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- The personal representative values the estate's cash and bank accounts, and the probate referee values everything else, the building included, at its value on the date of death.
- The court designates the referee from the people the State Controller appointed for the county. The referee is paid one tenth of one percent of the value appraised, between $75 and $10,000 unless the court allows more.
- In a court-confirmed sale the price has to reach 90 percent of an appraisal made within the year before the hearing, so an appraisal that has aged past a year means a new one.
- The court can waive the referee for good cause, and the personal representative or anyone interested in the estate can object to the appraisal before final distribution.
What is the inventory and appraisal?
It is the estate's formal statement to the court of what it owns and what each item was worth when the owner died. You file it on Judicial Council form DE-160, Inventory and Appraisal, and attach form DE-161 when you need more room to list the property. It is due within four months after letters are first issued. Probate Code section 8802 requires each item to be listed separately, with its fair market value at the time of the decedent's death stated opposite it.
Two people put values on that list. The Probate Code splits the work by kind of asset:
| Asset | Who appraises it | Where the rule is |
|---|---|---|
| Money and cash items, such as a check issued on or before the date of death that converts to cash at once | The personal representative | Section 8901 |
| Accounts in financial institutions | The personal representative | Section 8901 |
| Everything else, including the apartment building | The probate referee | Section 8902 |
So unless the court waives the referee, you will not be the one who puts a number on the building. Under section 8902 you deliver the inventory to the referee the court designated, together with the supporting data the referee needs, and the referee appraises the rest.
How is the referee chosen, and what does the referee cost?
The court chooses the referee, so you do not have to find one. Section 8920 has the court designate the referee from among the people the State Controller has appointed to act as probate referees for the county. If none of them is available, or the court does not designate one of them, it may designate a referee from another county. Section 8922 gives the court discretion not to designate a particular person even though the Controller appointed that person for the county.
Statute sets the referee's pay. Section 8961 fixes the commission at one tenth of one percent of the value the referee appraises, and section 8963 sets a minimum of $75 and a maximum of $10,000, unless the court allows more. On made-up numbers, a building the referee values at $4,200,000 carries a commission of $4,200. The cap is reached at $10,000,000 of value appraised by the referee, where one tenth of one percent comes to exactly $10,000.
What can you give the referee?
Section 8902 requires the supporting data the referee needs, and it does not list what that is. For an apartment building, the useful records are the ones that bear on what the building is worth, and they are the same ones a buyer will ask for later:
- The rent roll, with each unit's rent and the date of its last increase
- The leases, and a note of any unit with no written lease
- Operating costs, such as insurance, utilities the owner pays, repairs and property tax
- Whether each unit is covered by the Rent Stabilization Ordinance or another rent limit, since that limits how far its rent can rise
- The building's condition, with anything it needs, such as a roof, plumbing or seismic work
- Vacancies, and any unit held off the market
None of this tells the referee what number to reach. It puts in front of the referee the facts you already hold about the building as it stood on the date of death. If you have hired Shaya to sell the building, the rent roll and lease summary he assembles for buyers are the same documents, and there is no reason to build them twice.
How does the appraisal set the price in a confirmed sale?
When the sale goes to a confirmation hearing, the appraisal becomes a floor. Probate Code section 10309 bars the court from confirming a private sale for less than 90 percent of the appraised value, and the appraisal has to have been made within one year before the hearing.
Calendar the one-year condition. A case that takes a while to reach a sale can arrive at its hearing with an appraisal more than a year old, and then the building has to be appraised again before the court can confirm. Ninety percent of whatever it says becomes the new floor. On made-up numbers, an appraisal of $2,850,000 puts the floor at $2,565,000. If the reappraisal comes in at $3,100,000, the floor rises to $2,790,000, and an accepted offer of $2,700,000 that cleared the old floor no longer clears the new one.
So look at the appraisal's date before you set a list price, and again before the report of sale is filed. If the likely hearing date is close to the anniversary, raise it with the estate's attorney while there is still time to plan around it. Under full authority, section 10503 takes the 90 percent rule away. The Notice of Proposed Action still shows the heirs the price, and they can set it beside the appraisal on file, so the referee's number is still the one your price gets measured against.
Can the referee be waived, or the value challenged?
Both are possible, and each has its own procedure and deadline. Under section 8903 the court may waive appraisal by a probate referee for good cause. You apply as personal representative, with the petition for appointment, with another petition or in a separate one, and no later than the time the inventory is delivered to a designated referee. Attach the proposed inventory and appraisal and a statement of the good cause that justifies the waiver. A hearing follows at least 15 days after filing, with notice to the people the section lists, the referee among them if one has been designated.
A value already on file can be challenged instead. Section 8906 lets the personal representative or any interested person file a written objection to the appraisal at any time before the hearing on the petition for final distribution. The clerk sets a hearing at least 15 days out, notice goes out under section 1220, and when a referee made the appraisal, the objector delivers notice and a copy of the objection to the referee at least 15 days before the hearing. Whoever objects carries the burden of proof. Whether your estate has good cause for a waiver, or grounds for an objection, is a question for the estate's attorney.
Why does the number matter after the sale?
The referee's figure has a second life in the heirs' tax files. Apart from some exceptions, federal law sets the basis of property acquired from a decedent at its fair market value at the date of death, 26 U.S.C. section 1014, and section 8802 has the inventory state each item's value at that same moment. That makes the appraisal on file a natural reference point when an heir or the estate reports a later sale. Whether it is the figure to use on a return is for the estate's CPA to decide, and Shaya is not a CPA. Keep a copy of the filed inventory and appraisal with the estate's closing papers, where whoever prepares that return can find it.