Each year property owners anticipate and potentially brace themselves for their property tax assessment. The assessment arrives, but more often than not, the bottom line has a gap between it and the current market value. Why is that? In order to understand this variance it’s important to know the difference between assessed value and market value, and how a REALTOR® establishes the asking price for a property.
What is assessed value?
Every year properties are assessed for their current value as July 1st the previous year based on the standard Provincial system for determining annual property taxes. In British Columbia, BC Assessment conducts these assessments. A number of factors are considered in the assessment process, but typically the age and size of the real property, its location along with construction materials, the prevailing market trends and sales activity in an area, form the basis for the assessment. Once the assessed value is determined, property taxes are charged back to the current property owner based on a percentage rate. Think of assessed value as the tax value. If a property’s assessed value increases at a rate higher than the average in the area, then an increase in property taxes is likely.
To view the assessed value trends in your specific jurisdiction, the BC Assessment has an informative and interactive mapping tool on the homepage of their website. Explore a recent Times Colonist Newspaper visual here.
What is market value?
Market value is defined as the price that a property would sell for, given a willing buyer and a willing seller, negotiating at arm’s length, and provided the property were exposed to the market for a reasonable length of time and that no adverse maintenance and legal issues were present.
Market value is based on current averages and on the typical buyer for a property in that area. Keep in mind, there are specific buyers who fall in love at first sight and will pay any price to own that same property. When we say the typical buyer, we aren’t talking about this very specific buyer.
Why may assessed values (property tax assessments) be different from market values?
There is a lot of confusion between assessed value and market value. Ideally a property’s assessed value should be the same as market value, but it seldom is. Tax assessors are required to determine the value of properties in the area as outlined above as of July 1st the previous year. However, assessed values may not align with market value in a rapidly changing market; like the market we have seen through the second half of 2022 to now. For example, the benchmark price of a single-family home in the Victoria Core is down 12.3% in the last 6 months. In the Westshore, prices are down 12.9% over that same time. The benchmark price of strata properties in the Victoria Core in the last 6 months are down 10.7%. In the Westshore, prices of strata properties are down 7.6%. BC Assessment has warned homeowners that the value listed for their properties may not be what they are today, because of the dampening of the market.
Property improvements (or property issues) may also factor into a difference in assessed value versus market value. Consider two properties that are similar, and one owner decides to make cosmetic improvements to the interior finishing quality. These improvements may not register with the assessment authority until that property is eventually sold and new ‘value’ is established.
How does a REALTOR® determine your property value?
A REALTOR® combines personal first-hand knowledge of properties in your area, with the market analysis data from the Multiple Listing Service (MLS®), to compare your property with similar properties that have recently sold. The key word is similar. REALTORS® also do a thorough walk-through of your property, both inside and out, to note specific details about your property that either set it apart in a positive way, or may need attention in terms of home improvements, and/or repairs and maintenance. This walk-through, combined with analysis of MLS® data, an understanding of the current market conditions, and first-hand intel about comparable properties in your area, is how a REALTOR® establishes the current market value of your property.
In neighbourhoods where property lots/units and houses are similar, the estimated values will be similar as well. For example, two identical condo units in the same building. In the case of unique homes such as character homes, this is where establishing value becomes more challenging. Subtle differences with unique homes are hard to summarize in a data table and are difficult to equate value to, much like homes with ‘views’ where the question becomes, is the view worth $50,000 or $100,000+? In the end, with unique properties, that’s when it depends on who is buying.