A question that I often hear from both buyers and sellers is “what’s the value of this home?”

As an agent I analyze market conditions and apply my local knowledge to determine a home’s market value. Aside from an agent’s estimate of a home’s value, there are two other ways of determining it: an appraisal and an assessment. In Ontario, you can easily find the assessed value of your home on the Municipal Property Assessment Corporation (MPAC) website, but that value is often confused with the current appraised value. While they may seem similar, these values are actually determined for different reasons, at different times, and can sometimes be very different from each other. Let’s break down the difference between the two.

Appraised Value

If you’ve recently bought or refinanced a home, you’ve probably had an appraisal done by your lender. This is a detailed, independent assessment by a third-party appraiser who determines the property’s value on a specific date. The appraiser looks at the property’s size, condition, location, comparable sales, features, and any upgrades made to determine the value. It's important to remember: the appraised value isn’t the same as market value. An appraiser gives their professional opinion on what they believe the property is worth based on specific factors. But market value is what a typical buyer would actually pay in today’s market.

Why is an appraised value so important? The appraisal value can significantly impact your home purchase or sale because when a mortgage is involved, obtaining financing is typically contingent on the appraisal. The home must appraise close to the amount that you’re purchasing the home for, and the determined value can influence the loan amount the lender is willing to offer you. If a house appraises for significantly lower than the estimated value, the lender may lower the amount of the loan. For a purchase, the buyer may not be able to or willing to increase the down payment to make up the difference which may result in a renegotiation, or, worse, the deal could fall apart. For a refinance, the lender may lend less than the borrower needs or not at all.

Assessed Value

The assessed value is the number your local government uses to determine how much property tax you owe. Unlike the appraised value, the assessed value doesn’t change with market fluctuations, and it’s calculated using a standardized approach by MPAC. They analyze the sales of similar properties that have sold in the area. Based on the sales information, there are five major factors that generally account for a property’s assessed value:age of the property, living area size, location, lot size and quality of construction. They also take into account secondary structures (like garages or pools), site features (proximity to amenities), and structural features (like number of bathrooms or air conditioning).

MPAC typically reviews assessed values every four years, but the last provincial wide assessment was in 2016. They were all set to review all property values in 2020, on schedule, but the pandemic hit, and the Ontario government postponed the process. There was again no 2024 assessment and as of now there is no set date for when the next will occur. They do provide assessments when a property is renovated or sold, but those must be dated in 2016 values to keep an even playing field. We know values will need to be assessed sooner or later, and that home values have obviously gone up since 2016. Since you’re currently being taxed on 2016 assessment values, you may be wondering if a huge property tax hike is in store when the re-assessments eventually occur. By law in Ontario, the system is revenue neutral, meaning Municipalities won't suddenly see a windfall after a province wide reassessment. If your property goes up by the average, you won’t see any change in property taxes. If it goes up by more, you may see a slight increase and if it goes up by less you could see a decrease.

While both appraised and assessed values are important, they’re used for different purposes. The appraised value is what your lender uses to decide on a loan amount, while the assessed value is what determines your property taxes. Understanding these differences can help buyers, sellers, and homeowners navigate the market more effectively and make smarter, more informed decisions when it comes to their property.

In short: don’t mix them up! Each value serves a unique role in the world of real estate.