STEVEN J. DREW Assessor OFFICE OF THE ASSESSOR Service, Integrity, Fairness, Internationally Recognized for Excellence OVERVIEW OF RESIDENTIAL APPRAISAL PROCESS And Cost Valuation Report Introduction The Thurston County Assessor s Office is responsible for appraising a variety of property types including residential, agricultural, commercial, industrial, and personal property used for commercial business purposes. With more than 120,000 real and personal property parcels in Thurston County, a mass appraisal approach is used to annually value property. Mass appraisal employs standard procedures for collecting and analyzing property data and reporting the results. Computer programs apply standard land rates, building costs, and depreciation factors by neighborhood, style and grade of construction, and building condition. Fairness and equity is maintained by comparing the appraised values to actual sale prices on a neighborhood-by-neighborhood basis. Statutory Requirements for Property Assessments Title 84 of the Revised Code of Washington (RCW) and Washington State Courts has established the legal parameters for the revaluation and assessment of real property. Property is to be appraised at 100 percent of its true and fair value in money, according to its highest and best use. RCW 84.40.030; Bitney v. Morgan (1974) 84 Wash.2d 9 Fair market value or true value is the amount that a willing and unobligated buyer is willing to pay a willing and unobligated seller. Clarkson v. Williams (1969) 76 Wash.2d 617 Physical inspections of real property must be performed at least once every six years. RCW 84.41.041 Steps Used in the Valuation Process Physical Inspections Each year 1/6 of the county is physically inspected by a state accredited appraiser. A visual site inspection is made of each parcel to determine whether building and land characteristics on file with the assessor have changed since the previous inspection cycle. For instance, buildings are observed to verify the existing construction quality and features, their current condition, and whether additional square footage has been added to the structures. Features that affect land are also noted and updated. 1
Wetlands or unbuildable areas are identified, steep or irregular topography are noted, and views are observed to confirm their continued existence. Annual Revaluation of Property Each year property is revalued to approximate market value as of January 1 as mandated by Washington State laws. Three generally recognized valuation methods in individual property appraisal and mass appraisal are the cost, sales comparison, and income approaches. The income approach is not generally used in appraising residential properties. Thurston County employs a market-calibrated cost approach to value property. The cost model is a mathematical formula that indicates that the value of the property is equal to the value of the land plus the depreciated cost of the improvements. Any structures or buildings attached to land are referred to as improvements to the property. Cost Approach Steps 1. Determine Land Values. Vacant land sales are verified and then used to establish base land rates for various parts of the county. Land values are brought up to date annually by either updating the base land rates or by trending the rates applied to the neighborhood. Land value is measured in a number of ways. For smaller city lots, land is typically valued by the site or by the square foot. Larger tracts of land are generally valued by the acre. Waterfront is typically valued by the front foot. Land sales are also studied to determine the effect of various land characteristics on value. An outstanding view of the Puget Sound or Mount Rainier may increase the value of the land, while steep topography, poor access, or wetlands may reduce the value. Adjustments for these land influences are developed in conjunction with the base land rates. 2. Determine Replacement Cost New of Buildings. The next component of the cost approach is the replacement cost of the improvements. To estimate current market values, a database with current construction costs is maintained. Cost tables are adjusted annually to reflect yearto-year increases in the cost of building materials and labor. A set of cost rates is obtained from a nationally recognized valuation service that produces cost per square foot rates for different styles and qualities of construction. The rates are further broken down by various building components, such as main and upper floor living areas, basements, garages, porches, and other accessory improvements. 2
3. Determine Depreciation of Buildings. Since not all buildings are new, depreciation is applied to the replacement cost of the buildings. Depreciation is typically viewed as the loss in value due to physical deterioration of the structures. This can change over time depending on the level of maintenance and upkeep performed by homeowners. Depreciation is measured in the market place by comparing sale prices of used homes with their replacement cost new. The difference between these two values reflects the loss in value due to depreciation. In other words, all things being equal, buyers will generally pay more for a new home than a used home. 4. Apply Neighborhood Adjustment. The last step in the mass appraisal process is to place the final neighborhood adjustments on both the land and improvement values. Location is the most important factor in determining property value, and this last step allows us to make this final adjustment based on neighborhood influences. Again, sales are used for this purpose. On a neighborhood-by-neighborhood basis, recent sales are compared to the property values that have been produced. Percentage adjustments are applied to the land, buildings, or both to zero-in on market value. APPLICATION OF PROCESS TO YOUR PARCEL The attached Cost Valuation Report demonstrates how this process was applied to your property. Cost Valuation Report Calculation of the Sales Adjusted Replacement Cost New Less Depreciation Value (RCNLD) for your property. Section 1 Identifies your land characteristics and preliminary land value including costs for water and septic. Section 2 Identifies the various residential characteristics of a house or manufactured home, such as quality, condition, and year built. In addition, the replacement cost new estimate is shown for primary building elements as well as the adjustment for depreciation. If there is more than one residence on the same parcel of land, all will be identified. Section 3 - Identifies characteristics related to detached structures and their value estimate. This includes carports, barns, sheds, and other outbuildings. Section 4 Summarizes the individual value estimates for each property component (i.e., land, residence, and detached structures before the neighborhood trend or adjustment is applied). Section 5 Shows the final adjustment made to arrive at a fair market value estimate for your property. A neighborhood adjustment (trend) is applied to the land, building, or both. It is based on an analysis of assessed value to sale price ratios of properties that sold in your 3
neighborhood or similar neighborhoods. Also shown is the Total Assessed Value per square foot, based on Square Feet Of Living Area (SFLA) of the primary residence. The Neighborhood Sales Listing presents sales of properties within your neighborhood or neighborhoods similar to yours. Key elements are listed for each sale property along with the Sales Price Per Square Foot of Living Area (SPPSF) for comparison with the Assessed Value Per Square Foot (AVPSF) of your property. The listing consists of five years of market, arms length sales. The sales price at the time of sale is published on this list. As a caveat, please note that not all arms length sales are reflective of market value and will not provide reliable comparables. Additionally, the market is dynamic! We would like to remind the reader that real estate is generally a lagging indicator. A property which sold at the height of the market in 2010 would sell for less at the trough during 2011-late 2012 than today. That same property s value would increase as the market started its recovery starting in late 2012/early 2013. The change in market condition is attached for your review. Neighborhood Ratio Statistics show the results of the revaluation for your neighborhood. These statistics are based on a comparison of the final assessed values of homes that have sold to their sale prices. The ratios are indication of the accuracy and uniformity of the assessed values. These ratios are based on properties which are fully taxable, so that partial construction, special use, exempt and other conditions not fully reflective of market value are removed. We utilized the most conservative outlier removal process, which resulted in less than 2% of the sales removed. Only those sales were removed that where greater than three interquartiles from both sides of the limits of the interquartiles range. This is within normal research methodology and the International Association of Assessing Offices (IAAO) standards and guidelines. The ultimate result is that the published coefficient of dispersion is at its greatest level or in other words, indicated the greatest difference between properties. 4
GLOSSARY OF ASSESSMENT TERMS COD EFF-YR-Built FN Mean (average) Median (middle) Weighted Mean Coefficient of Dispersion (COD) is an overall measure of uniformity. It is the average deviation from the median ratio expressed as a percentage. Should be 10% or less for homogeneous platted areas, 15% or less for rural areas; 20% or less for land only and for manufactured homes. Effective Year-Built; indicates condition of improvement Finished Average ratio of assessed value to sales price for the group of listed sales Middle value of assessed value to sales price ratios arrayed from low to high; half will be higher and half will be lower than the mid-point. Calculated by dividing the sum of assessed values by the sum of sales prices. Also known as aggregate ratio; it gives greater weight to higher value properties. % Good Percent Good; adjustment for market factor TB = physical depreciation; adjusted per % Good Table FU = functional EC = economic PRD RCN RCNLD SFLA SPPSF Price Related Differential (PRD) measures assessment uniformity within a range of sale prices. It is calculated by dividing the mean by the weighted mean. A PRD between.98 and 1.03 indicates that the high-value and low-value parcels are assessed uniformly. Replacement Cost New Replace Cost New Less Depreciation Square Footage of Living Area Sales Price Per Square Foot 5
Thurston County Residential Time Factors Used Housing prices change over time due to different economic conditions. To convert a historic sale price to today s value the reader can use the chart below. Multiply the sale price during the quarter of the sale by the factor. For example, a sale of $250,000 in February 2014 (Q1Y2014) would sell for 287,750 (250,000 x 1.151) as of January 2017. TIME INDEX PRICE FACTOR Q1Y2012 228,528 1.223 Q2Y2012 229,995 1.215 Q3Y2012 230,609 1.212 Q4Y2012 227,597 1.228 Q1Y2013 230,579 1.212 Q2Y2013 237,566 1.176 Q3Y2013 238,409 1.172 Q4Y2013 239,003 1.169 Q1Y2014 242,696 1.151 Q2Y2014 244,427 1.143 Q3Y2014 246,165 1.135 Q4Y2014 248,316 1.125 Q1Y2015 248,900 1.122 Q2Y2015 259,975 1.075 Q3Y2015 261,311 1.069 Q4Y2015 263,281 1.061 Q1Y2016 266,894 1.047 Q2Y2016 274,016 1.020 Q3-Q4Y2016 279,496 1.000 6
Thurston County Manufactured Homes with Land Time Factors Used TIME FACTOR Q1Y2012 1.260 Q2Y2012 1.126 Q3Y2012 1.238 Q4Y2012 1.297 Q1Y2013 1.246 Q2Y2013 1.187 Q3Y2013 1.252 Q4Y2013 1.221 Q1Y2014 1.344 Q2Y2014 1.248 Q3Y2014 1.198 Q4Y2014 1.146 Q1Y2015 1.212 Q2Y2015 Q3Y2015 1.000 Q4Y2015 1.000 Q1Y2016 1.154 Q2Y2016 1.000 7