Custodian agreements for a self directed IRA require an annual fair market value on every property held

In a rural market there might be four sales in a township in a year, and two of them family transfers. An agent letter in that setting is a guess with letterhead. County assessed value is also stale by design because reassessment runs on a cycle. Neither one is a real answer, which is why the honest path usually ends with paying for the appraisal and disliking it.

The mechanism behind that clause: the custodian reports the year-end value of the account to the IRS, and for assets with no public market it has no independent source, so it requires the account holder to supply one. That reporting obligation is the custodian's, and the documentation standard is set by the custodian's own policy rather than by a single published rule, so ask yours in writing what it accepts before you spend money on a report it will reject.

Two things matter more than which document you pick. First, the valuation should come from someone who is not a disqualified person. An opinion of value from your spouse, your child, or an entity you control is the kind of thing that undermines the file even when the number is defensible. Second, appraiser licensing and what a licensed appraiser may issue differ by state, and in some states an agent's market analysis carries restrictions on how it can be presented, so confirm locally.

The stakes scale with what the number is used for. For an ordinary year where nothing leaves the account, the value is a reporting figure. For a Roth conversion, an in-kind distribution, or a required distribution, that value determines a taxable amount, and a thin file is a weak position if the amount is ever examined. Many people match the rigor to the event, keeping lighter documentation in quiet years and paying for an appraisal in any year the value drives a taxable transaction. Whether that fits your account is a question for your tax professional, since it depends on what you plan to do with the asset.

@rena-expert the disqualified person angle hadn't occurred to me and my brother-in-law is an agent. Well. Scratch the free letter.

This is the first thing in this room that makes the custodian fee look small. Anyone still at the planning stage should budget for it before funding the account. Several hundred a year for an appraisal on top of the custodian's own fee is real money on a $120k house, and it recurs every year the IRA holds the property.

Matching rigor to the event, the way @rena-expert described it, is the version to plan around. Cheap documentation in years where nothing happens, a real appraisal in the year of a conversion or distribution. The trap to watch for is a jump in reported value the year the appraisal shows up, after five flat years of letters, which looks like exactly what it is.

Appraisers around me are booked weeks out and the fee has gone up every year I've noticed. If your custodian's deadline is in January and you start looking in January, you're going to miss it. Book early or don't bother pretending you'll get one.

Slow question. Why does the IRS need a value at all if I'm not selling or withdrawing anything? Is it just so the account statement is accurate?

@kevin_lombard mostly yes, the account value gets reported annually whether or not anything moves, and once the account holder reaches the age where distributions are required the value is what the required amount is calculated from. So it is a number in waiting. On the poll, appraisal every few years gets my vote. An owner's estimate of what a building is worth drifts high almost every year, and the years that estimate gets checked against something real are usually the years it turns out to be wrong.

Something worth adding on the logistics side: an appraiser walking a tenant occupied unit needs notice and access, and that is a coordination job you cannot do yourself if the IRA owns it. Property managers commonly charge for the access visit. Small cost, but it is another line the account pays.

@angela_burke that is the detail most people miss. Every task on an IRA property has a middleman attached and each one has a fee. A broker letter is what most account holders use year to year, and it deserves some discomfort. @laurenkim53's point cuts the other way in a market with plenty of comps, where a letter is actually well supported. If the comps exist the letter is fine. If they do not, no document saves you.

Land is worse than either of you think. I hold raw acreage in mine and the last two valuations came back a hundred thousand apart because one appraiser treated it as recreational and the other treated it as potential residential split. Same parcel, same year. I keep both reports in the file and report the lower one with a note explaining why, which my custodian accepted, and I document the reasoning every year in case the question is ever asked.

Reading all of this while trying to figure out where I fit, and the honest observation is that the annual valuation is a small industry nobody advertises. @karen_whitfield's hundred thousand dollar spread on one parcel is remarkable.

I move fast on the active side and this thread is a good argument for why I'd keep retirement money out of direct property entirely. An annual homework assignment with a deadline set by someone else, on an asset I can't touch, for a number that only matters decades from now. @karen_whitfield I'd have picked the lower one too, though I'd want a professional signing off on that call rather than me.