EXPLAINING MASS APPRAISAL

Transcription

1 EXPLAINING MASS APPRAISAL PROMOTING THE ROLE OF THE ASSESSOR MAAO SUMMER CONFERENCE, JUNE 24, 2015 RICHARD W. FINNEGAN, MAA

2 Please excuse the length of this letter. I didn t have time to write a short one. Benjamin Franklin

3 Writing the long letter is easy for assessors because we are so involved in what we do and have so much data!

4 Separating the wheat from the chaff takes extra effort.

5 Whether at the counter

6 At an abatement hearing

7 At a public meeting

8 Or with a group of angry taxpayers

9 We ve become proficient at assessing and revaluation. BUT How good are we at explaining what we do to others?

10 ANSWER: We re making great strides. YOUR ASSESSING DEPARTMENT What s Behind The Curtain?

11 We are better at Explaining what we do for the Town Finding visual ways to help others understand the assessing process Demonstrating the value assessors have in helping to run the Town

12 Promote, don t just defend the role of the assessor. To this end: a sampling of slides follows covering Assessing basics Explanation of technical terms Commonly misunderstood aspects of mass appraisal Role of the assessor

13 What s the purpose of a revaluation? I KNOW THE TOWN NEEDS THE MONEY, BUT...

14 Purpose of revaluation: To distribute the tax burden in an equitable way. Not to determine the amount of the tax burden. The amount of the tax burden is determined through the Town s budgeting and legislative process.

15 State Law and Revaluation Massachusetts mandates A town s real property tax burden must be distributed according to the value of property owned. The value of property is determined from arms-length sales. An arms-length sale is one that takes place in a competitive and open market and is not affected by special influences. The process of identifying arms-length sales is called sales verification.

16 Sales Verification Arms-length sales status is determined by Real estate transfer documents, i.e. deeds Sales verification questionnaires to buyers and sellers Personal interviews with buyers, sellers, brokers, appraisers and financial institutions

17 All sales are considered arms-length Unless there is sufficient basis to prove otherwise

18 The sales that don t qualify as arms-length are excluded from the revaluation process

19 Very high end, uncommon and more complex properties require greater effort to determine arms-length status.

20 Non Arms-Length Sales Sales typically determined to be non armslength include Estate sales Sales to property abutters Sales between family members Buyer or seller is under duress and may not be acting prudently or knowledgeably regarding all potential uses of the property when the sale is made

21 Why do we have a revaluation every year? NOTHING HAS CHANGED."

22 ANSWER: Fairness Real estate markets are dynamic so all properties are not affected the same way. Factors that can affect change in market value include: Property type (residential, commercial, industrial) Property location Property desirability Market supply and demand

23 The Impact of Change Changes in the market make some properties more valuable or less valuable than others. Annual revaluation identifies these changes in market value and assesses properties accordingly, as the law requires.

24 Why is mass appraisal different than other appraisals? MY ASSESSED VALUE IS HIGHER THAN THE APPRAISAL I JUST HAD DONE BY THE INSURANCE COMPANY.

25 Let s Compare Appraisals FEE APPRAISAL One at a time. Done for a variety of individual reasons, e.g. purchase, estate, refinance, etc. Performed at different points in time. Focus is not on equity of all property values. MASS APPRAISAL All at the same time. Appraised as if sold on the same date. Statistical tests prove accuracy of the appraisals. Provides individual values for each component: land, building, outbuildings and site improvements.

26 Why not just use Zillow? I CAN GO TO ONLINE WEBSITES AND FIND REAL ESTATE VALUES IN MY TOWN.

27 ANSWER: Not Reliable Missing, out of date or incorrect data. Lack of source documentation to show how values are derived. No concern for equity among similar parcels. Lack of statistical tests to ensure accuracy.

28 How does an assessor do a revaluation? YOU MEAN THAT YOU CAN APPRAISE ALL THE PROPERTIES IN TOWN ALL AT ONCE?

29 Revaluation 1. A group of recently sold properties is selected representing a range of characteristics and prices. 2. A data file of recently sold properties is created containing sale prices and key property characteristics such as neighborhood, land size, dwelling style, size and age, etc. 3. Valuation models or schedules are applied to this sales data file and they are repeatedly refined until the new assessed value of each closely matches its sale price. 4. Models that work on the sale properties are applied to all properties to produce a new set of property assessments.

30 What do you mean by the word model? I HAVE NO IDEA WHAT A MODEL IS AND HOW IT APPLIES TO MY ASSESSMENT.

31 Valuation Model Defined A valuation model is a mathematical formula used to compare key property characteristics. Different market values are generated for individual properties. Key variables include Square footage Type of construction Lot size Location View

32 Simplified Model: Each model characteristic is assigned a dollar value and added to get an assessed value $ for sq. footage of Home (1,000, 2,000, 3,000, etc.) + $ for condition of Home (poor, fair, above average, excellent, etc.) + $ for size of Lot (½ acre, one acre etc.) + $ for location of Property (waterfront, on main highway, subdivision, etc.) = $ Assessed Value

33 Like this $ Value for 2000 sq. ft. + $ Value for average condition + $ Value for 20,000 sq. ft. lot + $ Value of neighborhood = Assessed Value of $380,000

34 CAMA Computer Assisted Mass Appraisal CAMA is a generic term for any software package used to help establish real estate appraisals for property tax purposes. ASSESSMENT CONSULTANTS Pk Valuation Group COMMUNITY SOFTWARE CONSORTIUM Real Estate Research Consultants, Inc.

35 35 How CAMA Works CAMA models account for variations between properties to produce values. These values are compared to the prices of sale properties that are the basis for revaluation. Subject the new values to quality control testing Assemble Sales Data Value sale properties using existing valuation models Each market area and property type (single family, multi-family, condo) have different value models The models are calibrated or adjusted to reflect what recent sales are indicating in the marketplace..with CAMA, all properties are treated in the same manner creating a fair assessing process. Apply valuation models to all properties Refine valuation models to produce values that mirror the sale prices

36 How exact should assessed valued be? ASSESSING IS ART AND A SCIENCE.

37 This is too difficult for a mathematician; it takes a philosopher. Albert Einstein on Taxes Not With Mathematical Precision

38 The Art and Science of Appraisal Home sales are subjective with buyers paying different prices for the same property. Location, condition, desirability, advertising and timing influence the purchase price.

39 The Art and Science of Appraisal Mass appraisal relies on math and science but also uses observational skills to determine value. Assessors and appraisers are trained professionals that apply appraisal standards and regulations; but also exercise judgement and interpretative skills.

40 Property data gathering is costly. Gathering data is the most labor intensive and expensive phase of revaluation.

41 Property data must be accurate. Accurate property data and data collection techniques are vital for developing uniform market values.

42 Consistency is key. Certain data collection methods may seem foreign to some people. They are determined by recognized appraisal methods and the requirements of town s CAMA system. Examples: outside measurements upper story sq. footage being equal to ground floor area or a fraction of ground floor area basement bedrooms not included in room count, etc.- quality and condition ratings

43 Assessment Quality Control Sales Ratio Analysis The principal method of checking the quality of new assessed values is by comparing the relationship or ratio of assessed values of recently sold properties to their selling prices. Assessment Recent Sale Price Ratio (ASR*) $475,000 $500, * Assessment to Sale price Ratio

44 The Raw Material of Assessment Quality Control: Lists of Recent Sale Data: assessments, sale prices and ratios PARCEL ID ASSESSED VALUE (AV) SALE DATE SALE PRICE (SP) ASR ,720 03/13/13 125, ,490 12/18/13 250, ,000 07/22/13 222, ,090 06/25/13 237, ,280 03/22/13 125, ,120 02/27/13 387, ,880 06/18/13 665, ,820 02/28/13 343, ,380 08/20/13 335, ,060 02/13/13 160, ,460 03/18/13 224, ,180 12/17/13 165, ,120 05/07/13 325, ,500 07/17/13 215, ,630 02/28/13 458, ,420 04/09/13 260, ,280 04/30/13 588, ,300 04/30/13 240, ,530 10/18/13 202, ,200 05/10/13 182, ,300 11/26/13 167, ,380 09/03/13 306, ,960 12/20/13 445, ,080 08/16/13 320, ,120 01/30/13 675, Median 1.14 COD 7.69 # of Sales 25 PARCEL ID ASSESSED VALUE (AV) SALE DATE SALE PRICE (SP) ASR ,500 05/21/13 337, ,740 08/15/13 175, ,960 06/25/13 210, ,790 07/26/13 262, ,219,820 03/07/13 1,255, ,160 06/12/13 240, ,310 04/19/13 168, ,810 09/12/13 625, ,280 06/18/13 242, ,530 07/30/13 419, ,870 08/02/13 359, ,560 10/21/13 347, ,740 07/26/13 224, ,290 10/31/13 291, ,130 07/26/13 657, ,650 02/12/13 440, ,200 12/17/13 245, ,950 10/01/13 635, ,470 08/16/13 449, ,340 06/17/13 275, ,050 06/28/13 305, ,800 04/19/13 485, ,250 10/04/13 240, ,070 07/10/13 380, ,190 04/30/13 281, Median 0.95 COD 2.79 # of Sales 25

45 What Ratios Tell Us About Quality Two key things we learn about assessment quality by analyzing lists of sales ratios are The Level of Assessment The Uniformity of the Assessments

46 Level of Assessment Answers the question of whether the assessments are at one hundred percent of market value; or lower than market value; or at some percentage above market value. An acceptable median ASR range is between.90 and 1.10 for single family homes and condominiums. SALE PRICE ASSESSED VALUE ASR 725, , , , , , , , ,135,000 1,115, , , , , , , ,450,000 2,325, Median 0.98 COD 1.10 # of Sales 9 Median ASR

47 Uniformity of Assessment Refers to the extent to which all the assessment to sale price ratios analyzed are clustered around the median ratio (uniformity) or whether they are widely dispersed (lack of uniformity). Assessment uniformity is usually expressed in terms of the statistical measure: COD (Coefficient of Dispersion). A COD of less than 10 is the standard for single family homes and condominiums. SALE PRICE ASSESSED VALUE ASR 725, , , , , , , , ,135,000 1,115, , , , , , , ,450,000 2,325, Median 0.98 COD 1.10 # of Sales 9 Uniformity

48 Both Assessment Level And Assessment Uniformity Must Fall Within Specified Ranges To Signify Quality UNACCEPTABLE ASR =1 / COD = 18.7 Assessed Sale ASR Value Price 468, , , , , , , , , , ACCEPTABLE ASR =1 / COD = 2.0 Assessed Value Sale Price ASR 598, , , , , , , , , ,

49 Graphic Display of Acceptable Assessment Level Median ASR =.98 DATA CHART SALE PRICE ASSESSED VALUE ASR 725, , , , , , , , ,135,000 1,115, , , , , , , ,450,000 2,325, Median ASR 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 ASSESSMENT TO SALE PRICE RATIOS Median 0.98 COD 1.10 # of Sales SALE PRICE ASSESSED VALUE

50 Graphic Display of Unacceptable Assessment Level Median ASR =.72 DATA CHART SALE PRICE ASSESSED VALUE ASR 3,000,000 ASSESSMENT TO SALE PRICE RATIOS 759, , , , ,135, , ,450,000 1,800, , , , , , , , , , , Median ASR 2,500,000 2,000,000 1,500,000 1,000, ,000 Median 0.72 COD 4.40 # of Sales SALE PRICE ASSESSED VALUE

51 Use GIS To Graphically Display Sales Ratio Data DATA GIS

52 Refine Data with Stratification List of sales ratios are grouped or stratified into classifications that are typically used to distinguish properties, such as style types, neighborhoods, price ranges etc. The sales ratio analysis of each stratification provides the opportunity to hone in on sub-groups of properties that do not meet the minimum standards for assessment level and uniformity. If the ASR and COD values in any stratification do not meet minimum requirements, the valuation tables (models) are further refined to correct the problem. Sales ratios are grouped Unacceptable subgroups identified Valuation tables refined

53 Typical Classifications That Are Used To Distinguish Properties House Styles Neighborhoods Year Built Ranges House Size Ranges Assessed Value Ranges Sale Date Ranges Land Size Ranges When lists of sales ratios are broken down (stratified) into the sub groups within each of these classifications, assessing problem areas are identified and corrected. Examples: Ranch style homes are too high Older homes are too high Neighborhood 3 is too low

54 Market Adjusted Cost Approach Start with the cost of replacing buildings and other improvements Subtract depreciation Add the value of the land. Adjust as necessary in order to mirror selling prices Replacement Cost - Depreciation + Land Value $ Property Value

55 Let s Talk Building Valuation Building cost tables in CAMA are adjusted to reflect the current cost to replace existing structures. Local building costs are researched from national sources and tested against any local new construction. Depreciation is applied to the new replacement cost estimate to reflect the age and condition of the buildings. Adjustments are made to reflect local real estate market

56 Land Valuation

57 Defining Neighborhoods Neighborhoods are delineated for analysis and establishment of land values. A neighborhood is defined by certain characteristics that exhibit a significant degree of homogeneity in economic and physical characteristics. Some neighborhoods are defined based on sales data, zoning, physical characteristics and similarities like topography and natural boundaries.

58 Neighborhood boundaries are often established by: Natural barriers - rivers, lakes, hills etc. Political barriers - city limits, zone boundaries, school districts, etc. Man made obstacles - streets and highways, rail lines, major utility Rights of way - green belts etc.

59 Elements of Homogeneity or Similarity Similar style homes Homes with similar utility Similar age, size and quality of homes Similar price range of houses Similar land uses (zoning)

60 Sales of Vacant Land Vacant land sales are the primary source of data for land valuation because they represent direct market evidence between one buyer and one seller. They require careful interpretation. They don t necessarily translate into valid land assessments for improved properties.

61 Vacant land sales are often scarce. In built up communities, subdivisions are usually the primary source of vacant land sales.

62 Vacant land sales can be a RED FLAG When they are few in number vacant land sales can give a false impression of values because they may sell at a premium. Can also possess negative characteristics that show little value difference from a typical lot.

63 A supplement to vacant land sales: Land Residuals Sale $ of Improved Property The Assessor looks at improved property sales in addition to vacant land sales to determine land value. Known as the residual or abstraction method of land valuation, it can is used when there are insufficient land sales to arrive at land values. - Improvements $ Land Value By subtracting the market value of the improvements from the sale price of an improved property, an indication of the land value can be arrive at.

64 LOCATION LAND AREA SIZE DATA POINT SALE DATE SALE PRICE BLDG VALUE LAND RESIDUAL VALUE DATA POINT 848 FRANKLIN ST /28/07 345,000 81, , ,600 A List of Land Residuals Can Be Used to Show How A Land Valuation Table is Created 41 WINTER ST /25/07 650, , , , PINEWOOD LN /13/07 855, , , FRANKLIN ST /01/07 780, , , BRAVENDER RD /30/07 457, , , SUMMER ST /24/07 484, , , ENTERPRISE ST /01/07 484, , , MAYFLOWER ST /30/07 525, , , MAYFLOWER ST /12/07 371, , , , BOLAS RD /27/07 570, , , CHANDLER ST /02/07 437, , , SOUTH ST /28/07 415, , , ENTERPRISE ST /28/07 567, , , CROSS ST /13/07 355, , , CHRISTINA CT /23/07 580, , , SUMMER ST /24/07 175, , , SUMMER ST /21/07 375, , , , CHANDLER ST /01/07 350, , , FRANKLIN ST /05/07 250, , , VINE ST /13/07 620, , , CHANDLER ST /24/07 376, , , , SOUTH ST /03/07 440, , , NORTH ST /24/07 476, , , KEENE ST /19/07 500, , , KEENE ST /31/07 395, , , , WINTER ST /31/07 550, , , TEMPLE ST /27/07 490, , , , DELORENZO DR /25/07 375, , , MAYFLOWER ST /08/07 470, , , , UNION BRIDGE RD /19/07 750, , , , HATCHES BAR RD /20/07 687, , , KEENE ST /22/07 422, , , ,000

65 Important to Know about Land Valuation In general, the value of land rises as parcel size increases; but it does not rise in direct proportion to its size.

66 Lot Size and Lot Value If a town s zoning regulations dictate that only one house can be constructed on a 10,000 square foot parcel and, likewise, only one house can be constructed on a 40,000 square foot parcel, then both lots have essentially the same utility the construction of one house Therefore, buyers do not pay four times the price of a 10,000 square foot lot for a 40,000 square foot lot.

67 Size 67 Typical Land Size and Land Value Progression Sample Land Curve LAND SIZE (SF) LAND VALUE 10, ,000 20, ,000 30, ,000 40, ,000 50, ,000 60, ,000 70,000 Values DO NOT change in direct proportion to size 60,000 50,000 40,000 30,000 20,000 10, ,000 Data appears as curve 150, , , , , , , , , , , ,000 Value Typically, land curves are created for several neighborhoods

68 Caution When Using Price Per Square Foot As A Unit of Comparison While smaller parcels of land generally have lower values than larger parcels of land, smaller land parcels nevertheless typically have higher dollar per square foot values. LAND SIZE VALUE PER LAND VALUE IN SQ FT SQ FT 10, , , , , , , , , , , ,

69 Because the value of land is concentrated in the portion that meets the zoning size requirement for building (Primary), land is typically segmented for assessment purposes. RESIDUAL RESIDUAL WETLAND RESIDUAL PRIMARY PRIMARY PRIMARY SECONDARY Typical Occasionally

70 Land and Building Value vs Total Value While it is common practice in a revaluation to produce separate land and building values for improved properties, we should also recognize that the land and building value components of a total assessed value do not actually exist as entities that can be bought and sold separately. Rather, the land and building components of a property are sold as an inseparable package. It is the total assessed value that is used as the basis for taxes and that must be defended in an appeal process.

71 The Assessor s Challenge We must produce total property values that mirror the market. We need to display separate land and building values that are credible. $150,000 Land and building asking prices are NOT separate on For Sale signs or on multiple listing services. Land and building prices are NOT negotiated separately by buyers and sellers. $200,000 What the real estate market tells us about the value of land and building packaged together is more important than the value of each component.

72 How can we explain increases in assessed value? THERE MUST BE A MISTAKE. ONLY THE RANCHES ON MY STREET WENT UP.

73 Percent Change Assessment Level Relate % Change to Assessment Level PERCENT CHANGE BY STYLE ASSESSMENT LEVEL BY STYLE 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% 5% 3% 5% -6% 6% 4% Style 6% 10% 6% 4% Style 0.98

74 Percent Change Assessment Level Relate % Change to Assessment Level PERCENT CHANGE BY NEIGHBORHOOD ASSESSMENT LEVEL BY NEIGHBORHOOD 10% 8% 6% 4% 2% 0% -2% -4% -6% -4% 9% 6% 5% 5% 5% 4% 4% Neighborhood Neighborhood

75 Powerful Skills Assessors Provide PROMOTING THE ROLE OF THE ASSESSOR

76 The ability to calculate and provide reliable data for sound financial management and budgeting.

77 The ability to produce accurate property valuations that are vital to a community s economic development efforts.

78 Value every parcel. Assessors Perform A Key Role in the Financing of Local Government Determine the tax base growth. Calculate the tax rate. Assess personal property and excise taxes. Contribute to the budget process.

79 The way to get started is to quit talking and begin doing. - Walt Disney This presentation is available for your use. Assessing personnel may use any of these slides to help explain the nature of mass appraisal and communicate the value of the assessment function and the role of the assessor.

80 F i n n e g a n A p p r a i s a l a n d C o n s u l t i n g, L L C B i l l i n g t o n S t. P l y m o u t h, M A d i c k f i n n e g a f i n n e g a n a p p r a i s a l. c o m