Assessed value vs. market value

[d_jedi]

For a house/condo.. what is the relation (if any) between the two? IE. is the value assessed for property tax purposes generally higher/lower/about right compared to what one might reasonably (ie. not overpaying) pay to buy the property?

[GemInite]

assessed value is what will be based on your property taxes.

Market Value is what you physically pay for your home. They are related to an extent.

Say the Bank approves you for $450K for a home and you go out and bid $450K and get the home.

The bank then has the home assessed and the value comes in at $400K.

The bank could in theory say they will only give you $400K and then you'd be expected to come up with the $50K difference.

[george_91]

For a house/condo.. what is the relation (if any) between the two? IE. is the value assessed for property tax purposes generally higher/lower/about right compared to what one might reasonably (ie. not overpaying) pay to buy the property?

The Assessed Value will always be 10-15% less than the Market Value. It is done this way because if not, then with small fluctuations in market value, people would be appealing their assessments left and right. For example..my house is assessed at 400k but since the market is down a bit..the MV is only 395k so I will appeal the assessment. They try to avoid that situation. The tax rates make up the difference anyway which means the tax man gets their money either way no matter the assessed value.

[EugW]

The Assessed Value will always be 10-15% less than the Market Value.

Not always. My condo when it was assessed by the city was very close to market value (within a few %).

My house was assessed at much lower than market value (with market value determined by two independent appraisals, done by banks in two back-to-back years). I'm not complaining though.

It is done this way because if not, then with small fluctuations in market value, people would be appealing their assessments left and right. For example..my house is assessed at 400k but since the market is down a bit..the MV is only 395k so I will appeal the assessment.

So, in your own example, your assessed value is within 2% of your market value. I'd say that's pretty darn close.

[SummerGold]

The assessed value for tax purposes can vary drastically and is usually not an accurate indicator of the market value of the home. It can be assessed at or well below current market value depending on the date and market values at the time of the last assessment. Quite often homes aren't re-assessed until they are sold, at which time the city will then send the new owners a letter of the assessment and the new tax rate which will usually gradually increase over a few years to match the selling price. By the time it does reach the selling price, it will again be below the current market value. This is why you tend to see a CVA clause in the agreement pertaining to the property taxes.

The best way to know your current market value is to have a Real Estate agent give you an assessment of your home for free or you can pay to have an appraisal done. If you are buying the home, your agent should give you a CMA before you decide what to offer.

Generally the city won't reduce your tax bill unless the assessment is significantly above the current market value of the home. Also if you bought the house POS or from a distressed seller for well below the market value, the taxes usually won't be lowered. If you buy a new home, the taxes are often assessed at the Selling Price or higher if the market value has gone up during construction.

[FTC]

All properties in Ontario are assessed by the Municipal Property Assessment Corporation (MPAC) on behalf of the municipalities. The current assessments are based on a January 1, 2008 market value as determined by MPAC. For most parts of Ontario there was a substantial increase from the previous Jan. 1, 2005 assessments. In order to soften the blow....and to confuse you, the increases from 2005 have been phased in over a 4 year period 2009-2012. An assessment increase does not necessarily mean a property tax increase. If the increase from 2005 to 2008 is below the average for the municipality the there might even be a decrease with the tax bill. Reason is that with an increase in the tax base the tax rates (mill rates) often decrease.

As for the fairness of the assessments? The Assesment Act requires a property assessment to reflect its market value (sec. 19) and equitable (sec.44). In theory this sounds great but in reality it is not. Because of the massive appraisal techniques (regression analysis) that MPAC uses, the assessments are all over the map and many times they have no resemblance to a property's market value (remember as of Jan. 1 2008). There are many reasons for this but the reality is that you cannot appraise properties by using a computer module. So the short answer to the original question is that the assessed value may be lower, higher, or occasionally similar to market value.