The market value of a property refers to the land and the total of the built area or buildings. If the realtor does not know how to make this calculation, inevitably, he will not discover what is the tax levied on the property and, also, where to start the price definition for a possible transaction.

But calm down! In this article, we will clarify what is the market value of a property and show the formula for obtaining it. In addition, Bahria Agro Farm will specify all components that affect the calculation and the care that the broker needs to take when setting prices for a transaction based on this indicator. You will also discover the importance of knowing this value.

Curious? So, read on and check it out!

What is the market value of a property?

The market value of a property is an estimate of the price for purchases and sales that the Government establishes for certain goods. That is, the price that the property would reach in a cash transaction, according to the analysis of the city hall of your city.

To reach this value, the municipality seeks to base its price on the market and determines the final value of the square meter of urban land and the built / building area. Based on the result obtained, the amounts of taxes that will be charged to the taxpayer are determined.

Why is venal value important?

The importance of knowing the market value of a property lies in the fact that it is a relevant factor of analysis for the calculation of the market price of the property. Through it, brokers can determine the minimum for which the apartment or house can be sold.

This assessment is also important in legal proceedings. For example, the actions of inventory and sharing of assets, the payment of financing, the transfer of title and the discharge of taxes to government agencies.

How to calculate this index?

The main purpose of this assessment is to define the amount of administrative or judicial fees – when necessary – and, mainly, of certain taxes. As an example, we have the collection of IPTU (Tax on Urban Territorial Property) , at the municipal level.

It is thanks to the calculation of the venal value that the city council decides which neighborhoods will pay the highest IPTU, which will be the lowest amount charged and, also, which points of the city will be exempt from collection. In general, those located in areas that pose a risk to residents.

Some coefficients are considered when calculating the property’s market value, and they may vary from city to city. Normally, the account considers the characteristics of the property (position, age, type), the function of the building area, the use (commercial, residential or other) and the average value of the square meter for properties in the same street (unit value) standard).

In some cities, this value is not updated frequently. Therefore, a person who has built a small house may be exempt from IPTU for years, even if he has expanded the property. This is because the market value has not been updated.

However, it is important to note that the municipality can charge these amounts retroactively. Therefore, before selling a house or land, the owner should try to rectify the situation.

The formula for calculating

The calculation of the property’s market value follows the following formula:

V = A x VR x I x P x TR

To know:

  • V = venal value of the property;
  • A = land area or building;
  • VR = standard residential unit value, based on the Generic Municipal Values ​​Plan (PGV);
  • I = age of the property (counted from the “Habite-se” concession, from the reconstruction or occupation of the property – when there is no “Habite-se”);
  • P = position of the property in the street;
  • TR = residential typology or constructive characteristics (modifications, additions, renovations, etc.).

However, remember that the calculation varies by city. In the municipality of São Paulo, for example, other components are needed to arrive at the value of the municipal tax, such as the subdivision of the urban zone or fiscal zone. Therefore, it is important to pay attention to the municipal legislation to understand the venal value of the property that will be marketed.

However, remember that the calculation varies by city. In the municipality of São Paulo, for example, other components are needed to arrive at the value of the municipal tax, such as the subdivision of the urban zone or fiscal zone. Therefore, it is important to pay attention to the municipal legislation to understand the venal value of the property that will be marketed.

What factors are part of the calculation of the venal value?

As you can see, several factors modify the calculation of the property’s market value. But there are key points that directly interfere and may be registered in the notifications of Property Tax and Urban Territorial (IPTU) of some cities. Are they:

  • total built area measured in square meters;
  • value attributed to the square meter, according to the national currency;
  • obsolescence;
  • terrain type;
  • ideal fraction;
  • condominium ;
  • depth of the terrain;
  • embedded land;
  • excess area.

The evaluation is carried out according to the Generic Values ​​Plan, which is a map of the municipality, through which urban regions are divided into areas with determined values. Generally, these numbers are attributed to buildings and land with a system of tables, indexes, factors and lists with the average of unit values ​​for each square meter.

Is there a market variation in this equation?

Even though the property’s market value is the result of a calculation that considers bureaucratic characteristics, it is important to emphasize that the real estate market can influence the sale price of that property. This is because investment in real estate is related to economic issues, such as the release of credit for financing.

Thus, although the value of a property is high, it can be negotiated for a lower price, depending on each case. Understanding this type of variation is a tip for the broker to be aware of sales opportunities. After all, customers will not always be willing to pay what the property is worth.

On the other hand, the increase in demand for properties in a given neighborhood can inflate the sale, making the broker able to carry out a transaction at a price above the venal value. In other words, the professional needs to be aware of the venal value, stipulated by the city hall, and the real value of the property.

What is the difference between market value and market value?

The market value is the price received for the sale of a property and depends a lot on changes in the economy. It can vary according to the state of the residence, the need for return and the seller’s haste and the conditions of the buyer who will pay the amount. There is no standard calculation for finding the correct number.

Therefore, it is different from the venal value and, sometimes, represents challenges for real estate agents. Evaluations can be carried out to determine the market price with analysis of all physical aspects of the property, state of conservation, deterioration, age of the property, among others.

Does ITBI enter the account?

Without a doubt. Regular payment of taxes is essential to be able to close a sale. These taxes must be identified, calculated and regularized. The amount of this payment must be included in the sale price to avoid losses to the seller and the real estate company – or even unpleasant surprises to the buyer.

ITBI is a municipal tax directly linked to the sale of real estate. It has an average value of 2% on the property’s market value. In this case, the tip from the previous topic is very useful, because, if the property has depreciated, it is important to contact the city hall to ask for the update of the sale price.

Therefore, it is clear that the owner or the real estate company can ask for a revision of the venal value. However, the municipality may not agree with the arguments presented. A suggestion for the realtor is to identify which people are exempt from paying the tax.

In some cities, city officials do not pay ITBI. Knowing this information can help the real estate professional to sell to a targeted audience. There is the possibility of exemption from ITBI in the case of properties financed by Minha Casa, Minha Vida. However, this benefit may also vary, according to the municipality.

What care should be taken in the real estate transaction?

Finding the market value of a property is the starting point for determining its selling price. However, care needs to be taken, since in the transaction of goods still need to be added:

  • administration fees;
  • values ​​for the withdrawal of documentation ;
  • broker’s commission for the sale;
  • hours worked by the realtor.

Anyway, all these additions make the sale price of the property well above the market value. Therefore, it should be used as a parameter, but never taken as the final value of the transaction.

Knowing this, the real estate market tends to be attentive to changes in municipal laws to avoid losses. The broker can also do this, after all, these are specific issues that tend to change.

Furthermore,  knowing what influences the value of a property in the city in which you work is fundamental to your success as a real estate agent, especially in the case of those who are just beginning their careers.

How to negotiate a property safely?

Some precautions must be taken when negotiating, selling or buying real estate. Initially, check if the property documents are up to date, if there is financing, registration of the pledge term or promise to buy and sell. Schedule times to visit in person, according to the availability of the buyers, but first, check if there is a need for minor repairs.

Know the different customer profiles

To facilitate the negotiation of your properties, it is important to understand the different types of customer profiles that exist in the market.

Younger people have less money in sight to invest, but are able to make longer financing to purchase real estate. The more experienced ones, on the other hand, usually have larger amounts to pay in or settle the amount in a single payment.

But before offering a property, listen carefully to what the customer has to say. Each personality has its own characteristics and there are ideal solutions for different types of needs. Beginning buyers usually give brokers more work because they have a lot of questions and need to understand a lot of details.

The investing client seeks profitable properties and seeks technical data from the real estate market, for example, the property’s valuation capacity.

The family client, on the other hand, aims at the comfort of its family members, which is why it is more thorough when analyzing the aspects of the properties. The dreaming client is hesitant, impulsive, indecisive and often changes his mind several times.

Understand what is the relationship with IPTU

The Property and Urban Territorial Tax (IPTU) is calculated according to the venal value of the properties. This tax is the responsibility of the Municipalities and for this reason the municipal authorities determine this parameter to serve as a basis for the calculation.

Before negotiating the property, check if there are any debts attached to it to offer greater security during transactions. The buyer who buys a property that has an IPTU debt is assuming the debt for becoming the new owner. Failure to pay taxes can cause the asset to be entered in active debt and cause serious consequences.

However, the buyer who decides to buy a good with his debts can gain advantages during the negotiation. He can ask for more accessible conditions and renegotiate debts directly with the City Hall to prevent the property from being auctioned in court. However, the IPTU debt value cannot be greater than 25% of the property value.

Consult the venal value

The venal value of the property can be easily consulted at the City Hall of the city where it is located. Just have access to the property registration number and get in touch with those responsible. In several municipalities, computerized systems have already been implemented for public consultation that can be carried out over the Internet.

Assess the impacts for the end customer

Secure negotiation impacts the end customer. For this reason, it is essential to transmit all information about the property in question, such as time of use, structures, location and other factors that interfere in the reliability between the real estate agent and his clients. Take care to give all the guidance on the real conditions of the property to avoid future problems.

Try to list the businesses located near the property to show the buyer what advantages he will get from closing the contract. Before scheduling a visit to the property, check that minor fundamental repairs have been carried out, that the place is clean, organized, well lit and ventilated.

Pay special attention to the finishes, paint, taps, windows, doors and floors that make the first impression on buyers. If necessary, ask for repairs to the hydraulic or electrical system and resolve cracks, infiltrations and cracks that devalue the property.

Did you understand what a property’s market value is and how to calculate this index? It is necessary to consider, mainly, the footage of the terrain and other related factors. The market price, on the other hand, involves the total meters built, the infrastructure nearby, the location, the prices practiced in the region, etc.