The Difference Between Sale Price, Market Value, and Taxable Value

Why there are several figures

A property owner sees a similar listing and says: “my apartment is worth this much.” A buyer makes a lower offer. The bank receives a report with a different value. The City Hall uses a taxable value, which — most of the time — is different from the figures above. Accounting may discuss fair value. This is where the frustration arises: which figure is the true one?

The mature answer is that not all figures answer the same question. Sale price, market value, and taxable value are different concepts. If you compare them without purpose, date, and context, you are comparing different tools as if they were the same ruler.

Sale price

The price is the amount agreed upon in a transaction or the amount requested in a listing, if we are talking about an asking price. It can be influenced by the seller’s urgency, the buyer’s strategy, emotions, incomplete information, payment terms, relationships between the parties, included furniture, deadlines, commissions, or the need for financing.

The price is real for that transaction, but it does not automatically become market value for all similar properties. An exceptional price can be a signal, not a rule.

Market value

Market value is a professional opinion on the estimated amount for which an asset could be transacted between informed and independent parties, under market conditions and without unusual constraints, according to the applicable definitions and standards. It is not a promise that the property will sell for exactly that amount on the valuation date or within the estimated time horizon.

Market value is based on data, comparisons, approaches, and reasoning. It seeks to remove the extreme particularities of a transaction and reflect the behavior of market participants.

Taxable value

Taxable value is used to calculate the local tax on buildings, according to the fiscal rules and standards applicable to this purpose. It should not be confused with market value and should not be used for sale, lending, or financial reporting.

For property owners, this is one of the most important distinctions. A report for taxation may be correct for the City Hall and unsuitable for the bank. A report for the bank may be correct for lending and unsuitable for calculating tax.

Other figures that may appear

Fair value appears in financial reporting. Insurance value may refer to reconstruction cost or other bases specific to the policy. Historical cost is the amount paid or recorded. Book value is the result of accounting rules. Asking price is the seller’s strategy. All of these can be relevant, but they are not interchangeable.

A professional does not ask only “what is the value?”. They ask “which basis of value, for what purpose, on what date, and for which user?”.

Conceptual example

Imagine a commercial building. The owner asks for a high price because they invested in finishes. The market may recognize only part of that investment. For taxation, a methodology specific to taxable value may apply. For financial reporting, fair value may be analyzed. For insurance, reconstruction cost may matter. None of these figures should be declared “false” simply because they differ.

The difference comes from the question each one answers.

Frequently asked questions

Why doesn’t the bank accept the price in the contract?

Because the bank needs an independent opinion on the collateral, not only the amount negotiated between the seller and the buyer.

Why can the taxable value be different from the market value?

Because it has a fiscal purpose and specific rules. It is not designed as a transaction price.

Can I use the highest value among all of them?

Not professionally. The value appropriate to the purpose must be used. Conveniently choosing the figure can produce errors and risks.

Challenge for the reader

The next time you hear a value, ask four questions: for what purpose, on what date, on what basis, and for whom? If you do not receive an answer, you do not have a value. You only have a figure.

Sources consulted

• ANEVAR — Valuation Standards

• ANEVAR — Valuation for Taxation

• FairValue — Financial Reporting