The price agreed upon by a buyer and a seller is the asset’s fair market value (FMV). The asset’s current status should be known to both parties, and they should both have freely chosen to engage in the transaction. The price at which a piece of property would typically sell if it were put on the open market is known as its fair market value.
The estimated worth of the land-based on state government data is the market value of land, sometimes referred to as the guidance value of a property. The minimal price at which a property sale can be registered with the state government is known as the circle rate in various states. The Department of Stamps and Registration of each state keeps track of these records and annually publishes the market value of the land for each property or the guidance value for each property.
The guiding value acts as a calculator for land value. A market value that fluctuates from year to year and from area to area and is based on a number of criteria is published by the Department of Stamps and Registration. It may even vary across various buildings in the same neighborhood.
According to Indian Accounting Standard (AS) 113, the fair market value (FMV) is the price received when selling assets or the amount paid to transfer an existing obligation between the parties concerned on the day of assessment. The factors stated below determine the amount that the market value of a specific asset or piece of property is worth.
- There is no excessive pressure to buy or sell, and potential buyers and sellers are aware of the asset and acting in their own best interests.
- A suitable amount of time is granted for the transaction to be finished.
Considering these circumstances, the Fair Market Value (FMV) of an item should be a precise estimate as well as an assessment of its value. Municipal property taxes are typically computed using the property’s fair market value. The significance of the discrepancy will increase with the gap between the purchase price and the property’s FMV. Professionals use standards, criteria, as well as regional and national laws, to decide on a solution.
Factors affecting property’s fair market value
The location of the property significantly affects its value. The initial estimate is given for the property if it is in a popular area. A residential neighborhood featuring luxury buildings and expansive apartments, such as MG Road in Bangalore or CP in Delhi, is referred to as being in an excellent location. On the other hand, properties that are far away or on the outskirts are worth less.
The size of the property, whether it be a plot, a flat, or a standalone villa, has a significant impact on its worth. A larger piece of land will have more significant value than a smaller one.
Demand and supply
The demand-supply dynamics of the property have an effect on its FMV as well. Increased demand that isn’t satisfied by enough supply will unavoidably cause the FMV to increase, whilst an abundance of supply will impede capital growth. Real estate demand is also influenced by variables including easy access to mortgage loans, rising disposable income, and rural-to-urban migration. Hence, changes in the property’s FMV are brought on by the economy’s current situation.
Before moving forward with a property deal, both parties must make a vital estimate known as the FMV. As a result, you should always determine the worth of your property using the above-mentioned variables, or you can employ qualified property evaluators to streamline the process.
Ways to Determine a value of a house:
- The cost at which land or other property can be purchased determines its market value. Property may be sold in a particular area or neighborhood. The minimal price for which a property needs to be registered is set by the state government.
- You have the authority to sell the house for whatever sum he desires. The property’s market value as assessed by the government cannot ever be induced by a buyer.
- If you can purchase a property for less than its market worth, you may still register it at the government’s guiding value. The current market value of the property will be subject to taxes as a result.
- If you purchase a home for a price above its market value, you must register it and pay taxes based on its full market value.
Key considerations while determining the market value of a property:
When it comes to assessing the market value of a property, several factors come into play. Understanding these factors is crucial for both buyers and sellers in the real estate market. Here are the key considerations in determining a property’s market value:
Location: The location of a property is of utmost importance in determining its value. The size and growth potential of a community significantly impact its value. A large property in a developing neighborhood may have a lower price compared to a smaller plot in an established and mature neighborhood.
Construction Quality: The condition and quality of the building on the property also play a significant role in determining its value. A structure constructed with premium materials will generally command a higher price compared to one built with moderate quality materials in the same vicinity.
Property Age: The age of a property is another crucial factor influencing its value. Historic structures may have a lower price tag compared to new buildings located in the same area.
Different Terms for Land Market Value:
While “Guidance Value” is a commonly used term, there are other terms that refer to the same concept. These include “Market Value of Land,” “Guideline Value,” “Ready Reckoner Rate or RR Rate” (primarily used in Maharashtra), and “Circle Rate” (often used in North India, especially in cities like Delhi and Noida).
Differentiating Market Value and Market Price:
In real estate, it is essential to understand the distinction between market value and market price. Market value refers to the value as perceived by the seller, which may be higher than what a buyer is willing to pay or the property’s true market price. Demand plays a significant role in determining value, whereas value alone cannot affect the price without demand. The price fluctuates with changes in supply and demand, while the value remains constant. In a balanced market, market value and market price may align.