How to estimate the value of a home without the municipal assessment
Last updated on March 28, 2023
If you’re thinking of selling your home or refinancing with the bank, you will need to determine the market value of your property by means of a thorough appraisal. Relying only on the last municipal assessment — or worse, your intuition! — would be a serious mistake that could potentially lose you a lot of money.
Here’s what you need to know to determine your property’s actual value.
- Real estate value: A relative concept
- The market value of a property
- The municipal assessment
- A home’s asking price
- Why you should have your property appraised
- The art of appraising a home: Things that shouldn’t be overlooked
- For a successful real estate transaction
Determining a property’s value is not as simple as it may seem. It’s not because the home you are selling has immense value to you, because it is where you raised your four children for example, that future buyers will be willing to pay a high price without negotiating. They may even be thinking about knocking down the walls of your children’s bedrooms to create more space.
First, a property on the market must meet a need or desire at a specific moment in time. If many people are looking for a certain type of property, its value goes up. If there are tons of similar properties on the market, if the style is unpopular or if the location isn’t very appealing, then its value drops. It’s the famous law of supply and demand. The purchasing power of potential buyers is also a factor. Buyers will walk away if the selling price exceeds their ability to pay. All of this needs to be taken into consideration when determining a property’s value.
A successful real estate transaction therefore requires a fair selling or purchasing price, that reflects the quality of the property and its surroundings, without forgetting the market conditions at the time. This is called market value, a calculation that is quite different from the value of the municipal assessment.
Calculating the market value is the most accurate way to determine the price you could get for your property at the valuation date. This estimate is unique to your property and would not necessarily apply to your neighbour’s house. Moreover, it changes over time, influenced by supply and demand. For this reason, an appraisal carried out a year ago will already be outdated.
All the property’s characteristics are taken into account when calculating the market value: interior and exterior, the lot(s), the neighbourhood, the region and, of course, market conditions. Note, however, that the market value is not equivalent to the reconstruction value used to establish an insurance amount in the event of a claim.
The municipal assessment is carried out by chartered appraisers from the municipality, or by a private firm. The property assessment roll is an inventory of all the buildings within a municipality’s territory. It includes the value of each property, as established by the city’s assessment department. Under the Act Respecting Municipal Taxation, a new property assessment roll must be drawn up every three years.
The municipal assessment should never be used to set a selling or purchasing price. In reality, it is only used to determine the annual municipal and school taxes a future owner will have to pay. The higher the value, the higher the property taxes. It’s perfect to plan for yearly expenses but it’s best not to rely on it to determine the value of a home.
“You can be misled if you only use the municipal assessment,” explained Marlène Bates, a professional appraiser with DuProprio. “First, the market is likely to have experienced significant ups and downs since the reference date. And second, work may have been done on the property since the last visit of a municipal inspector. These are the kinds of situations that can create a gap between a property’s municipal value and its market value.”
The municipal assessment is not a good indicator to use when setting the asking price for your house or condo. But this question comes up a lot, especially when the municipality submits a new property assessment roll.
Differentiating between the municipal assessment value and the market value
Data from the latest municipal assessment is much less accurate than data from a market value assessment. First, the municipal assessment is generally carried out in blocks, i.e., based on a set of properties in a neighbourhood. It is therefore not representative of the price you could get for your specific property.
Also, rarely will someone come inspect the interior of your home. Your latest renovations will therefore not be included in the calculation, even though your new kitchen with its gorgeous granite counter has increased your home’s value.
Figures that are already outdated
One important aspect to remember is that the municipal assessment does not take changes to the real estate market into consideration. It sets the estimated value of a property 18 months before the assessment roll comes into effect. Basically, this means that when the new figures take effect, they will already be a year and a half behind. Here is an example from a past assessment:
The values listed in the current three-year property assessment roll for Québec City take into consideration the market conditions that were observed on July 1, 2017. These figures were tabled on September 14, 2018, and came into effect on January 1, 2019. Remember that these numbers are used as the basis for calculating the property taxes for 2019, 2020 and 2021.
Market value, on the other hand, is specific to your property, unlike the municipality’s more overall valuation. It is valid at a given point in time and remains reliable for setting a property’s asking price.
The asking price is the price at which your house should sell in the current market, subject to fluctuations in supply and demand. However, this amount does not always represent a property’s actual market value, for example in the event of overbidding. In that case, the property will sell for more than asking. The asking price could also be lower that the market value, which is sometimes seen with foreclosed properties.
Now that you understand the difference between a property’s market value and its value in the municipal assessment, you should note that the following situations call for a thorough appraisal:
- Putting your property on the market
- Applying for financing from the bank (the services of a chartered appraiser will be required)
- Buying a property
Since an appraisal is only accurate for a limited time, depending on market fluctuations and other factors, it is important to have it done at the right moment, shortly before putting your home on the market, applying for financing or purchasing a property.
The different calculation methods used to determine market value
What formulas are used to accurately calculate market value? In Quebec, property appraisal experts use several methods to validate a home’s actual value. For residential properties, the analysis of comparables method is preferred. This involves comparing the price of properties similar to yours that have recently sold in your neighbourhood. Note that they use the amount the houses actually sold for, not their asking price.
A different approach is used for income and commercial properties. For these, the income method is preferred. Mainly adapted for rental properties with many units, the aim is to calculate the building’s value based on the income it generates.
Finally, the cost method is applied to industrial properties or unique buildings such as heritage buildings. This approach takes into account not only the value of the lot(s), but also the cost to rebuild the building and outbuildings.
To produce more optimal and accurate data, appraisal professionals sometimes combine methods (cost, comparables, income).
Determining a property’s actual value with the comparables method
The comparables method is the most frequently used to determine the value of a single-family home, a condo, a small apartment building (five units or fewer), or a lot. It involves conducting an analysis of the comparables on the market. What does this mean, exactly?
First, the appraiser looks up recent real estate transactions of properties similar to yours in your area. After collecting this initial data, the appraiser makes some adjustments to make sure they are comparing apples to apples, or oranges to oranges. For example, your two-storey home has only one bathroom, while the comparable homes have two. Or, your property is three times as large as the properties sold, plus it has a lovely stream running through it.
These differences must be included in the calculation, otherwise you risk losing money or asking too high a price. It is therefore important to understand and calculate the value of a property’s attributes, such as a new garage, a large yard or a finished basement. Once the value of the comparables has been adjusted, it is easier to calculate the average of similar properties to determine the optimal asking price for your home.
Who can appraise the market value of a property in Quebec?
Accurately determining the market value of a property is a profession in itself. In Quebec, chartered appraisers are the best positioned do this work. Not only do they have the expertise to give an objective opinion of the value of a property as of a given date, but they are also governed by the Ordre professionnel des évaluateurs agréés du Québec. The requirements for becoming a chartered appraiser include a university education, professional training, an internship and an entrance exam.
When you call on a chartered appraiser, they will conduct a systematic review of the real estate market and produce a detailed report. Appraisers are bound to be impartial and neutral; personal interests or preferences must not interfere with their work. In addition, banks will only accept a report produced by a chartered appraiser to determine the market value of a property, when refinancing for example. While a professional appraisal can cost several hundreds of dollars, you will receive an additional quality guarantee regardless of your property's value.
Real estate brokers are also able to estimate a property’s market value and set a realistic asking price. However, their estimate will be more approximate and cannot be completely objective. When you work with a broker to estimate the market value, the broker will get paid through the commission they make on the sale.
Homeowners who choose to sell with DuProprio’s help have access to appraisal assistance tools to guide them in their analysis of the comparables, as well as to the services of specialized appraisers.* If your property has unique characteristics that are difficult to assess, it is recommended that you call on a chartered appraiser.
To determine the market value of a property, it is important to examine its strengths and weaknesses. Knowing the home well and staying as neutral as possible can help you better appraise your property. Several elements will influence the price it can fetch on the market. Here is a non-exhaustive list of things to keep in mind when trying to estimate a home’s actual value:
- Property type – Is the property a condominium, a semi-detached house or a single-family home? In Quebec, single-family homes are highly sought-after.
- The year of construction – Do you know what year it was built? Is it a modern building or an ancestral home?
- Location – Where is it situated? In what region, in what neighbourhood? What is nearby? Does the area have a lot of services? Does the home overlook a park... or a highway? Location plays a big role in a property’s value.
- Living space and land area – In general, the larger the area, the higher the value.
- The quality of the construction – This is important because it gives a good idea of the durability of the materials, from the foundation to the roof. Consideration should be given to the quality of the structure, the exterior cladding and the interior finishes.
- Attributes – Does the property have several bedrooms? How many bathrooms and half-baths are there? How high are the ceilings in the different rooms? How high is the ceiling in the basement? What about the quality of the windows, the flooring, and even the cabinets? Has the home been renovated over the years?
- Additional equipment – Does the property have a shed, a lovely wooden deck or an outdoor fireplace made of brick? Any quality additions have the potential to raise the market value.
- Charm – Does the residence have a special feature? Does it have a unique architecture? Or historical value?
In addition to these elements, it is important to take the property’s overall condition into account. Does it need major work? Does the house have known problems? Has it been well-maintained? These will all affect the price.
A move in–ready house is more likely to sell for asking. Any aspect that has been overlooked could lead to fiercer negotiation and lengthen the time it takes to sell. In short, knowing your property inside out is vital for a successful real estate transaction.
Tips for selling at a higher price
It may not be possible to change your home’s location to a more desirable one, but certain minor work can be done to sell at the best price possible. Even sellers on a small budget should apply home staging principles to make their home more attractive and inviting to buyers. You might be surprised: your home may be worth more than you think!
As you have seen, the municipal assessment lets owners know how much they will have to pay in annual property and school taxes, but it should never be used to set the asking price. Ignore your neighbour’s “helpful” advice and rely on proven calculation methods, such as analyzing the comparables, to determine the actual value of your home. Remember that the real estate market is constantly fluctuating so the property should be appraised just before selling or buying. For professional support, call on a chartered appraiser or use the specialized tools DuProprio makes available to its clients.
Whether you are a buyer or seller, knowing the property’s market value is key to effectively negotiating the selling or purchasing price. When the price is justified, backed by solid data, your transaction will be a success, whether or not you use a real estate broker.
To see how DuProprio can help you sell your property commission-free, call us at 1-866-387-7677. Or, watch our 25-minute informational webinar whenever and wherever you like, to discover the support we offer for a real estate transaction without a hitch.