Understanding the difference between municipal assessment and market value - important points
When buying or selling a property, one of the first questions that arises is the selling price of the property.
Whether you are a seller or a buyer, there are certain concerns that arise. As a seller, you want to make sure that your home is going to be sold at its fair value based on certain factors. As a buyer, the questions are similar, we want to make sure we pay the right amount without having to pay the extra dollar.
Many buyers and sellers tend to rely on the municipal evaluation to determine the value of a property. Is this the best way to establish the price of a property for sale or for purchase?
The real estate brokers on our team will try to answer this question in this article.
The distinction between municipal assessment and market value
What is a municipal assessment and how is it calculated ?
As the name implies, a municipal assessment is an estimate of the value of a property made by the municipality in which the property is located, such as the City of Montreal. This assessment is used for the purpose of calculating property taxes and is carried out by certified appraisers, who use public data as well as information from the owners to determine the value of a property.
It is important to note that assessors do not visit every property in a municipality. They use quantitative data and several advanced software programs to perform their evaluations. As a general rule, the value will be calculated in blocks of comparable homes, which means that the price of the property will be estimated based on similar properties in the area. Among the hundreds of factors used by these appraisers are: location, type of property, lot size, living area of the property, year of construction, number of bedrooms and bathrooms, presence of a finished basement and many others.
However, despite the fact that this evaluation is done by professionals in the field, it represents a rough estimate rather than a sure value.
Above all, it is important to know that the municipal assessment is valid as of July 1st, 18 months before the city’s assessment roll comes into effect, and is only reproduced every 3 years.
Thus, it represents a past value and is not current information in the real estate market, which is in constant movement. For example, disruptive factors such as rising property prices, rising interest rates or the onset of a global pandemic can affect the value of this assessment.
The municipal assessment is therefore not the benchmark for setting a sale price for a property, such as a house, an income property or a condominium. As mentioned earlier, its primary use is to calculate the property taxes that owners will have to pay.
Generally speaking, the municipal assessment is lower than the market value. That said, if a property owner feels that their municipal assessment is too high, they can apply for a review within a specified time frame.
So how do you deduct the value of a property? What assessment should you rely on to determine its fair price?
Market value : definitions and factors that influence it
Market value is the most probable price that can be obtained for the sale of a specific property on a specific date, in the context of the current real estate market.
A market value appraisal is performed by licensed appraisers. The real estate brokers on our team will conduct a similar market study to determine a selling price based on an estimated market value.
Unlike the municipal evaluation which is done as a mass evaluation in a given area, the market value takes into consideration all aspects of the home, such as its location, condition, size and unique features. The principle of market value therefore guarantees the visit of the property and allows to highlight the improvements and renovations made in the property to estimate the price.
It also takes into account the current trends and constantly fluctuates according to the supply and demand of the real estate market.
The appraiser will also compare the property to other similar properties and to recent sales in the area in order to get a fair approximation of the property’s market value.
Finally, the most important thing to remember about market value is that it takes into account the realities of the current real estate market, unlike the municipal evaluation, which tends to represent a past and inaccurate value, and is therefore not a reliable indicator for setting the sale price of a property.
Using market value to sell your property
The market value, because of its precision of place and time, appears as the most reliable indicator to know the value of your property. Requesting an estimate from a professional can therefore be useful to get an idea of what you could get for your property on the market, if you decide to sell it.
In conclusion, municipal assessment and market value are two different terms that have important implications for homeowners. Understanding the difference between the two can help you make informed financial decisions about your property.
Any questions about municipal assessment or market value ? Contact one of our real estate brokers to find out more.
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