“How much is my (or that) home worth?” is one of the most asked questions in real estate. Property valuations are one of the most commonly misunderstood aspects of real estate.
Property valuations can be both subjective and objective. If asked how much their own home is worth, homeowners often provide a subjective answer that is influenced by an emotional attachment. Rarely does a homeowner think their own home is worth less than it actually is. Objective valuations can include:
• Actual value;
• Insured value;
• Lending value;
• Appraised value;
• Assessed value; and
• Market value
Before going further and discussing each of the above valuations, it is important to understand that definitions are often influenced established by context. What constitutes actual value can and often does vary by context and industry. For example, the Actual Cash Value of a home for insurance purposes is different than what an accountant will apply for financial calculations. Since most dictionaries define actual as real and not merely possible let’s consider the actual value of a home as its selling price. The selling price is real and not estimated. All of the other values mentioned above (insured, lending, assessed, appraised, and market) are estimates done for a particular purpose.
The insured value of a home is an estimate. Most homeowners are given the choice of insuring their home at either Actual Cost Value or Replacement Cost Value. Actual Cost Value is calculated as Replacement Cost minus depreciation. Replacement Cost is different from the market value of your home. Replacement cost would cover the actual cost of materials and labour to rebuild your home but your lot is not covered, just the structures.
Lending value is a long-term, conservative estimate of the value of the property pledged as security for the loan. An appraiser, reporting to a lender, provides a statement of the current value and possible future trends in the value of the subject property. Elements of market value that are short run or speculative are often disregarded. It is important to the lender that the value of the security exceeds the outstanding balance of the loan throughout the full life of the debt so that the lender’s investment remains protected. Lending value is generally less than market value, sometimes equal, and almost never above.
Home and property appraisals are completed by an individual for a fee. Most provinces do not require appraisers to be licensed. In BC anyone may legally undertake appraisal work and charge a fee for the appraisal services.
The subject of the appraisal should include the value of the rights of ownership and the physical property in which those rights are vested.
Legal interests in the property which may include fee-simple ownership, leasehold estate, condominium ownership, airspace, easements or any combination of separate interests. Differences in ownership rights can cause differences in value and the appraiser must know exactly what ownership rights are to be appraised. As well, the appraiser may use either the cost approach, comparison approach, or income approach to conduct the valuation. Different methods can and do yield different results.
Done by a trained and competent appraiser, appraisals can be close to market value assuming that the same ownership rights and method of estimate are used in both valuations. There are many different people providing appraisals and it is necessary to distinguish between uniformed estimates (guesses) and properly prepared appraisals as well as the type and methods used.
The assessed value of a property is one that is done for property tax assessment purposes. The assessor is supposed to value all interests in land but they are constrained to certain dates as follows:
Valuation date – July 1st of valuation year;
Assessment notice data completion – December 31st of valuation year; and
Assessment notice appeal deadline – early February following year.
Assessed values are always dated by many months and up to a year earlier so even if the assessment did actually represent the market value of a home it will be quickly out of date when the market changes. Also consider the following:
• The assessment is supposed to value all interests in land;
• Assessors often base their assessment on the statistical information they have on the home;
• Assessors rarely visit the inside of a home before doing an assessment; and
• Assessors must complete assessments on many different homes over a short period of time.
How can an assessor under the circumstances mentioned above provide an accurate market value on a home? The short answer is that they cannot. Also consider, that homeowners can appeal their assessments to have the assessment changed. How many homeowners argue for their assessment to be increased if they know the market value of their home is higher than their assessment? It is in any homeowner’s best interest to have an assessment as low as possible to have taxes payable as low as possible.
It is important to remember that property tax assessments are done for property tax purposes. They are not done to provide homeowners (or anyone else) with market valuations of their home that they can use to sell their homes.
Market valuations are not without their challenges. First, there is no commonly accepted definition. For example, the Canadian Uniform Standards of Professional Appraisal Practice, the International Valuation Standards Committee, the Federal Expropriation Act and the BC Real Estate Trading Services Real Estate Licensing Manual all use different definitions.
The market value of an interest in land is the price it might reasonably be expected to realize when sold by a willing seller to a willing buyer after adequate time and exposure to the market.
While market value is generally the best estimate of value for home sellers looking to advertize homes for sale in the Comox Valley, no valuation should be considered without an actual visit to the home by the person doing the valuation. Two homes can appear to be the same statistically in a database but the layout, features, and interior finishing can result in very different estimates of market value. As well, not all realtors have the same level of education, training and experience. The assessment should be done by an experienced and competent realtor who knows the local market well.
When you need to sell your home, turn to Brett Cairns of RE/MAX Ocean Pacific Realty to be your Realtor and to get the most out of your home selling experience in the Comox Valley.