Property valuation and casualty loss support for Southern California homeowners

Client background

Several families that Baker Tilly represents were affected by the Southern California wildfires in January 2025. Their homes — primarily located in the Altadena and Pacific Palisades neighborhoods — were either destroyed, damaged or located within the impacted area.

Business challenge and scope of work

The impacted clients engaged Baker Tilly to conduct both a retrospective and as-is fair market valuation (FMV) of single-family residential properties, delivered in the form of an appraisal report. We provided FMV conclusions as of Jan. 6, 2025 (pre-fire) and post-fire, with post-fire dates varying by assignment. We’ve used post-fire dates of May 31, June 30 and July 31, 2025. This appraisal will be used by the homeowners for tax reporting purposes.

• California Revenue and Taxation Code Section 170 provides property tax relief through reassessment for victims of the wildfires so long as the property damage is at least $10,000 of current market value.
• Property owners who file a reassessment claim under Section 170 are also permitted to file a claim to defer their next property tax installment payment.

Strategy and solution

Baker Tilly's real estate valuation and advisory team conducted property appraisals primarily using the sales comparison approach, supplemented by the cost approach in select cases where appropriate. By analyzing recent closed sales within the Altadena and Pacific Palisades before and after the January 2025 wildfires, we assessed how the fires affected property values and market activity. This comparative analysis provided insight into shifts in buyer behavior, pricing trends and the overall impact on residential real estate in the affected areas.

IRS casualty loss FMV considerations:

• Appraisers are not allowed to consider the short-term decline in FMV but may consider permanent decreases in FMV caused by changes to the surrounding neighborhood if properly documented.
• Damage to trees or landscaping qualifies as property damage.
• Appraisers must consider the highest and best use of the damaged property.
• The cost of repairs can be used to measure the amount of casualty loss, but the actual repairs must be made.

Unique challenges

Sales comparisons were limited due to the unique nature of many of our subject properties, which featured high-end finishes and distinctive amenities that were not commonly found in recent transactions.

Additionally, assessing the full impact of the January 2025 wildfires on the residential real estate market has proven difficult, as insufficient time has passed to observe meaningful trends or stabilization in property values and buyer activity.

There was also a technical challenge of dealing with detrimental conditions as it relates to the cost approach. These are unique events that require significant technical expertise.

Outcome

We’ve completed valuations for a significant number of properties. These appraisals have helped our clients understand any potential loss in property value resulting from the wildfires, particularly for the purpose of tax reporting.

For more information on this topic — or to learn how Baker Tilly’s real estate valuation and advisory specialists can support your wildfire recovery efforts — please contact our team.