Does that question confuse you? You’re not alone. And it’s one that many are asking this month, as all over British Columbia homeowners have received their 2018 property assessment notices in the mail.
Deputy assessor at BC Assessment, Brian Smith, states that public inquiries about how a home assessment is made is one the most common questions put to the Crown corporation. Further fueling the confusion, is the fact that homeowners are also faced with understanding market value and replacement cost.
As BC’s premier broker of homeowner’s insurance, Park Insurance is here to clear things up so that you have a straightforward accounting of your home’s value in 2018, and beyond.
Defining the Difference Between the Assessed Value, Market Value, and Replacement Value of Your British Columbia Home
The BC Property Assessment is used by tax authorities to determine the portion of municipal and provincial property taxes homeowners will pay, and is based on what is considered to be the fair market value of your property as of July 1 in the prior year.
How is this value calculated? BC Assessment appraisal staff factor in the following:
- Recent land title changes
- Local building permit approvals and zoning adjustments
- Lot topography
- Location (neighborhood/community) and area services/amenities
- Home size and layout
- Home age and condition
- Home extensions such as carports, garages, decks, and patios
- Home foundation and materials used in construction
- Views from property
- Recent real estate sales of same area homes that share common characteristics
This valuation is important because it allows governing bodies to account for the fluctuation in average property value across the province, apportion property taxes accordingly, and balance the budget. How your property taxes change each year, is dependent upon how your assessment value changes each year.
This video from BC Assessment will provide even more detail on the matter.
The market value is the amount that a current buyer is willing to pay to purchase your home and its land in its current condition. The real estate market has the single biggest influence on this value. While the real estate market valuation also considers many of the same factors used by BC Assessment appraisers (noted above) you may find that the market value differs from your BC Assessment value. This is because BC Assessment’s valuation reflects the worth as of July 1 of the previous year, while a real estate market appraisal can be done at any time. A lot can change in six months. New school construction can begin in the area, and increase the market value quickly. On the flip side, a rise in the local crime rate can have the reverse effect. Alternatively, an eager buyer/investor may swoop in to pay top dollar for neighboring properties and drive up the market value in the process. These are a few of many other scenarios that can cause median home values to sway from month to month.
It is simply not viable for BC Assessment to update their valuation in what is essentially “real time”, and so this discrepancy (between assessment and market value) will likely persist.
The replacement cost is the value that is relevant when purchasing homeowners insurance. In the most basic sense, it is the cost necessary to rebuild or replace your entire home. In the event of a total loss, your insurer will reimburse you for this total.
How is the replacement cost calculated?
To determine the insurable value of your home, you will be asked to provide your broker with detailed information about your home, including construction materials, square footage, number of stories, number of bedrooms/bathrooms, type of flooring, finishing, insulation, and so forth. External elements are also considered, including the price and availability of skilled labour, debris removal, extra expenses due to more demanding building codes, building permits and more.
This information is input into an industry standard software program which produces the replacement cost of your house. This value is what your broker will use to quote homeowners insurance.
There is a form that you can reference from the Insurance Bureau of Canada (IBC) that will paint a better picture of how your home’s replacement value is calculated. Download the IBC Replacement Cost Checklist in PDF format here.
How does the replacement cost compare to the “building value” on my BC Assessment?
The building value listed on your BC Assessment reflects the depreciated value of your home taking into consideration its age and condition. On the other hand, the replacement cost value is the amount it would cost to build a brand-new home of the same size using comparable materials. If your home is completely destroyed it cannot be replaced by another 40-year-old home, it needs to be completely rebuilt as a new home.
It is important to stay diligent when it comes to replacement value. You will want to review your policy annually to make sure your coverage is updated to include upgrades and renovations. For example, adding a new solarium, porch, or carport, or creating a basement suite in your home can absolutely increase its estimated replacement cost and require you to adjust your coverage. Most policies require you to inform your insurer of any significant home improvement, extension or addition within 90 days of starting the work. And if the cost of repairing or rebuilding your home has increased in recent years, talk to your insurance broker about getting your home insurance valuation updated.
Make sure your next step is the right one, by contacting an independent insurance broker that will ensure that you’re covered for the true replacement value of your home. Get in touch with Park Insurance today to get started.