The Assessment Process
We determine the assessed value of each property based on several variables and approaches to value depending on the property type.
Types of Properties
Real property that is used or designated for use as a domestic establishment, in which one or more persons usually sleep and prepare and serve meals, and includes land or buildings that are appurtenant to the real property; as defined by the Assessment Act, 2006.
This includes vacant land, single-family, multi-unit (3 units or less), mobile homes, and condo units.
Market Adjusted Cost Approach
This approach to valuation is a hybrid of both the cost and the direct comparison approaches. The value of land is determined by analyzing vacant land sales in the area, followed by an estimation of what it would cost to replace the structure, minus any depreciation. Next, sales are reviewed for each area and a market adjustment is calculated and applied to these areas. This adjusts the cost of all residential structures in a neighbourhood to their estimated market value.
All real property other than residential property; as defined by the Assessment Act, 2006.
Examples of this type of property would include industrial, commercial, and institutional properties.
Commercial properties are valued using the following three approaches:
1. Cost Approach
The Cost Approach begins by establishing the value of the land on which the building sits, based on sales of similar lands. The replacement cost of the buildings, minus depreciation, is added to the land value. In determining the replacement cost of a building, the assessor considers such factors as: age, size, condition, quality of construction, and other features that influence value.
The Cost Approach is best suited to value properties that rarely, if ever, sell in the marketplace, and which do not generate rental income to owners. Example of properties valued by the Cost Approach include large industrial plants, communication towers, and institutional buildings such as schools and hospitals.
2. Income Approach
For some properties, the income that they generate is the best indicator of their value. Properties that generate income for their owners include hotels, apartments, and commercial buildings that are leased out. It is this rental income that attracts a buyer and determines the selling price.
To ensure accuracy by the Income Approach, it is essential that income and expense information, requested for the building owners, is submitted to the assessor. Information gathered is treated with the strictest of confidence.
The Income Approach converts the net operating income of a property into an estimated market value through capitalization. The net operating income is the gross revenue generated by the property, minus typical operating expenses. In most cases, the actual income is not used in determining value, but the typical revenue generated by similar properties is used. This ensures equitable tax distribution amongst similar properties. Typical expenses are those necessary to operate and maintain the property as well as provide for replacement. The capitalization rate is derived by dividing the net income of comparable properties that have sold into their sale prices. This rate is applied to the net income and the resulting figure is the estimated market value. Simply stated, the income approach equations are:
Net Operating Income (sale property) / (Sale Price) = Capitalization Rate
(Gross Income – Expenses) / (Capitalization Rate) = Market Value
For the purpose of the Income Approach, certain expenses are not admissible as deductions from the gross revenue. For example, depreciation charges and debt service charges.
3. Market Approach
The Sales Comparison Approach utilizes property sales information to estimate the value of unsold properties. The actual value of the real property under subsection (1) of the Assessment Act, 2006 shall be made by determining the actual value of the real property as of the base.
We receive records of all property sales from multiple sources, such as the Registry of Deeds, municipalities, lawyers, etc. Properties where sales have occurred are checked by staff in order to ensure that:
The amount of the sale value is correct;
There are no unusual circumstances surrounding the sale; and
The information on file accurately reflects the land/building characteristics which existed at the time of purchase.
Information concerning sales properties is confirmed mostly through property inspections and phone calls. Sales which are “non-valid” are excluded from the sales analysis. Examples of sales which may be non-valid are family sales, mortgage sales, and estate sales.
Land rates and building assessments can both be determined using the sales comparison approach. Location is one of the primary factors affecting market value. For this reason, municipalities within the Province are divided into “Neighbourhoods.” Sales within these neighbourhoods are analyzed using specially designed computer programs, in combination with a full statistical analysis. Neighbourhoods can be analyzed independently or in “Groupings.” The purpose of grouping sales for sales analysis is to expand the sales base where sales patterns are similar. This helps to ensure equitable land and building assessments.
It is important to note that all three approaches to value are considered by the assessor; however, the most applicable approach is applied to determine the final assessed value. It is important to recognize that assessment is “Mass Appraisal” and as such, it is different than the individual appraisal of properties. Assessment reflects the most probable market value of the property in the reference year. If your property sold within the annual base date, your assessment will likely be close to the actual sale price, but it need not be exactly that amount. The primary purpose of assessment is to ensure that similar properties receive similar assessments so that taxes are distributed fairly.