by Tad Lake 
The selling price of a property is often the main topic debated between home buyers and sellers. Market property values are never set in stone. Many factors will contribute to the fluctuation of market values.
Whether you are in the market as a buyer or a seller, you will often hear those terms thrown around in the conversation; a home’s assessed value and market value.
Although some may think both values are similar at first, there are a few significant differences between the two.
First of all, they are used in different ways and calculated by different authorities. The assessed value will usually be lower, and its purpose is mainly for property tax calculations. In contrast, the market value, sometimes referred to as the appraisal value, is more commonly used by buyers, sellers, and lenders to correctly estimate the selling price of a property given the current market conditions.
What Is The Assessed Value of My House?
When we try to better understand what exactly is the assessed value of a home, we need to look at what it is used for.
The major difference between the two values is that the assessed value is mainly used for tax purposes and may not accurately represent what a home may sell for.
Agencies employed by municipalities usually conduct property assessments. In British Columbia, the provincial Crown corporation, BC Assessment, provides a stable and predictable base for real estate properties in BC.
BC Assessment follows the protocol of the Assessment Act that requires an annual assessment done by July 1st, which is then processed, audited and authenticated by the Property Assessment Review Panel.
BC Assessment will then send the assessment roll to the many tax jurisdictions such as the municipal governments, regional districts and Ministries of Health and Education. Tax jurisdictions use the assessment roll to set tax rates based on property values in each property class (9).
The assessor will determine the value of a home by taking into consideration a variety of factors such as:
- The exact location of the property and what prices similar properties are going for in the same neighborhood.
- Any income gained through the renting of part or the whole property, i.e. renting out a room.
- Any repairs, renovations or improvements recently done on the property.
- In the event of a fire, natural disasters such as floods or damage done to the property, what would be the potential cost of replacement be.
Once the property assessment value is established, the assessor will deduct any tax exemptions from this number and multiply the adjusted value by the assessment rate, also called the assessment ratio. Each tax jurisdiction sets this rate and typically is around 80% to 90% of a property value.
For example, let’s say you have a single-family home on the outskirt of Nelson with a market value of $410,000. Hypothetically speaking, if you are eligible for some property tax exemptions resulting in $5,000 exemptions, and the current assessment rate would be 88%, your property assessment value would be $356,400. That is the number your local government would use to calculate your property tax bill.
What Is The Market Value of My Property
Technically speaking, the definition of the market value is the most probable price a property will sell at in an open market. In other words, the market value is an approximate price a buyer is willing to pay for a property and the price a seller is likely to accept today.
Sometimes called the appraised value, lenders will often use the service of a professional home appraiser to properly assess the market value of a property for people trying to refinance a mortgage.
The market value or appraised value is determined by a variety of factors such as:
- Curb Appeal – External characteristics such as the size of the land, the property’s access to public utilities, the general condition of the exterior, and the home’s style.
- Internal Characteristics – The number of rooms, size of the house and the quality of the construction, how energy-efficient the home is and type of heating system.
- Comparables – How many properties with similar features are in the same area, and how much they sold for.
- Location – Where the property is situated can be a significant factor in the listing price of a house. Proximity to schools, hospitals, shopping centers and amenities. Is the neighborhood desirable?
- Supply and Demand – The current state of the market, the number of buyers, and the number of active listings in the area will play a significant factor in the market value of your property.
How Both of These Values Will Affect You
If you are in the market as a seller, getting an accurate market value will help you attract more buyers and increase your chances of selling your property quickly. On the flip side, lenders may not approve mortgage applications with an overvalued appraisal.
If you are looking into buying a new home, it is in your best interest to use a home appraiser to find the actual appraised value and compare it to the listing price.
When it comes to assessment value, it may become a factor during negotiations for sellers. They can justify their listing price if the difference between assessment and market value is slight.
On the opposite side of things, a buyer can use the discrepancy between the two values to his advantage if he thinks the listing price might be a bit high.
For the case of British Columbia, and more precisely the Kootenay region, the majority of homeowners can expect an increase in their property assessment values in 2021. The high demand keeps ramping up, and supply is still low.
In Nelson, the average price of single-family residential properties was $461,000 in 2019 to $471,000 in 2020, a rise of 2%.
Experts predict a similar increase for 2021 for the Kootenay area and may result in a slightly bigger tax bill for your property.
Challenging Your Home’s Assessment Value
If you feel like your property tax bill was incorrect or unfair, there are few steps you can take to challenge your property assessment. The technical term is a dispute of assessed value.
Although it is recommended to use the service of a lawyer to help you through the process, there are lots of information on the web nowadays on the subject. Someone with enough research and knowledge on the issue may be able to file a dispute on their own to their local government assessment agency. A reviewing board will then go through your case and, if approved, will grant you a lower assessment value. But the assessment rate cannot be disputed and will remain unchanged.
Homeowners should know that it is very tough to challenge a home assessment value.
The success rate of a home’s valuation dispute is only 5%.
