I spoke with a colleague who was trying to find information for a client regarding the city tax assessment. He explained that the client would not entertain looking at a house where the asking price is above the city-assessed value. He incorrectly correlated the tax assessed value as the ‘true property value’.
This is not the first time we have run into this question and typically we provide the same stock answer –
“The city’s assessed value is not relevant to the market price”.
And then we get the same responses of “Why?” and “That doesn’t make any sense.”
There are many values associated with a property and although they are related in the sense that they are a value – they all have a different purpose and relevancy to a property, be it taxes, financing or a sale.
So it’s time to address the many different things one may see as a valuation.
What are they in general?
How are they derived?
And, what do they mean?
1/ Municipal property tax assessment of property value
Each municipal district needs to raise funds to pay for the services and infrastructure they provide. Some money may come from federal and provincial funds, or other sources like county and regional sources.
However, as we all know, those funds are not enough to provide the dollars needed to operate a municipality at an acceptable service level. As most municipalities are restricted from running a deficit budget, enter the dreaded property taxes. These are based on the tax assessment and city needs.
How do they arrive at this figure? It is long and convoluted and it takes them time to calculate, hence why they are always a year behind in the values.
The valuation of a property is based on:
- its location
- site details, such as land classification, zoning and land area
- site influences, such as the shape of the site, topography, nearby uses, encumbrances, easements and multi frontages
- the building, its size, age, condition and style and construction type, and
- the highest and best use of the site
They also look at improvements that have gone through an approval process and can increase it based on that, over the past three years and relative to other permitted improvements in the same area.
To arrive at this value, they sit in their offices and work on their computers to come to a value for each property. They do not take into consideration improvements that do not require permits (i.e. new flooring, appliances, minor renovations, etc.
2/ Bank appraisal of property value
A lender looks at the valuation largely based on risk. They want to determine how they can recoup any money if a loan goes sideways. Often an appraiser comes to the property to review it. They look at recently sold properties and compare the subject property to those, to determine an appraised price. This price is static and based on each financial decision or loan request. They will look at condition, lot size, amenities, etc. to determine a safe price that works for them. This is the closest value to what you can expect to buy/sell a property at – but it’s not a guarantee either.
3/ Comparative Market Analysis (CMA) of property value
Realtors® use these to assist buyers and sellers in making choices. Recent sales, current active listings, and even terminated/non-successful listings are used to give buyers and sellers ranges that make sense, given the current market data. The values are based on what is currently happening. Realtors® review other homes, what they sold for and estimate the market value at that snapshot in time.
The market is fluid though and even through the life of a listing, CMA values may change up or down. Realtors® will also take into consideration upgrades to the home, condition, curb appeal, and anything else that may affect the ability to maximize the value for the sellers, on a case-by-case basis.
4/ “For Sale” price
Sellers ultimately determine a listing price. They look at what they want to achieve and pick an asking price. This is NOT the market value, but a hope that they can sell the property for that number. Often, they utilize a Realtor’s® CMA but not explicitly. And it doesn’t define the value the way a municipality, bank, or Realtor® would. It is sometimes based on the market and sometimes just what a seller wants or needs to achieve as their end goal. Sometimes they are too low, sometimes too high and occasionally very reasonable.
To summarize, there are different values for homes. They are interconnected but also independent of each other. So when someone asks us “what is our home valued at?” that is a question that requires discussion, thought and research.
Ultimately, a property value is NOT what the municipal district sets as a value, other than how it relates to the tax roll.
It is NOT just what a bank sets as a value, as they are only considering what they are willing to risk a loan on. (Although many people will be tied to this value depending on their need for financing.*)
It is NOT what a Realtor® gives as a range, as that is not only a moving target, but is usually a significant spread between the lowest and highest values for comparable homes.
And it is NOT what a seller lists as an asking price.
It IS what the buying market is willing to pay, regardless of the values presented above*.
If you want an up-to-date market evaluation of your home – click the button in the corner to connect with us or just email us here.
We can get that done for you!
This is an oldie but goodie, so we just updated this for Jan 2023!