The dollar figure on your provincial property assessment notice should not be taken as your home’s market value
In early January, homeowners across British Columbia received their 2020 assessed property values, released by BC Assessment. For the most part, the province remains relatively stable. However, there are significant changes to note, including a dramatic decrease in values in the lower mainland by as much as 15 per cent and increases of 41 per cent in smaller areas such as Kitimat. Regardless of the situation, it can be a confusing landscape to navigate as a homeowner, seller, or buyer. Here is a look at some of the need-to-know points that demystify the real versus the perceived impact of the newly released property assessments.
But hold on a sec. Neither this assessment document, nor either parties’ emotions, are tied to a current true market value. In fact, provincial property assessments can be significantly too high or too low. Values are determined in July of the previous year, and properties are rarely visited in person by provincial appraisers. For this reason, provincial property assessments should never be solely relied upon as any sort of relevant indicator of true market value for the purposes of purchase, sale or financing. Think of the assessed value instead as something akin to a weather forecast, spanning far larger and more diverse areas than the unique ecosystem that is your neighbourhood, your specific street, or your specific property. A weather forecast made the previous July, not the previous week. As this is when assessed values are locked in, a full six months prior to the notices being mailed out.
So you just bought a home for $2 million in lower mainland BC, only to receive notice from BC Assessment saying your property is valued at $1.7 million. How about your neighbour’s condo that sold for $700,000 and is now assessed at $595,000? Say what? Maybe, you just bought a home in Kitimat for $1 million, and you found out that your property has increased in value to over $1.4 million in six months. That's a pretty good return for some and maybe a frown for others. So what does all this mean to the average home owner?
What is the BC Assessment?
BC Assessment provides a predictable base for real property taxation in British Columbia. It determines ownership, tax liability, classifies and values each property. To meet their mandate, BC Assessment completes property assessments every year. The values are completed by July 1st, and the information is based on the market trends from the previous year.
The BC Assessment Authority does offer some useful tools for a high-level view of the market. Go to http://evaluebc.bcassessment.ca/ and start typing an address. You’ll get a drop-down window where you can click on the address you want.
Here’s what you can find out:
Details on single address: These come up on the first screen and include current and last year’s assessed value; size and rooms; legal description; sales history, and further details if the property is a manufactured home or multi-family building. There’s also an interactive map as well as links to information on neighbouring properties and sample comparative sold properties.
Neighbouring properties: Here you can compare the assessed value of houses in the immediate neighbourhood. Clicking on any property brings up further details.
Sample sold properties: Find comparable properties and see what they sold for and how their sold price compares to their assessed value. This is a great research tool for owners, sellers and buyers.
These tools can be a starting point, but if you’re looking to set a selling price on your own property, always enlist a professional. Valuing your property is not a do-it-yourself project. In a buying/selling transaction, it is best to order an appraisal, which is a much more accurate reflection of current market value. It is timely and reflects value for zoning, renovations and/or other features unique to the property. An appraiser is an educated, licensed, and heavily regulated third party offering an unbiased valuation of the property in question.
These assessments then provide the foundation for local and provincial taxing. They are used by the local and provincial taxing authorities to calculate the billions of tax revenue each year that will fund community services provided by local governments throughout the province.
“The assessments are based on what was happening in the marketplace by July 1st of last year. They reflect the conditions at that time,” says Tina Ireland, spokesperson and assessor with BC Assessment.
How Does the Assessment Affect Property Taxes?
Although BC Assessment exists for the sole purpose of creating information for the government to determine property taxes, this description can be misleading. Governments still need a tax income to provide all the needed services in your community. By lowering taxes, some of those needs may not get met. Most homeowners will see very little change in their property taxes despite their property value decreasing. Streets still need to be cleared, schools need to exist, garbage needs to be removed. You get the picture.
What matters is what is going around you. Essentially, your property taxes have more to do with your neighbourhood and community than it does with you. If your home’s value decreases more than other properties in your neighbourhood, you might expect lower property tax hikes. If your property held its value more than others in your area, then you can expect larger tax hikes.
With the larger properties, a.k.a. Mansions, significantly dropping in value around Vancouver, you can expect a relatively larger increase in Condo property taxes, even though their assessments saw a 7% decrease in value. There is a fundamental shift in the tax burden to the lower-end properties.
How Does it Affect The Real Estate Market?
This is the interesting part. Property Assessments are based on what happened in the months leading up to the July 1st cut-off of the previous year. In this case, July 1st, 2019.
“The start of last year saw a slump in the housing market,” says Lyn Hart of MacDonald Realty. “Because the market was slower, it affected the information used for the assessments. The market picked up in the latter half of the year.”
The assessments are not exactly a reflection of what is happening in the current market. Tina Ireland is quick to point out the assessments are just another piece of information Realtors can use to set prices and negotiate in the housing market.
“There are valleys and hills throughout time with the housing market. Sometimes it is a seller’s market, and other times it is in favour of the buyer. There is rarely a dramatic shift,” Hart adds. There is a difference between the assessed value on home versus the market value. Fluctuation in the market is natural. “There is not a huge bubble in the lower mainland. It is simply a pendulum that can swing in either direction for a period,” adds Hart.
How Does it Affect Prices?
Homes have an assessed value and an appraised value. The assessed value is used by tax authorities to determine how much your tax bill should be each year. The appraised value represents the fair market value of your home. The price, however, is mostly determined by what buyers are willing to pay for the property. As a seller, work closely with your Real Estate Agent in determining your price. They will have their finger on the pulse.
What Does it Mean for First-Time Home Buyers?
Hart says there is still a small window available for homebuyers to cash in on a “deal.” However, she is quick to advise not to sit around and wait for prices to drop further because markets continue to pick up. Although consumers may see a correction in the marketplace for more affordable housing, don’t expect it to bottom out, she adds. In the end, prices will still be determined by what people are willing to pay.
What Does it Mean for Current Homeowners?
It is natural to be concerned with decreases in assessed property values, your home is not worth as much you might have paid for it, or you may not get the return on investment you hoped. Your property assessment may not affect your market value. Homeowners may also wonder if it will affect their ability to renew their mortgages if they owe more than their home’s current assessed value. Rest assured, in most cases, mortgage renewal should not be an issue. If you are renewing with the same lender and your credit standing has not deteriorated, then the process should be smooth.
The challenge may arise if you are changing lenders, trying to access more funds, suffer from poor credit, or trying to negotiate a new mortgage. If it is a straightforward renewal, don’t worry, you won’t be kicked out of your home because the assessed value has decreased.
What’s My Home Really Worth?
Usually, market value is determined by what a buyer is willing to pay for a home, and what the seller is willing to accept.
A quick survey of recent sales and their relation to assessed values will often demonstrate no clear relationship between sale price and assessed value. It’s often all over the map. Some properties selling well below assessment, and others well above.
You also want an experienced and local Real Estate Agent to help you determine the selling price of your home. A (busy, local) agent will have a far better handle on what is happening in your area for prices than does a government document, and in many instances will save you from yourself.
In theory, a comprehensive current market review completed by a real estate agent should not differ radically from the value determined by a professional appraiser. Professional appraisers spend all day every day appraising properties, and their reports are often seen as less biased. Imagine your reaction, as a buyer, to the following statements…
- The seller says their house is worth $500,000.
- The sellers’ listing agent says it’s worth $500,000.
- This house is listed at $500,000 based on a professional (marketing) appraisal.
Most buyers would consider #3 the most reliable of the above statements. And most buyers requiring financing will have the benefit of the lender ordering their own independent appraisal to confirm fair market value. Sellers rarely order an appraisal in advance, which can create some interesting situations.
In practice, agents are relied upon for listing price estimates. Most buyers don’t care much about what anybody else thinks the house is worth. Buyers care what they think it is worth. This is why we say that market value is ultimately determined by what a buyer is willing to pay for the home, aligned with what is acceptable to the seller.
The Two Kinds of Appraisals
It is important to note that there are two kinds of professional appraisals. There is the marketing appraisal, such as one ordered by a seller. And there is the financing appraisal, which is done so the bank is satisfied the house is worth what the buyer and seller have agreed it’s worth. The financing appraisal is a less in-depth review and more a matter of answering the question: Is this property worth the agreed-upon purchase/sale price?
A marketing appraisal goes deeper (and costs more), but a lender is not concerned with the actual market value over and above the purchase/sale price. A lender just wants the simple question answered. It is a rare day that the appraisal for financing has a value that differs significantly, if it all, from the sale price. Therefore one should not be surprised if, when buying a home, they find that the appraisal comes in bang on at the purchase price. As they do 99 per cent of the time. The one per cent of the time that the value is off, it is almost always a private transaction where the seller has had no professional guidance at all and has inadvertently set their price below market, by relying on something as inaccurate as their BC Assessment document.
In summary, rather than relying on your out-of-date BC Assessment for your home’s value, you should gather professional opinions from real estate agent(s) and an appraiser – these are the people with their feet on the ground and their heads in the game.