Mexican Appraisals: Purpose and Use
We all know that an appraisal is sought to determine an evaluation of a property. By the way: the Spanish word for appraisal is: avaluó.
When purchasing a property whether land or home an appraisal of the property is conducted by a licensed engineer appointed by the municipality.
The cost for an appraisal starts at around $4,000MN and can take up to 2 weeks to obtain.
TYPES of APPRAISALS:
1) Tax Appraisal (Avaluó Catastral): Utilized to calculate transfer taxes and fees as well as notary fees. The appraisal is based upon tax tables assigned a value per square meter for the land. Then there are tables to determine the value of square meters for construction depending on the age, style, condition and location of the property. This appraisal will determine what your annual property tax liability will be.
2. Bank Appraisals (Avaluó Bancario) is utilized when someone is buying a property with a bank loan. It is similar to the US with comparable sales and a justification for the sale price.
3. Commercial Appraisal (Avaluó Comercial I.S.R. Adquisición) is utilized for several reasons:
• To verify and modify the value of commercial construction on a property to save on the IVA sales tax for Mexican Corporations
• To justify that the property has a lower market value than that obtained in the tax appraisal. If a property is being sold for more than 10% under the tax appraised value then the purchaser is liable for a 20% capital gains tax (I.S.R. tax or aka reverse tax liability) of the portion that overlaps/under laps the tax appraised value. For example:
• If you are selling your property for $300,000USD and the tax appraised value is $400,000USD. That translates to a 33% decrease from the tax-appraised value. The buyer would be liable to pay $20,000USD tax liability. This most likely becomes a negotiating point between buyer and seller. Keep in mind all appraisals are in pesos and the exchange rate of the day is utilized to determine the USD value. If you were not in agreement with the tax-appraised value then you would have this commercial appraisal done to raise the value of the tax appraisal in order to eliminate the capital gains tax of 20%.
• If you have remodeled your home or added more construction such as a guest home then you can obtain a commercial appraisal in order to raise your tax basis thereby lowering or eliminating your I.S.R tax liability (capital gains tax). 80% of the value of the improvements will be utilized for purposes of calucluating the I.S.R. (capital gains) tax liability.
Items required for an appraisal:
• Copy of the registered fideicomiso/escritura
• Copy of current property tax receipt
• Copy of most recent water bill