You are currently viewing Property’s market value: what is it and how to calculate this index?

Property’s market value: what is it and how to calculate this index?

Do you know what the market value of the property is?

When talking about the value of a property, it is common for people to think about how much it is worth to buy or sell, that is, its price in the real estate market at the time. In fact, this is an important index.

However, there is also the market value of the property, which does not represent the same price at which it would currently be sold or purchased. But then what does it represent? How to calculate the market value? And how does it impact the property owner’s life?

Check out the information in this content to know everything about the subject and find out why knowing the property’s market value is so important!

What is the property’s market value?

The market value is an indicator resulting from an assessment carried out by the city hall where the property is located. It concerns, then, the value of the property considering the criteria established by the municipality.

You might ask yourself: but if the market value indicates the reference price of a property, does it not correspond to the sale price? In truth no. It is necessary to understand that the real estate market has different pricing criteria.

The market value calculated by the city is usually different from the price the property would have for sale. Consequently, it is also not equal to the price that is considered after an appraisal by a realtor, for example.

The assessment made by the public authorities is based on its own aspects, as the objective is not to determine the price at which the property could be bought or sold by someone. Still, keep in mind that every property has a market value calculated by the city.

What is the market value for?

The market value can have some different functions, depending on who considers it – the city hall, a broker who calculates the sale price, a person interested in the purchase, etc.

Check out the main uses of this indicator in different scenarios.

Tax calculation

The primary role of the market value is to serve as a basis for calculating taxes, such as the Urban Property and Land Property Tax (IPTU) and the Real Estate Transfer Tax (ITBI).

Thus, its main use is to be used as a reference to establish how much tax should be paid by the owners or users of the property. It is interesting to mention that vehicles also have a market value, which is useful for calculating the taxes related to them.

So, the city hall always needs a base price to identify taxes and other issues, such as judicial and administrative fees. The market value is established based on the basic characteristics of the property.

Market price reference

Although it does not exactly correspond to the market price of a good, the market value can be used as a reference for calculating sales, similar to what happens with vehicles in relation to the FIPE table.

It is important to recognize that the market value can be well below the market price, as it only considers basic issues such as the size of the property. And it is precisely the lack of other criteria that makes the index not represent, in fact, what the good is worth.

After all, issues relevant to the market, such as the advantages of location, speculation around real estate, the real estate market in general, etc., are not evaluated. It is necessary to evaluate the other factors to arrive at the sale price.

Still, in some cases, the market value is used as a parameter to find the fair price of a property in the market. In addition to the index, other aspects related to equity will be jointly weighted.

And in case you are wondering how to calculate the market value of the property, check it out below!

How to calculate the market value of the property?

The calculation of the market value is made by the city hall itself, but it is worth knowing its formula to know which elements are evaluated.

The main criteria are:

Land area (A)

The public authority always assesses the total area of ​​land where the property is located as one of the main aspects.

Age (I)

The other significant factor for the calculation is the construction time of the property. Thus, the number of years since the property was built is considered.

Position (P)

Location is another relevant element, but the valuation does not consider the same aspects observed when the property is offered for sale. The city hall has its own criteria for scoring the so-called position factor.

The average value of square meter (VR)

The market value of a property is also part of the index that shows the average price per square meter of properties close to the location. The reference used is the Municipal Values ​​Plan, which, once again, is usually different from the values ​​considered for sale.

Type of residence (TR)

Typology concerns the general characteristics of a property, as well as any changes in its structure, such as renovations, modifications and additions of features.

Market Value Calculation Formula

After knowing the variables used in the calculation, see what formula is usually used to arrive at the market value (V) of a property.

V = A x VR x I x P x TR

As you can see, the result is represented by a simple multiplication of all the factors considered in the calculation.

It is important to highlight, however, that some municipalities may have a different formula to calculate the market value of a property.

What influences the market value?

In general, the calculation of the market value is done objectively, considering the municipality’s own determinations to arrive at a stable price. Therefore, this is a formula with a more bureaucratic bias, focused on documentation.

Still, there are a few different factors that can influence market value. For example, improvements made to the property often increase its price, as they bring changes to some of the scores you’ve seen earlier.

This is one of the reasons why your city’s city hall needs to be informed of any renovations or improvements made to the property. You must have authorization for the work and receive an inspection at the end of it.

When the rules are not followed and the owner carries out renovations without the city hall’s knowledge, the property’s market value is not updated. It may seem like a tax benefit, but the lack of regularization could bring several problems in the future.

Regarding the calculation made by the city about the value of your property, it is also worth noting that it is possible to ask for a review if you do not agree with the price that was established, whether for more or less. The government may review the amount or respond negatively to the request.

How to check the market value?

Although we have shown the formula used to arrive at the marketable value, you have seen that it is up to the city hall to carry out the calculation and inform the value of your property. Therefore, you don’t need to use the criteria to calculate it yourself.

If you need to know the value of your property, the query can be made directly at the city hall. Just go to the institution and inform the property data (IPTU number and date of registration).

Then, information about the market value of your property will be passed on to you. In some places it is also possible to carry out the consultation in a practical and agile way via the internet. In these cases, all you have to do is enter the city hall’s website and provide the necessary data.

In some city halls, the market value of a property is public information. Thus, it is not necessary to confirm ownership of the property to have access to it. Anyone who has the property registration data can check the price.

See, below, the websites of some of the main Brazilian cities to make the consultation.

Sao Paulo

Anyone who lives or owns real estate in the city of São Paulo can check their market value on the city’s website, using a specific link to consult the index.

Rio de Janeiro

The city hall of the capital of Rio de Janeiro does not have the facility to inform the index on the website itself, but it informs on the institution’s page how you can obtain the certificate of commercial value of the property.

Belo Horizonte

Anyone who lives in Belo Horizonte, or owns properties in the city and has doubts about the property’s market value, IPTU or ITBI, can search the city hall’s website and find out about the face-to-face service to check the property’s data.

Curitiba

The city of Curitiba also makes available on its website information about the calculation of the market value of properties, such as access to the generic value plan used to classify land and buildings.

Porto Alegre

The Porto Alegre City Hall page presents the main information about the property tax and the calculation of the property’s market value in the tax. More questions about the matter can be taken in person at the organ.

savior

Those who live in Salvador have the facility to consult the venal value in a quick and practical way through a link on the city hall’s website. As shown, just enter the registration number of the property to access the data.

Strength

In the capital of Ceará, the city hall provides some information about the market value and the calculation of IPTU on the website. However, it still does not have a page to consult the value online.

Recife

The city of Recife also does not have a link for digital consultation of the market value of a property. However, questions about the property tax and other issues related to the property can be checked on the frequently asked questions page.

How to differentiate the market value from the purchase or sale value?

In this post you learned what the market value is and how it is calculated. He also found out what influence he exerts on both the calculation of taxes and the reference for the purchase and sale value of the property.

Knowing how much a property is in fact worth depends on the references used. As you have seen, the market value is usually different from the market value. After all, they start from different aspects, even if some are similar.

Usually, the calculation of the market value considers more basic elements, related to the construction, the size of the land, etc. Even though it includes aspects such as location, the view of the city hall is not usually the same as that of those who intend to buy or sell the property.

On the other hand, market value adds other relevant elements to the equation. The size of the land and the characteristics of the property are still important, but elements related to the real estate market also come into play. For example, the relationship between supply and demand at the time, the fees to be paid for the sale, the attractiveness of the location, the quality of finishes and even more subjective aspects (such as the characteristics of each negotiation).

The most common is that the market value is lower than the market price of the property. Thus, it is used as a basis to consider the price, but generally the other established criteria increase the value of the good.

Common questions

To finish this complete post on the subject, check out some frequently asked questions below when the subject is the market value of real estate.

Why is the market value not used for sale?

As it is an objective criterion of the city hall, the market value would hardly be able to reflect the property’s sale price. There are several other aspects related to the value of the property when selling it.

What is considered in the sale price of a property?

In addition to the market value, other elements used as a basis for evaluating a property for purchase or sale can be:

· Neighborhood security;

· The infrastructure of the site;

· The number of shops and services nearby;

· The state of conservation of the property;

· The quality of the materials used in its construction;

· Costs related to the sales process.

How is the market value used in taxes?

The market value works as a reference for the price of your property when calculating a tax. The taxes related to it are the IPTU, paid annually, and the ITBI, paid when it is necessary to transfer ownership of the property. Both are charged by the city, which calculates the retail value.

How to request a review of the market value?

The owner can request a revision of the venal value with the city hall, if he does not agree with what was calculated. Just look for the agency and find out about the application process. Afterwards, the city hall has a deadline to give an answer, which can be positive or negative in relation to the request.

Now you know all about the property’s market value and its relationship with important aspects of the real estate sector, such as paying taxes, transferring ownership and the actual sale price of the property in the market.

So, how about continuing your learning here? Have you considered investing in real estate? Find out how they work and why consider real estate investments!