If you plan to sell sooner or later you will be confronted with the notion of market value of a property. What does this notion specific to the real estate sector refer to ? How is it calculated? What about in the context of an inheritance? So many questions to which we propose to answer in a few points.
Definition of market value
Even if market value is a well-known concept in real estate, it has no legal definition to speak of. Or rather, it has several, outside the scope of the law. First, its interpretation appears in the General Accounting Plan (PCG) as such: “the amount that could be obtained, at the balance sheet date, from the sale of an asset in a transaction concluded under normal market conditions, net of exit costs.” (Section 310.1.11) Then, it is found in the judgment of the Court of Cassation of December 6, 2005 (No. 03-18 782) in these terms: “the price of a property that could be obtained by the game of supply and demand at the time of the transfer or the clauses of the deed of sale. ”
In a nutshell, the market value is equivalent to the net selling price. More simply, it is the price of a property during a hypothetical sale, without taking into consideration the marketing costs (agency fees in particular). It takes into account several factors such as the geographical location of the property, its surface area or the state of the real estate market at the time of sale.
Be careful, it differs from the rental value. The latter corresponds to the amount of rent that a landlord could receive for a year if he rented his property. This information is only interesting in the case of a real estate project for rental purposes.
Why know the market value of your property?
There are several special cases that require to know the market value of a property:
- Real estate sales: the first step in anticipation of the sale of a property is to give an estimate of its cost. The market value is what will constitute the basis of the sale price of the property. It is then called the “net seller” price as opposed to the “agency fees included” price.
- Real estate wealth tax: the market value makes it possible to evaluate the assets of a third party. The tax administration currently only takes into account real estate assets, replacing the solidarity tax on wealth (ISF) since 2018. Thus, owners must declare the value of their real estate taking care not to understate this amount. If necessary, the tax authorities could impose a tax adjustment.
- Inheritance or gift: in this case, the market value of the real estate assets of the deceased or donor is used by the tax authorities to calculate the amount of inheritance tax. A bad estimate can lead you to penalties, as well as for real estate wealth tax.
- Damage or destruction of property: in the context of a claim involving your real estate assets, the insurance may ask you to provide a certificate of value for the property in question. The market value will then be useful to him to set the amount of your compensation.
Method of calculating the market value?
The calculation of the market value of a property is subject to a serious evaluation based on precise criteria. This makes it possible to avoid overvaluing or, on the contrary, undervaluing one’s property by referring to general factors. We first take into account the property:
- the nature of the property: house, apartment, building, villa, castle, etc.;
- architecture: Haussmannian building, architect’s house, etc.;
- the date of construction;
- the surface area of the property as well as that of the rooms;
- the number of rooms and their distribution: in a row, kitchen open to the living room, etc.;
- the condition of the property: new, old, renovated, to be renovated, etc.;
- Additional services: swimming pools, roof terrace, garage, parking, cellar, air conditioning, functional fireplace, etc.
We then observe its environment:
- geographical location: popular area, secure residence, waterfront, etc.;
- reputation: safety, good schools, public transport, etc.;
- the view: Eiffel Tower, Sacré-Coeur, Mont-Blanc, ocean, etc.;
- the opposite;
- neighborhood and nuisances;
- the state of the local real estate market.
The experts responsible for calculating the market value use these criteria as a basis for setting an accurate and fair price. Of course, these factors change over time. The real estate market is different from one city to another. In some of them, it can even fluctuate from one neighborhood to another. Real estate advisors, or any other professionals who would have to calculate the market value of your property, are absolutely aware of the state of the local market at the moment T. Better, they can rely on another solid indicator: similar properties already sold in your geographical area. With all this data, they are guaranteed to provide you with the best net selling price at the time of listing.
The market value of property in the context of an estate
In the case of an estate in which one or more real estate properties are found, the estimation of the patrimony is necessary before assessing the amount of shares that each heir will be able to receive after the sale of the property or assets. Thus, in the event of the death of a third party, they have a period of 6 months to declare all the real estate of the deceased in order to proceed with the valuation of the patrimony. In general, the estimate is made by a notary who manages the estate as a whole. He will estimate the market value of real estate assets according to several factors, but also by consulting databases. If necessary, he will carry out a real estate valuation to best determine the net seller price. But the calculation can also be done by a real estate advisor. In this case, the latter can bring you his know-how and mastery of the local real estate market to help you sell the property at the best price.
Be careful to evaluate the market value! In case of undervaluation of the property, the tax authorities may ask you to regularize the inheritance tax. Conversely, if you have overestimated the real estate assets, you will be able to receive the refund of the excess inheritance tax in the year following the death.