ASSESSED VALUE vs. MARKET VALUE: WHY THE DIFFERNCE?
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, current market value being the higher of the two. 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 based on the standard Provincial system for determining annual property taxes. In British Columbia, BC Assessment (BCA) 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 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.
What is market value?
Market value is the estimated price that a house will sell for within a projected period of time that is considered reasonable. 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 are assessed values (property tax assessments) generally less than 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, but they are not required to adjust the assessed value to align with the current market value. However, at times you may experience a leap in your assessed value; behind the leap is BC Assessment working to catch up to market value, and this does not happen often.
How does a Realtor® determine your property value?
A Realtor® uses the Multiple Listing Service (MLS) and its current market analysis data to compare your property with similar properties that have recently sold in the area. 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 the MLS data is how a Realtor® establishes the market value of your property.
In neighbourhoods where property lots and houses are similar, the estimated values will be similar as well. 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 this 2016 Rea Estate market, that’s when it depends on who is buying. And that’s where the experience and expertise of Jessica Prasad come in to help establish a property value for your home.
*courtesy of Duttons Property Management