Understanding Property Tax Assessments

Property tax assessments for 2023 were released a few weeks ago, which prompted questions and concerns from clients, friends and family. While we were able to alleviate the concerns, we weren’t able to answer all the questions. So we spent some time doing research and were grateful when BC Assessment put out a webinar for real estate agents. The webinar was presented by Matthew Butterfield, Deputy Assessor, and Dion Savard, Senior Appraiser. If you have ever wondered what the value BC Assessment has assigned your property actually means, this article is for you! 

Background

Prior to 1954, all the municipalities ran their own property tax assessments which created problems with having a fair and equal assessment process. To solve this problem BC Assessment, a Crown Corporation, was established with the mandate to evaluate all real estate interests in BC, fairly and objectively, to provide a foundation for taxation. They currently evaluate 2.18 millions properties, worth $2,970,000,000. 

How they Value Properties

To say it simply, they look at the market value of the property as of July 1, and the physical condition of said property on October 31. Their overarching goal is to ensure that the tax burden is distributed fairly within a property class and this guides their assessments.

When they are assessing residential properties they use the direct comparison approach which is based on the idea that an informed purchaser would pay no more for a property than the cost to them to acquire an existing property with the same utility. They look for recently sold properties in the area similar to the subject property.

The assessment considers factors such as: location land use controls such as zoning and the Official Community Plan, land use characteand access to utilities and services and the building characteristics such as quality of construction materials, age, use, and size. 

They consider any renovations that they have knowledge of through permits filed. They also consider views which helps explain why some condo units in the exact same building can have dramatically different assessed values. One may be newly renovated with an expansive ocean view, while the other may have no renovations and the windows look into the exterior of the neighboring building.

It’s important to note that BC Assessment is always looking backward, they don’t speculate. Legislation coming in, like the end of single family zoning will not affect their assessments unless that legislation affects the market value. They only consider how the market responded, not how the market may respond.

Taxes

Each municipality assigns a mill rate to each of the respective property classes. A mill rate is equivalent to a 10th of a percent, or a rate per 1000. So if the mill rate for a residential home is 4.5 and your property is worth $1,000,000 your property tax bill would be $4500. The mill rate considers the municipality’s yearly budget as well as inflation. The 2023 mill rate for Victoria residential was 4.3621.

It’s important to know that just because your property increases in value, your taxes will not necessarily increase in connection. If all properties in an area increase 25% in value over a year, your tax bill will not also increase 25%. The municipality will be aware of the increase in value and change the mill rate to reflect this. However, if only your property’s value raises 25% and the other nearby properties don’t have a similar increase in value, then you will be paying the 25% increase in taxes. Looking at the chart below for the city of Nanaimo, the assessed value is the red line and the blue line is taxes paid. Despite the fluctuations in assessed value due to market fluctuations, you can see the tax bill doesn’t change as dramatically. 

If you’ve read this far, and are still wondering why there is such a difference between the assessed value of a property and the amount it is listed for or sells for, there is a huge range of reasons for this. However, the simplest and most common reason is simply that by the time people receive their assessments in January, they are already 6 months old. The assessment reflects the value on July 1. As the year rolls on, the assessment becomes more and more dated. In December, the assessment will be 17 months old! Another common reason is simply because BC Assessment is doing mass appraisals, they don’t look as closely as a real estate agent or bank appraiser, or insurance inspector, who each have their own perspectives and time consuming, detail oriented methods to assign value. Dion Savard, says there are lots of random reasons for differences between assessed value and market value. Things like a house filled with mold is not something that BC Assessment would be able to consider, but would absolutely affect market value. 

To conclude we would like to thank BC Assessment, in particular Matthew Butterfield and Dion Savard, for breaking down the complicated process of property tax assessments. We learned something and hope you did too. If you have any other questions or concerns, please never hesitate to ask! We always love to hear from you.

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