The receipt of property assessments acts as an impending reminder of mid-year property taxes payable. In early January property assessment notices were mailed to property owners in the province of BC.
Oddly enough, at property-tax-time, many household budgets are disrupted even though, in most cases, homeowners have 365 days notice to start planning to pay their taxes.
It seems relevant to discuss property assessments and property taxes as real estate expenses including taxes are a large portion of many personal budgets.
Property assessments prove to be double-edged. An increase in a property’s assessed amount is thought to reflect an increase in market value while this same increase sparks fears of higher annual property taxes.
Consider an individual who purchased a home 40 years ago along Vancouver’s waterfront. While the home, overtime, likely becomes finance-free, a home with sky-high property taxes may render a fixed income earner unable to the cover the taxes payable; this is only one example of the importance of an accurate property assessment including the relationship to increasing taxes payable.
Below, I’ll work to answer the following topics/questions about property assessments:
- How is a Property Assessment Determined
- The Relationship between Property Value and the Assessed Value
- How One's Property Assessment Impacts Taxation
- How to Appeal a Property Assessment
- How to See your Assessment in Comparison to Your Neighbours
- How to Budget for Property Taxes
How is a Property Assessment Determined?
When evaluating property values, BC Assessment compares recent sales statistics of similar properties with similar characteristics and locations. For example, an article in the Globe and Mail outlines the process for the assessment of a 5,000 square foot home on a 10,000 square foot lot, situated in Surrey. To determine value, BC Assessment would review relatively recent sales prices for homes of a similar size and on similar sized lots. Also, they would consider properties of a similar age, style, and location.
To assist in making determinations of value, BC Assessment takes advantage of additional tools, including:
- The review of building plans and permits
- Street front photography
- 3D modeling of condominiums
- Satellite imagery
While reviewing properties from their exteriors is simple enough, more challenging is assessing the state of a property’s interior. To help gauge certain property interiors, BC Assessment may send a letter to the homeowner(s) of properties with significant exterior renovations, as these often signal interior renovations too. The letter acts as a formal inquiry into the state of interior renovations.
Getting a sense of the assessment process for single family homes seems straightforward, but evaluating condos (which, by the way, saw the largest jump in assessed values) is conducted slightly differently. For example, imagine a one bedroom floor plan that exists in a stack. This one bedroom floor plan might exist on floors 1,2,3,4 and so on. In most cases, the assessed value would increase the higher it exists in the building. So, floor one might have the lowest assessed value and the 4th floor having the highest - of this floor plan. Of course, this doesn’t account for other differences like interior renovations; this assumes that each floor plan is identical with the height in the building being the only difference.
The Relationship between Property Value and the Assessed Value
You might’ve experienced a tendency to defer to a property’s assessed value when selling a home - to defend a listing price, or to negotiate a lower price when acting as a buyer.
Property assessments seem to be leveraged as a negotiating tool - only when it favors the position of the party trying to negotiate - otherwise, they’re ignored.
So, does a property assessment reflect one’s home value?
Not really, no.
A current property assessment will certainly give some sense of value, and potentially even reflect a trend in value, but since the data used to compile an assessment is stale, even by the time it’s received, it’s not a good gauge of value.
Imagine this. BC Assessment uses past property sales to make a determination of value for your property. For example, a property assessment received January 2018, the data compiled by BC Assessment was collected in July of 2017. The assessment once received, is based on data at least six months old. In hot markets, home values might be trending upwards in only a matter of weeks. Conversely, declining markets can see decreasing home values.
The only way to receive a current estimate of property value is by conducting a comparative market analysis - by a Realtor or appraiser - at the time you’re looking to determine a property’s value.
Property value is dynamic rather than static. In a sense, a determination of a property’s value is a snapshot in time - constantly shifting up and down.
So, when someone wonders, what is my property worth? The answer should be, it depends on the current state of the market.
How One's Property Assessment Impacts Taxation
A common misconception is that if one’s property assessment increases, so too do their taxes.
It turns out; it’s not quite that simple.
While taxes are calculated using the following formula...
...taxes will increase only when a property’s assessment increases more than the average in that property class. For example, if single-family homes show an increase of 10%, but you’re assessment increased by 15% - it would be at this point that your taxes would increase too. Of course, this is assuming that the municipalities budget remained the same too.
The opposite would be true too. A decrease in a property assessment would reflect a decrease in value, only if the decrease was greater than the average decrease in that property class.
For more information, visit BC Assessment by clicking here.
How to Appeal a Property Assessment
Property assessments aren’t 100% accurate. As mentioned previously, the assessor’s often don’t have access to a home’s interior. Also, statistical oversights are possible too.
For those who feel their property assessments are inaccurate, there is the possibility to appeal.
An appeal must be filed by January 31st during which time a property owner should collect evidence in the form of sales statistics. The first level of an appeal is heard by the Property Assessment Review Panel (PARP). A complainant would have 30 minutes to present their evidence to the PARP. These hearing are conducted from Feb 1 to March 15th.
For those unhappy with the decision of the PARP will move to the second level of appeal and will be heard by the Property Assessment Appeal Board (PAAB).
To read more about appealing a BC property assessment - click here.
How to See your Assessment in Comparison to Your Neighbours
If you’re curious to see how your assessment stacks up against that of your neighbors, you can view any assessment by typing in the address at the following site: https://www.bcassessment.ca/
How to Budget for Property Taxes
For whatever reason, property taxes mess with people’s budgets. When working with clients, I see many homeowners who feel shocked by their property tax bills - even though they have 365 days to prepare for their tax bill. It seems most don’t know how to deal with budgeting for an annual bill.
Here are a few tips to help with budgeting for a property tax bill:
Consider calling your mortgage company to arrange to have property tax savings deducted with each mortgage payment.
Create a separate savings account for property taxes. Set an auto-transfer into your property tax savings account once per month.
While property taxes are a significant expense for many people, breaking down savings into monthly amounts, reduces the impact of the annual expense. If you haven’t started saving for property taxes due this year, take the approximated property taxes payable, and divide by the months you have left to save.
Property Taxes Due: $3,000
Due Date: July 1st
Months Left to Save: 6
$3,000 / 6 = $500
The Bottom Line
Property assessments offer a sense of value, and can, when higher than the average, cause an increase in property value. While assessment authorities have plenty of tools at their disposal, assessments are not always accurate. Those who feel their assessment is inaccurate should submit an appeal backed by evidence in the form of sales statistics.