(Disclaimer: All prices quoted in this article are accurate as of February, 2000. In addition, there are ALWAYS exceptions!)
It is helpful for newcomers to Mexico to review the basics of property evaluation so they can determine a realistic value of existing homes and lots. The best way to compare the prices of several dramatically different homes with a degree of accuracy and fairness, is to ascertain a realistic appraisal value for each of the properties. There are several different types of appraisals, as you may have experienced back home.
Tax value appraisal
In many areas of the world, the appraised Tax Value (Catastro) is the same as the Commercial Value (selling price). In Mexico, the Catastro Value is set by the county appraiser (without onsite property inspection). In the Lake Chapala area, the Catastro value of all properties is a fraction of the Commercial Value. While the Catastro value is used by the Notary (a specially licenced lawyer who performs property transfers) to determine closing costs and the annual tax payment (Predial), it is not effective for comparing Commercial Values.
North of the Border, real estate values are frequently decided by “comps”, the actual recent selling prices of homes in the same neighborhood . This system works very well in planned subdivisions where all of the homes are represented by a few models. Because homes in Mexico are so distinctly different, one from another, even in the same neighborhood, this method of appraisal is seldom used, except in the case of resale properties in a developer’s subdivision.
Another way of determining the Commercial Value of a property is to look at a rental income/sales price ratio. In the United States the formula of (Monthly rent x 96 months = sales price). Here, due to low maintenance costs and taxes, durable construction, and mild climate, the formula is generally adjusted to (Monthly rent x 132 months = sales price). Your agent can determine a fair and accurate rental value for any property, if you want to check the Investment Value.
Replacement value appraisals
This is the preferred system of determining the Commercial Value of properties at Lake Chapala. A replacement value appraisal is determined by adding the value of the lot to the depreciated value of the construction, adding as needed for special amenities.
Lots — measurements:
As Mexico uses the metric system, much of the information you encounter will refer to meters, square meters and hectares. Following is a short refresher course for easy comparisons:
- 1 METER = 3.3 FEET
- 1 SQUARE METER = 10.76 SQUARE FEET
- 1 HECTARE = 2.4 ACRES
- 1 ACRE = 4100 SQUARE METERS
Several variables affect lot prices. The more desirable the location, the higher the price of the raw land. In the Lake Chapala, Jalisco area of Mexico, ninety per cent of the homes and lots purchased by North Americans are located between the western limits of Chapala and the village of San Juan Cosala.
This location-location-location strip follows the highway from East to West and includes several small subdivisions in addition to the neighborhoods and villages of Riberas del Pilar, Mirasol, Chula Vista, San Antonio Tlay., La Floresta, Ajijic, Villa Nova, Rancho del Oro, and the Racquet Club.
Land values in this area range from $25.00 USD to $100.00 USD per square meter. Lots with no view, in areas with few amenities and low maintenance will be at the low end of the scale. As the location improves geographically-into the center of the village, or higher on the mountain with more view, or in a neighborhood with larger homes, or at lake front, or a commercial location along the highway, the price escalates.
Lots which include improvements will generally be priced proportionally higher, to cover the price of these amenities or construction.. A lot may include some of the following: water permit and street connection ( la toma), retaining walls, terracing walls, landscaping, driveways, compacted building platform, or any construction, i.e.: gates, underground water storage ( el aljibe), storage sheds ( las bodegas), septic system ( fosa septica), well ( pozo de agua), or sewage system connection in the areas where this service is available.
It is prudent to be extraordinarily cautious when offered land which does not currently receive water from a recognized source.. Do not depend on the well across the street, or the water from the neighbor, unless this is offered in writing. Land without water has very little value.
Existing home appraisal
To appraise an existing home, all of the above improvements are added to the cost of the lot along with the cost of all construction.
The value of new construction in the Lake Chapala area currently ranges from about $40 USD to $60 USD per square foot. Homes in Mexico are measured from roof edge to roof edge, and include all construction, even garages, terraces, and sheds, in the total construction, unless noted otherwise. Most foreign visitors are accustomed to considering only the areas of a home that are heated and cooled in the total square footage.
Multiply the square footage x average cost per square foot. Add the lot and included amenities from the lot section.
From this total, subtract approximately 1% per year of age to allow for obsolescence of style and general wear and tear. Major defects or extremely dated properties would require a larger depreciation deduction .
To this figure, add a value for a satellite system ($1500 USD), pool ($10,000-$18,000 complete), telephone line ($200 USD), pressure system ($700 USD), water purification system ($500 USD), pumps, furnishings, appliances, and other amenities
To this figure, add some space to allow the owner to negotiate with the buyer, and finally, add the standard 6% commission on homes, (10% on lots or commercial property) plus sales tax (IVA-15% on the commission).
This figure will be somewhere near the asking price of the property in question. Occasionally, visitors encounter homes that seem, even in light of this information, “overpriced”. Buyers are always encouraged to make an offer that they feel reflects the value of the property as they perceive it.
Existing homes will range from resales that are just a year or two old, to a number of 15 to 30 year-old homes, the “fixer-uppers” frequently sought out by smart buyers, who realize that due to lower cost of construction labor, they can easily redo and update these still sound and sturdy homes.
It is hard for newcomers to realize just how low labor costs are here. A master mason who creatively lays brick, ceramic tile, or marble earns about $100-$150 USD per week. By utilizing the wonderful native building materials-brick, marble, stone, Mexican ceramic tile, the building or remodeling costs will be a fraction of what would be expected in the U.S. or Canada.
For more detailed information regarding appraisals, additional properties, resales, new construction or remodeling older properties, feel free to ask one of the Re/Max Fenix agents.
All members of the Re/Max Fenix team are specially trained to help you determine the cost per square meter of land in any neighborhood, a realistic rental price for any existing home, or even help with the math required to appraise Lake Chapala properties.