Survey finds homeowners underestimate property values

British Columbia homeowners generally don't know what they've got when it comes to the value of their property, according to RBC Financial's annual homeownership report.

The survey, conducted by polling firm Ipsos Reid, found that the British Columbians guess that their homes are worth, on average, $313,370 -- a 17-per-cent underestimation from the actual Canadian Real Estate Association-calculated average value of $366,882.

Nationally, the difference is a bit deeper, with Canadians estimating their homes are worth an average of $214,337, when the actual average value of a home was $258,274.

RBC forecasts that Canadians will spend $1.7 trillion on buying, building and renovating homes in 2006.

Kevin Lutz, regional manager of mortgage services for RBC, said it is understandable why it is difficult to estimate real estate values, particularly in many B.C. neighbourhoods where high demand and limited supply fuels bidding wars.

However, he added that figuring out your home's value can be helpful.

"If people are relying on their homes for retirement [investment], there may be a lot of capital there that they don't know about," Lutz said.

Lutz added that homeowners could also be missing out on low-cost capital to consolidate debts at lower interest rates if they don't realize that they have more equity in their homes than they think.

Banks generally give out their lowest interest rates on loans secured by home equity, Lutz said adding that, "it's the cheapest way to borrow."

However, Lutz added that people have to be cautious and should consult a financial planner to have a full financial assessment done before making such refinancing decisions.

Keith Hazell, director of financial planning at Vancity, said he advises clients to figure out their full net worth on an annual basis, which means getting an accurate valuation of your home.

Hazell said retirees who underestimate the value of their real estate may be missing out on an opportunity to downsize and use some of the capital to improve an unnecessarily meagre lifestyle.

However, Hazell added that there are considerable risks to banking too heavily on their home's value, particularly if people are borrowing money against their homes to put into riskier investments.

British Columbians' assessments are off by 17 per cent.

"Sometimes you can be exposed to falling investment [values] or rising interest rates," Hazell added.

"For most people . . . their home is an illiquid asset," Hazell said.

"It's a necessity of life, so it's not something you are typically going to convert into cash for an income stream," he said.

However, the RBC survey found that 38 per cent of British Columbians have borrowed money against their homes, with 20 per cent of them having refinanced their mortgages within the last year.

The survey also discovered that 89 per cent of British Columbians think their homes are a good investment, which is just a point below the 90 per cent of all Canadians who think so.

Ipsos conducted the poll in mid-January using a sample of 2,001 respondents.

The poll is considered accurate within 2.2 percentage points 19 times out of 20.

(prepared by Derrick Penner/Vancouver Sun)

HIDDEN WEALTH

B.C. homeowners tend to underestimate the value of their homes by a greater margin than their counterparts in other regions, an RBC survey finds. Only Atlantic Canadians were found to overestimate their home value.

Home values

Owners' estimate

CREA market value (Jan. 2006)

Difference

B.C. $313,370 $366,882 -$53,512

Alberta $219,711 $242,478 -$22,767

Sask./Man. $129,628 $133,230 -$3,602

Ontario $242,388 $265,364 -$22,976

Quebec $154,592 $185,788 -$31196

Atlantic $141,081 $135,912 +$5,169

National $214,337 $258,274 -$43,937

Source: RBC Royal Bank's 13th Annual Home Ownership Survey