There is no other concept within real estate that is more misunderstood than
assessed value as it relates to market value.
Let’s start with definitions.
Market value is the value buyers place on a property. It’s what buyers are willing and able to pay for a specific property at a specific time.
Assessed value is the value BC Assessment places on a home once a calender year, which a municipality (and indeed regional districts, school districts, etc.) then uses to determine its annual property taxes.
From the above definitions you can see at once the vast difference between the two.
First of all, the people who determine market value as opposed to assessed value are very different. Buyers determine market value. BC Assessment emplyees determine assessed value.
Secondly, the purpose for which these values are determined are plainly different. Appraisers working for BC Assessment are objective in their value determination. They use data such as lot size, house size and age in addition to receiving electronic copies of all legal plans and title changes on real property from all Land Title & Survery Authorities throughout the province. Considering that only a small percentage of homes sell every year, this data is quite limited when used to determine the assessed values of each and every home in a jurisdiction.
Timing is also an important aspect to consider. BC Assessment's data is adjusted on July 1st of each previous calendar year, whereas the market that is buyer-driven is often very fluid, changing subtly with every property coming on and going off the market at the same time that new buyers are coming in and going out of the market.
Unlike buyers, appraisers seldom enter properties to see if there has been any updating except when a building permit has been issued by the applicable municipal taxing authority or regional district.
Buyers and their respective real estate representatives compare properties that not only have recently sold but are currently on the market in order to determine what value a particular property holds for them. That value can be general in nature but at the same time unique to each buyer. For instance, a buyer may be willing to pay more for a certain property than another very similar one in a similar neighborhood, because the first one is just blocks away from where their children’s grandparents live. This is the type of value that can’t be determined by objective data.
However, beyond personal reasons, buyers determine value by concrete features of the property itself. Buyers actually enter these properties to see and experience their condition, upgrades, layout, square footage and so on. Approximately 90% of buyers hire a building inspector to look over everything from the roof to the drainage system, electrical system, plumbing, foundation, and so on. And if a major problem is discovered that the buyers were unaware of prior to making their offer, such as a dangerous and complex electrical issue costing many thousands of dollars to fix, a price renegotiation may ensue to reflect a lowered value in the eyes of the buyers.
In over 25 years of experience, I have found that, other than in the most general sense, there is no consistent or reliable relationship between assessed value and market value. When in the process of determining the value of a property for the purposes of selling or buying, never rely on the assessed value but rather use the services of a Realtor® who not only will have the data of recently sold properties that are similar to yours, they will have actually seen the condition of your property,
They will also know the current state of the market, whether it’s going up, down or is static. And because of the unique value that buyers can place on a home beyond the data, an experienced and skilled REALTOR® can sometimes know that a certain property is likely to sell higher or lower than the data might indicate. Determining market value is both a science and an art. Buyers, being the humans they are, can’t be known by objective data only. With the exception of very experienced investors whose sole guiding force is the bottom line, most residential buyers buy with their heart first and then look to the data to support their decision.