McClelland Minute - January 24, 2010

Real Estate and Divorce

If you and your partner are happy with each other, you have my permission to ignore this week’s column.  However, if you are currently in, or contemplating, a separation, and own real estate together with that person, then please read on. I hope the advice offered today will help in some small way to prepare for what lies ahead, at least real estate wise.

The first recommended step is the development of a collaborative agreement on the terms of the separation including child custody, division of property, and financial arrangements among other essential elements.  If one party wishes to stay in the home, appoint two accredited appraisers to each conduct an independent valuation.  This will establish a range of current fair market value to use as a planning tool in your settlement discussions.  Allow a reasonable period of time for the party who wishes to stay to obtain financing if that is what is required; appreciate the fact that it may be difficult on only one income. 

If neither party wishes nor can afford to stay, it would be appropriate, in addition to an independent appraisal to choose an experienced Realtor to prepare a comparative market analysis.  Again, this gives you benchmarks for estimated fair market value.  Provide him / her with the appraisal, then meet together, during a collaborative meeting if appropriate, and discuss strategy – asking price, projected length of time the property is expected to be on market, how long it may take to create transition plans for people, pets, and furnishings, how offers will be deliberated, etc.  Fair rules make for fair play.

Do not use the Realtor as a “ping pong” ball, to be bounced back and forth between two camps in an attempt to “get even” or assert one’s will over the other.  By this time, both parties need to have moved on to the next stage of their life, and they have to be serious about selling.  If a buyer suspects there is a crack to be opened between the sellers, I guarantee it will cost the owners’ money by weakening their power in negotiation.  If one or both of the parties want the entire separation agreement finalized before disbursement, simply place the proceeds from the house sale in trust with a neutral lawyer.

In today’s world, there is also the “elephant in the room” that needs to be addressed up front – debt against the property. You may have bought at or near the peak of the market using 5% or even 0% down triggering a 3.5% mortgage insurance premium.  Possibly your partner and you re-financed the property to purchase a big ticket item like a boat or to consolidate consumer debt.  In any case, the total owing needs to be verified complete with mortgage penalty, real estate brokerage costs, and legal fees. If the sum exceeds the current value of the home, then this property is “under water”.  This creates a whole new set of problems to be dealt with or foreclosure will inevitably result with both parties seeing their credit rating plummet.

From my perspective, there is no winner when a relationship breaks down.  What can be achieved is a fresh start for each party, but only if emotion doesn’t overrule common sense.  Realtors are experts in the trading of real property, acting as advisors and facilitators, not psychologists.  We just want to do the best we can to help our clients in what often proves to be one of most difficult aspects of our business.

Vern McClelland is associate broker with RE/MAX of Lloydminster.  If you have questions or comments on this article or other real estate matters, he can be reached at 780.808.2700 or through the McClelland Group website www.mcclelland.ca

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