Homeowners will have to value their own homes for property tax assessment, but if professionals so often get it wrong, what hope has the average taxpayer?
~ Originally published in the Sunday Business Post, December 2 2012
What is market value? We did not expect to be raising this question again so soon after the publication of the property price register (accessible on-line at www.propertypriceregister.ie), however, it now appears likely that the impending property tax will be 0.2 per cent, but no more than 0.25 per cent, of the ‘market value’, based on a self-assessed valuation of the property. This means that home-owners will have to value their home to the nearest €50,000 tax band and face penalties for getting it wrong. Essentially, home-owners will have to do what professional valuers all around the country are struggling with – they will need to determine market value. Penalties for misrepresenting the value of the property have not yet been announced, however, based on the uncertainty remaining in the market, and the low volume of transactions in many areas, the Revenue Commissioners will surely take a flexible approach to this. It would appear to be incredibly unfair if non property professionals were to be penalised for something that the professionals, the banks and even the State have consistently gotten wrong for so long.
On budget day, if the tax is announced as we expect it to be, home-owners will have several months in which to assign as accurate a value as possible to their home. While there are many acceptable methods of valuation of residential property in Ireland, none are infallible. In the past, the valuation methodology tended to change depending on whether it was being applied to building, buying or selling a property for personal use or as an investment. This has caused confusion among buyers and sellers alike, as different methods of valuation result in very different values being placed on the property. The most applicable valuations for the purpose of calculating tax liability is the comparative method.
The comparative method is exactly how is sounds, using the past sales price of a similar property to value another. Strangely, this has long been the method that most influences values in Ireland, despite the lack of accurate achieved sales price data in this country until earlier this year. Whereas before, property sales websites were as close to data as we had, since the price register went live in October 2012, a home owner can access the State-run website and search for recent transactions in their geographical area. Other than auctions, which are genuine, though somewhat unreliable indicators the price register is the only record of actual, achieved property prices in Ireland.
Unfortunately, if you are the proud owner of an unusual property, or if you happen to live in an area that has seen very little sales activity in the past two to three years, you may have some trouble in reaching a figure that resembles market value. In this instance, it may be advisable to consult a local valuer or estate agent to find out about current local property values.
To my mind, there will be a bit of an ethical or moral dilemma when it comes to deciding which tax band box to tick on the Revenue Commissioners form. The temptation will likely be to round downwards rather than up. The test may come down to, would you be willing to sell for the price or value declared?
For the more cautious among us, who chooses to have a professional valuation carried out, this will certainly save them from any penalties on foot of inaccuracy, but how long will that valuation be good or valid for, will the €130.00 valuers fee become an additional burden on the annual tax? This would be nonsense quite frankly, and expensive nonsense at that.
The reality is that certain unique or remote properties are, generally speaking, not subject to any scientific formulae. There can be no market value where there is no market; and there can be only a tenuous market value where there is only a tenuous market. For home owners who struggle with this, a multifaceted approach to valuation will provide the most solid results. Factors to be considered when assessing the likely value of a home include looking at the percentage fall in prices from the peak, remember that 55 per cent is a national average, the real drops range from 47 per cent to 67 per cent or more depending upon the area. Other factors affecting value might include the status and desirability of the area, and for the first time in Ireland, I think people may become quiet on this.
Author of the Irish Property Buyers Handbooks 2011-2013