An appraisal is the process for estimating the market value of a property. Real estate transactions often require appraisals because they occur infrequently and every property is unique (especially their location, a key factor in valuation), unlike corporate stocks, which are traded daily and are identical. Appraisal reports form the basis for mortgage loans, settling estate and divorces, taxation, and so on. Sometimes an appraisal report is used to establish a sale price for a property.
Municipal assessments may not correspond to market value!
Municipal assessments are governed by the Municipal Taxation act, and are based on the general structure and architecture of the building, the condition of the home, the square footage, number of rooms, floor height, and amenities. They are conducted every three years in Montreal, in compliance with the Loi sur la fiscalité municipale and municipal taxation. A home that was assessed more than a year ago may have fluctuated a great deal in market value, and may no longer correspond to its municipal value. Another factor to consider is that, especially in the condo market, mass appraisals are carried out using statistical tools are used to determine the value of a home. According to municipalities, one evaluator may be responsible for 25,000 or 30,000 municipal assessments, and therefore will not able to visit each property individually.
Market value, on the other hand, is the projected price that a house will sell for within a projected period of time that is considered reasonable. Market value is calculated by doing a comparative market analysis (a CMA), which is based on market conditions and current averages and on the typical buyer demographic for a property in that area. It looks at other properties sold in the past year, on the same street or in the same building, to determine the market standards in the area. It also makes adjustments for intangible characteristics of the property- such as the view, architectural distinctions, reputation of the building, uniqueness on the market, and so forth.
There is often a great deal of confusion between assessed municipal value and market value; and it is not uncommon for buyers to try using municipal value to negotiate on price. In reality though, a property’s assessed value is seldom the same as its market value, since the tax assessors that are required to determine municipal values are not required to adjust the assessed value to align with the current market value.