Don’t Rely Solely on Provincial Property Assessments
Provincial Property Assessment notices have arrived in the mail, giving some homeowners a big smile and a bit more spring in their step (increased property taxes aside), while others wilt and lament at a modest gain or decrease in assessed value.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.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 one address
- Neighbouring properties
- Sample sold properties
- The seller says their house is worth $500,000.
- The sellers’ REALTOR® 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, REALTORS® 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.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 is essentially 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% of the time.The 1% 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 summationDo not rely on your BC Assessment for a fair market value of your property.The value printed on that document was arrived at in July of the previous year, the market may have changed a bit since then, and not in the direction you might think.Do not rely entirely on the buyer’s opinion or the seller’s opinion in an unlisted private transaction for a fair market value.Do not rely entirely on your neighbours, friends, or family members opinions for a fair market value of a property.Do consider ordering a marketing appraisal, but do not rely on it 100%… maybe 98% though.Do consider an evaluation by an experienced, active, local REALTOR®or two. This in combination with a marketing appraisal is the best indicator of current fair market value.Gather professional opinions from REALTOR(S)® and an Appraiser – these are the people with their feet on the ground and their heads in the game.Dustan Woodhouse, Mortgage Consultant | Dominion Lending Centres