Terms
ASSESSMENT TERMS
When appealing your assessment, you may encounter unfamiliar property assessment and appraisal terminology. The following links provide brief definitions of the most frequently used terms. These definitions are not exhaustive, but should give you a basic level of understanding.
Actual value
Adjustments
Advocate
Appeal Management Conference
Appellant
Appraisal
Appraiser
Arm's length transaction
Assessor
Classification
Comparable sales
Contingent
Cost approach
Decision in Progress
Depreciation
Direct comparison or market approach
Dismissal Order
Effective age
Equity
Excess land
Fee simple interest
Folio number
Highest and best use
Improvements
Income approach
Land and improvements
Lease or licensed property
Market rent
Market value
Mass appraisal
Occupier
Recommendation
Residual value
Respondent
Roll number
Settlement Conference
Use and condition date
Valuation Date
Withdrawal
The Assessment Act requires that properties be assessed at their actual value as of July st ("valuation date") of the year preceding the tax year. For example, valuation day for 2018 assessments was July 1, 2017.
Actual value means market value. It is the most probable price at which a property would sell in a competitive market, if it had been listed long enough to become generally known to real estate agents and prospective purchasers. It also assumes that both the buyer and seller are willing (i.e. it is not a forced sale) and that both parties are prudent and knowledgeable. It assumes that the parties are considering only factors that most other buyers and sellers would consider. Sales between related parties (i.e. parents to children, between separating spouses) and other unusual circumstances are not normally considered competitive market sales.
Because a sale of a property identical to yours doesn’t usually occur right on the valuation date, normally no one can say what the actual value of your property is with absolute certainty. Therefore, actual or market value is really a range of values. The willing buyer would have a ceiling price (i.e. a price he or she will not exceed). The willing seller would have a bottom line price. Actual or market value, and the selling price ultimately agreed on by that willing buyer and that willing seller, will lie somewhere between those two figures. Since taxes must be calculated based upon a specific value, the Assessment Act requires that the assessment notice specify a single value. If the assessed value is in the range of actual value, the Board normally will not interfere with the assessment, even though it may be at the high or low end of the range.
Adjustments
Adjustments are factors, either expressed as dollar values or as percentages, added or subtracted to comparable sales to better equate them with the property under appeal and provide an estimate of market value. For residential properties, adjustments may be made for the time of sale and differences in age, lot size, location, view, and size of the improvements, among other things.
Advocate
Advocate refers to anyone who is advocating a position on behalf of a party. There is no requirement that this be a lawyer. If the Board holds an in-person hearing, parties will frequently act as their own advocates. However, they may also have a lawyer, friend or property tax agent present their case for them. With BC Assessment, frequently, the Assessor (or Deputy Assessor) will act as advocate and present evidence through witnesses (usually an appraiser who is also an employee of BC Assessment). Normally, the advocate will ask questions of the witnesses (examination and cross-examination) and will make submissions. However, the advocate will not be permitted to present evidence, unless the advocate takes an oath or affirmation.
Appeal Management Conference (AMC)
The main purpose of an AMC is to clarify the issues and set steps to resolve the appeal. Most AMCs are conducted by telephone. The parties discuss the issues and the Board can make a variety of orders, such as for the disclosure of documents. If resolution does not appear likely, the appeal is usually scheduled for written submission or an in-person hearing. Some complex appeals may have several AMCs before they are heard.
This is the person who commences an appeal, usually the property owner or occupier. The Assessor or any other person may also commence an appeal.
Appraisal
An appraisal is a method of estimating and documenting value. The three common approaches to value are the Direct Comparison or Market Approach, the Cost Approach, and the Income Approach. An appraiser may rely on all three approaches, although the Direct or Market Comparison Approach is most often used for residential properties. The Cost Approach is often used for new construction, and the Income Approach is appropriate for income producing properties (apartment buildings, office buildings, shopping centres, etc).
Appraiser
An appraiser is the person who prepares an appraisal. In British Columbia, there are no legislated standards for real property appraisers. However, most professional appraisers have some form of provincial, national or international accreditation. Persons who present themselves as an appraiser will have to establish professional expertise for the Board to accept them as an expert in appraisal matters.
Arm's length transaction
A transaction between independent parties, where each acts independently in their own best interest. A sale between close family members, for instance, would not be an arm's length transaction, because the relationship may affect the price paid, or other considerations may come into the sale agreement.
Assessor
The Assessor is the local representative of the BC Assessment. Each assessment area in BC has an Assessor, responsible for preparing assessments within that area. The Assessor is a party (usually a Respondent) to all appeals within his or her assessment area. The Assessor may be an Appellant.
Classification
There are nine classes described in the Prescribed Classes of Property Regulation. Typically the tax rate applied to a property varies depending on the classification.
The nine classifications are:
Class 1 - Residential
Class 2 - Utilities
Class 3 - Supportive Housing
Class 4 - Major Industrial
Class 5 - Light Industrial
Class 6 - Business and Other
Class 7 - Managed Forest Land
Class 8 - Recreational Property/Non - Profit Organization
Class 9 - Farm
Generally speaking, the classification of property is based on its actual use as of October 31 of the previous year. The classification of vacant land with no present use depends on its zoning. To be classified as Farm, a property must meet specific requirements set out in the Standards for the Classification of Land as a Farm Regulation.
The assessed value of mixed-use properties may be split among more than one class. For example, part of the assessed value may be assigned to Class 6 - Business and Other, while part is assigned to Class 1 - Residential.
Comparable sales
Ideally, a comparable sale is the sale of a property physically similar to the property under appeal, close in proximity, and selling close to the valuation date. Comparable sales are usually adjusted (to account for the time between the sales and the valuation date and differences in the characteristics of the properties) to estimate the actual value of the subject. Appraisers use comparable sales when estimating value using the Direct Comparison or Market Approach.
Contingent
Contingent appeals are held pending action on other appeals before the courts or the Board. Usually this occurs when the appeal issues are very similar and it is more appropriate to hold the appeal until the court or Board makes a decision on the other appeal.
Cost approach
This is one of the techniques used by appraisers to estimate actual value. The cost approach combines the estimated land value with the depreciated value of the improvements. The underlying presumption is that a person will not pay more for a property than the cost to replace it. The value of the improvements as new is determined using a manual that is adjusted for local conditions, or from construction costs derived from local contractors. This value is then adjusted to reflect any depreciation to the improvements. This technique is not frequently used for older properties, due to the difficulties in accurately calculating the depreciated value of the improvements.
Decision in Progress
This term is used in the Board’s Annual and Quarterly Reports. It includes appeals that have had a hearing and the Board is in the process of preparing a written decision. It also includes appeals in which the Board is preparing an order on a dismissal, withdrawal or recommendation to change the assessment.
Depreciation
Depreciation means the loss of value due to any cause. It is calculated by comparing the current market value of an improvement with the replacement value of a new equivalent improvement. Depreciation may arise from physical deterioration, changes in function, or economic obsolescence. Depreciation may be curable (fixable or repairable) or incurable.
Direct comparison or market approach
This appraisal technique is frequently used for residential properties. It compares the characteristics of the property under appeal to characteristics of other properties recently sold in a comparable market place. Adjustments are made to account for any differences and, if necessary, the sale prices are adjusted to the valuation date. Adjustments may be made for such characteristics as age, lot size, location, size of the improvements, view, and any other amenities.
Dismissal Order
The Board may issue an order dismissing an appeal due to two circumstances:
- The Board does not have jurisdiction to deal with an appeal; or
- A party (specifically the Appellant) does not comply with a Board order during the appeal.
When appeals are received, the Registrar will write to the parties with his opinion on whether the Board has jurisdiction based on the criteria in the Assessment Act. If a party disagrees with the Registrar, he/she can ask the Board to reconsider.
Effective age
The effective age of an improvement is indicated by the condition and utility of the property. It is useful for comparison purposes in the Direct Comparison or Market Approach. The absolute or chronological age may be different than the effective age. That is, a home built in 1960 may have an effective age of 1995, if recently extensively renovated and updated.
For Major Industrial improvements, “effective age” is defined in B.C. Regulation 395/99.
Equity
Equity requires that similar properties be assessed in a consistent manner in the municipality or rural area. Previous Board and court decisions have held that property owners are entitled to be assessed at the lower of either actual value or the equitable value. This principle is intended to ensure that all property owners within an area pay a fair share of the total property taxes for that area. However, simply because one or a few properties are assessed lower then yours, does not necessarily mean there is an inequity.
Excess land
The condition where a property may have more land than necessary to support or serve the existing improvements. For vacant sites, it is the land in excess of that required to accommodate the site’s highest and best use. For example, this may occur with shopping centres or hotels where they may have more land than they need for site coverage, access roads and parking.
Fee simple interest
Fee simple interest means the interest in real estate of an owner, which includes the right to control, use, and transfer the property at will. It is this interest the Assessor is required to assess. Also see Actual Value.
Highest and best use
Determining ‘Highest and Best Use’ is the first step in the appraisal process. Property is usually valued at its highest and best use and comparable properties usually should have the same highest and best use. The Appraisal Institute of Canada defines it as the use which is most likely to produce the greatest net return over a period of time. The highest and best use may be the same as the actual use, but could be another use - if that use would provide a higher net return. For residential properties, the highest and best use is normally the continued residential use. In some cases, the property could be rezoned for a higher use, or it might be possible to subdivide the property into more lots. If the land value exceeds the value of the property as presently used, the highest and best use will be different from the present use.
Improvements
Improvements, for assessment purposes, generally means any building, fixture, or structure placed on land or water over land. See also Land and Improvements.
Occasionally an owner will do their own construction, or act as the general contractor. They may find a difference between the cost to build their improvement and the assessed value. For assessment purposes, value includes the cost of construction and the market cost of the labour (which should include normal profit margin for general contractors), minus depreciation. Therefore, the assessment for new improvements may exceed the actual dollars spent by the owner.
Income approach
The income approach is most frequently used to value income producing properties. It estimates value by capitalizing the net operating income (usually based on market rent) into perpetuity. The components of this approach to value are:
- Gross income
The gross income from a revenue producing property, before any deductions, based on the rents achievable in the market.
- Effective gross income
Calculated by deducting vacancy and bad debt expenses from the gross income, plus miscellaneous income, considering the market rates for these items.
- Net operating income
This is calculated by deducting from the effective gross income all operating expenses excluding financing costs. Operating expenses include property taxes, insurance, management, and other costs associated with operating the property. For assessment purposes, operating expenses must be market or economic expenses. Actual operating expenses from a property may not be the same as economic operating expenses.
- Overall capitalization rate
This rate is used in the income approach to capitalize the net operating income, to arrive at an estimate of the actual value. The rate is derived from the sales of similar properties, by considering the relationship between the properties’ income expectancy and their values (sale prices).
Land and improvements
The Assessment Act requires the total assessed value be allocated between land and improvements.
- Land for assessment purposes, includes the normal definition of land, plus land covered by water.
- Improvements generally means any building, fixture, or structure placed on land or water over land.
Usually the total value is of most concern and the split between land and improvements is not an issue. For single family residences, usually the total value is derived from market evidence of the sales of similar improved properties. The land allocation is determined by examining the sales of similar but vacant lots. The improvement value is then assumed to be the difference (or residual value) between the total value and the land-only value. It is possible for the improvement value to increase one year over another (even if it has not been altered or renovated) because it is a residual value.
Even if you are only appealing the value of the land or improvements, the Board is required to consider the total value as well as the split between the two.
Leased or licensed property
There are two main categories of property leased or licensed from the owner (landlord):
- Property leased from a landlord, such as commercially tenanted properties or rental residential properties. In this case, the landlord is assessed. A tenant or anyone else may appeal the assessment.
- Land leased or licensed from the Crown. In this case, the occupier is assessed. The assessment must be based on the actual value as if the land was owned in fee simple by the occupier.
Market rent
In the income approach, market rent is what the property would rent for if available in a competitive market. The rent paid under the existing lease, may or may not be the same as the market rent.
Market Value
See Actual Value.
Due to the high number of properties it must assess, BC Assessment uses a mass appraisal system, using data from sales, Land Titles, Municipal Planning Departments and other sources. Only a limited number of properties are actually inspected in any given year, and individual property appraisals are usually not undertaken by BC Assessment unless an assessment is appealed.
Occupier
An occupier refers to someone who possesses land through ownership, lease, licence, or other agreement, or who simply occupies the land. Crown or municipal land is assessed in the name of the occupier as if the land was owned in fee simple by the occupier.
Recommendation
When the parties mutually agree to change the assessment, they submit a joint "Recommendation" to the Board. If the Board is satisfied that the recommended changes conform with its mandate to ensure the accuracy and consistency of assessments, it will issue an order requiring BC Assessment to implement the changes.
Residual value
The apportionment of value between the land and improvements is most frequently determined by valuing the total property, then valuing the land as vacant. The difference or residual is attributed to the improvements. In the case where the land value comprises most of the total value, the residual attributed to the improvements may be small, although the replacement cost of the improvement may be much greater.
Respondent
This is a party to the appeal who is not the Appellant. The Assessor is the Respondent in an appeal commenced by a property owner or occupier. The owner or occupier is the Respondent in an appeal commenced by the Assessor.
Roll Number
Is the number assigned to the property for assessment purposes that is normally printed in the top right corner of your assessment notice. Most property taxation jurisdictions also use this number on tax notices. For most properties one roll number is used for each specific property. When more than one property comprises a single entity, they may be assigned one roll number. In some cases one property can have more than one roll number.
Settlement Conference
The purpose of a Settlement Conference is to reach mutual agreement on all or some of the appeal issues. A Board member facilitates this Conference and discussions are held without prejudice to the position that may be taken if the appeal proceeds to a hearing. Discussions at Settlement Conferences are confidential and any documents submitted do not become part of the public record.
Use and condition date
Section 18(2) of the Assessment Act requires the property be valued based the use and physical condition as it is found on October 31 of the year preceding the tax year. That means, for the 2018 roll, the use and condition date is October 31, 2017. The assessment must reflect the market value of the property as of July 1, assuming its condition and use as of October 31.
Valuation date
Section 18(1) of the Assessment Act requires that properties are assessed at actual or market value as of July 1 of the year preceding the tax year. That means for the 2018 assessment roll, the valuation date is July 1, 2017.
Withdrawal
An Appellant may apply to the Board to discontinue their appeal at any time before a hearing. If approved, the Board will issue an order permitting the withdrawal and closing the appeal. The Board has the discretion whether or not to allow a withdrawal and may continue with an appeal even if an Appellant does not want to proceed.