Comox Valley assessment and appraisals both apply to real property but what is the difference? Every year a Comox Valley homeowner receives a Property Assessment Notice. When a homeowner, who is working with a Comox Valley real estate agent, decides to list a home for sale on the Comox Valley real estate market they are provided a comparative Market Assessment (CMA). When a person purchases a home, they become aware of the financial institution that is providing them with a mortgage having an appraisal done on the home. What are these assessments and appraisals all about?
Comox Valley Property Tax Assessments are completed by a BC Assessment authority. Property assessments of this kind are completed to determine how property taxes are distributed and they are tied to specific dates. Generally the assessed value is estimated as of the 1st of July of each year. The assessed value is supposed to reflect the property’s physical condition and permitted use as of the 31st of October of each year. Some assessors may acknowledge that they aim to be accurate within 5% of the actual value of the property. Remember that in many cases, the assessor has not visited your home and that they are completing the assessment based on statistical information that they have in their office. When was the last time that you asked to see this information to see if it is correct? For example, your Comox Valley home may be listed as having a finished basement when it only has a partially finished basement.
The assessed value contained in a Comox Valley Property Assessment Notice is called the taxable value for property tax purposes. Property taxes are calculated based on a multiplication of the assessed value and the tax rates established by Municipal (or Taxing) Authorities. It is interesting to note that the Property Assessment Notices contain the following statement “An increase in your assessment does not necessarily mean an increase in your property taxes”. If you were to place a bet on whether they will increase or decrease, which way would you bet?
When you purchase a home that you require a mortgage for, you will generally do through a financial pre-qualification and pre-approval process for the mortgage. Remember that the home you want to purchase also has to qualify because residential mortgage loans are mortgage loans secured by residential property. This is one of a number of important real estate considerations. Before approving the mortgage, the lender will need information about the value of the property and the personal financial characteristics of the borrower. An appraiser, reporting to the lender, provides a statement of the current value and possible future trends of the property. It is important to note that if the value of the security exceeds the outstanding balance of the mortgage throughout the life of the debt, the lender’s financial investment remains protected. Lending value (value for mortgage lending purposes) is a long-term conservative estimate of the value of the property pledged as security for the loan.
The Market Value of a Comox Valley property is an estimate of what a property is likely to sell for in an arm’s length transaction between a willing, informed and rational average buyer and seller, if the property is on the market for a reasonable period of time when market conditions are unchanged. More simply stated, the market value of your home is the price that your home is reasonably expected to realize after adequate time and exposure to the real estate market. Market value is determined by standardizing and averaging a number of specific, recent observed transactions (sales) to produce an estimate of what the property might sell for in the current market conditions under defined circumstances. In practice, the determination of market value is both an art and a science.
Generally, lending value is less than market value, sometimes equals market value, but normally does not exceed market value. In order to protect the long term security of the loan, lenders often consider applications on the basis of the lower of a property’s market value and its lending value. It is important to note that purchase price (the price that is stipulated and agreed to between the buyer and seller in the Contract of Purchase and Sale) is not tied to either value. Moreover, purchase cost is the total cost of the purchase (purchase price plus applicable fees and taxes).
Real estate appraisals can also be undertaken for a number of other reasons. As well, they can be undertaken using a variety of methods that include the Comparative (or Market) method, the Cost method, and the Income (or Investment) method. It is interesting to note that, in BC, as of the date of the writing of this blog, that anyone may legally undertake appraisal work and charge a fee for appraisal services without having to be licensed. Having said this, most professional appraisers have some form of accreditation. As well, to obtain the professional designation to be eligible for insurance, coursework must be completed at the Sauder School of Business at UBC.
Our Comox Valley real estate market can, and do, fluctuate throughout the year. Our real estate market can be subject to localized influences (location, price range, type of dwelling, etc.). Real estate agents are often asked to provide sellers with the market value of their home so that they can make decisions on the asking price when they list their home for sale. Market value is generally determined through a Comparative Market Assessment (CMA) that is based on a specific number of sales of comparable homes in the neighbourhood of the seller. But what happens when there are no comparable homes or sales in the neighbourhood? While all real estate agents are taught the process used to determine a CMA on a home, they vary widely in education, training, knowledge, and experience (real estate, professional, and life).
There are also some very important cautions related to the determination of market value by a real estate agent and a few of them are discussed on this website under Sellers Info. Should you wish to discuss this topic or request a CMA, contact Brett Cairns of RE/MAX Ocean Pacific Realty.