Table of content
Introduction
- What is a municipal assessment, also called a property assessment?
- What is the market value of a property?
- What are their main differences?
- What are their impacts on landowners?
- What are the determining factors in their calculation?
- We will analyze the differences between municipal assessments and the market value of properties in the regions of Montreal, the South Shore of Montreal, and Estrie.
- We will review the questions most frequently asked by my clients when I represent them as a real estate broker in purchasing or selling their property. As a real estate broker, I play a crucial role in helping clients understand the valuation process and make informed decisions.
What is a municipal property assessment?
Approved assessors, with their expertise, are mandated by the city to conduct the property or municipal assessment of your property. This assessment serves to establish a separate land balance sheet for the land and the constructed building, providing a clear understanding of your property’s value. The municipal assessment is the sum of the two (Land plus Building).
Therefore, the evaluation that appears on the land roll, even if it is carried out by approved professionals, is carried out globally throughout the municipality’s territory. Land and houses are compared as a whole, block by block, not individually.
What is the market value of a condo or a house for sale?
"The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress."
Municipal property assessment vs market value of a house for sale: main differences
When do we use one or the other?
As its name indicates, the municipal assessment is carried out by municipalities. This process involves a thorough evaluation of the property’s physical condition, location, and other relevant factors. The sole purpose of this assessment is to set the amount of taxes that owners will have to pay. The property assessment contained in the land roll serves as the basis for calculating municipal and school taxes.
Market value, on the other hand, plays a pivotal role in determining the probable selling price of a property. This valuation method is a key tool for buyers and sellers, providing them with the confidence and preparation needed when engaging in real estate transactions.
It is also requested when owners wish to know the value of their house on the resale market in the event of separation, divorce, or inheritance following a death.
Financial institutions, such as banks, also rely on market value assessments. In the event of mortgage refinancing, for example, these assessments provide the necessary reassurance and security for all parties involved.
Methods used to estimate property value
How to calculate the market value of a house for sale?
There are several methods for assessing the market value of real estate. The parity technique, commonly called the comparables method, is the most often used and most reliable. It is based on the principle of substitution, which means that a buyer will not pay more for a property than the cost of acquiring an equally desirable substitute property. This method compares the property to be evaluated to comparable properties recently sold in a given sector.
As recently sold properties are rarely identical, the real estate broker makes value corrections on the differences. These corrections, based on the principle of contribution, ensure that the valuation process is accurate and reliable.
Other methods of calculating market value are the cost method and the income method.
The income method, a comprehensive approach, is used to assess the market value of an income property. It considers the rental income generated or to be generated by the property, providing a thorough evaluation.
The cost method, a practical approach, calculates the land value to which the approved expert adds the cost of replacing the building if it had to be rebuilt. This method takes depreciation into account and is often used by insurers to calculate the value of the property for compensation in the event of a loss.
An increase in the municipal assessment results in an increase in your municipal taxes
To calculate the municipal taxes each owner will have to pay, the authorities multiply the tax base by the tax rate.
The tax base, which is the value of your building recorded on the land roll, is adjusted gradually over 3 years to absorb any increase in your municipal assessment. This gradual adjustment provides a sense of stability, even if your property assessment goes down.
Each year, our cities make decisions about tax rates based on the number of properties in their territory and the revenue they must generate to cover all required services. This process underscores the importance of our local community in shaping our tax responsibilities.
Understanding the market value of your property, which is essentially a reasonable estimate of its worth in the current market, is key to setting the right sale price.
What to do if you disagree with your municipal assessment?
Upon receiving your municipal assessment, it’s crucial to consult the property assessment roll. This will not only help you understand your property assessment but also empower you to determine how your tax base was calculated.
If you disagree with your property’s municipal assessment, you can contest it. However, you have a deadline to respect, and the procedure is not free. This date is indicated on the assessment notice for your property.
Which professional should you choose to help you determine your property's market value?
Both the real estate broker and the approved appraiser are equipped with the necessary skills to provide you with an accurate estimate of the market value of your property. Their expertise will give you confidence in your choice of professional.
It’s important to understand that the real estate broker and the approved appraiser generally operate in different contexts. This knowledge will help you make an informed decision about which professional to choose.
The approved appraiser will be mandated mainly by banks to produce an evaluation report as part of obtaining a loan. The approved expert charges fees for his expertise.
The real estate broker will be called as part of the marketing; he will estimate the market value of your house to set the sale price. Its evaluation is free.
