In case your organization is going to evaluate sales of related house to make sure that your donors are reporting realistic values, the trustworthiness of valuation (from the IRS’ standpoint) is determined by the degree of similarity amongst the properties you are comparing. The two properties has to be related with regards to:
- The timing on the sale: Each sales have to have taken spot inside the pertinent time period.
- The circumstances on the sale: The value paid in each sales has to be connected solely for the worth that the purchaser and seller really feel the house is worth, and not to other components, for instance household partnership.
- The situations on the market place in which the sale was created: Temporary fluctuations inside the market place is often induced by all sorts of events. So, the two properties getting compared need to each happen to be sold through instances when market place situations had been somewhat stable.
This sort of valuation system is especially suited for true estate, nevertheless it can also be applied to other sorts of sales at the same time. By far the most significant aspect of this kind of valuation would be the degree of similarity of amongst the comparable house plus the donated house, which has to be close adequate in order that the promoting value will be regarded pertinent by reasonably well-informed purchasers and sellers.
Look at the following instance supplied by the IRS: You give a uncommon, old book for your former college. The book is usually a third edition and is in poor condition as a result of a missing back cover. You learn that there was a sale for $300 close to the valuation date, on the initially edition on the book that was in fantastic condition. While the contents would be the similar, the books will not be at all related as a result of the unique editions and their physical condition. So, tiny consideration will be provided for the promoting value on the $300 house by knowledgeable purchasers or sellers.
So, in case your organization decides to work with the comparable sales information system, be confident to take into account the following queries: How related would be the comparable house for the donated house? Was the sale at arm’s length? What was the condition on the market place in the time on the sale? How close would be the date on the sale for the valuation date?