Buying a house is one of the major financial decisions and a lot needs to be taken into consideration before going ahead with a particular property. Homebuyers usually buy a home after having done meticulous research on the property's location, documentation, home loans etc. But what about when you plan to sell your home? A careful assessment of the market value of your house is vital before determining a selling price of your house.

Assessing the value of your home even at the time of buying is also considered one of the most important steps that guarantees you that the property you are investing in will give you a good return in the future.

Having an understanding of the market value of your property is especially important to know when you decide to sell it. The concept of fair market value is very important under the income tax laws. The buyer, as well as the seller of a property will be impacted, if the sale/purchase consideration as stated in the agreement is lower than the fair market value of the property.

Apart from the fact that owning a home provides with immense peace of mind and a wonderful place to live in, it also at the end of the day is an investment from which a homeowner would want to make good money. Just like all other income, the money earned from the sale of your house is also subjected to taxes.

What does one mean when they ask what is the market value of your property?

It simply means the price at which a house would sell under normal conditions. This excludes sales happening due to unforeseen circumstances such as relocation, death of a family member or any other emergency where the seller is forced to sell the property.

So how does one get to know the market value of one's property? In this article, we will take a look at all the factors which are key in determining the property's value and also the ways an homebuyer can easily find out the value of the property.

Let us look at the factors which affect the value of your property.

External Elements: It means how the property looks from outside i.e the attractiveness of the property. This also includes sewage systems, architectural style, pavements etc.

Internal Elements: This factor is perhaps the most important, the quality of construction, size, number of rooms and its condition i.e how furnished are they or if they are vastu compliant, all these are big factors to consider when determining the market value of your property.

Market rate: This parameter tells us the rate at which other properties in that particular area are sold at. Property prices like any other goods or services rise and fall depending on demand. Market rate is calculated by taking in account the number of houses in sale in that particular area along with the number of buyers interested in that market and how quickly a property gets sold.

Location: Perhaps the biggest factor which both a buyer and seller takes into account. Safe neighborhood, good transportation, important landmarks, proximity to civic amenities all play a vital role for residential property valuation.

Now that we know the major factors that determine the market value of a property, let us see how one can easily determine the market value.

According to the Income Tax Act of 1961, the fair market value shall be higher that the cost of acquisition of the property or it should be the price that the property should ordinarily sell for if sold in the open market.

Method 1:

Comparing properties of similar nature that were sold in the neighborhood or nearby locations in the last three months will definitely give you a good understanding to start with. The comparison needs to be made on properties which are similar in style, age and location. Neighbours and dealers in the area are a good starting point for gathering such information

Now once you have taken into account three properties similar to your property you can set a market value similar to the comparable properties, however if not, the sale prices need to be adjusted accordingly for eg: if the comparable property has additional amenities such as a garage or a garden, one would need to make adjustment to the sale price.

Adjusting the final price needs a lot of calculations for eg :If your property is comparatively newer, larger in size and has additional features, you add up the cost to the final sale price. Even though It is a very complicated process, it significantly helps in determining an accurate market value.

Once you have determined a ballpark amount for your property, add the adjusted and final sale price of all three comparable properties and find their sum. Divide the sum by three to get the estimated market value of your house.

Method 2:

Another way through which one can help determining fair market value is through Ready Reckoner or Circle Rates. Circle rate is the value below which a property cannot be bought or sold in an area. It is important to note that circle rates vary from locality to locality and are revised from time to time by the local authorities. This is done to keep the value close to the existing market value of property in a particular area. If a seller plans to sell the property at an amount lower than the per sq ft circle rate, one will still have to pay stamp duty based on the circle rate. If the property is sold at a higher rate than the circle rate, the stamp duty in this case will be calculated on the basis of the transaction cost.

Method 3:

In case the circle rate is not available for a particular year, one can opt for a valuation report from a valuer registered under the wealth tax rules. The valuer will give a detailed valuation report by following a standard process by charging a fee, which has already been set by the government.