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 party's emotions, are tied to 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. This is when assessed values are locked in; a full six months prior to the notices being mailed out.
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 the 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 Realtor to help you determine the selling price of your home. A (busy & local) Realtor 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 Realtor 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 seller's 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 the 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 dont 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 AB Assessment document.
Accredited Mortgage Professional