difference in value was several millions of dollars and it can really matter in in a, and the same thing happens in a divorce. And when you say you, you are a rebuttal, so just so people understand that there could be a joint where Melanie Wolf could get her own appraisal and then she submits it, to the other side to Eric, and then, I could go to Kevin if I'm representing. Eric can say, Hey, Kevin, what do you think of this? We think it's, just intrinsically, a lot of people, they're pretty familiar with their, what they think their home is worth. A lot of people, they vastly overestimate or, they vastly underestimate. It depends on the market, right? Of how much they could get. And, could you maybe comment on like just using a real estate broker, like a comparative market analysis, because, you've gone to trial against comparative, real estate brokers. So why, what should listers take from, using just a real estate broker compared to a certified real estate appraiser?
Kevin KernsYeah, I have been up against. Real estate agents who have produced what's called a BPO, a Broker Price Opinion, or a CMA, a Competitive Market Analysis. A CMA is typically what they'll do when they've been asked to list a house. And they'll it's, it shows someone's recent sales and shows some active listings. And what they're doing is they're coming up with where they're going to list the house. And it's a little bit different than value. They are licensed to sell real estate. And appraisers are licensed to value it. Now, they have to have some value, experience in order to price a house. But, in my experience judges tend to go with the appraisers because that's what we're licensed to do. Is to value it. As opposed to the real estate agent who may know the market. May know the market even better than that appraiser because real estate agents tend to sell in a very small, concentrated area. Maybe Apple, maybe Boulder, maybe Cherry Hills, and they know their markets well. And it's not like, but when it comes down to a legal document and it comes down to a court order it's always safer to go with an experienced real estate appraiser than it is to go with a real estate.
Ryan KalamayaAnother question I have is about retroactive valuations, because as listeners know, you can have separate property. So if Eric, he bought his house and it was, before the marriage and then, he kept it as his separate property or his solely titled and we're dealing with in what you've talked about, Kevin, thus far has been all about how much is it worth Today and we'll talk, next about updating, an appraisal. But one thing we will oftentimes do is ask someone like Kevin to give us a date of value or date of marriage value. And so can you talk a little bit about those retroactive appraisals so that we can, talk about the appreciation of separate property, which is marital, but you are often asked to do a retroactive or retrospective appraisal. Can you talk a little bit about that process?
Kevin KernsSure. It's in a lot more cases than I think most people would expect. And that's just because, and I'm not a lawyer, but when you get married the house becomes marital. The day you get married. It becomes a marital asset if someone owned it prior to the marriage. So we need to establish a value on the date of marriage, and then we would establish a current market value. And you guys are basically dealing with dividing the increase in value from those 2 points. Retrospectives are not difficult to do. I've done them as far back as the late 80s. Which was interesting, and it was a lot more difficult. The biggest thing is you need to know how the subject has changed from the date it was married. I have a questionnaire when I go to appraise for the current market value. Okay, I'm doing a retrospective. I did this yesterday. I have a retrospective back to November of 2020, and the house was bought by the husband in February of 2019. And I read the listing for 2019, and it was all updated. The kitchen, the master bath, everything looked very nice when he bought it in 2019. And then I asked him, by the time you got married, had you done anything to the house? And he said, no. And then once they got married, he said, well, we updated the basement bathroom and we did this gorgeous fireplace, two story fireplace in the living room. Those were really the only two things. And so that, you have to take that into account. Those didn't exist the day they were married, and now that exists. So that's the biggest thing, the trending data, the comparable sales, they're all available in the MLS, as long as it's after 2007. 2007, we have data. In the Boulder MLS, it goes back to 1999. So if there's a Boulder house and you need a retrospective to 2002, you can usually find data in the IRIS MLS system, the Northern Colorado. MLS system
Ryan Kalamayayeah, a couple comments on that. One is that you are correct in that we are looking for that appreciation. One thing I think people often underestimate or they don't realize is that, you've got the value of the property, so it's at X in 1985, and now it's Y in 2023, and there's, likely appreciation, but then you also have to look at what the debt was in 1985 for the house, because, they, over time, they're Oftentimes we'll be paying down, the debt, so you can have appreciation. And I'm just curious, are you ever asked to get into what the debt was on the house at the time of purchase? I
Kevin Kernsnever have been as far as the debt. I've always figured that's. The lawyers purview and, and CPAs. I mean, we have, the strange things are like water rights and water is becoming so expensive now. I mean, I raised a house that had 7 shares of water that was worth 1. 4 million dollars and it was a, this terrible little modular house that almost couldn't be lived in and the water rights were worth more than the land and the house that they were living in. And now, if you drive up through Weld County, there's all kinds of fracking operations and oil. And, usually those are, those need to be. Valued separately from the real estate, but they could impact the value from a residential standpoint.
Ryan KalamayaYeah, you make a great point, Kevin. I mean, the I've had to deal with the water, the valuations and real estate appraisers have said, I'm not valuing the water or this doesn't. include the water and, then it becomes, well, people are buying it, like what's a buyer, the buyer is going to buy it along with the water rights and they can be severed or, and there can be issues on that. But then the oil and gas the mineral interests, they, I've certainly seen that where people need to understand the surface rights are different than when you buy and construct a house. That's different than the oil or the gravel underneath your your property. And and that's especially true, like, Weld County some of the outer lying, areas where they can have horizontal drilling, but, it is going to impact the value of the house. If you've got a pump right next door to your, your house, people are going to take that into consideration. One thing I want to ask you about is, we've seen some circumstances going back to the retroactive. Of using what the app, what the assessed value was in 1985 compared to what the assessed value is now. And I know that the, at least up here in the mountains, I've seen the assessors have gotten, because there's been so much, so many appeals they are held accountable and at least there's a general. Feeling that they're more accurate today, but back in, the, nineties or eighties, it wasn't as important. So any comments or feedback on, assessed value?
Kevin KernsYeah, assessed value really has nothing to do with a market value. It's. It's an ad valorem tax appraisal valuation, and it's done very, it's called mass appraisal techniques. And they're looking at hundreds of houses and they're averaging things. They're not looking at how nice does your kitchen look compared to this one? I feel like they shot themselves in the foot. By opening this up and trying to say, this is what your house is worth because, you need a value and you have a mill levy and it's to determine taxes. But that value doesn't need to be a market value. It doesn't need to reflect. Everyone's seen that little small. Assessed valuation is like 12, 000 and your house is worth 12, 000 and they apply the mill levy to that. And then your property taxes are 2, 400 a year, 3, 200 a year. And yet, yet they opened up this can of worms by. And it's just they don't use the same techniques that real estate appraisers use, and they're using data from up to 18 months ago. And I'm telling you, markets just can change so quickly. When interest rates. Went from three and a half percent to 7 percent in two months last fall. I mean, there's no way the assessed value, and another thing about, I know that in COVID, when COVID hit. When the pandemic hit, a lot of those guys weren't working and they weren't adjusting the assessed value and increasing your taxes as the market went up. And they did it all at once. And that's why everybody got so hopping mad this year, and everyone is, because it's like they doubled. What the house went from 400 to 800 or went from 800 to 1. 5 million. And the years previous, it was only creeping up, but I talked to a lot of the assessors and they're like, well, we just didn't, we didn't really didn't do anything during the pandemic. And now, now we're adjusting it and it's three years later and one of the strongest markets we've seen in half a century and it killed everybody.
Ryan KalamayaAnd Kevin, what are your thoughts on Zillow?
Kevin KernsZillow, Redfin, Realtor. com. I consult those in every single one of my appraisals that I perform. I write down the Zillow value, the Redfin value, and the Realtor. com. And then I have a proprietary one. It's called CoreLogic. So I look at all four of those. And mostly I'm looking at them to see how tightly. are, do they show, 450, 462, 434, are they close or are they wildly disparate, and if they're wildly, like, if you try to do a 60 acre horse property, those four indices will be 200, 000 apart because they're using different data. So my thing about Zillow is that it can be relatively accurate if you're in a place like Highlands Ranch, where every fourth house is the same. There's been a dozen sales of your house in the last three months. They're going to be very close together, Redfin, Zillow, and they're going to be relatively accurate. buT they do base everything on trending data and historical data, and when, they can't take into account what happened to the market when interest rates doubled, like I said, but if you're doing a unique, if you have a unique property or one where there's, a custom home, they're going to be all over the place, and one isn't any better than the other. And, for a long time, Zillow was higher than the rest, and now Redfin seems to be higher than the rest I just look at them to see how close they are. If they all say the house is worth around 600, and I'm thinking about appraising it at 800, I need to answer that question, why? Am I doing something wrong? Appraisers should always use every tool they have available to them. To develop their estimate of value, we're not going to be, we're not going to be influenced by Zillow, but to ignore it is not good appraising.
Ryan KalamayaRight? And it's if there's a bonus room, you and I talked a little bit where we've I've seen this where there could be, someone converted a garage or they added, and they, the unfinished basement was finished or was constructed and it wasn't. Okay? No comment. There was no building permit, but they nevertheless live there. That is certainly not going to be accounted for in Zillow or the assessed value, but it would be by an appraiser because a buyer would take that into consideration.
Kevin KernsThat's exactly right. Once again, when you're talking about the improvements on the property, you're looking at what is the appeal, now, whether something was permitted or not is a little tricky because buyers don't really care. They don't care when the basement was finished. I never heard a buyer go, oh, What if the basement was finished and wasn't permitted? They don't do that, and so it doesn't matter and we need to be focused on buyers. But for instance, the difference between a legal accessory dwelling unit and an illegal one in terms of zoning, that can have some impact on value. The only people who could stay there are friends who are there for the weekend or Mom and dad or somebody, but you may not, you may get in trouble if you try to rent it out. If it's illegal, as far as zoning is concerned or city ordinances, right? So we do have to look at that. We have to know what's legal when it comes to things like that. But yeah, conversions of garages and things. It's really, how is a buyer going to react to it? And is it going to be something valuable? One thing I would like to say is, the number one reason people move in the United States is because they need more ancillary rooms in their house. I'll call them bedrooms. They need more bedrooms. But it also includes workout rooms and home offices and Sewing rooms and hobby rooms. It's the non social rooms in the house. You've got your living room, your dining room, your kitchen, your family room, your son room. Social areas where you drink coffee and you meet. And then you've got the ancillary rooms that are more private. The bedrooms are, what we call them. When the pandemic hit, everybody had to work from home. And I did appraisal after appraisal that they converted their formal dining room into a home office. Well, they're going to move, because they want a home office. They don't want to be using their dining room for that. Especially if they like to entertain. A family has another child. They need another bedroom. I moved seven years ago because I had an eight year old daughter sharing a bedroom with her four year old brother, and that was anybody who hasn't, the daughter tells that wasn't going to last very long. Right. And I moved specifically because I needed more bedrooms in my house. I, those ancillary rooms are very important. People have uses for them in their mind, so to use a, if my house has Three bedrooms on the top floor, plus a loft that can be used as a hobby room or a media room or a home office. And then on the main floor, it also has a den or a bedroom, right? So it's got five ancillary rooms, and it's a 2, 000 square foot house. Well, I had a comp for that house that was 2, 000 square feet, and it just had three bedrooms on the upper level. And so no lofted area and it had no main floor den. It had two less ancillary rooms than my subject, but they were both 2, 000 square feet. And you look at that and you say, boy, my house offers a buyer so much more with these two additional rooms. And so I didn't use that as a comp, even though on paper, it was a three bedroom, two and a half bath, 2000 square foot house. It looked exactly like my house and I could have made an adjustment for those rooms, but I decided not to use it because it was undervaluing my property. I find that interesting.
Ryan KalamayaWell, in the kind of last remaining minutes here, Kevin, to wrap things up, I'm curious. Can you maybe talk a little bit about updating an older appraisal? Because I have seen that where, someone like you will do an appraisal for mediation. Parties won't settle. Erica Melanie will set the case for trial. That trial will be six months later. The market, as you talked about, can change in, in, in a very short time. What's the process to update an appraisal? How often, and how often are you asked to do that?
Kevin KernsI'm asked a lot, especially when the market is moving quickly. I mean, I just updated an appraisal that I did in July but usually it's more than six months. It's a little tricky from an appraisal standpoint, because first of all, let's say I just appraised this house in July at 600, 000. And now they want me to, they want me to update the appraisal. Well, first of all, I am biased. By the first appraisal I did, I can't escape that. Someone else could come in and just do a whole new appraisal, but I just appraised this at 600. You run your trending statistics and say, okay, the market's dipped a little bit because we're moving into October in the fall and it peaked in July. It would make sense from a market dynamic for it to maybe have gone down a little bit. And then you look at your comps. And, like I said, trending statistics to me are the most important thing that moves it. If I have proof that the market's gone down 3 percent since July, I really want my value to be about 3 percent lower than the way I praised it in July. But what if you go and the best comp you have is at 700, and you just appraised it at 600, and you're like, Oh my God, why did that, so it becomes very tricky to do it because first of all, it just has to make sense. I mean, if you appraised it for 600, it's not worth a million. Now, three years later, three months later, what is the market done? We've moved from the selling season into the fall slack season. It should do this. But just because it should do that's not what the comps. Now, a lot of appraisers say, we shouldn't care about that at all. Just choose the three best comps and use them and adjust them and now you have your new value. Well, what if it's 400, 000? It doesn't make any sense from what I did it. So they're difficult to do. Appraisal updates are hard and they're tricky because I can anticipate those things. Well, you just appraised it for 500 in July. How many do they want to send home in three? It's not going to fly, but you know, so there's a little more finessing that goes on. But as long as I can defend it. And as long as I can defend my first one, and to me, it's common sense that it went from point A to point B from a valuation standpoint, I'm okay with it, but it is difficult to do. And I am asked to do it a lot, especially when the market is going straight up,
Ryan KalamayaKevin, I think, I mean, it's, there's so many more kind of questions and things that we could get into, but just in the interest of time I do want to bring it to a close for those that are interested in finding out more about you, whether they be a divorce attorney or, Erica, Melanie, they are saying, Hey, we're doing this divorce on our own and we want to get a value for our real estate. Where, what's the best way for them to get in touch with you and where can they find out more? About you, Kevin, and we'll have links in the show notes.
Kevin KernsYeah, probably my website. It's just kernsappraisal. com, K E R N S appraisal. com. And you can go there and my curricula vitae is there. It shows my testimony history and it's like my resume. And there's some information on there. I have an office manager. Her name is Amanda. She's brilliant. She's just a great asset to my business, and she's wonderful to work with for both lawyers and for, the petitioners and the respondents that are going through this. I really do think that it's good to get somebody who is experienced just because it's important. It's a different mindset, in mortgage lending, it's the mindset for the appraiser is how high can I get this? To make everybody happy without committing fraud. The banker's happy. The guy getting the loan is happy. Everybody's happy. Well, in divorce cases, it's all about getting it right because every 10, five is going here and five is going there. We just have a different mindset when we look at the market and we build our report, we're not biased towards trying to get it as high as we can.
Ryan KalamayaWell, I also think that's an important point because I, the risk in a divorce is that the Eric or Melanie's attorney will try to engage in that same practice and try to convince the other that the house is worth very, little or a ton. And what I have found, especially as I have been doing this, the longer I go, it's, I, listen I'm not going to be able to convince if I represent Eric, Melanie's attorney, how much it's going to cost thousands of dollars for lawyers to go back and forth. Instead, let's find a reputable real estate appraiser. It's going to cost some money. But it will just narrow the disputes most likely if both parties agree in neutral and it doesn't guarantee that they're going to agree, but it, that is a well it's a use of, it's a good use of money. And a lot of people I tell my clients, listen, like, let's just get the. And we can then have an intelligent discussion. There could be some things that we think the appraiser missed, and that's where your kind of guidance that you went over in particular in bracketing and some of the other things. But if you find someone that is reputable, like you, Kevin, it often saves parties money because then. They don't argue over value. They can both agree that this is, a well researched opinion of value, and then they can move on to the other things that could be disputed in their divorce. For anyone listening to this hopefully you learned a lot. I really enjoyed, learning about this, is it fair to say, Kevin, that one of your favorite things about the job is. Looking at people's lifestyles in their houses and then putting yourself in the role of a buyer, that's got to be a cool experience each and every day that you inspect a property. It
Kevin Kernsis. I love real estate. I think it's easy. I love architecture and I do like the fact working for divorce stuff. I am the expert, whereas in mortgage lending, I'm not. Fannie Mae is, and they tell us what to do and how to do it. And I like developing my opinion of value and knowing that. I need to defend it and just doing the best job I can. I take it very seriously because I know it's a lot of money going to each side of this equation and it's a difficult time and I understand that. Two last really super quick things. I wanted everyone to know that I only testify in three percent of the cases that I do appraisals in. Three out of a hundred and I'm hoping that's because they get the appraisals. One always thinks it's too high, and one always thinks it's too low, but once they look at it, and they read it, and they check some things, I'm thinking that they're saying, this is, this works, and we think it's honest, and we think it's supported, and it's good. The last thing I would say is that, consider selling your house. I mean, I, that doesn't do me any good because, I make a living appraising, but you know when all of the dust settles from this, do you really want to be walking through that home where you might have raised your kids? Or, there's so many memories, at least consider that option. Because then, especially if you have equity, you have money to go through this divorce process, to pay lawyers, to pay mediators, to get things done. And, like I said, that's not in my best interest, but I just think it's something that they should consider.
Ryan KalamayaWe're starting to see more and more of that because of interest rates. They just simply can't with the rise in the values. And we unfortunately have to go through an appraisal for 1 person, Melanie to realize that she can't afford to keep the house. And then we move on. And to your point, oftentimes what we will do is just say, well, we're going to sell the house and split the proceeds. We don't know exactly how much it's worth. We're not going to get an appraisal but you know, there are times when, we need an appraisal in order to make that decision that, and that's fair. I think that's probably a good use of money again, but for people, they, they know, okay, like, And now we shouldn't have any disputes on the listing price. But Kevin, I think, you come at it at the right, way and clearly passionate and really value your time. I hope people really appreciate the information that you provided. But until next time, thanks for joining us on Divorce at Altitude. And again, we'll have links to everything in the show notes. And thanks again for joining us, Kevin.
Kevin KernsThank you, Ryan. It was really fun.
Ryan Kalamayahey everyone. This is Ryan again. Thank you for joining us on Divorce at Altittude. If you found our tips, insight, or discussion helpful, please tell a friend about this podcast. For show notes, additional resources or links mentioned on today's episode, visit Divorce at Altittude dot com. Follow us on Apple Podcasts, Spotify, or wherever you listen in. Many of our episodes are also posted on YouTube. You can also find Amy and. Law or 9 7 0 3 1 5 2 3 6 5. That's aaa.