“Guesstimating” the value of a property

Question

Country is Germany, in case that’s even relevant.

Some fifteen years ago my parents bought a property together with one of my brothers (referred to as “brother A” further down) and his wife (so each of the four owned a quarter). My father has passed away a while ago, and his share went to my mother. My mother, who wasn’t too keen on the whole idea in the first place, wants to move to a small city apartment. Apart from everything else it does not make sense for her to pay two thirds of her pension towards a mortgage for a house (half of it, anyway) that is far too large for a 75 year old woman to maintain.

Her idea is to give away the house (including the remaining mortgage) as a “living inheritance”, if that is the correct term. This would make us remaining three brothers proud owners of one eighth of a house each, which is rather useless. So brother A suggested to sit down with us and make an offer for our share in the house, so he can pay us out and own the whole thing.

If truth is to be told, we three brothers are quite happy with almost any solution as long as we won’t inherit any of the debt. So we do not necessarily want to spend much money on an expert to evaluate the value of the property (we are aware that a living inheritance has other legal concerns that need looking after). On the other hand we think it will help to avoid tensions in the future if we are sure that brother A’s offer was fair, so we are looking at a way to arrive at a ballpark figure.

If that makes any difference we are not so much interested in the value of the house, and more interested as to what goes into arriving at a fair offer. We broadly assume factors will include the original price of the house, current market price, the part of the mortgage that already has been paid, remaining mortgage and possibly other factors. Any advice on this would be welcome.

Answer 1

Any estate agent will happily value a house for you at no cost, in the hope of getting to sell it. It won’t be entirely accurate, because the only way to value a house accurately is to sell it and see how much you can get, but it will be better than your own guesstimate.

Answer 2

Depends on how much work you want to do.

The easiest way, is to take the price of the property at purchase, and multiply it by the ratio of the current average property price for [your town] and the average price at time of purchase (google can help you here). So if you bought it for 100k, and the average price has gone up by 10%, the current value is probably around 110k.

This won't be hugely accurate, because prices are fractal - a new shop built at the end of the street will affect prices on that street only, without shifting the average. So getting an accurate price will require research into recent events in your area, prices of nearby properties, changes in availability and quality of nearby properties... etc.

However, I'd worry more about the legal side. When you sell a property (or part of one) that you own, you are liable to capital gains tax, which is based on the difference between the selling price and buying price. This will be country specific, so you should consult a lawyer - you may find that increasing the price you sell for by X amount will put you over a cutoff and increase your tax liability by more than X.

Also worth checking, is whether your mother will have to pay tax when she gives it away. Again, I don't know about germany, but in the UK if you give away a property as a gift, you still have to pay the government capital gains tax on the difference between what you bought it for, and it's current value, even though you are not getting anything for giving it away.