Municipal Assessment and Market Value: Two Concepts Not to Be Confused
One of the most common misunderstandings among Quebec homeowners concerns the difference between their property's municipal assessment and its market value. Although both measures relate to the same real estate, they serve different purposes and are established using different methodologies. Understanding this distinction is fundamental for any homeowner, buyer, or investor, and the mortgage broker plays an essential role in this education.
Municipal Assessment: A Tax Tool
In Quebec, municipal assessment is governed by the Act Respecting Municipal Taxation (CQLR, c. F-2.1). Each municipality must prepare a property assessment roll assigning a value to every property within its territory. This roll is generally updated every three years (triennial cycle). Values on the roll reflect real estate market conditions at a specific reference date, 18 months before the new roll takes effect. The municipal assessor, who must be a member of the Ordre des évaluateurs agréés du Québec (OEAQ), uses recognized methods including comparison with recent sales, the replacement cost approach, and the income approach for rental properties.
Market Value: A Reflection of Current Conditions
Market value corresponds to the most probable price a property would fetch in an arm's-length sale between informed and willing buyer and seller under normal market conditions. It is influenced by many factors: location, square footage, property condition, renovations completed, local market trends, interest rates, and supply and demand in the area. Market value fluctuates continuously, unlike municipal assessment, which remains fixed for the duration of the triennial roll. For mortgage purposes, market value is determined by a certified appraisal performed by an OEAQ member appraiser, or by an automated valuation model (AVM) used by some lenders.
The Gap Between the Two Values
The gap between municipal assessment and market value varies with market conditions. In a strong rising market like Quebec experienced between 2020 and 2022, municipal assessment could be significantly lower than market value, sometimes by 20% to 40%. Conversely, in a correcting or stagnant market, municipal assessment may approach or even exceed market value. The ratio between median market value and median municipal assessment in a given area, called the comparative factor, is a useful indicator that real estate agents and appraisers regularly consult.
Implications for Mortgage Financing
Mortgage lenders calculate the loan-to-value (LTV) ratio based exclusively on market value. A client who expects to refinance their property based on the municipal assessment may be disappointed if the market value turns out to be different. For example, if the municipal assessment is $500,000 but market value is $450,000, the maximum refinancing amount will be calculated on $450,000. Conversely, a client with a $400,000 municipal assessment could access more equity if the actual market value is $480,000. The mortgage broker must make clients aware of this reality from the earliest discussions.
Practical Tips for Homeowners
- Check the assessment roll online on your municipality's website to see your current municipal assessment and the reference date used.
- Compare recent sales of similar properties in your area through Centris.ca or public registries to estimate your market value.
- Never use municipal assessment alone to set a sale price or estimate your refinancing capacity.
- Contest the municipal assessment if it seems too high (which increases your property taxes) by filing a review request within the prescribed deadlines.
- Engage a certified appraiser to obtain a professional estimate of market value before any significant transaction.