Whenever you gather information on real property, think about the following information:
This will be in one of two forms.
- If it’s in some kind of subdivision or organized residential development, it will say something like “Lot so-and-so of the Lee Borden survey of Splitup Acres, recorded at Book so-and-so, Page so-and-so.” This is by far the most common form of description for most homes.
- If it’s not, it will actually describe the property using what lawyers and surveyors call “metes and bounds.” This is an actual description of a walk around the borders of your property. It will say something like “Commence at the SW (that means Southwest) corner of the NW corner of Section 37, and travel 250 feet to a point of beginning. Then turn 90 degrees” – well, you get the idea. When all of the turning and measuring is finished, it should be back at the same corner where it started.
The property description should be easy to get. If you have a copy of your deed, that’s the easiest way. If you don’t, you can get it some other way:
- Title insurance policy on your home, if you have one.
- The tax assessor in your county or parish will have the record, and you can pull it up that way.
- Call the lawyer who handled the closing.
- Call the real estate agent who worked with you to buy the house.
Fair Market Value
The Fair Market Value of any asset (and real property is an asset) is the price that would be paid by a willing seller who doesn’t have to sell and a willing buyer who doesn’t have to buy, assuming both the seller and the buyer have reasonable knowledge of the relevant information about the asset. There are several ways to estimate the Fair Market Value of real estate.
- You can order an appraisal, but that costs money.
- You can find out what other properties around you are selling for, and estimate the value from that. No cost, but lots of time and trouble. And do you know how others will perceive the differences between your property and other houses nearby? I know I sure don’t.
- You can ask a real estate agent to do a comparable search for you and estimate the value. This is also free, and I think you can get a really accurate value this way. Just make sure the agent who does the estimate for you sells lots of property in your area. And I think the more successful the better. The more successful agents, the busy agents, are less likely to give you an overstated value as a way of enticing you to list it with them. They’ll want to set a realistic value at which they know they can sell your property reasonably quickly, get their commission, and go on to the next sale.
What You Paid For It
For most homeowners, this no longer matters. That’s because you can now exclude up to $250,000 of gain on the sale of home that’s been your residence for any two of the last five years, $500,000 for the two of you together if you’re still married. It still matters for real property other than your principal residence, however, and it also matters for your home if you still own it but haven’t lived there in a while.
Most people usually have an idea what they paid for the house. If you don’t, you’ll probably need some cooperation from your spouse. If you don’t get it, print The Discovery Money Pit and give it to them. Ask them if that’s what they really want you to have to do.
Uncle Sam treats money you’ve invested in improvements to real property as if you paid that much more for the property when you bought it. We’re looking here for major improvements, things like an addition, an upgraded climate control system, or moving walls around. New carpet, patching up the parking lot, and replanting the dead bushes out front don’t count.
Depreciation is the technical term for an assumption Uncle Sam allows us to make that our use of property wears it out over time and makes it less valuable. Depreciation isn’t an issue for most of us.