BREAKING BOUNDARIES: EXPLORING THE LEGALITY AND IMPLICATIONS OF SELLING PROPERTY BELOW CIRCLE RATE
The title deed is an official document that shows the legal owner of a property. However, it is common practice selling property lower than circle rate, where the parties involved declare a sale price lower than the actual market value of property. The reason for this common practice is to avoid taxes.
Selling property lower than circle rate on the title deed is determined by the parties involved regardless of the actual market value of property, and it is recorded on the title deed. Since the selling price is declared by the parties involved, it can be higher or lower than the actual market value of property.
The minimum amount of the selling price as known as circle rate declared on the title deed by the parties involved is determined by local tax rules and regulations. When determining the value of a property for tax purposes, tax rules do not take into account the actual market value of property. Instead, tax rules generally determine the minimum value of the property, which is usually the value of the property on the title deed and is used to calculate local taxes such as property tax. Therefore, it is possible to declare a lower selling price on the title deed, and this often leads to the mistake of underdeclaration of sales to pay less tax and property transfer fees.
Selling property lower than circle rate is used for the property owner’s tax declaration. The property owner can reduce their tax payment obligation by underdeclaration of sales the properties on the title deed.
WHAT IS THE TITLE DEED SALE PRICE?
The term “title deed sale price” refers to the official registered value of a real estate property, especially a land or house, which is declared by the parties to the land registry office. The land registry office does not have the authority to question whether this value is the actual sale price or appraisal value of property. Underreporting the sale price on the title deed or underdeclaration of sales on the title deed will not be monitored by the land registry office. The title deed sale value is an important factor in determining the price used in the sale of a real estate property.
While the actual sale value of a house is generally determined based on a range of factors such as the characteristics of the property, location, surrounding conditions, and proximity to infrastructure and services acccording to market value of property, the title deed sale price is the value reported by the parties. This value forms the basis for the taxes and fees paid during the real estate transaction.
The title deed sale value varies from country to country and even region to region. Each country has its own land registry regulations and specific title deed values. Therefore, it is important to consult an expert to determine the title deed sale value.
For detailed information about real estate law please visit our Real Estate Law in Turkey page.
MUNICIPAL VALUE CERTIFICATE
The municipal value certificate is a document used by municipalities to determine the value of a property. Municipal value document is issued by the municipality and is used for the taxation, sale, or other transactions related to a real estate property.
The municipal value certificate is a value determined based on a range of factors, in addition to the market value of the property. These factors include the characteristics of the region where the property is located, surrounding conditions, location, zoning status, and construction density.
The municipal value certificate is especially important during the sale or transfer of a real estate property. The document is presented as one of the required documents to complete the land registry transactions. Even if the buyer and seller wish to underdeclaration of sales on the title deed, they cannot report an amount lower than the municipal value certificate value as the sale price and can not selling propert lower than circle rate.
The municipal value certificate can also be used for property taxation purposes. The value reported in the tax declaration can be calculated based on the municipal value certificate value. Therefore, it is important to present this document during property taxation procedures.
REAL ESTATE APPRAISAL VALUE
The appraisal value of a property is a valuation process used to determine the true market value of property. The appraisal value of a property is carried out by a real estate expert or appraiser, based on a range of factors such as the property’s characteristics, location, surrounding conditions, proximity to infrastructure and services.
The appraisal value of a property is typically used during the process of selling or renting a real estate property. This value is an important factor in determining the actual value of property and can be used to set the sale price. In addition, the appraisal value of a property can be used by lending institutions to evaluate a mortgage or home loan application.
The appraisal value of a property is presented in the form of a report that covers all the property’s features. This report takes into account a range of factors, such as the property’s physical features, location, surrounding conditions, market trends, proximity to infrastructure and services, among others. The appraisal value of a property is one of the most reliable methods used to determine a real estate property’s true market value and is an official procedure accepted in many countries.
Apart from issues such as selling property lower than circle rate in the title deed or showing a lower sale price, the appraisal value is an independent report prepared to determine the true value of the property, and the Land Registry is not bound by this report.
To learn detailed information about encumbrances and declarations that affect the value of immovable property, you can review our “Title Search in Turkey” page.
WHAT PROBLEMS CAN SHOWING UNDERDECLARATION OF SALES OF PROPERTIES IN THE TITLE DEED LEAD TO?
Selling property lower than circle rate in the title deed can lead to various legal problems for the individual. Showing a lower sale price in the title deed and underdeclaration can create issues between the buyer and the seller.
Furthermore, showing a lower sale price in the title deed can cause problems during the registration process. Land registry offices require that the actual actual value of property be declared correctly during the buying and selling process. If the actual market value of property turns out to be higher than what was declared, the individual may face tax penalties. The main problems that can arise are:
- Tax Issues: Showing a lower value of the property in the title deed and underdeclaration of sales can result in lower taxes for the property owner since the title value is used as the declared tax value. However, if tax authorities discover this, both the buyer and the seller may be penalized for showing a lower sale price in the title deed.
- Insurance Issues: Lowering the sale price in the title deed may result in underpaid insurance premiums, which may cause the insurance company to not cover the damage in case of an accident. The insurance company will not want to take responsibility for an undervalued property, and may avoid making any damage payments because of underdeclaration.
- Loan Issues: Lowering the value of a property in the title deed can cause the loan application of the property owner to be rejected. Banks prefer to grant loans based on the real market value of the property. Therefore, if the title value is lower, the loan application may be rejected or a lower loan limit may be offered.
- Sales Issues: Selling property lower than circle rate in the title deed can create problems during the selling process. The house may have to be sold at a lower price than its actual market value of property, which may result in the property owner earning less from the sale.
- Legal Issues: The title sale value documents the property rights of the owner, so showing a lower sale price in the title deed can limit the property owner’s ownership rights. For example, if another person claims ownership rights to the property, it may be difficult for the property owner to prove their ownership rights because the title sale value is lower than the actual market value.
PENALTY FOR UNDERDECLARATION OF SALES PRICE IN LAND REGISTRY
If the sale price is understated in the land registry during a complaint or routine tax office inspection, the relevant official institutions may impose a penalty for the underdeclaration of sales price in the land registry. This situation can be detected through an inspector’s examination of the land registry records. Additionally, if the property was purchased through a bank loan, and if the sale price of the property is less than its actual value, the bank can report this to the tax office.
During the sale process, both the seller and buyer must pay a total of 4% in land registry fees, with each paying 2% based on the value of the real estate being sold. However, the seller may want to underdeclaration of sales value during the sale process because they will have to pay income tax after the sale.
When this underdeclaration is detected, it can result in various penalties. The penalty for the underdeclaration of the sale price in the land registry is a 25% penalty on the land registry fee, and the Ministry of Treasury and Finance may also demand a delay interest payment from both the seller and the buyer.
Furthermore, the seller may also be subject to an income tax penalty as a penalty for the underdeclaration of the sale price in the land registry. If detected, the seller must pay a penalty payment of up to 35% of their income tax.
It should also be noted that underdeclaration of sales value is illegal and can have serious consequences. To avoid these penalties, practices such as understating the sale price in the land registry should be avoided, and the actual value of property should be declared in the land registry sale price without engaging in any fraudulent transactions. Selling property lower than circle rate causes many problems both seller and buyer.
PROBLEMS THAT MAY ARISE DUE TO UNDERSTATING THE SALE PRICE OF THE PROPERTY IN THE SALES CONTRACT
Understating the value of a property in the title deed can cause problems in the sales contract between the parties. Understating the sale price of the property can be considered as a misleading statement in the contract between the seller and the buyer. In this case, the buyer may have the right to withdraw from the contract and claim compensation against the seller when they learn the appraisal value of the property.
Moreover, underdeclaration of sales value of the property in the title deed can also mean incorrect declaration in tax returns, which may result in penalties for the seller.
Therefore, the sales contract between the seller and the buyer should comply with the principles of honesty and transparency. It is important to determine the real value of the property accurately and to clearly state it in the contract for the protection of both parties’ rights.
HOW IS THE REAL MARKET VALUE OF PROPERTY DETERMINED?
Problems and penalties that may arise due to understating the value of a property in the title deed will affect both the buyer and the seller. The following methods can be useful for the parties to determine the real market value and appraisal value of the property and avoid any problems:
- Real Estate Appraiser: Real estate appraisers determine the real actual value of a property by conducting market research, taking into account factors such as the selling prices of similar properties in the area, the property’s characteristics, and location. This way, the real value of the property is determined.
- Real Estate Agents: Real estate agents can examine the selling prices of similar properties to determine the real market value of property. Real estate agents can estimate the real market value of property by taking into account the property’s location, characteristics, condition, and other factors.
- Online Valuation Tools: Some websites offer online valuation tools to determine the appraisal value of the property. These tools make an estimate by taking into account the property’s characteristics, location, and other factors.
- Municipal Records: Municipalities determine the municipal value of a property for property taxes. Therefore, municipal records for property tax can be used to determine the real value of property. After determining the real value of property, the property owner can check whether the title deed value corresponds to the municipal value. If the title deed value is lower than the municipal value, the property owner can apply to the Land Registry and Cadastre Directorate to update the title deed transactions.
CAN THE SALE PRICE BE CORRECTED IN THE LAND REGISTRY?
The sale price of a property is determined based on the amount agreed upon at the time of the contract, and can be changed with the mutual consent of the parties. However, once the land registry transaction is completed, the sale price cannot be changed.
Land registry transactions are carried out by the Turkish Land Registry and Cadastre General Directorate, and the information recorded in the land registry has legal evidential value. Therefore, it is not possible to change the sale price recorded in the land registry. Underdeclaration of sales value in the land registry with the intention of paying less tax is not a matter that can be corrected later by amending the sale price.
However, situation of selling property lower than circle rate, the buyer and seller can apply to the tax office and request the completion of the missing tax that was paid due to the incomplete declaration of the sale price through a declaration of repentance. In this case, the tax office will carry out the necessary procedure and complete the missing tax with a tax penalty, protecting itself from possible problems.
In conclusion, it is extremely important to declare the sale price accurately and completely in the land registry. If the sale price is declared incorrectly, the parties may face legal problems and tax penalties. Therefore, if there is a problem such as undervaluing the property in the land registry, the parties should apply to the tax office without delay to correct the sale price in the land registry and complete the necessary procedures.
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