What is the difference between cadastral value and market value?
When it comes to applying for a mortgage knowing the cadastral value is an essential part of the process. It is often confused with the market value, but they are not the same thing. So, if you don’t know the difference between the cadastral value and market value, don’t fret! AQ-Acentor is ready to explain both concepts so that everything is perfectly clear.
Definition of cadastral value and market value
To ensure you understand the relationship between cadastral value and market value, we will define the terms, because they are essential for knowing the value of the home you own or are looking to buy in the future.
- The cadastral value is a totally objective valuation. It considers a set of factors such as the square meterage of the land and what is built upon it, as well as the location of the property.
- Market value can be defined as the value of a product (good – in this case the home – or a service) considering the law of supply and demand. Basically, it is what buyers will be prepared to pay for the home.
At first, you may not know what these concepts mean. That’s quite understandable, but don’t worry, because once we’ve explained the difference, you’ll understand them much better.
Differences between cadastral value and market value
Would you finally like to understand the differences between these concepts that are so important when buying and selling a property?
|Fluctuation||This is the main difference. Remember that market value tends to be affected by the economic situation, the demand for the specific type of property and the time horizon. In contrast, the cadastral value has nothing to do with such fluctuations, and is based on a set of fixed attributes.|
|Buying and selling scenario||Thanks to the market value, you can establish the sale or purchase price of a home, getting an idea of the profitability of the property according to market fluctuations. The sale price is based on the cadastral value.|
|Administrative matters||The cadastral value is used to calculate some taxes, such as Property Tax (IBI) and capital gains, for example. In contrast, market value is calculated in the sale-purchase transaction.|
|Valuation||A fully qualified technical team determines the value at which the property is registered in the cadastral register. The regulations determine all matters relating to the calculation of the cadastral value of real estate. On the other hand, market value is influenced by the price of the area in which the property is located or other specific characteristics (e.g., the size of the space).|
|Management||While the market value is managed on a private basis, i.e., it is established by the seller themselves, the cadastral value is managed by the Cadastre (which is a State body) which has, among other functions: the fiscal identification of real estate, identifying the owners, the notification of cadastral values and the annual preparation of the cadastral register, among others.|
How to calculate cadastral value and market value
A lot of people think that the cadastral value is complex and difficult to establish, but that is absolutely incorrect. The Cadastre determines it based on the information provided by the administration itself or by the owners, according to physical, economic and legal characteristics. The list of factors to determine the value is very long and includes, among others:
- Use or purpose of the property.
- Quality and age of the building.
- Location of the property.
- Building costs.
- Whether or not it has been renovated.
- Value of the land.
- Historic character.
- Land use.
In contrast, market value is determined based on certain intrinsic characteristics of the property, although it is affected by the economic situation and supply and demand. The seller (normally assisted by an expert real estate agent) fixes the price at which they want to sell the property. If the price is right, there is sure to be plenty of demand from buyers. If it is too high, interested buyers will not be able to purchase the property.
As you can see, in relation to the purchase and sale of a property, both the cadastral value and the market value are two concepts that you should have clear. This is especially important so that the price you pay for your next house is fair, or if you are going to sell a property, you establish a starting price in accordance with its characteristics and that attracts the attention of potential buyers who are interested in it. This explanation is sure to have helped you to better understand these terms, and the differences between them.