When buying a property, you do not only pay the price agreed with the seller, but you also have to take into account a series of additional costs in addition to the payment of the real estate asset, its fiscal effects and how it is taxed by different taxes that may vary from one place to another.
When real estate professionals explain a transaction, their vocabulary may include terms whose meaning is sometimes incomprehensible to those involved in the transaction.
Understanding the difference between the market value and the cadastral value of a property is necessary for both owners and potential buyers because of its implications.
These two values serve different purposes and are calculated using different methods, which can often lead to confusion.
What is the cadastral value?
When we talk about the cadastral value we refer to an administrative valuation of a property that will serve as the taxable base for tax purposes. Therefore, it serves as a basis for the calculation of the tax and does not necessarily represent the actual purchase price of the property.
The General Directorate of Cadastre is the body responsible for assigning and revising cadastral values, by means of collective valuation processes through which the cadastral values of all properties in a municipality are updated simultaneously and the cadastral value for each property will be the sum of the value of the land and the value of the construction.
In this process, several factors are taken into account, such as the location, shape and surface of the plot, possible administrative protection (subsidised housing), the quality and age of the construction, the size, or the use (commercial, residential, agricultural) among others.
Why is the cadastral value necessary? The cadastral value is the taxable base for the calculation of the Real Estate Tax to be paid annually by the owners and it will also be the reference value for the calculation of the municipal capital gains tax if the objective system is chosen as the calculation formula.
Checking that this administrative value is correct will mean that the taxes affecting the property will be fair and will not be overpaid.
What is market value?
The market value of a property can be defined as the estimated value of an asset in a market in its current condition and over a specified period of time.
The method that gives the closest approximation to the market value of a property is the official valuation. On the one hand, it allows the value of the property to be known, and on the other, it serves as a reference when quantifying the amount to be granted in a mortgage loan.
Market value is a dynamic figure influenced by factors such as demand, economic conditions and buyer preferences. Consequently, market value can fluctuate, making it a critical aspect of property valuation.