Whether you're buying, selling, refinancing, or simply curious, determining the fair market value of a property requires a careful and methodical analysis of several key factors.
To help you navigate this process, this article outlines the essential elements to understand and evaluate, whether you plan to assess the value on your own or with the help of a qualified expert.
What’s the difference between market value and municipal assessment?
Market value and municipal assessment are two different real estate concepts that serve distinct purposes.
Market value refers to the price a property could reasonably fetch on the open market at a specific point in time. It’s based on factors such as:
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Supply and demand
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Location
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Economic trends
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Property features and condition
In contrast, a municipal assessment is determined by the city or town for taxation purposes. Every three years, municipalities conduct a property assessment to:
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Create an inventory of all real estate on their territory
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Establish the assessed value of each property
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Calculate annual property taxes accordingly
Should you rely on the municipal assessment?
Relying on the municipal assessment to estimate the value of your home would be a mistake. While it may provide a rough benchmark, it’s not a reliable indicator, for several reasons.
First, there’s typically a delay of about 18 months between the moment the city determines the market value of a property and when the new assessment roll comes into effect.
Second, in certain neighbourhoods, the real estate market is particularly active, with prices rising steadily. In such cases, the amount listed in your municipal assessment will likely differ significantly from the property’s current market value.
How to determine your home's fair market value on your own
Here are the steps to follow if you want to estimate your property’s value independently.
1. Make a list of pros and cons
Start by reviewing the general features of your home and its location. The surrounding environment plays a key role in determining market value. Consider how close your home is to schools, shops, medical services, parks, and public transit. Also take into account less desirable features, such as proximity to a highway, railway, or busy street.
Your evaluation should include answers to the following questions:
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Can the home be expanded or renovated?
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Are there any municipal restrictions (e.g., for pools, sheds)?
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Are property taxes or condo fees considered high?
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Is the neighbourhood pleasant and well maintained?
These contextual factors will help you position your property on the market before moving on to more technical details.
2. Find and analyze comparable properties
Comparative market analysis involves estimating the value of a home by comparing it to other properties with similar features that were recently sold in the same area. You’ll need to gather detailed information on each comparable property, including:
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Year of construction
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Number of storeys
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Living area size
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Lot size
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Quality of the exterior envelope
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Interior finish materials
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Notable features of the property
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Etc.
It’s generally recommended to select three to ten recent comparables in order to establish a realistic price range that reflects market conditions.
Keep in mind that to conduct a fair evaluation, adjustments will be necessary, since no two homes are exactly the same. A garage, a pool, a finished basement, a patio, or a large deck are all features that can increase a property's value by several thousand dollars.
Performing a comparative market analysis can be a time-consuming task. That’s why many choose to consult a real estate professional or a certified appraiser who is well-versed in this type of evaluation.
3. Account for renovation costs
If your home requires renovations, those costs should be factored into the assessment, as they have a direct impact on the property’s market value.
If needed, consider hiring a professional inspector to identify which parts of the home require work and assess the extent of the deterioration. You can then consult a contractor to obtain cost estimates for the necessary repairs, and subtract those amounts from the estimated value.
For example, if a comparable renovated home sold for $375,000 and your property needs $20,000 worth of work, you should adjust your estimate downward accordingly.
Are you a prospective buyer? Be sure to ask the seller about both upcoming and recently completed renovations. Don’t hesitate to request cost documentation (such as receipts or invoices). A pre-purchase inspection is also an essential step.
4. Review the home’s energy bills
Finally, take a close look at the home’s energy bills. These documents can reveal the property’s energy efficiency, a factor that’s often overlooked but increasingly important for buyers.
Poor insulation or, conversely, excellent insulation, can influence the value of a property. A well-insulated home (walls, floors, windows, doors) with low energy consumption is generally worth more on the market. On the other hand, a poorly insulated home with high heating costs could see its value decline.
How to determine the right price with help from an expert
To simplify the process, you can work with a qualified expert to determine your home’s precise market value. Depending on your situation, there are two main options:
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A real estate broker
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A certified appraiser
Ask your real estate broker for an estimate
Planning to buy or sell a home? A real estate broker knows the local market inside and out, thanks to previous transactions and a deep understanding of price drivers in the area. You can count on their expertise.
Your broker is likely the best person to provide a list of recently sold comparable homes in the neighbourhood, a key reference for determining your home’s fair market value.
What’s more, a seasoned broker is also a valuable ally when it comes to staying objective. If you fall in love with a home but the price is inflated or the property has serious drawbacks, your broker can help you take a step back. They’re also a powerful asset when it comes to negotiating price and conditions.
Hire a certified appraiser for an accurate and professional evaluation
If you're looking to determine your property's market value for mortgage refinancing or any other real estate project, a certified appraiser is your best ally. This professional has the expertise required to assess the value of a property with precision.
In addition to providing an objective and accurate estimate, the appraiser will deliver a detailed report that supports the valuation with documented evidence, showing that the price reflects current market conditions.
Why a proper valuation is essential before making an offer
A sound evaluation is key, not only when selling, but also when buying a property.
In fact, during a purchase, your bank won’t approve a mortgage if it determines that the offer price is significantly higher than the home’s actual value. Before granting the loan, the bank will typically commission a certified appraiser to perform its own valuation of the property.
Keep in mind that once you submit an offer and the seller accepts it, there’s usually no turning back. You are legally bound to follow through with the transaction and cannot retract your offer. If you later find out that the property is worth $40,000 less than what you offered, it’s too late. That’s $40,000 you could have invested elsewhere, in renovations, furnishing your new home, buying a vehicle, or even saving for your children’s education.
Of course, in some cases, you may need to act quickly to make an offer. But it’s still crucial to take a step back, assess the property carefully, and make sure you’re making a well-informed decision, one you won’t regret later.
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