EXPLAINING MASS APPRAISAL PROMOTING THE ROLE OF THE ASSESSOR MAAO SUMMER CONFERENCE, JUNE 24, 2015 RICHARD W. FINNEGAN, MAA
Please excuse the length of this letter. I didn t have time to write a short one. Benjamin Franklin
Writing the long letter is easy for assessors because we are so involved in what we do and have so much data!
Separating the wheat from the chaff takes extra effort.
Whether at the counter
At an abatement hearing
At a public meeting
Or with a group of angry taxpayers
We ve become proficient at assessing and revaluation. BUT How good are we at explaining what we do to others?
ANSWER: We re making great strides. YOUR ASSESSING DEPARTMENT What s Behind The Curtain?
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
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
What s the purpose of a revaluation? I KNOW THE TOWN NEEDS THE MONEY, BUT...
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.
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.
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
All sales are considered arms-length Unless there is sufficient basis to prove otherwise
The sales that don t qualify as arms-length are excluded from the revaluation process
Very high end, uncommon and more complex properties require greater effort to determine arms-length status.
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
Why do we have a revaluation every year? NOTHING HAS CHANGED."
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
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.
Why is mass appraisal different than other appraisals? MY ASSESSED VALUE IS HIGHER THAN THE APPRAISAL I JUST HAD DONE BY THE INSURANCE COMPANY.
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.
Why not just use Zillow? I CAN GO TO ONLINE WEBSITES AND FIND REAL ESTATE VALUES IN MY TOWN.
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.
How does an assessor do a revaluation? YOU MEAN THAT YOU CAN APPRAISE ALL THE PROPERTIES IN TOWN ALL AT ONCE?
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.
What do you mean by the word model? I HAVE NO IDEA WHAT A MODEL IS AND HOW IT APPLIES TO MY ASSESSMENT.
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
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
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
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 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
How exact should assessed valued be? ASSESSING IS ART AND A SCIENCE.
This is too difficult for a mathematician; it takes a philosopher. Albert Einstein on Taxes Not With Mathematical Precision
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.
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.
Property data gathering is costly. Gathering data is the most labor intensive and expensive phase of revaluation.
Property data must be accurate. Accurate property data and data collection techniques are vital for developing uniform market values.
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
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 $500,000 0.95 * Assessment to Sale price Ratio
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 32 18 241,720 03/13/13 125,000 1.93 150 149 346,490 12/18/13 250,000 1.39 100 50 291,000 07/22/13 222,000 1.31 152 402 310,090 06/25/13 237,500 1.31 18 28 161,280 03/22/13 125,000 1.29 55 121 457,120 02/27/13 387,000 1.18 173 63 784,880 06/18/13 665,000 1.18 148 78 399,820 02/28/13 343,000 1.17 63 122 390,380 08/20/13 335,000 1.17 159 833 186,060 02/13/13 160,000 1.16 154 188 258,460 03/18/13 224,000 1.15 149 8 189,180 12/17/13 165,000 1.15 172 11 372,120 05/07/13 325,000 1.14 159 1006 245,500 07/17/13 215,000 1.14 163 55 520,630 02/28/13 458,750 1.13 113 229 294,420 04/09/13 260,000 1.13 55 129 660,280 04/30/13 588,000 1.12 38 163 267,300 04/30/13 240,000 1.11 123 297 222,530 10/18/13 202,000 1.10 89 23 197,200 05/10/13 182,000 1.08 159 753 180,300 11/26/13 167,900 1.07 148 70 327,380 09/03/13 306,000 1.07 92 76 476,960 12/20/13 445,900 1.07 44 87 342,080 08/16/13 320,000 1.07 156 110 720,120 01/30/13 675,000 1.07 Median 1.14 COD 7.69 # of Sales 25 PARCEL ID ASSESSED VALUE (AV) SALE DATE SALE PRICE (SP) ASR 145 12 342,500 05/21/13 337,000 1.02 33 62 177,740 08/15/13 175,000 1.02 92 33 212,960 06/25/13 210,000 1.01 19 84 255,790 07/26/13 262,900 0.97 69 9 1,219,820 03/07/13 1,255,000 0.97 19 35 232,160 06/12/13 240,000 0.97 123 136 162,310 04/19/13 168,000 0.97 133 120 602,810 09/12/13 625,000 0.96 38 2 232,280 06/18/13 242,000 0.96 55 71 399,530 07/30/13 419,000 0.95 63 129 340,870 08/02/13 359,000 0.95 61 77 329,560 10/21/13 347,500 0.95 31 46 212,740 07/26/13 224,500 0.95 103 65 274,290 10/31/13 291,000 0.94 133 121 619,130 07/26/13 657,000 0.94 134 16 410,650 02/12/13 440,000 0.93 23 154 228,200 12/17/13 245,000 0.93 14 16 588,950 10/01/13 635,000 0.93 55 79 415,470 08/16/13 449,000 0.93 33 131 253,340 06/17/13 275,000 0.92 89 45 277,050 06/28/13 305,000 0.91 28 140 439,800 04/19/13 485,100 0.91 159 573 216,250 10/04/13 240,000 0.90 54 6 342,070 07/10/13 380,000 0.90 113 95 253,190 04/30/13 281,900 0.90 Median 0.95 COD 2.79 # of Sales 25
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
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 725,000 720,000 0.99 581,300 574,000 0.99 759,000 748,000 0.99 670,000 659,000 0.98 1,135,000 1,115,000 0.98 639,900 627,000 0.98 595,000 575,000 0.97 700,000 670,100 0.96 2,450,000 2,325,000 0.95 Median 0.98 COD 1.10 # of Sales 9 Median ASR
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 725,000 720,000 0.99 581,300 574,000 0.99 759,000 748,000 0.99 670,000 659,000 0.98 1,135,000 1,115,000 0.98 639,900 627,000 0.98 595,000 575,000 0.97 700,000 670,100 0.96 2,450,000 2,325,000 0.95 Median 0.98 COD 1.10 # of Sales 9 Uniformity
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 468,000 600,000 0.78 442,500 500,000 0.89 400,000 400,000 1.00 500,000 400,000 1.25 567,000 420,000 1.35 ACCEPTABLE ASR =1 / COD = 2.0 Assessed Value Sale Price ASR 598,500 607,615 0.99 595,200 600,000 0.99 580,000 580,000 1.00 575,000 558,250 1.03 585,000 559,800 1.05
Graphic Display of Acceptable Assessment Level Median ASR =.98 DATA CHART SALE PRICE ASSESSED VALUE ASR 725,000 720,000 0.99 581,300 574,000 0.99 759,000 748,000 0.99 670,000 659,000 0.98 1,135,000 1,115,000 0.98 639,900 627,000 0.98 595,000 575,000 0.97 700,000 670,100 0.96 2,450,000 2,325,000 0.95 Median ASR 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 ASSESSMENT TO SALE PRICE RATIOS Median 0.98 COD 1.10 # of Sales 9 0 1 2 3 4 5 6 7 8 9 SALE PRICE ASSESSED VALUE
Graphic Display of Unacceptable Assessment Level Median ASR =.72 DATA CHART SALE PRICE ASSESSED VALUE ASR 3,000,000 ASSESSMENT TO SALE PRICE RATIOS 759,000 601,000 0.79 639,900 505,000 0.79 1,135,000 850,000 0.75 2,450,000 1,800,000 0.73 725,000 525,000 0.72 700,000 495,000 0.71 581,300 410,000 0.71 595,000 410,000 0.69 670,000 453,000 0.68 Median ASR 2,500,000 2,000,000 1,500,000 1,000,000 500,000 Median 0.72 COD 4.40 # of Sales 9 0 1 2 3 4 5 6 7 8 9 SALE PRICE ASSESSED VALUE
Use GIS To Graphically Display Sales Ratio Data DATA GIS
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
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
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
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
Land Valuation
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.
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.
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)
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.
Vacant land sales are often scarce. In built up communities, subdivisions are usually the primary source of vacant land sales.
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.
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.
LOCATION LAND AREA SIZE DATA POINT SALE DATE SALE PRICE BLDG VALUE LAND RESIDUAL VALUE DATA POINT 848 FRANKLIN ST 0.26 0.26 09/28/07 345,000 81,300 195,300 182,600 A List of Land Residuals Can Be Used to Show How A Land Valuation Table is Created 41 WINTER ST 0.72 0.76 05/25/07 650,000 423,500 226,500 207,400 40 PINEWOOD LN 0.80 07/13/07 855,000 591,600 263,400 1267 FRANKLIN ST 0.92 03/01/07 780,000 497,300 282,700 11 BRAVENDER RD 0.92 03/30/07 457,500 216,800 240,700 591 SUMMER ST 0.92 05/24/07 484,900 239,800 245,100 36 ENTERPRISE ST 0.92 06/01/07 484,000 240,300 243,700 248 MAYFLOWER ST 0.92 10/30/07 525,000 229,200 295,800 933 MAYFLOWER ST 0.93 0.92 10/12/07 371,500 140,700 230,800 235,100 244 BOLAS RD 0.93 09/27/07 570,000 296,200 273,800 486 CHANDLER ST 0.94 03/02/07 437,500 186,200 251,300 86 SOUTH ST 0.94 08/28/07 415,000 175,600 239,400 166 ENTERPRISE ST 0.94 09/28/07 567,000 274,600 292,400 111 CROSS ST 0.95 12/13/07 355,000 105,800 249,200 28 CHRISTINA CT 0.95 08/23/07 580,000 303,300 276,700 1047 SUMMER ST 0.99 05/24/07 175,000 336,200 175,000 383 SUMMER ST 1.00 1.00 12/21/07 375,000 147,000 228,000 235,500 516 CHANDLER ST 1.01 05/01/07 350,000 109,100 240,900 935 FRANKLIN ST 1.02 04/05/07 250,000 480,800 250,000 82 VINE ST 1.09 07/13/07 620,000 426,400 227,800 240 CHANDLER ST 1.14 1.13 05/24/07 376,000 125,100 264,100 238,000 116 SOUTH ST 1.14 01/03/07 440,000 162,600 277,400 74 NORTH ST 1.17 01/24/07 476,500 193,800 282,700 783 KEENE ST 1.24 03/19/07 500,000 192,100 307,900 238 KEENE ST 1.30 1.30 08/31/07 395,000 143,200 251,800 252,000 167 WINTER ST 1.37 07/31/07 550,000 281,500 268,500 677 TEMPLE ST 1.45 1.47 11/27/07 490,000 230,600 259,400 255,000 103 DELORENZO DR 1.50 05/25/07 375,000 129,800 258,100 295 MAYFLOWER ST 1.80 1.80 08/08/07 470,000 153,000 317,000 278,000 130 UNION BRIDGE RD 2.00 2.06 03/19/07 750,000 442,700 307,300 289,600 15 HATCHES BAR RD 2.12 09/20/07 687,500 343,800 343,700 215 KEENE ST 2.94 3.00 06/22/07 422,000 147,100 274,900 295,000
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.
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.
Size 67 Typical Land Size and Land Value Progression Sample Land Curve LAND SIZE (SF) LAND VALUE 10,000 150,000 20,000 200,000 30,000 235,000 40,000 250,000 50,000 255,000 60,000 260,000 70,000 Values DO NOT change in direct proportion to size 60,000 50,000 40,000 30,000 20,000 10,000 130,000 Data appears as curve 150,000 200,000 235,000 255,000 250,000 260,000 0 0 50,000 100,000 150,000 200,000 250,000 300,000 Value Typically, land curves are created for several neighborhoods
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 10,000 150,000 15.00 20,000 200,000 10.00 30,000 235,000 7.83 40,000 250,000 6.25 50,000 255,000 5.10 60,000 260,000 4.33
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
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.
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.
How can we explain increases in assessed value? THERE MUST BE A MISTAKE. ONLY THE RANCHES ON MY STREET WENT UP.
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% 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.92 0.96 0.91 0.95 0.94 0.93 0.92 0.92 0.92 Style 0.98
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% 1 2 3 4 5 6 7 8 Neighborhood 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.93 0.92 0.91 0.92 0.91 0.93 0.92 0.87 1 2 3 4 5 6 7 8 Neighborhood
Powerful Skills Assessors Provide PROMOTING THE ROLE OF THE ASSESSOR
The ability to calculate and provide reliable data for sound financial management and budgeting.
The ability to produce accurate property valuations that are vital to a community s economic development efforts.
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.
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.
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 3 2 1 B i l l i n g t o n S t. P l y m o u t h, M A 0 2 3 6 0 d i c k f i n n e g a n @ f i n n e g a n a p p r a i s a l. c o m 508-524-8780