Comox Valley homes luxury at Christmas

How many times have buyers used the Property Tax Assessed Value of a home as an indicator of its market value? As a realtor I hear this metric used far too frequently by buyers as justification to make a low offer on a property. While the property tax assessed value of a property may come close to market value is some circumstances, it is not a reliable measure on which to base any decision as a home buyer.

Property Tax Assessments

Let’s talk about property tax assessments. They are completed on an annual basis in British Columbia by BC Assessmenton the following schedule:
• July 1st of the previous year – the assessed value is estimated for most properties as of this date;
• Oct 31st of the previous year – the assessed value is supposed to reflect the physical condition and permitted us of the property as of this date;
• January of the current year – Property assessment notices are distributed;
• February 2nd of the current year – deadline for filing a notice of complaint for the assessment;
• February 3rd to March 15th – hearings are held on the complaints
• Spring of the current year – tax rates are set by municipalities; and
• July 2nd of the current year – taxes are payable on the property by this date.

A few observations about this process

Assessed value. Assessments are only done once a year by a handful of assessors in the BC Assessment office. In the Comox Valley Last year the BC Assessment Courtenay office issued about 34,000 assessments. Excluding weekends and holidays there are about 250 business days in a calendar year. The BC Assessment office is open on business days from 8:30am to 4:30pm. With time off for lunch and breaks that means they are working about 7 hours a day. How much time do you think each assessor spent on an individual home? Not much based on the math.

BC Assessment has our properties in an online database called e-value BC. On their website they encourage homeowners to update the database when homeowners renovate, update, or add to their home or property. They place a great deal of emphasis on keeping this database up to date. The problem with statistics is this. Two Crown Isle homes for sale that are statistically similar may have dramatically different finishing inside each of them so much so that one home can be worth $100K more than the other. How many homes did the assessors actually visit the 34,000 homes before they did an assessment? When was the last time an assessor came to your home before doing an assessment on it? How, then can they ensure that the assessment reflects the physical condition and permitted use of the property if they do not actually visit the property? The plain and simple answer is they cannot.

Last year the assessment office issued a press release that said “most homeowners in the Comox Valley will see modest changes in the -5% to +10% range. I do not know about you but a +10% change in a year is not modest.

Let’s say a homeowner receives an assessment that indicates their home is greatly undervalued. How many homeowners receiving this type of assessment will complain about it? Not many, and why would they? Increased assessed value generally means higher property taxes. Lower assessed value means lower property taxes. A system that relies primarily on statistics for assessments and on homeowners to update a public database especially when renovations and improvements are made to their home or property is fundamentally flawed. How many homeowners actually use or update the database, or for that matter are even aware of it?

In some parts of the Comox Valley real estate market homes can and do sell for close to assessed value. A typical split level home in Comox is one example of where this is often the case. These 1960s built homes are plentiful and most have the same features, are located on similar sized properties and sell for very similar prices unless they are substantially updated. However, in many other segments of the market such as Comox Valley waterfront listings assessed values can be found between $100K low and $200K high without much effort. Much more significant variances have also occurred especially in higher end listings.

A Practical Example

A case in point. A short while ago a buyer asked me to write an offer for them on a home that was built a few years ago. They told me what they thought a fair price for their offer. They based the offering price on what they claimed was a comprehensive statistical analysis of property tax assessed values and homes sales. Their conclusion was that most homes in the Comox Valley sold in the past year close to assessed value. In the price range, location and type of home they were considering, they were dead wrong. Of 17 comparable home sales over the past year only 3 sold for within 5% of their assessed values. The other 14 sold for between 40K and 120K over their assessed values.

Property Tax Assessments serve a purpose. They are used as the basis for the property tax notices that we all receive once a year. However, they are all too frequently NOT a good metric with which to determine the market value of a home for sale on the Comox Valley real estate market. Experiences in other markets may vary. It is important to remember that all real estate markets are local and comparisons with other markets are too often an apples to oranges comparison.

Other Estimates of Home Value

Home valuations can appear in a variety of different forms. Actual value, Insured value, Lending value, Appraised value, Assessed value and Market value are most of them. In a perfect world each of these would be the same for the same home. The world is not perfect and they all too often are not the same. Moreover, in some instances they are quite different. They each serve a different purpose, but the methods by which they are calculated often differ along with some of the underlying assumptions and constraints that are associated with their valuation processes.

Home Market Value

Market value is the only reliable metric for determining the price that a home might reasonably be expected to realize when sold by a willing seller to a willing buyer after adequate time and exposure to the market. The BC Assessment website acknowledges this metric as the best one and they probably strive to base assessments on market value but as discussed above the process is flawed.
Even market valuations are not without their challenges. First, not all Realtors have the same level and type of education, training and experience. Second, not all Realtors will go beyond a statistical search of comparable sales to generate a market valuation. Remember what I said earlier about the need to visit homes being assessed?

Experienced, conscientious and competent Realtors who know the market well can often provide a reasonably precise market valuation of luxury homes. The next time you need advice on market value as either a buyer or as a seller, turn to the Brett Cairns real estate team.

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