With my recent article in the Toronto Star on How I reduced my property taxes by $700, I thought I’d explain property assessments in further detail since there’s a lot of confusion surrounding them.
Every year residential property owners across Canada receive their assessment notices in the mail. The biggest concern is probably how much your property tax is going up, but do you understand how your municipality determines your property’s assessment value?
Assessment corporations simply don’t have the time or resources to assess individual properties, so they’ve come up with their own methods for determining the value of many similar properties at once. Let’s take a look at how residential properties are assessed and how to appeal your assessment if you believe it’s overvalued.
Your Property’s Assessment Value
Residential properties are assessed at a provincial level; each province has its own assessment corporation that determines your property’s value. Although the methods to arrive at your assessment value may vary slightly depending on the province in which you reside, market value is the most widely adopted assessment method in municipalities across North America.
Provinces including Ontario and Alberta adopted the market value in the 1990’s, as it’s easily understood by property owners and governments consider it the most fair and equitable way to value properties.
What is Market Value?
In a nutshell, market value is the price a willing buyer would be expected to pay for your property if sold on the open market on the valuation date. As mentioned, assessment corporations simply don’t have the manpower to assessment individual properties – that’s where mass appraisal comes into play. Mass appraisal is a way for assessment corporations to value a group of similar properties using data, mathematical models and statistical tests.
The sales comparison approach is the most commonly used mass appraisal method. This approach determines your property’s value by comparing its value versus the selling price of similar properties in your neighbourhood. Properties aren’t identical, so adjustments are made to the assessment value. For example, your house may have a walk-out patio, which will increase the value of your property. Other factors that affect your property’s value include location, lot dimensions and living area.
Assessment Value vs. Sale Price
If you recently bought your home, you’d probably expect your assessment value to match your sale price, but that often isn’t the case. Although your home’s selling price is a good indication of its value, your assessment value can often be higher or lower. The reason is simple: your property’s sale is simply one real estate transaction. Meanwhile, your assessment value is based on the most likely selling price obtained through an analysis of the recent sales transactions in your neighbourhood to determine its most likely selling price.
Appealing Your Assessment
Before you go through the time and aggravation of appealing your assessment it’s important to understand that an increase in your assessment value doesn’t necessarily mean an increase in property tax. Your property tax will only increase if your property’s assessment value goes up faster than average assessment value increase for your municipality.
For example, if your property assessment value increased by 3.4%, but your municipality’s average only increases by 2.5%, you’ll likely see a tax increase. It’s important to understand in a healthy real estate market your assessment value should increase each year since it’s based on market value. If you believe your assessment value is overvalued and your property would never sell for that much at the valuation date you can file an appeal.
The process for filing an appeal is different in each province. In Ontario filing an appeal is a two-step process. First you must file a Request for Reconsideration form. If you don’t agree with the decision, you must present your case in front of the Assessment Review Board (ARB). Although the onus is on the assessment corporation to prove your assessment value is correct, it’s a good idea to come prepared.
In British Columbia not only is the onus on homeowners to prove that their assessment value is incorrect, it’s also a lot tougher to dispute your assessment value. Property owners must appear in front of a three-person panel at their Notice of Hearing. If you still disagree with your assessment value, you can appeal your decision with the Property Assessment Appeal Board. No matter what province you’re in it’s very important to file your appeal by the deadline date.
Have you ever filed an assessment appeal before? Were you successful in lowering your assessment value?
About the Author: Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. You can read some of his other articles here.