The Vancouver Life Real Estate Podcast Episode 4 - Obsessed with Assessed
The Vancouver Life Real Estate Podcast Episode 4 - Obsessed with Assessed
EPISODE 4 - July 14, 2020
Assessed Values seem to carry a lot of weight in Vancouver when people are comparing homes to their listed and sold dollar amounts. While Assessed Values can be a useful reference point, final sale prices can be as much as 40% off of the assessed amount, both above and below. So what are Assessed values, how are they determined, and how are they sometimes so wrong? We get you answers to these questions and more while we dig much deeper into the world of Assessed Values.
Obsessed with Assessed
Dan Wurtele 0:02
Hi, and welcome to The Vancouver Life podcast.
Ryan Dash 0:06
This podcast is created to answer the most talked about questions when it comes to navigating the Vancouver real estate market.
Dan Wurtele 0:12
I'm your host, Dan Wurtele, a licensed agent and accredited Real Estate Investment Advisor based here in Vancouver, and I'm joined by my co host, Ryan Dash
Ryan Dash 0:22
Hi Dan. I'm also a local realtor and exhausted father of two, husband of one and really happy to be here.
Dan Wurtele 0:30
Let's get right into today's episode. Hi, and welcome back to the Vancouver life podcast. Today we are talking about assessed values and why people are so obsessed with them.
Ryan Dash 0:45
Yeah, what's the difference between a realtor providing you with market value of your home or just using the assessed value that you get from the government?
Dan Wurtele 0:53
Yeah, we have obviously a lot of clients and most clients always will reference the BC Assessment website and take the assessed value as being market value as in what that whole might sell for. And granted, the website literally says that assessed value equals market value, which in my opinion is is a very misleading statement and potentially a dangerous one.
Ryan Dash 1:18
Yeah, I mean, whether you're trading real estate, whether you're trading stocks, whether you're trading any kind of asset that exists inside of a market, there's going to be a market valuation of that item on any given day. You know, and one of the major things here is we often know is the government typically assesses your property once. So we'll get into that a bit more. We're also going to look at the key dates involved in the government assessing your property. How does that influence its value? why it shouldn't be just the only tool you use and typically, we also have want to talk about why it impacts your taxation?
Dan Wurtele 2:04
the assessed value, Again, we're not trying to beat up on the people that you know, assess properties. It's a very big project they undertake. And it is one valuable data point when looking at true market value for a property, but it cannot be the only one that people look at.
Ryan Dash 2:19
Yeah, if you if you typically put your your all your eggs in the basket of the assessment, you likely won't win, If you're in multiple offers, it becomes difficult to use the assessed value when you're listing the property and we've got tons of anecdotal evidence of that as well. So why don't we why don't we jump into it?
Dan Wurtele 2:41
For sure. So again, I guess the first question to answer is, why does the assessed value exist and how is it determined? I think, you know, the sort of flat logical way of looking at it is PC assessments business is to provide a stable and I guess like a predictable base for real property. taxation in British Columbia,
Ryan Dash 3:02
yeah, consistently. We, if you own property, you'll you'll know that you typically get your property assessment at the end of the year. But if you read carefully, you'll also notice that the assessment was done in the middle of the year. So on July 1, typically that's the valuation date that BC Assessment will actually perform the quote unquote market value of your home, but you won't receive that market value until December 31, which seems like an awful big gap between you know Coronavirus, or hot markets, cool markets, change in immigration policy, you name it. There's lots of things that could contribute to the change in the value and getting it six months late. Or not late, I guess six months after the evaluation was done. The accuracy will fluctuate. And we'll show you that
Dan Wurtele 4:04
Yeah, exactly. That's a great first reference as to why that's kind of a can be a bit of a misleading number, when looking at true market value compared to assess value. Again, but this, the assessed value does need to exist. It's largely also a foundation for the province. They're taxing authorities to calculate all the property taxes they need to accumulate to run the cities, you know, take the City of Vancouver or any region, for example, right? They obviously need X amount to run the city to provide us with great roads and parks and policemen, firemen, etc. So they need to determine how are they going to raise that money and which properties owe how much
Ryan Dash 4:43
and in all honesty, you know, we're not sitting down here to say we're against property tax. I mean, it's a necessity in terms of building great communities. How much it's it's taxed is another question, and how often and whether or not it's accurate. That's what we're here to determine.
Dan Wurtele 5:00
Hmm. So you could imagine in BC, I mean, there's literally over 2 million properties to be assessed. It's a huge undertaking. So there's no, you know, no doubt that not all properties are going to be valued truly to a market value. And that's understandable. But, you know, let's see here. So the assessors, they obviously do have a team of assessors that go out and assess these properties every year, every July. And, you know, they take some of the obvious things into consideration, right, and consider, for example, the location of a home or property, the size, the lot size, the age and and they even say they use comparable sales as part of their evaluation process.
Ryan Dash 5:38
Yeah, I mean, when you look at how they state what they do, you know, they look at everything from real estate transactions in that particular area. You know, whether the property owner has initiated any updates through permitting, although that's a subject that if you're getting a tax assessment and it's in, you know, you've got literally the same floorplan as somebody else in your building, and one is worth $100,000 more than the other, it's likely that that person or that owner pulled permits to get some work done in their place. And as such has reported that to the city,
Dan Wurtele 6:18
the property tax rate applies to each $1,000 of the taxable assessed rate. So this is how it why they need to determine this. Essentially, they divide it by 1000. But then they multiply it by what's called the mill rate. And this is the rate that they have determined based on each sort of level of services need for their taxation payments for that year. I guess as an example, if you have a $500,000 property, that assessment would be 5000 times the mill rate equals your annual tax payment.
Ryan Dash 6:53
Right. Yeah, and and from there, you know, they use those funds to improve the roads. communities, schools, all that sort of stuff in the area. And typically, you know, in more affluent neighborhoods, you see higher mill rates. And in, you know, not so affluent neighborhoods, you see lower ones as a result, right. Typically. But we've seen a lot of protests, if you drive through the west side of Vancouver, you know, recently we've seen from the NDP government, they've tried to raise the I think it was the school rate.
Dan Wurtele 7:30
Yeah, school tax
Ryan Dash 7:31
school tax. Yeah.
You know, for people that have been living in their properties for 50 years. And here's the thing, you know, if you bought a home 35 years ago, and you were on the west side of Vancouver, and you paid $500,000 for that home, and it's now worth three and a half million, and you're paying tax assessed values on three and a half a million, but you're retired with no income to pay for it. How is that fair and Are you responsible now for the growth of the immense growth of that property? You know, so it's without doubt we're seeing some pushback with with respect to rising property taxes for those kinds of reasons.
Dan Wurtele 8:15
Here's another way to look at it as well. We're talking about taxation. 2016, for example, had an average property price increase of 16%. Right, so year over year, the average home saw an assessed value increased by 16%. But Ryan, does that mean that the taxes increased by 16% for that property? No, there you go. Right. So while people were quite upset initially potentially about their new increased assessed values, thinking that the taxation was going to increase, it does not. So what happens of course is the mill rate is adjusted accordingly down so that the city still reaches their annual property tax payments, you know, but the payments for the year, let's say only had to go up around inflation. Let's say 3% they only needed 3% more in property taxes. Well, again, they'll adjust the millage rate down so that people aren't actually paying that 16% assessed lift that they saw transversely 2012 ish people saw their assessed values go down, and Ryan did taxes then go down,
Ryan Dash 9:19
taxes never go down Dan.
Dan Wurtele 9:21
This is a it's a factual statement. So as you could imagine, the reverse happened in the sense that okay, Property Assessed values went down. And no right then would have been up or Yeah, switch up. So at the end of the day, the taxes were higher than they were last year.
Ryan Dash 9:41
Yeah, ultimately, I mean, the way the city sees it is it is they need X amount of dollars to run whatever programs it is that they are intending to do. And as such, you know, they need X amount of dollars from you. So they're gonna get that whether your property goes up or down, they'll just adjust the mill rate. And that's, that's really kind of how works.
Dan Wurtele 10:00
Yeah. So that's basically why the assessed values exist and a little bit of insight into how they are determined. But again, largely, this is done for taxation. So this is why we don't always look at the assessed value as equaling market value. And I think there's a good other number of reasons why that's true. And let's get into it. Again, I think first and foremost, like you touched on Ryan, the fact that they essentially assess the property's value in July, July 1. There's also a key another key date here, which people may not have heard of, and that's October 31st, where they, the assessors will look into the physical condition and potentially any new zoning for that property.
Ryan Dash 10:42
Yeah, and this is where taxation can get sticky or unfair. And I will speak anecdotally of a I think of a client we had January of this year. He had a massive home. Sorry, a massive lot and a very small home. It was a 20 plus thousand square foot lot, I believe it was big, big. And there was actually four or five homes I think lined up all the 20,000 square foot lots, all of them with relatively small homes on them.
Dan Wurtele 11:16
Sorry which neighborhood was this?
Ryan Dash 11:18
This is in Richmond, East Richmond, where there's a lot of new development taking place. And, you know, sometimes what you'll see municipalities do is they will actually create sweeping zoning changes to a particular area so that it makes it easier for builders to come in there, buy up single family homes and and start making medium density products. But where where it becomes unfair is you know, we went and looked at this property, the market value of the property, maybe maybe 1,000,050. You know, in terms of what was actually selling in the area, and the actual tax assessed value Was 2.6 million, so $1.6 million higher than the actual current market value. And that's kind of a scary number when you think of the fact that the OCP plan calls for medium density, but the actual zoning in place was RS1, which is the single family, where it kind of got weird was, you know, the client looked at me and he goes, Look, man, I'm being taxed. I'm being taxed here on $2.6 million value, but, you know, properties are only selling for a million bucks on my street. And so when we went and spoke to the city about it, they said yes, well, we haven't actually implemented the changes, but we have determined the value based on the OCP plan. And we said, well, hold on a second here. You should be taxing if those are townhouses, not but that's not the case the case is that those are homes right now. So why are you taxing them as if they're medium density? That's not fair. And we were actually able to challenge that and get it reduced back down to where its current market value is, which is interesting. Because if you don't take diligence into consideration here, and you don't ask questions, and you don't poke at it, you'll pay a whole lot more. I think his tax rate was he was paying $8,000 or $9,000 a year in tax on a property that's worth a million bucks, he should have been spending $3,500 something to that effect, right. So he's paying more than double. And, you know, unless we went and did something about it, he would have continued on.
Dan Wurtele 13:41
Mmhmm. That's a perfect example. And, again, a good reason as to clearly that assessed value and market value sometimes really are so misaligned that you could really set yourself up for disappointment when making an offer
Ryan Dash 13:56
I mean, I even had agents calling me being like, why is this thing assessed at two point Six?
Dan Wurtele 14:01
of course, of course. And, of course, we looked down the street and there was another house, same issue, same zoning, same high taxes, and they were on the market at one one, if I remember correctly. And when we got this listing, they had been on the market for over four or five months, I think,
Ryan Dash 14:18
longer than that they've been actually coming down in price over the last year and a half.
Dan Wurtele 14:22
Oh, well, there you go. Right. So I mean, that just goes to show should that have been a deal at one one, knowing that the assessed was more than double? Clearly that property would have sold already?
Ryan Dash 14:31
Yeah. Yeah, exactly. So you know, when when you're taking assessed values, values being the key term here into into consideration, it just forms part of the argument. It's not the argument, it can't be because the way that the property is assessed, and also the motive behind the assessed values are totally different than if you were going to sell it or buy something.
Dan Wurtele 14:59
That's right. So again, so that the assessments, they're valued on July 31, they do some of the physical conditioning and zoning checks at the end of October, and then they don't get mailed out until the beginning of January. So you're looking at, you know, a real well, six plus month discrepancy in timing between when they are when these properties are assessed, and when you get that number. And as we all know, an immense amount of things can happen in six months in Vancouver real estate.
Ryan Dash 15:28
Yeah, I mean, things typically change here, or they can in six hours.
Dan Wurtele 15:32
Well, let's let's look at 2016 for example, again, 16% average price increase in one year. Yes, that's an outlier, but it's also real, you know, and that means within just those six months between assessing and receiving your assessment, I mean, there was an average 8% swing in property prices.
Ryan Dash 15:52
Yeah, and that's enormous. I mean, if you're looking at a million dollar house, which is actually quite common, actually a million dollar Home outside of Vancouver, that's an $80,000 swing, just just, you know by waiting on your home, and I'm sorry, but I don't doesn't matter to me if you're rich or poor $80,000 is a lot of money.
Dan Wurtele 16:15
Yeah, and let's let's touch on that zoning again, because let's say after the city has assessed your property and you've received it, well, what if the zoning changes for your property, maybe you're on single family and it's suddenly gone the opposite. And now it's gone up and the zoning is now medium density, or maybe at a minimum, you can put in a laneway house, the value of your property is just increased. And of course, you need to know that because if someone's coming to offer closer to potential assessed, you could be losing out on a big chunk of sale value. totally correct.
Ryan Dash 16:45
Yeah, totally correct. Yeah. And, you know, it just goes back to honestly understanding your property right, and understanding that the taxation side of it is just part of the argument.
Dan Wurtele 16:57
Mm hmm. Yeah. Or the property you're trying to buy and why it's actually Priced accordingly. An interesting one here too renovations. Okay, let's let's picture this. Let's say we have two identical homes side by side. Yet one of them has recently gone through a half million dollar renovation. incise. What is that going to do to assessed values? Right?
Ryan Dash 17:21
Well, I mean,
Dan Wurtele 17:23
Ryan Dash 17:24
Yeah, there's no straightforward answer here. If you perform the all $500,000 worth of your renovations through permitted process, the city will be well aware of what you're spending and what you're doing. However, as we well know, there's a lot of unpermitted work that goes on in homes. There's a lot of do it yourself projects. There's also people that perform renovations and sidestep the city in terms of doing it. Not that we're saying go ahead and do this.
Dan Wurtele 17:55
But it does impact the way the city understands what's going on inside your property. And let's let's make it clear as well, you can do a lot of renovation work that doesn't require permits.
Ryan Dash 18:05
Dan Wurtele 18:05
as well. Right? And you could literally spend half a million if you wanted to appliances and whatnot.
Ryan Dash 18:10
For sure. Yeah. I mean, you you don't need a permit to paint your home, right? You don't need a permit to, you know, put in new vanities and things like that, right. You'll need a permit if you decide to put a new engineered beams and start taking out walls and re engineering your foundations. Sure. But if we're not doing that kind of work, so then how does the city know that they've properly assessed your, your your home?
Dan Wurtele 18:34
That's it. So you, let's say the two properties originally valued at a million bucks and now one of them has half a million updates in it. Maybe a quarter million of that was permitted work, but you're still sitting on another quarter million dollars in just renovation value within that property. And so yeah, the assessment will not generally reflect that change.
Ryan Dash 18:54
No, because they don't come into your home, right? They might drive by and take a look. But they won't come into the home. So they're basing that value discrepancy on the permits that you pull for the renovations.
Dan Wurtele 19:08
Yeah, there's another big one. So that's, that's detached. But let's think about condos here for a second. And yes, similar thing can happen with your renovations. But there's something else that they do not really take into consideration and picture two buildings side by side, you know, we'll call them identical for for the sake of this argument yet, and they're okay. So what two units are assessed at the exact same dollar value? Right, let's say we've got two one bedroom condos. They're both assessed at 500,000. Great. What we don't see from that is that well, one building has been very well maintained. And they have a great proactive strata, and they've got 2 million bucks in the reserve fund, the building beside it, they've not even done their depreciation report or it's totally overdue. There's a $2 million levy coming up. At least it's recommended that would result in let's call it a $25,000 That'd be for that one specific unit.
Ryan Dash 20:02
And they're three years away on it.
Dan Wurtele 20:03
Yeah, the three years out. And let's just say the the reserve fund is at zero, because they've so poorly operated. Yeah. So are those two units? Is their market value the same? No, it's definitely not right. And I'm sure we're not saying one is better than the other or that there's not opportunity. But in valuing true market value, and what we would potentially advise as an offer price would clearly vary from unit to unit based on that kind of information.
Ryan Dash 20:27
Yeah, the specifics of the property. You know, they, and it's not really BC assessments fault, they can't go into 2 million properties in the course of one year, and determine all of that it would be way too big. So they have to make some assumptions. And it's important for you to understand that their valuations have assumptions in them. Whereas when we go ahead and do valuations, we go into your home and we poke at everything so that we have a really good idea whether or not That tax assessed value could be anywhere from, like we said, 6% all the way up to 150%, depending on what we can uncover. Mm hmm.
Dan Wurtele 21:10
I think to give you guys some very specific examples, we took a cross section of 50 properties that were sold yesterday across Greater Vancouver price range from 600,000 to $2 million, and across all property types from condo to townhome to detached. Now, in these 50 properties, the average which was very interesting to note was that the average sale price was six and a half percent above the assessed. That's that's not bad. You know, that's not a huge difference and is a, you know, kudos to the assessors for coming in that close on average. But that's also remember, the average home in Vancouver is over a million dollars. So that's six and a half percent is about a $65,000 swing. Yep, that is not a small amount of money.
Ryan Dash 21:58
No. That's your childs education.
Dan Wurtele 22:01
great way of looking at it exactly right. Imagine missing the mark by $65,000 because proper analysis was not done.
Ryan Dash 22:07
Yeah, that could also be a down payment for a future investment for your kid or something to that effect. I mean, we're talking about real cash that will go in your pocket.
Dan Wurtele 22:17
Yeah, exactly. So, of these 50 properties 15% actually sold under the assessed value. But that means of course, 35% or sorry, the balance 85% sold for over yet the assessed value and honestly, zero sold at assessed
Ryan Dash 22:37
15% are really good agents.
Dan Wurtele 22:42
There was one that was quite close, there was one property that sold for only 0.75% off of the assessed value. Not bad, but again, not that we're talking averages here. So let's get into specifics because everybody wants to know, you know, how far the assess can actually go. So just again, looking from yesterday. The furthest under that we saw was a detached home in the Grandview woodland area that sold for 11% under the assessed value, okay, so someone may think that that's a great deal. You know, maybe the, Yeah, sure. Just maybe the inspection, you know, pulled up that the foundation was absolutely rotted and you know, there's $150,000 right there and work, potentially. Yeah. On the other side. There was a detached home in the Tantalus area in Squamish that sold for 53% over the assessed value.
Ryan Dash 23:34
Dan Wurtele 23:36
Big number. Right. And, again, sure, that's a big number and maybe Squamish isn't your neighborhood. So you know, that's also reference a detached point grave that sold for 1.48 21% over the assessed value. Yeah, so these are pretty extreme numbers, but they are real and they are specific and they show they illustrate how important it is to get a true market value in the true marketplace, At that particular day, to understand what the home is worth.
Ryan Dash 24:03
I think it also impacts expectations. You know, if I'm looking at, let's say, a home in Point Grey for 1.48. You know, and I have, I've got my pre approval up to 1.55. And, you know, I look at the assessed value, and I think to myself, well, you know, if I'm inside of five, maybe 10% of that assessed value, it's probably a good deal. And, you know, I likely gonna have to use all of my cash here, but I should probably get it based on the way I'm thinking because I'm using my the assessed values as as a good guide. But as Dan just alluded to, the property actually sold for 21% over its assessed value. So its market value was actually much higher. And as a result of that, your expectations as a buyer, you would have been steamrolled in that offer situation by somebody else. Who understands the value of that particular area, property, and many other parts of that transaction. So just understand that in any major, major transaction, there are multiple key points for the deal to come together. And the assessed value again, is just one of them.
Dan Wurtele 25:20
Yeah, I think a good takeaway here is when looking to buy a home, don't approach it solely with the intention of buying under assessed value. That does not mean a deal necessarily, again,
Ryan Dash 25:33
Dan Wurtele 25:33
right, They're all case by case and, you know, for example, let's say you're looking to buy a home and the assessed value is $925,000. Yet it's listed for a million and you know what the market value based on very thorough analysis says it's really worth you know, very close to that list price, maybe even 990. Through offer negotiation, maybe it lands at 975. So you are 50,000 over the assessed, but maybe 25 under market? would you advise that that was a quote unquote deal or Goodbye, Ryan?
Ryan Dash 26:08
Dan Wurtele 26:09
yeah. Perfect. And as would I, right, and I think most agents would, right so again, knowing market and assess there's another good example of the difference between the two and how to approach it and how to understand both numbers.
Ryan Dash 26:21
Yeah, I think assessed values when you when you start going up in in property price, too, especially when you start going into the luxury market. That's where we start to see some wild swings in terms of market values versus assessed values. I mean, we're, you know, we're looking at properties right now with clients that are well in excess of six $7 million. And, you know, their tax assessed values are four, maybe, but the chances of you actually buying that home for anywhere near the assessed value is a joke, it would never ever happen. So Why is that the case when they're calling it market value? But really what they're doing is they're using their mill rates and they're using their after the taxation, right? Because that's what they need out of that property. If they started juicing it for more, typically those people will have large influence in the community. And and that is just the way it works.
Dan Wurtele 27:24
Yeah. So and Ryan's very right. Quite often the the higher the price tag, the bigger the swings. Yeah, you know, but again, all case by case because we've certainly seen $300,000 properties assessed well off the mark. So, again, I think to really say it, or to really kind of hit it home. assessed value is worth looking at. It's one data point, it is interesting, but be very open to a thorough analysis on your property on both the you know, buying and selling side.
Ryan Dash 27:53
Yeah, and again, just remember that the real purpose of the assessment is for taxation We understand this because as property prices go down, mill rates go up, and vice versa. It's not like you pay less tax, unfortunately. And that's kind of how how we know that assessed values are only a small piece of the pie.
Dan Wurtele 28:14
Okay, that wraps up today's edition of the Vancouver life podcast. Thank you so much for listening and we hope you tune in on the next one.
Ryan Dash 28:23
That wraps up this edition of the Vancouver life podcast.
Dan Wurtele 28:28
For more information on this podcast and to access a ton of free downloads, investment opportunities, current market info and homes for sale, you can find it all at www.Vancouver life.com
Ryan Dash 28:43
Thanks and we look forward to bringing you more podcasts about Vancouver real estate
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