Homeowners love to hear about rising real estate prices, except at this time of the year -- when property tax assessments take place. In Ontario, the Municipal Property Assessment Corporation (MPAC) started sending out new assessment notices a few weeks ago, and it has caused an uproar.

MPAC says it determines assessment values, upon which municipal property taxes are based, by analysing property sales in the neighbourhood.

"MPAC continually collects information about properties to ensure that similar property types are valued consistently within the market area," says the corporation in a notice sent out with the new assessments. "This method is called Current Value Assessment. It is used by most assessment jurisdictions in Canada and around the world."

But unhappy homeowners in the Ottawa area, which started receiving the notices a couple of weeks ago, complained the assessments jumped unpredictably and that the process used to determine the new numbers is difficult to understand. Ontario Ombudsman Andre Marin announced this week that there will be an investigation into how the assessments are performed. The Ombudsman will also investigate complaints that even after homeowners successfully appealed an assessment and had it lowered, that judgement was ignored when the next assessment took place.

MPAC says to test whether the assessment on your property is fair, "Ask yourself if you could have sold your property on January 1, 2005 for its assessed value. If your answer is 'yes,' your assessment is accurate."

The Appraisal Institute of Canada (AIC) (www.aicanada.ca) knows that homeowners are curious about what their properties are worth, and recently it updated its website to answer their most frequently asked questions. Professional appraisers determine property values by conducting "a thorough property inspection, location analysis and an investigation of relevant market data, equating that information into an indication of market value for the property," says the AIC.

"The property's value is often the cornerstone of your financial well-being and consideration should be given to having its value established by an independent professional."

A professional appraisal should not be confused with a home inspection or a Realtor's current market analysis, says AIC. Home inspections concentrate on the physical condition of a home and its components, and a Realtor's analysis is aimed at pricing a home so it will sell in the current market. Unlike real estate agents, who earn a commission based on the sale price of the home, appraisers cannot accept a fee that's "contingent upon a certain predetermined value, minimum or maximum value" says the AIC.

The AIC has also developed a website feature called Renova, which consumers can use to gauge the payback potential of their investment in renovation projects.

Go to the website and choose from one of the 20 most popular renovation projects. Enter the amount you expect to spend on the project, and the website will tell you how much of that you're likely to recover when you sell the home. The site can also add up several different renovation projects to provide an overall payback estimate.

The AIC says you'll get the most bang for your buck from cosmetic upgrades such as painting and decorating. There is little capital outlay and a new paint job has an immediate impact for potential purchasers. Refurbishing the kitchen and the bathroom are the major projects that bring the most payback.

If you're concerned about renovating for resale value, the AIC warns that you also have to take the location of the home into consideration. "Care should be taken not to overly personalize the renovations and adversely affect the property's function or market appeal. Be particularly careful when renovations of the property is in the upper range of value for the area and involves a large financial outlay. Remember, location, location, location ... ."

Homeowners should also know that, like cars, new homes can be subject to depreciation. Physical depreciation is one reason why a home's value will decrease, if there has been a lot of wear and tear on a property. The AIC says functional depreciation can also affect value.

Functional depreciation could be from a poor or inappropriate floor plan, for example, such as a home built with only one bedroom. In today's market, most buyers would want at least two bedrooms, so the value of the one-bedroom home would be less. External depreciation on a house could occur if, for example, a nonresidential property such as a gas station or night club was created near the home.

Despite all the market research and analysis that goes on, the AIC says, "Pricing is an art, not a science, and much intuition is involved."

Published: October 20, 2005

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Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He is also consulting editor of Homes & Cottages, Canada's largest building and renovation magazine. Email jimhc@pathcom.com.