Assessed Value vs. Market Value: Don’t Panic-they are NOT the same!
Every year around this time, I receive calls from people asking what their property assessments mean. This year, because most assessments have decreased A LOT, I am receiving even more calls than usual. I am more than happy to discuss particular circumstances (read: talk people off the ledge!) however for the benefit of those of you with basic questions, I have detailed summary on my website www.vancouverviews.ca
The key thing to note: Assessed values are NOT a reflection of market value. As I have said in the past, assessed and market values are like apples vs. oranges...totally different things.
For many years, prices and assessed values have been going up. I spoke to a client this morning who said his assessed value went up 36% in 2017 but has come down 25% this year. He was obviously a lot happier in 2017. Whether increasing or decreasing, assessed values rarely coincide with market value. Prices have been going down for quite some time with assessed values dropping in many areas over the past couple of years. This year, assessed values have gone down in most areas of the lower mainland.
Some of the recent media coverage suggests that one can use the assessed values as an indicator of what their homes are worth, or at least how much the market values have gone down. Social media posts this week contain some very extreme (scary) statements about the market, based primarily on assessed values, without consideration of market value, recent sales volume improvements, etc.
One thing that hasn't changed with the change in the market is that home owners cannot rely on assessments as anything other than an indicator of the value of their homes for tax purposes. Assessed values cannot be used as an indication of what a home would sell for!
There are three main reasons why assessed property value does not equal current market value: timing, information used to arrive at the value and factors considered by assessors that may not be relevant to buyers.
Timing: Property assessments a
Information used: Assessors value approximately 2 million properties every year. Obviously, an assessor cannot actually visit those homes. We sell more homes than most REALTORS®* do but we still analyze the value of fewer than 100 homes per year. We have time to look at a house carefully to determine market value. The assessor cannot look at 2 million houses, renovations, street appeal, etc. They look at fundamentals like lot size and house age but are not able to factor in other important elements which may add (or detract) from the property's value. They use a mass appraisal system where a good REALTOR® will look at each home individually and will have been in not only the home they are valuing, but also the other homes which they are comparing it to in order to determine likely market value.
Factors not considered by buyers: The Assessors follow “rules” in determining value. Some of these rules don’t have much of an impact on what buyers will pay, but do affect the assessed value. For example, another one of the calls I received today was from a client who recently completely gutted his house and did a $600,000 renovation. This renovation was done with permits, so the Assessor will have had the benefit of knowing that the house has been completely renovated. Despite this knowledge, the assessment shows the "building" (his gorgeous completely renovated house) valued not at hundreds of thousands of dollars, but at only $10,000 for tax assessment purposes. While this may sound crazy (and I think it is) the reason his house was given such a low value is because the area has been rezoned to allow for multifamily construction. In order for that to occur, all of the houses in the area would need to be torn down. As a result, the house was only given a tear down value. This is based on a valid rule that the property will be valued based on its "highest and best use". The highest and best use rule was applied despite the fact that currently there is almost no chance that his house would sell to a developer. This is not great for my seller as he is not seeing the assessed value reflecting the fact that he owns a gorgeous house.
In the past, as the market was rising, buyers would generally pay higher than the assessed value. Over the last couple of years, as the market fell, buyers were usually wanting to pay less each month than they would have paid the month prior. Some people tried to argue that they should pay a lot less than assessed. Late last year the market picked up a bit (although prices did not). Assessed values were determined 6 months ago may be a lot lower than what buyers may be prepared to pay now. Given the market has changed recently and the assessed values have also come down, we will see what happens when buyers are deciding what to pay (market value). Either way, the assessed value is NOT determinative of market value.
Some of the clients I have spoken to today may be in a position to appeal their assessments. Obviously, it only makes sense to appeal if you are planning to sell your home and are concerned that some buyers do (unfortunately) place a lot of weight on the assessed value of a home. If you are not planning to sell, a lower assessed value may assist you-it will mean you pay lower taxes!
If you need assistance on an appeal, I may be able to provide some basic assistance. In addition to being a realtor, I have practiced law for over 25 years, and have done assessment appeals in the past. When considering an appeal, the key question is “Is your home assessed at either more, or less, than it is worth... and is the difference significant enough to warrant an appeal”? The date for determining the answer to this question is NOT today but July 1, 2019. The last day to appeal the assessed value of your home is January 31, 2020.
The key thing to keep in mind, regardless of where you live and whether you live in a house or a condo, is that the assessed value (the value for tax purposes) and the market value (what a buyer will pay) of your home are likely very different.... they can be like apples vs. oranges.
If you would like a free evaluation of your home and an estimate of its likely market value, please contact me.
Happy New Year!