Buried in the custodian agreement: I owe them a value on this house every year

In the rural markets I look at there might be four sales in a township in a year, and two of them were family transfers. An agent letter out here is a guess with letterhead. My county's assessed value is also stale by design because they reassess on a cycle. Neither one is a real answer, which is why I'd probably end up paying for the appraisal and hating 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.

I'm still building a list so I have no annual filing to do yet, but this is the first thing in this room that made the custodian fee look small. Several hundred a year for an appraisal on top of the fee is real money on a $120k house.

Matching rigor to the event, the way @rena-expert described it, is the version I'd plan around. Cheap documentation in years where nothing happens, real appraisal in the year I convert or distribute. The trap I'd worry about 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?

@juniper mostly yes, the account value gets reported annually whether or not anything moves, and once you hit the age where distributions are required the value is what the required amount is calculated from. So it's a number in waiting.

On the poll, I voted for appraisal every few years. With my small multifamily outside a retirement account, my estimate of what the building is worth drifts high every single year, and the years I checked against something real were the years I was wrong.

Something worth adding from running a small crew: an appraiser walking a tenant-occupied unit needs notice and access, and that's a coordination job you can't do yourself if the IRA owns it. My property manager charges for the access visit. Small cost, but it's another line the account pays.

@cobalt that's the detail I'd have missed. Every task on an IRA property has a middleman attached and each one has a fee.

I use a letter most years and I'm not fully comfortable with it. @hollow's point cuts the other way in my market, plenty of comps, so a letter is actually well supported. If the comps exist the letter is fine. If they don't, 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. @orchard'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. @orchard I'd have picked the lower one too, though I'd want a professional signing off on that call rather than me.