On dealing with property in Spain, you will often come up with a series of property values that may seem somewhat confusing at a first glance. Some people are surprised to find these valuations differ significantly from one another. In today’s post we briefly explain each one and their purpose.
1. Rateable value (valor catastral)
It is the assessed value local Tax Authorities give to a property in Spain. It is usually well below the market value (BMV). This rateable value is used as the taxable base to calculate a series of property-related taxes. You will find the cadastral value of your property in one of your local tax bills (i.e. IBI or SUMA). Be aware that a storage room or parking space may be regarded legally as a distinct separate entity from your main home and therefore subject to their own individual cadastral values. A cadastral value, in general terms, is 30 to 40% below the market value of a property. Rateable values, in theory, should be updated by local administrations every ten years to bring them in line with inflation. However, in practice, this is often not the case. The less this value is updated, the less tax the owner will pay.
2. (Auction) appraisal value (valor de subasta)
When you command a property valuation from a Spanish surveyor, they will typically ask you if it’s for a lender or for you. When you apply for a mortgage loan, your lender must send by law a chartered surveyor to a property who will carry out a bank valuation. On average, the appraisal will be 30 to 40% BMV. The reason behind this great discrepancy is explained in detail in our article bank valuations vs. market value. The short version is that lenders, in the event of a bank repossession, need to work with a property value that offers a sizeable buffer to factor in all the associated repossession expenses involved. That is why lenders tend to significantly downgrade property valuations for the purpose of a mortgage loan; they need to value them ‘conservatively’. This buffer ensures all their repossession costs will be adequately covered, protecting themselves in the event of a foreclosure, cutting down their losses. In effect, a bank valuation is only useful for the lender.
3. Market value (valor de mercado)
This is what most layman normally understand on being asked after the value of their home. This will be the value listed with estate agencies on selling or renting a property.
Closing thoughts: To close, it should be noted that whilst a property may have a high intrinsic value (i.e. good location, commanding views, close to amenities, close to the beach, etc), its price may experience sharp slumps or increases, in line with the economy. This is particularly true of real estate markets with a tight demand which are prone to be volatile (i.e. those not located in large cities), as they are heavily location dependant and not resilient, leading to sharp price
fluctuations on the change of economic cycles, creating unique business opportunities for savvy investors.
“Sólo el necio confunde valor y precio”. – Antonio Machado
Loosely translated as: “Only fools confuse value with price.”
At Larrain Nesbitt Abogados (LNA) we have over 21 years’ experience assisting foreign clients buying, selling, or renting properties in Spain. We offer a competitively priced accounting service to file your landlord taxes every tax quarter nationwide. We are also specialized in litigation, and immigration & residency visas. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on our UK line (+44) 07543 838 218, our Spanish line (+34) 952 19 22 88, or by completing our contact form to book an appointment.
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