Assessed Values vs. Sale Prices--How do They Compare?
Assessed Values as a 1st Gauge of Value
As you may know, property assessments in Ontario are performed every four years. In 2012 we all received an updated assessed value on our homes and other property as of January 1, 2012.
It’s not uncommon for people to look at the assessed value of their home as a first gauge of what the home might be worth. Even REALTORS® will tend to look at a property’s assessed value.
How Reliable Are They?
In studying sale prices, REALTORS® know that--more often than not--they cannot rely on a property’s assessed value when attempting to establish market value—what a buyer is likely to pay. A good evaluation involves an inspection of the property followed by a comparison and contrast of the home and its features with similar homes sold, making value adjustments for differences.
We randomly chose 32 homes that sold over the last three months in the Niagara region. These home sales were taken from four cities. Understand that this exercise was not meant to be an in-depth study, nor was it meant to be critical of the assessment office and its work. We merely wanted to give a quick overview to demonstrate that your assessed value may not be an accurate indicator or your home’s market value.
Of the properties chosen, sale prices ranged from a low of $128,500 to a high of $467,000. The home that sold for $128,500 indicated an assessed value of $159,000—an assessment of +23.7% higher than the sale price. The home that sold for $467,000 had an assessed value of $348,000—an assessment of -25.5% below the sale price.
Here is how the exercise broke down
- Assessments below sale price: 50% of the homes had assessments ranging from -6.1% to
-35.6% below sale price. The average was -14.4% below sale price. In other words, this 50% sold for more than their assessed value, in some cases by a lot.
- Assessments within 5% +/- of sale price: 25% of the homes had assessments ranging from -.8% to +4.9% of sale price. The average was -.6% of sale price. These were good representations of market value.
- Assessments above sale price: 25% of the homes had assessments ranging from +6.9% to +36.6% above sale price. The average was +19.5% above sale price. In other words, this 25% sold for less than the assessed value; in some cases by a lot.
Assessments were accurate only 25% of the time. Curiously, if a market valuation is higher than a home’s assessment, a seller, though pleased, might still hope for an even higher sale price. If a market valuation is lower than the assessment, the seller tends to have a much more difficult time reconciling the discrepancy and might insist on listing the home in line with the higher assessed value.