A divorce court in Texas should usually not reduce the value of a house because of closing costs and realtor fees because that approach is not consistent with the definition of “fair market value,” and because such closing costs are too speculative. There is no definitive Texas case law on point, but the majority of other states have held that closing costs should not be considered in the value of a house unless a sale is actually imminent or planned.
Two older Texas cases could be interpreted to approve of reducing the value of a house in a divorce by the cost of sale. In Pelzig v. Berkebile, 931 S.W.2d 398, 403 (Tex. App. – Corpus Christi 1996, no writ), the court of appeals said,“The judge’s finding of a $99,000 value after deducting ten percent closing costs was within the range of values suggested by the evidence.” In Cole v. Cole, 880 S.W.2d 477, 484 (Tex. App. – Fort Worth 1994, no writ), it is not clear at all what method the trial court used in finding the house had a net value of $180,440. An appraiser testified about a range of possible values and estimated closing costs. The court of appeals upheld the trial court and said,“It is possible that the court started with the figure of $275,000 because it took into account the various deductions that would be made for closing costs and taxes.” Neither of these cases involved an appellant specifically challenging the trial court’s deduction of sales costs from the value of a house. In Pelzig v. Berkebile, the parties apparently both agreed to deduct the cost of sale from the value. It was not clear even to the court of appeals what methodology the trial court used in Cole v. Cole to value the house and there are no other Texas cases on point.
Case law and the Texas Pattern Jury Charge define “fair market value” as “the amount that would be paid in cash by a willing buyer who desires to buy, but is not required to buy, to a willing seller who desires to sell, but is under no necessity of selling.” Texas Pattern Jury Charges – Family & Probate (2012), PJC 203.1. The amount paid in cash by a willing buyer for a house is the total amount paid and the definition does not say “the net amount the seller walks away with after paying all costs and fees.” If I sell my house to Sheri Dean for $250,000, the fair market value is $250,000 and not what I net after paying the real estate agent and all closing costs. The mortgage is taken into account in a divorce because it is a current community debt. If there are no current plans to actually sell the house, the amount of realtor fees and closing costs is speculative. It is likely a real estate broker will be used but some houses are sold directly without an agent. In some cases, the broker’s fee is negotiated down from the usual six percent. Other typical closing costs for a seller include the cost of title insurance (which is negotiable and not always paid by the seller) and prorated property taxes and homeowners association dues (which are not paid in many situations). It is thus impossible to predict accurately what the cost of sale for a particular house will be, especially if the house is not for sale and may not be sold for years or decades. In a divorce, the trial court properly may not consider liabilities that are uncertain and speculative. Means v. Means, 535 S.W.2d 911, 914 (Tex. App. – Amarillo 1976, no writ)(trial court properly did not consider the potential liability of lawsuits against the husband’s business because they were too speculative).
Courts from the vast majority of other states have held that the value of a house should only be reduced by the costs of sale if there is evidence in the record of an imminent sale and evidence of the estimated costs of sale. In re Marriage of Berg, 737 P.2d 680, 683 (Wash. App. 1987); McDaniel v. McDaniel, 829 P.2d 303 (Alaska 1992); Coviello v. Coviello, 605 A.2d 661 (Md. App. 1992); Virgin v. Virgin, 990 P.2d 1040, 1049 (Alaska 1999); In re Marriage of Kopplin, 703 P.2d 251, 253 (Or. App. 1985); In re Marriage of Stenshoel, 866 P.2d 635, 641-42 (Wash. App. 1993). See also Taber v. Taber, 626 So.2d 1089, 1089-90 (Fla. Dist. Ct. App. 1993); In re Marriage of Benkendorf, 624 N.E.2d 1241, 1245-46 (Ill. App. 1993); Carlson v. Carlson, 487 S.E.2d 784, 786-87 (N.C. App. 1997); Waldow V. Wadlow, 491 A.2d 757 (N.J. App. Div. 1985). A minority of states have approved deduction of closing costs from the value of a home even if there are no current plans to sell the home. See e.g., Abrams v. Abrams, 516 N.W.2d 348, 350-351 (S.D. 1994).