Property assessments, like death and taxes, are one of the few things in this world that are certain. Nonetheless, surprisingly few property owners understand how assessments are calculated, how an assessed value relates to their municipal tax burden and what do if they don’t consider their assessment fair.
Let’s begin with the basics.
Depending on where in Canada your property is located, its assessment is calculated either by a department within the local municipal government, a private organization or, as is the case in British Columbia and Ontario an independent, not-for-profit corporation created by the province, or agencies as in New Brunswick, Nova Scotia and most of Newfoundland.
Regardless of who is calculating your assessment, this data will ultimately be used by your local municipality to help calculate your property taxes.
In most cases, the basis for the assessment is fair market value—what would your property sell for if it was listed today?
This may seem simple enough, but for most property owners, it is often unclear what impact a change in their assessed value will have on the amount of property tax they must pay.
The most important thing to bear in mind is that an increase in your assessed value does not automatically translate into an increase in your municipal taxes. An increase in a property’s assessed value only translates into a tax increase if the increase in its value is greater than the average increase for properties of comparable size and class in your local market.
For example, if you own a retail property that has seen an increase in its assessed value of 10 per cent, your property taxes will only go up as a result of the new assessment if the increase is greater than the average for comparable retail properties in your area. If your increase is less than the average, you may enjoy a reduction in your property taxes. If the increase is the same as the average, there will be no change.
However, this is not the end of the story. If city hall must raise property taxes to cover increases in the municipal budget, this will drive up your taxes regardless of how your assessed value has, or has not, changed. So your assessed value is only one of two factors that impact how much tax you pay.
While tax hikes by city hall are beyond your ability to control, an assessment that you deem unfair is not.
How do you determine if your assessment is fair?
The first step is to look at the records that were used to arrive at your assessment. Most if not all of the relevant data should be on your assessment notice. Your lot size, building size and zoning classification are all factors used to determine your assessment. Double check to ensure the assessor has the correct information.
Next, look at comparable properties in your area to see how they have been assessed relative to yours. Ontario’s Municipal Property Assessment Corporation (MPAC) , for example, provides online tools that allow property owners to carry out this due diligence for themselves.
But bear in mind that the chief consideration will be what is fair and equitable in your local market. Say your property is assessed at $1 million and your actual market value is $900,000 – you have been over- assessed by 10 per cent.
But if everyone in your tax class has also been over-assessed by the same amount, it can be argued that these assessments are fair. However, if everyone else has been assessed at 110 per cent of market value, but you have been at 120 per cent, you likely have grounds to mount an appeal.
Appeals take time and cost money
Appeals, however, take time and cost money, particularly if you don’t have the expertise in house to mount an appeal by yourself. The cost of retaining a real estate lawyer or other property valuation expert must be factored into the potential cost savings that a successful appeal would provide. As a general rule, of your total tax bill is less than $20,000 (which, on average, is a non-residential property of less than 5,000 square feet), the tax savings will likely not justify the expense.
Only about one-quarter of assessments, on average, are not accurate. Of those, some undervalue a property, which is obviously to the benefit of the owner. And of those that have overvalued a property, the gap is often too small to warrant the cost of an appeal.
Ultimately, the burden of proof is on the property owner to challenge an assessment and establish that a lower number should apply. There is a standardized process for appeal in every jurisdiction across Canada. If you can provide a strong case, it is possible to reach a settlement with your assessor without the matter having to go to a full tribunal.
To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.
We will continue on this theme in my next article and explore the financial benefits of appealing an unfair assessment rather than simply passing the added costs on to your tenants.
About John Clark: With over 30 years of experience in the national real estate appraisal and valuation industry, John Clark (BA, AACI, P.App., FRICS, Chartered Valuation Surveyor) is a leading expert on real estate matters that impact the value of commercial, institutional, residential and other special use properties. He joined The Regional Group of Companies Inc. in 1988 and has served as Vice-President of Valuation and Consulting since 1990. He is a Fellow of the Appraisal Institute of Canada and served as its National President, 2001-2002.