An IRS estate appraisal answers one question. What would a buyer have paid for this house on the day the decedent died?

The Service reads the answer through a narrow lens. Fair market value as of a fixed date, supported by closed sales, documented by an appraiser with credentials and no stake in the outcome. Everything else in the report exists to prove that conclusion.

Estate attorneys in Philadelphia, Bucks County, and Montgomery County send me houses in every condition, from a maintained colonial in Newtown to a Fishtown rowhome no one has entered in four years. The standard stays the same for all of them. Here is how the Service applies it and what your file needs to hold, and why estate and date of death appraisals in Philadelphia get built the way they do.

Fair market value as of a fixed date, supported by closed sales and documented by a qualified, independent appraiser.

The Standard the Service Applies to a House

Treasury Regulation 20.2031-1(b) sets the definition. Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither under compulsion, both holding reasonable knowledge of the relevant facts.

Read the parts of that sentence an examiner reads.

Willing seller rules out a distress figure. An estate that wants the property gone in thirty days has a liquidation problem, and liquidation value has no place on Schedule A.

Reasonable knowledge rules out a number that ignores the failed septic system or the addition built without a permit. Both facts belong in the report.

The definition also rules out sentiment. A house that held four generations of one family carries a value set by the buyer pool in that ZIP code, and an appraisal says so in writing.

Date of Death or Alternate Valuation Date?

The default effective date is the date of death.

Section 2032 gives an estate a second option, a value measured six months after death. The election applies to every asset in the estate rather than the house alone, and it opens only when the change lowers both the gross estate and the estate tax due.

Counsel makes that call. The appraiser needs the date in the engagement letter before the analysis starts. For the fuller mechanics of this assignment, see what estate attorneys need to know about date of death appraisals.

Both dates produce a retrospective assignment. The appraiser searches sales that closed around the effective date, reconstructs the market conditions of that period, and excludes knowledge that arrived after it. A sale that closed eight months later carries little weight in a report anchored to a date last spring.

A later arm’s length sale of the subject can serve as evidence of value. It never replaces the analysis.

A home in Bensalem, PA — one of the Bucks County markets where estate values get built retrospective to the date of death.

Why Estates Below the Filing Threshold Still Need an Appraisal

The federal exclusion sits high enough that most Bucks County estates file no Form 706. The appraisal still earns its fee.

Section 1014 steps the heirs’ basis up to fair market value on the date of death. That figure sets the capital gain when the property sells, whether the sale happens in March or in 2035.

An estate that skips the appraisal and writes down a guess hands the heirs a basis they cannot support. Two years later the house sells, the gain looks larger than it should, and no one can reconstruct the value of a property that has since been renovated and emptied.

A dated, signed report costs a fraction of the tax it protects. Tell the executor that in the first meeting.

What Makes the Appraisal Hold Up

The Service and the Tax Court weigh three things about the appraiser before they weigh the number.

Credentials. A state certified appraiser with a license in the state where the property sits, and experience in that property type.

Independence. No interest in the property, no relationship to the beneficiaries, and a fee that has no connection to the value reported. A percentage fee ends the report’s usefulness.

Method. USPAP compliance, a stated scope of work, a signed certification, and an analysis a reader can follow from the comparable sales to the conclusion.

Ask for the appraiser’s qualifications before you engage. The examiner will ask for them later.

A home in Norristown, PA — Montgomery County estates file inheritance tax with the same appraisal that supports the federal return.

What an Examiner Looks For in the Report

The number draws attention. The support survives it.

An estate report should contain the effective date on every page that matters, the definition of value, the property rights appraised, an interior inspection or a stated reason for its absence, the sales comparison grid with adjustments traced to market data, a reconciliation that explains the weighting, photographs, a sketch, and a location map of the comparables.

Condition as of the date of death belongs in the narrative. Estates change fast. Heirs paint, clear, and replace the water heater within weeks, and the house an appraiser walks in October differs from the house that existed in June. The report should state what changed and how the appraiser accounted for it.

Fractional interests raise a separate question. An undivided interest in real property carries different considerations from the whole, and that assignment needs its own scope discussion at the outset.

Penalties That Follow a Weak Number

Section 6662 attaches an accuracy related penalty when a reported estate or gift value falls to 65 percent or less of the correct value. The penalty climbs when the reported value reaches 40 percent or less.

The exposure runs to the estate. The explanation runs to counsel.

A supported appraisal from a qualified appraiser gives the estate a reasonable cause argument that a broker price opinion cannot. It also gives the executor documentation of the diligence the role requires.

Pennsylvania Adds a Second Reader

Federal filings are one audience. The Register of Wills is the other.

Pennsylvania inheritance tax reaches most estates in this Commonwealth regardless of size, and the REV-1500 asks for the value of real estate the decedent owned. The Department of Revenue reviews that figure against its own data on the property.

One appraisal, dated to the date of death, serves both filings. Order it once and use it twice.

Where Estate Files Go Wrong

The executor waits. The house sells in month five, no one measured it, and the basis rests on a listing agent’s opinion.

The engagement letter states no effective date, and the appraiser dates the report to the inspection.

The house holds hoarding conditions or a failed roof, someone clears it before the inspection, and the report reflects a property that did not exist on the date of death. Photographs taken by the family in week one solve this. Ask for them.

Counsel orders a broker price opinion to save money. The Service treats it as an opinion from an interested party, and the file loses its anchor.

The estate hires the appraiser who quoted the lowest fee, then discovers he handles refinance work and has never written a retrospective report.