As a homeowner, you should always have an accurate knowledge of how much your home is worth, even when you aren’t selling. But there are several ways to evaluate your home’s worth. If you are thinking of selling or want to get a better understanding of how the recent market fluctuations affect your most valuable possession, we’ve broken down the three methods of determining the value of your home.
What are the current housing trends?
If you paid any attention to the Canadian housing market over the last couple of years, you know that there was a major housing boom in the summer of 2021. This boom was due to a huge demand from buyers, which drove the asking and selling prices of homes up dramatically. At the start of the pandemic, the average residential sale price in Ontario was sitting at just under $600,000. In September 2021, that number increased to over $880,000!
Now, as the housing boom slows and we’re starting to see some balancing and dropping in prices, you may be wondering what 2023 will bring. Both Desjardins and TD Economics both agree that home prices will drop 25% by the end of 2023, particularly in provinces other than Ontario. For a smaller city, a 15% decrease in prices is the expectation. This is especially true in the London, Kitchener, Waterloo, Barrie, and Georgian Bay Area.
Property value of your home
There are six reasons why it’s important to always know your home’s property value:
- Buying a property: Whether buying a new home or a second investment property, it’s necessary to understand how much equity you currently have. It’s also important to have an idea of the value of the home you are looking to purchase.
- Selling a property: Whether you are thinking of selling now or not, it’s important as a homeowner to always know how much your home is worth. It’s important to know what you stand to gain (or lose) financially.
- Insurance coverage: As home values fluctuate with market conditions, it is crucial to know your home’s value to make sure that you have adequate insurance coverage for any necessary repairs.
- Property assessment & tax: Each year, you will receive a value assessment and subsequent property tax payment from the municipal government. By knowing your home’s value, you can determine if you have been under or over-evaluated on this assessment.
- Renovations: When doing renovations, it’s important to know the ROI (Return On Investment) of the upgrades you are making. Understanding how additions to your home impacts its value will help you better plan for large renovations.
- Financial, retirement & estate planning: Knowing your home’s value is essential for understanding your net worth and making financial decisions for your retirement. If your plan is to downsize, understanding how much you can sell your current home for will impact your overall financial picture.
Evaluating your home
Knowing the value of your home is important. To get an idea of its value, there are three different ways to evaluate your home:
- Appraisal value
- Assessed value
- Fair market value
1. Appraisal value of your home
An appraised value is an evaluation of a property’s value based on a given point in time. It is an estimate of the market value of your home. The evaluation is performed by a professional real estate appraiser during the mortgage origination process. The appraiser is usually chosen by your lender, but you will pay for the appraisal. Home appraisals take place after your purchase has been accepted but before the mortgage has been finalized. The purpose of the appraisal is to ensure that the home is indeed worth the money that they are supplying to you, the purchaser. The main goal of a home appraisal is to justify what the buyer has agreed to pay for the home.
Cost of an appraisal: Approximately $300 to $500.
Fair market value is how much your home will sell for on the open market right now – if both the buyer and seller agree to the price. However, the appraised value is your home’s objective value as assessed by a certified and licensed home appraiser. These values are usually in the same ballpark, but there are subtle differences.
2. Assessed value of your home
The assessed value is your property’s determined valuation to calculate the appropriate tax rates. When performing an assessment, the government assessor considers:
- The overall quality and condition of the property – home inspection findings
- Local property values
- Square footage
- Home features
- Current market conditions
Essentially, it is the dollar value assigned to your home for property tax purposes.
Properties are given an assessed value to ensure property owners pay their fair share of property taxes relative to other property owners, based on relative property values. Many clients assume this number represents the current market value, which is not the case. The assessed value of a property remains fixed for 12 months (until it is assessed once again). In contrast, the market value of a home is current and can change week-to-week or month-to-month. Market value is based on how much someone is willing to pay for a home at a particular point in time.
The assessed value of a home is usually less than market value, with the assessed value coming to 70-80% of market value.
3. Fair Market Value (FMV)
The Canada Revenue Agency defines fair market value as: “The highest price, expressed in terms of money, that a property would bring, in an open and unrestricted market, between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other.” While an appraised value is assigned to your property by a professional real estate appraiser, fair market value of your property is decided by you and the potential buyer of your property. In other terms, it’s what you think the price of your property should be and what they are willing to pay for it.
4. Fair Market Value vs. Current Market Value
Fair Market Value is a hypothetical value—it is determined based on the estimated amount a buyer and seller will likely agree upon under “normal” conditions. However, Current Market Value is the amount that the property is worth in relation to surrounding properties of similar specs. Essentially, it is the price a property should sell for on the open market.
Is an assessment the same as an appraisal?
An assessment is not the same thing as a traditional property appraisal. However, it is a specific type of appraisal that can only be used for tax purposes. A lender will not accept a tax assessment in place of a conventional property appraisal. If you’re buying or refinancing a home, you’ll need to order a property appraisal that’s unique from the tax assessment.
Do market value and assessed value influence each other?
According to Rockmortgage.com, when considering the assessed value vs. market value, it’s important to realize that these two numbers are often connected. Throughout the home sale process, it’s not uncommon for realtors to point out the assessed value to market a home. On the flip side, assessors will often take the market value into consideration.
How long does an appraisal take?
Depending on the size of the home, an appraiser can spend anywhere from one to four hours at your home, as well as additional time at the office completing the appraisal report. Generally, it takes 10-14 days before the written report is sent to us. If you are refinancing and an interior inspection of the home is necessary, the appraiser will contact you to schedule a viewing appointment.
