Understanding the Difference Between Assessed, Appraised,and Market Value of a Home
When it comes to buying or selling a home, understanding the financial value of a property is essential. As a mortgage broker in Nanaimo, I often get questions from clients about the difference between assessed value,appraised value, and market value. While these terms all relate to the worth of a property, they serve different purposes and are determined in distinct ways.Let’s dive into what each term means and why they matter. Along for the ride and to provide some insight, we also have Cory Chapman, Team Leader from the Vancouver Island Home Group - Stonehaus Realty.
1. Assessed Value
The assessed value is determined by the local municipal or provincial government for taxation purposes. This value is used to calculate property taxes, and it is typically updated annually. On Vancouver Island, BC Assessment is responsible for evaluating properties.
How it’s calculated:
Government assessors use data such as the size of the property, location, age,and recent sales of similar homes in the area to estimate the assessed value.
Key considerations:
- Assessed value may not reflect the current market conditions.
- It’s usually lower than the market value in a hot housing market but could be higher in a declining market.
Cory Chapman: Assessed value is by far the lease accurate, as there are so many factors left out. In larger cities where the land offers the majority of the value it may be slightly more accurate, but typically most upgrades and improvements to the property may not be considered. Often we see assessed values as much as 50%below or above market value and on other occasions they can be very close to what the home sells for. This should NEVER solely be relied upon as the actual value of the property.
2. Appraised Value
The appraised value is determined by a licensed appraiser and is used primarily during the mortgage approval process or for refinancing.This value reflects the current worth of a property based on various factors.
Cory Chapman: Appraised value uses very specific formulas and guidelines to assess a property value. These can be very helpful and used alongside a market valuation, although are based on recent sales and comparables and not as much on potential future trends, uniqueness or the supply and demand that can determine the end sale price. These are the primary assessment used by the majority of lenders.
How it’s calculated:
An appraiser physically inspects the property, evaluates its condition,considers recent comparable sales, and factors in the local market trends. This value represents a snapshot of the property’s worth at a specific point in time.
Key considerations:
- Lenders rely on appraised value to determine the mortgage amount they’re willing to offer.
- Appraised value may differ from both assessed and market value, depending on the timing and market dynamics.
3. Market Value
Market value is the price a buyer is willing to pay and a seller is willing to accept in an open market. This value is influenced by supply and demand, the emotional appeal of the property, and current market trends.
How it’s calculated:
Market value is not fixed. Realtors play a key role in helping buyers and sellers determine a fair price by analyzing comparable sales, market conditions, and unique property features.
Key considerations:
- Market value can fluctuate rapidly in a dynamic real estate market like Nanaimo’s.
- It often aligns closely with the appraised value but is ultimately dictated by the buyer’s willingness to pay.
Cory Chapman: Market value is projected value and will vary in the eye of the beholder. Market comparables, supply and demand, uniqueness and desirability of the property will be the largest factors in this number. Market value can also be influenced, through advanced marketing, exposure, timing, staging and preparation, and strong negotiation skills.
Why These Values Matter
For buyers:
Understanding the difference between these values ensures you’re making informed decisions when negotiating a price or securing a mortgage.
For sellers:
Knowing these distinctions can help you price your home competitively and set realistic expectations.
For homeowners:
Understanding assessed value helps you anticipate property taxes, while the appraised and market values are crucial when refinancing or selling.
Final Thoughts
Navigating the differences between assessed, appraised, and market value can feel overwhelming, especially in a competitive real estate market like Nanaimo and the broader Vancouver Island area. As your trusted mortgage broker, I’m here to help you understand how these values impact your financing options.
If you have questions about how these values impact your mortgage or home-buying journey, feel free to reach out to me. Let’s make your home ownership journey a smooth one!
