We usually remember cadastral value once a year, when we pay the tax on real estate. Together with experts, we have looked at the other cases, besides the calculation of the tax, in which it is required, where to find it, and how to challenge it.
Two values, two fates
Although attempts have recently been made to bring cadastral value closer to market value, it has nothing to do with market value: a different methodology is used to determine it, says Valeria Borisova, general director of the valuation company BK-Arkadia.
"There is no clear pattern in the relationship between market value and cadastral value. Cadastral value can be either above the market or below it."
Why confuse the owner of a home, and why should one flat have two different values? Cadastral value came into active use about 15 years ago. As Sergei Pivovarchik, managing partner at Consul Group, explained, the main task in the move from the average annual value of capital-construction assets to cadastral value was to bring the property-tax base closer to real economic indicators.
A move to the use of market value would have been ideal, but establishing it at the budget's expense for all the real estate in Russia would take too long and cost too much,
- the expert explains.
That is why a compromise is in use today: cadastral value applies averaged market indicators, and the individual features of a particular property are not taken into account.
Cadastral value, explains Sergei Mazhukov, a valuer at the Unified Valuation Company, is set after a state cadastral valuation has been carried out, and it serves above all to calculate the tax. It rests on Federal Valuation Standard No. 4 and on Federal Law No. 135-FZ. Mass-valuation methods are used, that is, the value is set not individually for each flat but by the quarter.
In addition, a number of indicators that play an important part in a market valuation of a home, such as the location of the building, the layout of the flat and the finish, are simply left out of account.
"The accuracy of such a valuation is therefore plus or minus 30% by comparison with the market value of the home, but the error often reaches 80% as well," the expert stresses.
"Cadastral value is determined as at a particular date in the past, for example 1 January 2017. That date is stated in an extract from the Unified State Register of Real Estate (EGRN)," Valeria Borisova notes. "The cadastral value of a property is reviewed every three to five years. We had a case in which, after our valuation and a court review of the property's cadastral value, it was changed and the data were entered in Rosreestr. The time then came for a new revaluation, and as a result the value of that property rose again. The client came back to us for a valuation, then went to court, and the cadastral value of the property was reduced once more."
When does one need to know the cadastral value?
- to calculate property tax (it is not in owners' interests for the amount to be high);
- when obtaining a loan, where the home is used as collateral;
- for privatisation of a flat;
- on a sale of property that has been owned for less than five years;
- in court disputes over property.
"If a contract of sale states a price for the property that is 30% below the cadastral value, the tax will be charged on the cadastral value," Valeria Borisova comments.
Where can the cadastral value be found?
Sergei Mazhukov of the Unified Valuation Company advises:
- on the Rosreestr website: go to the section "Electronic services", select "Reference information on real-estate properties online", find the property by its address, and on the page with the details of your flat open the section "Cadastral value";
- on the cadastral map;
- if a printed extract is needed, it can be obtained at the offices of Rosreestr and the Cadastral Chamber, or at a My Documents multifunctional centre.
A disputed question
If the owner does not agree with the cadastral value, the law permits it to be challenged and market value to be established in place of the cadastral value, Sergei Mazhukov explains. For this, the owner of the flat needs a report on the market value as at the date on which the cadastral value was determined, and an extract from the EGRN. The set of documents, together with an application, must be sent to a special commission at Rosreestr or to a court. The law does not prohibit an application being filed with both at once.
According to Valeria Borisova, if the documents are prepared properly, the proportion of cases in which cadastral value is challenged successfully is fairly high.
After a court expert examination, the cadastral value is most often set somewhere between the previous figure and the figure arrived at in the course of the valuation. The larger the property, the more worthwhile it is to challenge the cadastral valuation.
A challenge in court carries the corresponding costs, Sergei Pivovarchik warns.
A challenge to cadastral value will therefore be worthwhile for the owner only if the costs of the court procedure and of the expert examination are significantly lower than the money saved through the reduction in value,
- the expert says.
An example
Suppose, the expert says, that a flat in Moscow is worth 45 million roubles. The tax rate in this case will be 0.2%. The tax for the year is 90,000 roubles (45 million roubles × 0.2%). Even if one assumes that the cadastral value of such a flat is overstated by 10 million roubles, by challenging it the right-holder will reduce the tax by 20,000 roubles. The right-holder will, however, have to spend money on preparing a market-value report (from 50,000 roubles), on a court expert examination (from 50,000 roubles) and on a representative's services.
In Russia the practice of recovering court costs is weakly developed, so an owner should hardly count on full compensation of the costs incurred. It is obvious that, in the example given, a challenge is "litigation for its own sake", without a material economic effect,
- Sergei Pivovarchik considers.
Can cadastral value be higher than market value?
According to Valeria Borisova, situations in which the cadastral value of a small flat significantly exceeds the market value are rare, but they do occur. "In our practice there was a case in which we valued a small country house whose cadastral value was 5 million roubles," the expert recalls. "After our valuation it came down to 650,000 roubles, a very large reduction. Challenging the cadastral value was worthwhile for the client: the client's costs of the valuation, of the lawyer and of filing the claim in court will be lower than the difference that can be saved in calculating and paying the tax."
There are other stories as well. Another client of the firm, Valeria Borisova says, intended to apply to a court for a review of the cadastral value of his flat in the centre of Moscow, which is 53 million roubles, and asked for a valuation to be prepared. A preliminary analysis showed that the client's flat is worth just that. The cadastral valuation turned out to coincide fully with the market value of the home. There is therefore no point at all in the person challenging the cadastral valuation in court.
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