Those of us living in Mexico who are from other parts of North America probably take the concept of fair market value in real estate transactions for granted. We assume that this measure of value is used in other countries, but actually fair market value in Mexico real estate and elsewhere is not common.
In real estate transactions, data needs to be available to establish sales prices and to adjust for differences in properties. In most places around the world, that data is just not available.
If we start out with the objective to use fair market value, where do we as consumers normally go? There are no U.S. or Canada websites like Zillow and Trulia, which offer a large number of properties for sale, as well as average sales prices by areas.
In fact, until two years ago, there was no genuine multiple listing system for AMPI agents in Puerto Vallarta to collect data effectively to advise a buyer or seller on fair market value.
The classic definition of fair market value is the amount for which real or personal property is sold in a voluntary transaction between a buyer and seller, neither of whom is under any obligation to buy or sell.
If the buyer and seller are not informed through the open market, they must rely on real estate professionals or appraisals to help determine value based on sales data of similar properties or properties adjusted for differences.
Commerce, as we know it, works efficiently and to the benefit of the whole, if information is shared. Controlling prices comes when a few have information to the detriment of the many. It is unconscionable when a seller or his agent keep market information from a buyer and sell them a property 100-200 percent over its fair market value.
The issue is control. Knowing the fair market value in Mexico real estate enables buyer and seller to have control. Knowing fair market value can help price a home for sale, negotiate a purchase price of a property for sale and resolve an estate or divorce settlement.
Here are the factors that help determine fair market value:
1. Comparable Solds within a certain time frame help determine the subject property value. Adjustment can be made for differences in size, location and condition of a property.
2. Market Trends affect fair market value. Low demand versus high demand affects price, as well as high inventory versus low inventory.
3. Particular conditions also affect fair market value. If properties have mortgages or there are defaults with the lender taking the properties back, the listed properties may be offered at a much lower price to move inventory. Builders also can compete against an individual seller who wants to re-sell his/her real estate within their development.
4. Comparative Market Analysis (CMA) is a common way to determine a property’s fair market value. For it to be a valid CMA there must be sufficient information on sold properties and their characteristics in addition to price: condition, location, debt, etc. It amazes me to see experienced agents use “expired,” ‘’off the market” and “active” sales prices for a CMA. This is contradictory and misleading information, which can manipulate fair market value.
5. Appraisals use measurements and improvements to a property as well as allowable uses through zoning and permits. Appraisals are usually done by engineers or appraisers who also take into account in their reports the comparables or sold prices. Traditional appraisals are done to find fair market value from: 1) Market value, 2) Replacement cost and 3) Income.
AMPI in Puerto Vallarta is continuing to learn and become more proficient with its Flex Multiple Listing System. As AMPI agents become more knowledgeable and proficient, fair market value will become more available.
AMPI is very aware of cultural differences and understands it is operating in Mexico, and also understands the individual’s right to privacy. But, when information is withheld for the benefit of a few and manipulation of many, the result is harm to all.
This article is based upon legal opinions, current practices and my personal experiences. I recommend that each potential buyer or seller of real estate conduct his own due diligence and review.