Real Estate Commissions Not Deductible In The Valuation of Family Property: The BC Court Of Appeal Weighs In
In negotiating the settlement of family property and asset division in a family law matter, particularly in relation to the valuation of the family home, parties often argue about whether or not the parties should deduct real estate commissions when one party is looking to buy the other’s interest in the home. The idea behind this is that, if neither party can afford to buy out the other’s interest, the only other option would be to sell the property and, ostensibly, pay real estate commissions on this sale.
Thus, when negotiating this issue, the party wishing to purchase the interest often advances the argument that the amount that he or she should pay should be the value after commission (thus lowering the amount of the payment) and the party looking to sell his or her interest is seeking the value without these dispositional costs.
The way that this has been dealt with in the courts, as well as in negotiating privately, has varied. However, the courts have followed what it terms the “usual rule”, for the purpose of valuing the family residence (or other property) which is not to deduct “hypothetical distributions” such as real estate commission if the parties are not likely to incur those costs (e.g. not going to list the home for sale but rather sell it to the ex-spouse).
In the recent case of Willie v. Willie 2013 BCCA 318, the wife was appealing a Chambers Judge’s decision not to deduct real estate commissions in determining the value of the former matrimonial home. In this case, the wife had offered to purchase the former matrimonial home for a value equal to the counter-offer that her ex-husband was willing to accept from a third party purchaser, less the real estate commission. After some legal clarification, the judge followed the “usual rule” and could not approve the purchase at the price that the wife was willing to pay on the basis that he would not deduct for a “hypothetical distribution “in this instance as, if the wife was purchasing the home from the husband, he would not be incurring real estate commissions.
The Court of Appeal upheld the decision of the lower Court finding that the judge was right in applying the “usual rule” of not allowing a deduction for hypothetical dispositional costs in the valuation of a family asset.
Taryn Moore can be reached at (250)869-1265 or at firstname.lastname@example.org.