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Properties take time to sell. They are listed for sale, offers are made, offers are accepted, and ultimately the sale closes at a later date. In this blog, we explore the very specific issue of what date is most appropriate to use for a comparable sale.
In the direct comparison approach to value, sales of comparable properties are used to determine a value of another property. One of the things that is considered in selecting comparable properties is the date of the sale. This is because the Assessment Act sets specific days on which property is to be valued for tax purposes and the Assessment Review Board has repeatedly held that the further away a sale took place from that set date, the less reliable evidence it is of what would have happened on the specified date.
For the current extended assessment cycle including the 2022 taxation year, the statutory valuation date is January 1, 2016. So, valuators will be looking for comparable sales on or close to that date.
A question that arises is what date should be chosen: the date that an agreement of purchase and sale is signed or the date that a transaction closes. In some cases, those dates are so close together that it may not matter much but in other cases, a transaction may take several months or even years to close.
In many instances, parties to an appeal hearing before the Assessment Review Board rely on closing dates for their comparable sales. In other cases, parties are not sure whether the date being used was the date that the agreement of purchase and sale was entered to or the closing date.
Here is an example: A valuator finds a great comparable property to use in her analysis based on all characteristics including geographic area and building attributes. Upon closer investigation, the valuator learns that the parties entered into their agreement of purchase and sale on June 5, 2016, but that the deal closed eighteen months later on December 5, 2017. Which date should be used in the valuator’s analysis?
The answer to that question turns on which date best indicates the selling price. The law governing breaches of agreements for real property is helpful.
Once an agreement of purchase and sale is final (or non-conditional) the purchaser cannot back out of that deal without liability to the seller simply because the market dropped between the date the agreement was signed and the upcoming closing date. In such an instance, the purchase could lose their deposit and have to pay significant damages to the seller. Similarly, a seller would not be able to end an agreement without liability to the purchaser just because the market has increased.
An example of the firm nature of an unconditional agreement of purchase and sale can be seen in cases like Friese v. Arfa, 2019 ONSC 3332 (CanLII). In that case the purchaser refused to close and tried to renegotiate the agreement of purchase and sale. The purchaser had agreed to pay $590,000 in the agreement. When it didn’t close the seller re-listed the property and was only able to sell it for $425,000, likely due to changes in the market. The Court found that the purchaser was liable for the $165,000 less the seller was able to get on relisting the property, as well as all the costs the seller had incurred as result of the failure to close.
Cases like that make it clear that once there is an unconditional agreement of purchase and sale there is a binding commitment to pay that price for the land. The value is agreed to on the date the agreement of purchase and sale is signed.
It is therefore hard to justify the use of the closing date as the sale date in a valuation. In our example above, our valuator should include June 5, 2016 as the sale date of that comparable in her analysis and not December 5, 2017. The lengthy closing date does not influence the selling price that the parties agreed to. That value was agreed to on June 5, 2016 and it does not matter if the market changed between that date and the closing date.
The data used in an analysis on comparable sales should be reviewed carefully. In fluctuating markets, the date applicable to a sale can make a significant difference!
NextGenLaw LLP engages in a critical review of the evidence for a hearing. Contact NextGenLaw LLP to see if a reduction in your assessment is possible.