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27. April 2022 | Comparative value method: Valuation method in real estate tax law (this contribution)

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The comparative value method as a valuation method is very common in its application. Due to its market proximity even one of the most popular. However, it is often difficult to find comparable objects and then even this procedure can prove complicated. In addition, the method proceeds significantly differently than the income value method or the property value method. In general, however, all three evaluation methods are accepted in German courts, even if they often lead to different values.

Now we come to another valuation method in the context of real estate tax law. Here we take a closer look at the so-called comparative value method.

The focus is mainly on selling prices for comparable objects. As a result, so-called expert committees play a defining role. Because they are allowed to determine average guidelines. In doing so, they use data from already notarially concluded real estate purchase contracts. Among other factors to be considered are, for example, the size of the property, the year of construction, the living space and also the geographical location and possibly the equipment of the property. Otherwise and preferred are often the prices of sold buildings in the immediate vicinity of said property. This variant is thus also referred to as a direct comparison value method. The determination based on comparative factors, as described above, is referred to as indirect method.

At the beginning, it is important to know that the comparative value method is used in particular in asset disputes, such as an inheritance, a divorce or a gift, but also in real estate transactions, i.e. in the purchase and sale of real estate.

According to § 182 paragraph 2 BewG, in the comparative value procedure, residential property, partial property, as well as one- and two-family houses are valued. In this case, the method is used if comparison values are available for objects that are really similar. Thus, the current market situation has a much stronger impact than, for example, in the property value method or even in the income value method. As a result, it is often also considered as the favorite among the valuation methods for real estate to achieve a current price.

First of all, in the comparative value procedure, purchase prices of land are to be used pursuant to § 183 (1) BewG. In doing so, particular attention should be paid to the comparison objects and only land should be selected that is sufficiently consistent with the land to be valued in terms of its relevant value characteristics. As a result, they are classified as so-called comparative properties. In advance, the comparison prices communicated by the expert committees within the meaning of §§ 192 are priority.

However, according to § 183 paragraph 2 BewG, comparison factors determined and communicated by the expert committees for suitable reference units, i.e. in particular area units of the building, can also be used instead of prices for comparison land. When using comparative factors that relate only to the building, the land value according to § 179 BewG must be taken into account separately. For this purpose, the comparative factors derived by the peer review committees for the last evaluation period ending before the calendar year in which the valuation date is to be used. By using comparison factors in the comparative value method, surcharges and discounts are calculated for the respective differences. For example, a plot at the end of a dead end is of higher value than that at an intersection, a penthouse apartment is more valuable than a comparable apartment on the ground floor.

It should be noted, in particular in this procedure, that particularities corresponding to the value-influencing burdens of a commercial and public law nature are not taken into account in accordance with paragraphs 1 and 2.

Special advantages through the comparative value method are now highlighted once again. In this process, the market value of the property is mapped more accurately than others, since it draws on actually paid selling prices. This allows the method to include the current market situation in the best possible way and is therefore a good indication to adequately determine the value for a sale, gift or other reasons.

In addition, the calculation in the comparative value method is easy to understand and easy to illustrate for real estate owners. As a result, this procedure is also particularly interesting for real estate agents to evaluate houses and condominiums for sales and other operations. In addition, the comparative value method helps to determine the current market value with its objective valuation and thus offers a fairly safe price discovery for real estate.

However, disadvantages also play a role in the assessment of the comparative value method. Because a large database is needed in order to be able to compare the properties appropriately. For example, if ten or fewer comparison objects are usable for comparison, then the property valuation cannot be applied precisely enough.

The above mentioned advantage that the determination of an appropriate market value is helpful, however, is subject to the problem of frequent and significant fluctuations, since the valuation is based on market developments and current real estate prices. In addition, price collapses and real estate bubbles have a strong impact on the outcome of the valuation, which is why the comparative value method only reflects a snapshot.

It is important to know that the tax office assesses the properties on the basis of the Valuation Act. However, it uses a simplified method. Because the tax office does not inspect the property, in addition, no inspection of the land register is made and no expert is used for help. Special features of the object fall under the table. These can use experts, for example, to downgrade the value and save taxes on a gift. Since the tax office cannot use and consider this value, the values of the tax office are often too high and an expert can thus determine a lower market value § 198 BewG.

However, the regulations issued pursuant to § 199 (1) BauGB apply. Accordingly, the proof must be provided on the basis of the Real Estate Valuation Ordinance (ImmoWertV). This gives the expert more opportunities and can also take into account important factors such as the current market situation. Because unlike the tax office, experts have to visit the buildings to be assessed. However, this represents an advantage for the giver, since more information is thus available.

In the comparative value method, a fairly good value can often be determined. However, it is important to consider the special goal of the owner. In the case of a gift, the property should be valued as low as possible. Whereas this should rarely be the case with a sale. Nevertheless, the final tax effects must be taken into account as well as the special features of various evaluation procedures. This results in different procedures for different types of real estate, which provides the best evaluation as a result.