When you're named the executor of an estate, the checklist of responsibilities can feel overwhelming. One of the most immediate tasks is establishing the value of the deceased's assets, especially real estate. In an effort to save money, many executors wonder: Can I just ask a local real estate agent for a free estimate instead of paying for a formal appraisal?
While a real estate agent's Comparative Market Analysis (CMA) is a great tool for listing a home, using it for estate settlement and tax purposes can be a costly mistake.
What is a Real Estate Agent's CMA?
A Comparative Market Analysis (CMA) is an estimate of a home's value provided by a licensed real estate salesperson or broker. Agents provide these to help sellers decide on an asking price. They look at recently sold homes, active listings, and market trends to suggest a listing strategy.
The problem for estate settlement: A CMA is ultimately a sales and marketing tool. Agents are not held to the stringent, objective valuation standards that appraisers are. Furthermore, the IRS explicitly states that an estimate of value from a real estate broker is not an acceptable substitute for a qualified appraisal when filing an estate tax return or establishing a stepped-up basis for capital gains.
What is a Certified Estate Appraisal?
A Certified Real Estate Appraisal is an unbiased, legally defensible opinion of value prepared by a state-licensed or certified appraiser. Appraisers are governed by the Uniform Standards of Professional Appraisal Practice (USPAP).
For an estate, you typically need a Date of Death Appraisal (also called a retrospective appraisal). This determines the Fair Market Value of the property as of the exact date the owner passed away, not the current date.
Why the IRS and Courts Demand an Appraisal
There are three main reasons why an executor must hire a qualified appraiser rather than relying on a CMA:
- Establishing the "Step-Up" in Basis: When property is inherited, the heir's tax basis becomes the fair market value on the date of death. If they sell the property later, capital gains taxes are calculated based on this new value. The IRS heavily scrutinizes these figures. If you use a CMA and the IRS audits the return, they will likely reject the valuation, potentially leading to severe penalties and back taxes.
- Estate Tax Liability: To determine if an estate owes federal or state estate taxes, accurate valuations are mandatory. The IRS explicitly requires a "qualified appraisal" performed by a "qualified appraiser." A real estate agent does not meet this definition for tax purposes.
- Equitable Distribution & Fiduciary Duty: As an executor, you have a fiduciary duty to the heirs. If a property is being bought out by one sibling, or distributed unevenly, you need an independent, indisputable value to prevent family disputes or lawsuits. A certified appraisal protects the executor from liability.
The Bottom Line
While a CMA is free, the long-term cost of an IRS audit, rejected tax filings, or family litigation is astronomical. For peace of mind, legal compliance, and fiduciary protection, a certified appraisal is the only correct choice when settling an estate.