BajaNomad

Sale cost higher than appraisal value of property

seatosierra - 10-13-2021 at 08:23 AM

I am in the process of purchasing a property near Ensenada and discovered that the appraised value (calculated through 3 part valor de mercado, valor fisico, and valor de capitalizacion) is only about ~50% of the amount that I am purchasing the property for.

I have been told that it is standard for real estate around Rosarito/Ensenada/Valle to sell for much higher than the appraised value, but wanted to double-check with this forum to make sure that is accurate/honest. Is it normal for real estate to sell for much higher than appraised value?

Thanks in advance for opinions, especially if you are a recent property purchaser/seller in the region.

(Sorry if this has already been asked -- I wasn't able to find an answer using the search function)

Welcome to the forum!

AKgringo - 10-13-2021 at 10:23 AM

I have never sold a property in Baja, and have not yet bought one, so the answer to your question is of interest to me.

A question I would like to add, is if the taxes you are going to pay going forward are based on the appraised value, or the sale price?

gnukid - 10-13-2021 at 10:43 AM

The appraised value takes into account land and development averages and likely affects property tax, while the purchase price is based on what a buyer is willing to pay, so it is quite common that the two are not in line.

You should declare the value in the escritoro as what you paid, since that will determine capital gain on sale of home should you decide to sell. Many things may occur such as change in exchange rates, improvements etc that can cause these numbers to appear skewed later. Such as the house on paper appears to have increased in value tremendously but its all because of devaluation/inflation.

To reduce capital gains, it is important to establish residency (INM Status) and put bills in your name immediately. Speak to the Notario handling the escritoro to learn more about these numbers and the significance.

Be sure that you get a escitoro filed with the Catastro with stamped seal to know the property transaction is complete, don't assume that all will go well unless you stay on top of everything and ensure the process is complete with papers in your hand.

People involved may not have bad intentions, though they may make mistakes or fail to complete the tasks required.

Real Estate agency in Mexico is not really a "thing" there is no obligation or fiduciary responsibilities and most agents have no idea what is actually involved in the transaction and may actually cause more harm due to incompetence.

Ask questions about the process to people assisting and if they can't answer the questions clearly in writing accept that they have no idea what they are doing and will cause harm.

If you are paying commission you can negotiate it down since agents actually do nothing and have no responsibilities, they only inflate the price and extract Money while being of absolutely no help in general, of course there are capable "agents" but those are rare.

Virtually 99% of transactions have no agents involved.

[Edited on 10-13-2021 by gnukid]

eastmeetswest - 10-13-2021 at 10:47 AM

I believe that it is common for the property to sell for more than the manifest value. Manifest value is often lagging and the seller has to pay capital gains tax based on the manifest. The market for recreational property all over North America has surged and Baja is no exception. I believe that it is important that you talk with a reputable realtor who knows the local market. This will help you feel more comfortable.

[Edited on 10-13-2021 by eastmeetswest]

John Harper - 10-13-2021 at 11:16 AM

What you pay for the property is your decision. I would inquire about how insurance is going to look at the value. I can't see them writing a policy for more than the appraised value, but I'm not really an expert on real estate insurance. I'd certainly not want to cover more than it's legitimate appraised value. Now, liability insurance is a separate issue, and that I assume you can cover whatever amount you feel is safe for your situation.

Maybe it's common, but why would anyone pay much more than appraised value, unless you're a speculator and plan to flip the property.

Even if it's common, I'd certainly ask the seller why he feels he can command such a premium above appraised value. Just because it may be "common" is not a great reason in my opinion. Ask some hard questions first.

Good luck.

John

[Edited on 10-13-2021 by John Harper]

GeraldoS - 10-13-2021 at 11:22 AM

You are about to be screwed by the seller in cahoots with the notario. The notario will issue you an escritura with the lower appraised value so the seller will pay lower capital gains tax. When you go to sell the property, you will pay a phantom tax because your tax basis is artificially low. Don't let it happen. Insist that your escritura state the true purchase price. The seller will probably come back to you with a compromise lower price.

gnukid - 10-13-2021 at 11:23 AM

Quote: Originally posted by eastmeetswest  
I believe that it is common for the property to sell for more than the manifest value. Manifest value is often lagging and the seller has to pay capital gains tax based on the manifest. The market for recreational property all over North America has surged and Baja is no exception. I believe that it is important that you talk with a reputable realtor who knows the local market. This will help you feel more comfortable.

[Edited on 10-13-2021 by eastmeetswest]


Absolutely 100% incorrect.

I'm not an agent nor an expert, but the answers are available publicly for those who will simply investigate, the OP is clearly misinforming while promoting an agent which is an excellent example of the common incompetence of Mexico RE Agents, since no education, experience or fiduciary obligation is required.

Those who are obligated to pay capital gain, pay based on the value declared in escritoro versus the sale to determine the base capital gain, which can be noted in dollars or pesos, meaning written in the escritoro in Pesos or Dollars, that converted to pesos at time of sale, from what I have seen.

Manifest value is something entirely different based on "Manifestation" of value which is a formal review process with a cost associated.

The amount exempt from gain on sale of the home for those qualified to declare fiscal residence is not a static number, it is an amount based on 700,000 UDI, referring to today's rate of 6.954240.

700,000x6.954240=4,867,968mn=~243,398.4us exemption from gains for fiscal resident today, approximately

https://www.banxico.org.mx/SieInternet/consultarDirectorioIn...

Manifestation is the declared value of the construction upon completion. Manifestation is a tool that is especially helpful for people who do not have a fiscal residency qualification for capital gains or whose capital gain exceeds the exemption, by a large amount, in order to reduce the gain.

There is no need to show a manifestation for homes whose capital gain projected is valued below the limit for sellers who qualify for the fiscal resident exemption, because there is no benefit, but there is a cost and potentially opens up more issues.

It should be pointed out that many people in the RE industry, agents, notarios, lawyers, government employees etc have no idea what they are talking about in reference to qualifications for capital gain exemption, and simplifying transactions, not at all.

Nor do they have a fiduciary requirement to be responsible, save money, and not cause errors, mistakes, they have no liability for the financial damages they cause. They lack empathy because they have not personally been in the situation where these issues apply to you, the more it costs you, the more they earn, so they feel no pain.

Be very careful who you engage, be careful what you say, go slowly, ask a lot of questions, take charge, talk to many notaries, agents, and let them know they will earn their money, they work for you, drive the process, because, these associated people have zero responsibility, no liability, and will generally make mistakes and give wrong information that will cause you harm, while it's your job to clean it up, so, you may as well take charge right from the beginning and manage them to complete tasks and validate all information, double check, translate, don't rush, never sign without reading multiple times and checking all pertinent data.




[Edited on 10-13-2021 by gnukid]

seatosierra - 10-13-2021 at 01:23 PM

Thanks John and Geraldo for the responses!

Geraldo - I am aware of the need to have the escritura state the true purchase price so I don't get hit with high capital gains if I ever sell, and the realtor I am working with seems to have good intentions (she informed me of this need herself early in the process).

John - I know its my decision, but I was more asking is it "normal". As in, do most buyers in these "hot" Rosarito/Ensenada/Valle markets end up paying significantly higher than appraised value, or am I uniquely being screwed? :)

surabi - 10-13-2021 at 01:58 PM

When I sold my home in Canada 12 years ago, the appraised value was half of what I sold it for. It doesn't mean that the seller is screwing you, or it's an unreasonable price, it just means that the criteria that is used for appraisal is often quite different than what is a fair market value. My house wasn't overpriced and the buyers weren't unsavvy- they loved the place, had looked at a lot of houses, and knew the asking price was fair, although we negotiated somewhat, as most sellers and buyers do.

[Edited on 10-13-2021 by surabi]

seatosierra - 10-13-2021 at 02:56 PM

Thank you Surabi! This is how I have been perceiving the situation, and it is helpful to hear from others with common experiences!

seatosierra - 10-13-2021 at 03:04 PM

Thanks all for the input! I was mainly checking to make sure that is is common (or more specifically, not a warning sign) for purchase price to be higher than formal appraised value -- and from your responses it does appear that it is quite normal/common for this to be the case.

Also very much appreciate the words of wisdom/warning/other insights from your posts eastmeetswest and especially gnukid. I am definitely triple checking everything throughout the process and we have spoken to several different notarios before finding one that feels best for the job.

John Harper - 10-13-2021 at 04:48 PM

Isn't one issue the "assessed" value for tax purposes, and the other issue the "appraised" value for sales purposes? I would think the appraised value should reflect the price you pay, maybe a slight bidder's premium, but not 100%, that seems ridiculous, even in a seller's market. At least the appraisal should be close to what offer price is. Maybe I'm completely off base. Unless people are willing to pay 100% more than the "appraised" value. And, that's their choice. In some locations, I'm sure it's common, but in Baja???

Maybe if the place belonged to Hemingway, Steinbeck, Gardner, or had some other historical value, but that's basically "goodwill" valuation, like paying for the Coca-Cola name if you buy the company.

John

[Edited on 10-13-2021 by John Harper]