Market Value and Municipal Assessments
There is no direct correlation between the municipal assesssment of a home and its market value if it was sold on the open market today. The two differ for several reasons:
Municipal assessors usually use a mass appraisal process whereby assessments are prepared for a group of properties using standard methods and common data. They do not view the property and base the assessment instead on limited features such as location, size and building style. In contrast, real estate professionals perform a Comparative Market Analysis (CMA), which is based on many attributes and requires interior and exterior viewings of the property.
Municipal assessments are not based on the present time and are instead referenced to a valuation day, which in Alberta is July 1 of the previous year.
The purpose of a municipal assessment is the apportion of taxes whereas a CMA is intended to estimate the sale price of the property on the open market.
Comparative Market Analysis (CMA)
A CMA involves comparing data from similar sales (comps) in the area of the subject property and making adjustments to the sold prices to account for differences between the comps and the subject property. Adjustments are based on the listing data, photographs and sale price of the comparable sales and take into account the following:
- age of the home
- size of the home
- kitchen (type of cabinets, number of cabinets, counter tops, type of appliances)
- number of bedrooms
- number of bathrooms and pieces in each
- basement style and finished area
- floor covering types
- exterior cladding type
- window type (wood, vinyl, number of panes)
- roof (age and type)
- fencing (age and type)
- garage (area finished and heated, attached or detached)
- mechanical systems (furnace, water heater, air conditioner age and condition)
- outdoor space size (patio, deck)
- land/lot features (size, location, distance to green space, views)
- location amenities (schools, transportation)
A properly performed CMA is an essential part of both the selling and buying processes. Overpriced properties do not sell and the odds are that the price will have to be reduced below fair market value once a property has languished on the market. Underpriced properties sell quickly but the owner does not obtain full value for the home. For buyer clients, a correct CMA allows a buyer to avoid overpaying for a home.