Property sales are usually undertaken to get a profit and earn money. Traditionally, the sale is conducted at a rate higher than what the seller bought the property for.
But sometimes this is not the case. Due to multiple circumstances, a property deal can take place where the seller might sell off any property below the fair market value of the place.
How legally and financially viable is this? In this article, we will examine this factor. We will also look into various circumstances why this happens, and what needs to be considered when selling any property at lower prices.
Are you someone looking to let, sell or buy property in Bexleyheath and around South London? Then you can opt for estate agents in Bexleyheath to book a free no-obligation sales and lettings valuation to help you out with your property deals.
Is It Legal To Sell Property Below Market Value In the UK?
The simple answer is- Yes, it is absolutely legal. You can choose to sell your property below market value if you want to. Do keep in mind though, that any property which is being sold for a huge discount can be viewed as underhanded or shady.
If the buyer is not someone you know, then they might express their suspicions regarding your land. It is important to maintain transparency in such situations. Provide a clear understanding of why the price is below market value.
What Are The Circumstances Under Which Such Sales Might Happen?
House sales that happen under the pegged market value can occur for a multitude of reasons. We will examine some of them below.
Selling To Family Members
This is the most common reason why someone would sell a property below the market value. If someone is selling their land to a close family member, they might choose to provide good deals to them.
Often, parents might sell land to their children for as low as £1! Though this practice is perfectly legal, it does come with its own set of drawbacks. We will discuss those later in the article.
Distress Sales
Sometimes, sellers might have to dispose of their plots urgently. This can be due to factors like the seller having to move away. This results in the property becoming a liability to them.
Other factors can also include issues like adverse living conditions due to pollution, or even perceived paranormal disturbances. Thus to be able to sell off the property quickly, the prices may be extremely lowered.
Financial Needs
Sellers might sell off their property due to financial constraints they are facing. They might find it impractical to sustain and have to maintain that particular property. Thus, they would choose to sell it off at any throw-away price they will get for it.
The Listing Isn’t Performing Well
Oftentimes, listings might not fetch the price at which it is pegged. This would result in the seller lowering the price substantially to improve its performance in the market. This might attract potential buyers even more.
Market Competition
Sometimes due to high competition, sellers might have to give in to pressure. They end up lowering the property prices below market value. This happens after factoring in issues like the speed of the sale, other rival sellers and properties, and potential profits. By making the house more affordable, sellers might be able to reach potential customers by reducing the competition.
What Should One Keep In Mind While Dealing With Such Property?
There are various implications and drawbacks associated with selling any property. Do consider the following points if you are looking to sell a property below its market valuation,
Existing Mortgage
In case of an outstanding mortgage on the property, make sure to sell the property for rates higher than that amount. In case you sell it for less than the mortgage amount, you would have to end up bearing early exit fees and the cost of remortgaging as well.
Tax Implications
● Capital Gains Tax
If the property to sell was bought by you more than 10 years ago and its value has increased since you will have to pay the Capital Gains Tax for its sale. The catch here is, the actual selling price of the property does not matter; the tax will be calculated based on the market value.
The CGT can range from 18% (for basic-rate earners) to 28% (higher-income taxpayers). As a seller, you will have to keep this in mind because the total price of your property should be able to cover these costs reasonably.
● Stamp Duty
Stamp duty is another thing you will have to look out for, if applicable. In case you are the only owner of this property with no mortgage, then stamp duty would not be charged. If you have a mortgage where outstanding finance exceeds the Stamp Duty Thresholds, you will have to pay SDLT for this according to the current rates.
● Gift Tax/Inheritance Tax
In case you have sold or gifted your property to your child or a family member and you pass away within seven years, the person who inherited this property would have to pay inheritance tax on the property. But, this only applies if the property exceeds £425,000 in value.
Professional Consultation
As with any financial and property transactions, you need to legally sort out many things to not face any ramifications in the future. We advise you to consult professionals with experience in the property market and make good use of their recommendations.
Confer your property to a trusted real estate agency, who might also provide alternative solutions to consider instead of selling your property at a low price.
On An Ending Note
Thus, we have explored in detail why some sellers might prefer to sell properties below the valuation rate. No matter what the reason is, in most cases, selling property below its market value is the last resort option.
To answer the titular question- does selling property below its market value make sense financially, the answer depends heavily on the individual situation of the seller. If the purpose is to generate revenue, then no, it doesn’t make sense as there is scope for more financial gain.
At the same, if it is done to simply dispose of the property urgently or to give it to a relative, it does make sense. This is because the financial situation is not the priority, the contingency is.
Multiple ramifications come with the sale of a house below its market value. The seller must hire good legal and property agents to be able to navigate these without facing difficulties.