What is Property Transfer Tax? It is a tax register paid for changes to a certificate of title to Land Title Office in British Columbia. Simply said - if you are buying a property, you have to pay
The Market Value of a Home vs. the Assessed Value
Dated: January 16 2021
The Market Value of a Home vs. the Assessed Value
Are you a first time home buyer? If so, you may have many questions about the process from start to finish. One of the most common questions is, why is the market value of a home completely different than the assessed value? To understand how this works, let’s take a closer look at how property assessments work.
What is a BC Property Assessment?
A B.C. property assessment is basically an estimated value of your property at any given date in time, specifically July 1st of any year. When determining the value of your property, the following characteristics are taken into consideration:
- The location of your property
- The size of your property
- The shape of your property
- The age of any structures on the property
- The condition of any structures on the property
- What the property is used for (residential, commercial etc.)
These characteristics are then compared against similar property sales to arrive at the ‘assessed value’ of the property.
The assessed value is an estimate only, designed to give a ‘ballpark’ value to the property as compared to the property’s ‘peer group’, meaning other similar properties that have previously been sold.
Why Is a BC Property Assessment Performed?
Besides what we’ve mentioned above, there are several other reasons why a property assessment occurs. A property assessment plays an important roll in property insurance, such as to calculate the replacement cost of the property or structures in the event of some type of disaster, natural or otherwise. If you have any type of insurance, you understand how it works. You are asked to provide as much information about the value of your insurable items or property as possible, so that in the event they need to be replaced, you will have adequate coverage to do so, with the knowledge that you probably won’t be able to replace every single item down to the last paper clip exactly as you had it before. A property assessment will provide a sufficient amount of information to help you insure what’s most important about the property and structures on the property.
Another big reason for a property assessment is to allow the government to levy the correct amount of property taxes against the property. This is the least exciting reason to most property owners. As the saying goes, death and taxes…in any case, the assessment helps not just to ensure you are paying enough taxes, but to ensure that other similar properties are levied the same amount. Think of it as the government’s way of ‘keeping things fair’…
What’s the Difference Between the Assessed Value and the Market Value of your Home?
The market value is best defined as the most likely price that the property would sell for on the open market. Whereas the assessed value is based on broader characteristics and used in comparison to other similar properties, the market value is much more specific and looks closely at the following factors:
- Location of the property
- Demographics of the property location
- Supply and Demand statistics for the property location (i.e. the number of buyers vs. the number of sellers in the area)
- The external characteristics of the property and structures on the property that include such things as:
- The overall condition of the lot
- The exterior condition of any structures on the lot
- The style and use types of structures on the lot (i.e. single vs. multi family dwelling)
- The availability of public utilities to the property and any structure on the property
- The internal characteristics of any structure on the lot such as:
- Type of construction (i.e. concrete, wood etc.)
- Number of bedrooms and bathrooms in the home
- Condition and energy efficiency status of utility systems such as heating and gas
- Condition of appliances to be included in the sale of the property
- Comparables, often referred to simply as ‘comps’ – the value that similar types of properties and structures that have recently sold in the same area
To put it more simply, the market value is the expected price that a buyer would be willing to pay, and that the seller is willing to accept based on the characteristics listed above.
How Do I Know the Assessment Value of My Property?
Every January, you will receive a property assessment from the BC government. The assessment will be based on the noted criteria as they were on 01 July of the previous year.
The assessment will include any changes to your property taxes, whether that means you must pay more or less than the previous year’s assessment.
If you’re interested in seeing how an assessment is made on your property, you can use the BC Assessment tool located at https://www.bcassessment.ca/. Simply enter the required information, and you’ll see the assessment. The website also includes other useful tools and information to help you better understand the BC Property Assessment program.
As you can see, a property assessment serves a number of purposes. It’s important to remember that this is an estimate only and is mainly used for the purposes of taxation. And while a property assessment plays and important role in any real estate transaction, you will still be more focused on the actual market value of the home, which can be significantly higher or lower than the property assessment. The assessment value will help you to determine a reasonable starting sale price because the assessment is a matter of public record. This is a safety net for buyers so that they don’t end up paying exorbitant and unrealistic prices for a property that is worth much less.