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Residential Property Assessment Vs. Residential Home Appraisal. What's the Difference?

Many times I have had home owners inquire why the value of the Property Assessment is different than Estimate of Value from the appraisal. It is important to understand the difference prior to putting a house on the market or selling it privately to ensure that the list or sale price is accurate and reasonable.

In the City of Calgary, a Property Assessment is provided by the City, and used for municipal and provincial tax purposes. The assessment is provided based on the requirements outlined in the Municipal Government Act. It is formulated on a mass appraisal model and the interactions in the real estate market.

An appraisal report, as defined by the Appraisal Institute of Canada, is a document that is completed by an Appraiser with appropriate Real Estate Appraisal qualifications following required procedures, and provides an estimate of the value of property as of an effective date. A residential appraisal is based on the evaluation of the Property and Improvements.

Property Assessment:

Mass appraisal assessments are based on criteria (as included on the City of Calgary Assessment website), and include the Location, Land Use, Size and Influences of the subject property. Some of the main criteria that affect residential market values include the Livable floor area (L.F.A. total finished living area above grade), finished area below grade, quality of improvements, parking, age, lot size, and proximity to influences such as traffic, green spaces, to name some of the location factors.

In general, assessed values for residential properties in areas of the City that include homogeneous types (as in most of the properties are of the same general type and condition), very often provide a good measure of a property's value as of the date of the assessment. It is important to note that the date of the assessment is always July 1 of the previous calendar year, and so do not reflect changing market conditions.

In areas where the property and improvement attributes vary, such as in the inner city, the assessed values may vary by wide margins from the actual value provided in the market place (i.e., what they would actually sell for). This is especially evident when homes are highly upgraded or alternately, minimally improved or maintained. At either high or low end of the range of the spectrum, these homes would be outliers. An outlier does not fit the typical improved property and these properties may not be assessed accurately as a result.

Residential Property Appraisal:

The end result of a residential appraisal report is the estimated Market value as defined by the Appraisal Institute of Canada includes:

"The most probable price as of a specific date, in cash or terms equivalent to cash or other precise terms for which a property should sell after reasonable exposure in a competitive market under conditions of a fair sale with both buyer and seller acting prudently, with knowledge and for self interest while not under duress".

A residential appraisal is provided based on the collection of data for the property and improvements as viewed during a physical inspection (for the majority of appraisals). The data for a residential appraisal includes similar information as to that collected for the property assessment, but also includes a more detailed analysis of the actual condition and upgrades. As a result of having eyes inside the property, a higher level of detail results is provided for comparison. The result should provide additional basis for the estimate of value.

A residential appraisal can include several types of comparison to determine an estimate of the market value. Generally the most accurate approach will be the direct comparison approach as it provides comparison of the subject to actual recent sales of similar homes in the market area. The appraisal is site specific where the mass appraisal method is not.

In summary, a property assessment as done by the City of Calgary, provides an estimate of value based on a more general approach, than that of a residential appraisal which provides a more detailed estimation of value as a result of on site evaluation and comparison

with other relevant sales. If accuracy is a requirement , a residential appraisal would be the best approach.

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