The real estate market, mainly in the major centers, has been overheating for several months. Properties are selling quickly and at a high price. To estimate whether the posted sale price is fair in relation to the value of the property, many people tend to rely on the municipal assessment. Is this a good indicator? No, says one expert, who believes that the market is moving too quickly.
Municipal Assessment 101
The municipal assessment - in short - is the sum of the land assessment and the building assessment. The result is the municipal assessment that is usually displayed in the listing of properties for sale. On most real estate websites, this information is found in the "property characteristics" or "financial details" section.
However, the municipal evaluation is not available on all listings. When it is not available, it is always possible to ask the real estate broker responsible for the property.
Two concrete examples with houses for sale at the moment:
- A house in Rivière-des-Prairies is listed at a sale price of $539,000, while the value of its evaluation is $339,700.
- Another property in Pierrefonds / Roxboro is asking $449,000, while its municipal evaluation is $392,797.
Why are the spreads so high?
The municipal assessment is not representative of the real estate market as of today.
The municipal assessment is the value of a property as of July 1, 18 months before the city's assessment roll, which is filed every three years, comes into effect.
For the City of Montreal, the property assessment roll came into effect on January 1, 2020. Based on market data from 18 months prior, the municipal assessments posted at this time represent, for the most part, the market as of July 1, 2018.
Needless to say, the market can go through several upheavals between the time of assessment and when the assessment roll goes into effect. Notably, since 2018, we have gone through an economic crisis, a global pandemic and the real estate overheating, and it still hasn't had any impact on municipal assessments!
So the market is changing too quickly for the municipal assessment to be a good indicator for buying a property.
Municipal assessment is a mass appraisal
The assessment roll is a mass appraisal that is done in a given area. Not every property is necessarily scrutinized.
What is important in an assessment roll is that there is equity, that all properties are assessed on the same basis," says Pierre Goudreau, É.A., President of the Ordre des évaluateurs agréés du Québec, "that the tax burden is shared equitably among all the owners in the city.
The municipal assessment is primarily a tool for the municipality to establish property taxes, not a specific assessment of the fair market value of a property at a current market date. Instead, access to this information is provided by an expert, the chartered appraiser.
Municipal assessment may not be current
In the case of recent renovations, the municipal assessment may not be representative of the actual condition of the home. "Pierre Goudreau, É.A., explains: "In fact, by the time the work is done and the municipal assessor is aware of the renovation permit, it will take 12 to 18 months before the assessment roll is corrected.
And this correction is always based on the market value, 18 months before the assessment roll comes into effect. This fixed date does not change!
Therefore, if you are buying a newly renovated property, taking into account the municipal assessment could be misleading.
What indicators should be considered instead of the municipal assessment?
If the municipal evaluation is not a good indicator, then what should you rely on? According to Pierre Goudreau É.A., you should take the time to look at the market trend in a neighbourhood (sale price of comparable properties in the neighbourhood, presence of overbidding or not, etc.).
To do this, you have three options: obtain an opinion of fair market value from a chartered appraiser; obtain a list of comparable properties recently sold from a real estate broker; or do your own research using tools such as the online Quebec Land Registry.
Source : Article by Shanna Sarrazin-Laverdure on the 24heures.ca on the 11 November of 2021
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