Cadastral value and market value: how do they differ and how do they affect the purchase or sale of your home?

What is the cadastral value and what is its function?

The cadastral value is an objective evaluation of a property determined by the public administration. Its function is to establish the price of a property, whether it is a house or business premises, in order to calculate the taxes and other fiscal obligations linked to it. It is used in the calculation of taxes such as the Real Estate Tax (IBI), the Transfer Tax (ITP), the Tax on Economic Activities (IAE) or the municipal capital gains tax. It is therefore mainly an administrative value.

The cadastral value is established on the basis of a series of physical, economic and legal characteristics of the property which include the following parameters:

• The location: what services are nearby, the population....

• The size: both built and useful square metres.

• The characteristics of the property: number of rooms, bathrooms, height...

• The state of conservation in which the property is in, and whether or not it has undergone any refurbishment.

• The construction costs and the quality of the same.

• The use or destination for which the property is going to be used: home, second residence, premises..

• The age of the property, if it has historical value..

• Value of the land.

• Exploitation of the land.

This valuation is determined by a group of qualified technicians following the current regulations. It is important to point out that the cadastral value may influence the sale process of a property. When a property is to be sold, if it is high, it can justify a higher market price.

What is market value and when is it used?

Unlike the cadastral value, the Market value is more subjective, as it represents the price at which a property can be sold on the open market, and arises at the time the transaction is to take place.

This valuation is influenced by the characteristics of the property, but also by other factors such as the the law of supply and demand the market value is influenced by the characteristics of the property, but also by other factors such as the law of supply and demand, the average price in the area, market trends and other economic aspects. For these reasons, the market value is usually not stable over time, but fluctuates.

This valuation is usually determined by the seller, with the advice of an Engel & Völkers real estate consultant, who sets the starting price.

Don't forget that the administration will check the market value against the cadastral value, because if it is higher, the seller may ask for a higher income.

What is the difference between these two terms?

Now that we have defined these terms, it is important to highlight the key differences between them, which are so close and interrelated:

• Calculation or valuation: The cadastral value is determined by the public administration and a group of qualified technicians who follow a cadastral regulation. On the other hand, the market value arises from the interaction between supply and demand, as well as other factors such as the average price of the area in which the property is located

• Purpose: The cadastral value has a fiscal purpose, as it is used for the calculation of property-related taxes and contributions. In contrast, the market value is essential for buying and selling, as it provides an estimate of the price at which the property could be sold on the open market.

• Determining factors: The cadastral value responds to objective and specific criteria of the property, isolated from any context, such as physical characteristics, size or state of conservation, among others. On the other hand, the market value is influenced by external factors, such as supply and demand or the general economic situation.

• Update: The cadastral value can be updated at certain intervals to reflect changes in the real estate market and local infrastructure. However, the market value is more susceptible to fluctuations and rapid changes, as it is conditioned by market and economic trends; therefore, it is much more volatile and changeable.

• Management: The market value is managed privately by the seller or by the Engel & Völkers agency. On the other hand, the management of the cadastral value corresponds to the Cadastre, which is a state-dependent body in charge of its determination and updating.

In short, the cadastral value and the market value are two different concepts, but they are closely related, and both are equally important if you are thinking of buying or selling a property.