Valuation Definitions

When reading the insurance policy, there are many terms about valuation.

Actual Cash Value: the fair or reasonable cash price property would bring in a fair market, allowing for depreciation.

Assessed Value: The valuation placed on property by a public tax assessor for purposes of taxation. The main assessor for B.C. is BC Assessment, a provincial Crown corporation governed by the Assessment Act. 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. The mass appraisal approach means that the assessed value may not include some unique components of a dwelling that would contribute to its value. But since taxes must be calculated based upon a specific value, the Assessment Act requires that the assessment notice specify a single value. A certain amount of information about assessed value is in the public domain and is available online at www.bcassessment.ca; click on e-Value BC. BC Assessment determines properties value as of July 1 (the ‘valuation date’) of each year, and sends assessment notices to homeowners the following January. Municipal taxes are assessed on the basis of this assessed value. Property owners can appeal the valuation, or can request that the valuation change to reflect temporary conditions such as major refurbishment.

Appraised Value: An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience and analysis of the property.

Cost Approach: One of the techniques used by appraisers to estimate value, cost approach combines the estimated land value and 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: that is, the cost of the site plus the value of the improvements. The value of improvements is determined using a manual that is adjusted for local conditions, or from construction costs derived from local contractors. The 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.

Fair Market Value: The highest price that a buyer, willing but not compelled to buy, would pay and the lowest a seller, willing but not compelled to sell, would accept. Market value is a product of many factors including location, size, features and current market conditions. To develop market value, an appraiser typically does a full physical inspection of the property followed by a detailed study of all the other factors. This is the most fluid of all the values on a given piece of property as the factors are almost always changing. The only time the factors from the actual cost of construction play into this number is when it is a new construction. The new construction costs are used as a basis to determine the worth of building relative to the anticipated sale price. Obviously the truest indicator of the market value of a piece of property or home is what it actually sells for.

Reconstruction Cost: The cost to rebuild, including soft costs (engineering reports, architectural drawing, municipal permits), removal of debris and reconstruction. Could include the cost of enforced demolition and removal of undamaged portions of the building.

Replacement Value: The cash value or cost to replace a thing. The value placed on a piece of property by an insurance company for the purpose of coverage.