How the Current Market May Affect Real Estate Assessments

Valuable Insight Into How Assessors Consider Prevailing Market Conditions

A number of concerned taxpayers are contacting local assessors asking how the current real estate market will affect property assessments for the upcoming 2011 assessment year.  While each real estate market is local in nature, there are a few basic principles that assessors take into consideration before revising assessments (up or down).  Many people have questioned why the 2010 assessed values are so high when current real estate market conditions have declined.  The following information will give you valuable insight into how property assessors may consider market conditions during 2010 in determining assessments for 2011.

The Assessment Process
Throughout most of the United States, state tax laws require that real estate assessments have an effective date of December 31st or January 1st each year.  Each state within the U.S. has the responsibility of governing the property tax, so your state may vary.  Tax laws in each state define the effective date for assessed values and taxation as well as the frequency of reassessments.

The resulting property assessments are the basis for real estate taxes that will be due during the coming year.  However, in estimating the fair market value of properties for assessments purposes on December 31 or January 1, the assessor typically considers and gives the most weight to the real estate market activities during the 12 month period prior to the effective date for assessments.

For example, the 2011 assessments for properties in most cities and counties in Virginia will be based upon sales and other real estate market activities during 2010 in order to estimate fair market values as of January 1, 2011.  These assessed values will then be used as the basis for real estate taxes in Virginia that are due June 5, 2011 (first-half tax bill) and December 5, 2011 (second-half tax bill).  It is important to note that the tax due dates are not valuation dates but deadlines for real estate tax installments.

The result of this process can appear to be disjointed.  The payment of a second-half real estate tax bill in December 2011 that is based on real estate market activities during calendar year 2010 may give the impression that your local assessor is out of touch with the current market.  Typically taxpayers benefit from local assessors using such historic sales data, except when the market declines.

Consideration of Prevailing Market Conditions: Property Assessment vs. Single Property Appraisal
While there are many factors that influence how your local property assessor will determine your assessment for 2011, one of most important will be how prevailing market conditions are measured.  However, it’s important for the assessor to measure these prevailing conditions for the right effective date for the reassessment.

For example, if the effective date for the next reassessment is January 1, 2011, the prevailing real estate market activities of the 12 month period during 2010 may be studied.  However, if the effective date for the next reassessment is January 1, 2009, (which can be the case in some states) the prevailing market during the 12 month period during 2008 may be studied.  Paying real estate taxes during 2011 based on 2008 real estate market activities may seem unusual, but are considered uniform and equitable if all properties are treated the same and very necessary in large jurisdictions where thousands of properties are assessed by smaller assessment offices.

Major differences between single property appraisals performed by independent appraisers for lenders and mass-appraisal methods used by local assessors include different effective dates for valuation and the timeframe considered for comparable sales.

Effective dates for property assessments are fixed by state tax laws—as described earlier—where effective dates for single property appraisals are typically the date of inspection and closer to the date of sale, purchase, or refinancing.

Where property assessors may consider comparable sales for a period of 12 to 24 months prior to the effective date of valuation for reassessments, the single property appraiser may look at comparable sales during a 90 to 180 day period prior to the effective date of valuation and active listings.

Property assessors use extended timeframes for comparable sales because they are typically valuing every property in their assessment jurisdiction.  In order to obtain accurate and measurably uniform assessments using generally accepted mass-appraisal methods, the comparable sales timeframe must be greater.
  
The selection of “qualified” comparable sales, regardless of timeframe, may also be different.  Property assessors use their judgment in the selection of qualified comparable sales after considering state law requirements and generally accepted appraisal and assessment standards of practice and guidelines.  State laws require that property assessors follow the rules, regulations, and guidelines issued by assessment oversight agencies (e.g., county or state equalization boards or commissions, and state tax agencies and commissions).  Most property assessors also consider the assessment standards and suggested guidelines distributed by the International Association of Assessing Officers (IAAO).

As mortgage foreclosures and foreclosure-related sales began to be more common place in 2007 many assessment oversight agencies began to issue rules, regulations, and guidelines related to how foreclosures and foreclosure-related sales should be viewed when qualifying comparable sales.  While state laws and assessment oversight agency rules, regulations, and guidelines take precedence, IAAO assessment standards and guidelines are also considered by property assessors.

According to the most recent guideline by the IAAO (A Guide to Foreclosure-Related Sales and Verification Procedures approved for distribution by the IAAO Executive Board July 18, 2009) stated, in part, that: 

“A number of different sales transactions can occur during the foreclosure process.  However, not all foreclosure-related sales are the same nor should they all be treated alike.  Foreclosure-related sales that meet the market-value test can be used for computer assisted mass appraisal (CAMA) or automated valuation modeling (AMV), as comparable sales for valuation purposes, or as part of the sales sample in ratio studies.  It may also be possible to determine adjustments for foreclosure-related sales for use in CAMA or AVM market modeling, comparable sales valuation, and sales ratio studies.”

While the entire guide is too extensive to review as part of this article, it is important to know that property assessors are considering all of the resources available to them in valuing properties for assessment purposes during these difficult times.

Those who want to understand the property assessment process better are encouraged to read the IAAO reference that, according to the document, “describes many types of foreclosure-related sales and how to examine them to determine if and how they can be used for modeling, appraisal, or ratio studies.”  Unfortunately, at the present time, this guide is only available to IAAO members.  Your local assessor may be able to secure a copy of the guide for your review.

Summary
The deciding factors for 2011 assessments may be:

• The effective date for 2011 assessments;
• The timeframe considered for comparable sales prior to the effective date for assessments; and
• How foreclosure-related sales are considered by your local assessor

If you want to know more about how current market conditions may affect 2011 assessments, you are encouraged to contact your local assessor’s office.

Comments

[Richard L. Sanderson]

Thanks for your comments. Yes, the common level ratio or equalized assessed value should definately be considered as that is typically what the real estate tax rate is levied against and not the local assessed value. Some taxes levy taxes against equalized values, especially where reassessments are not performed annually, and other states do not.

[build on your lot builders (Mitchell Homes Inc.)]

Property owner identification may appear different than what may be found from information records in the Beaver County Recorder of Deeds Office because of the statutory requirements of the Fourth through Eighth Class County Assessment Law and the rigorous review of all recorded data that may affect the roll. The estimated current market value can be adjusted through application of the Common Level Ratio, depicting an equalized or record assessed value. The Common Level Ratio may appear on property records where a taxpayer successfully appealed the assessment premised upon current market value. Thanks for sharing.

[Richard L. Sanderson]

Thank you for your comments. With a name like Adirondack Waterfront Property I must assume that Beaver County is located in New York State. I always appreciate it when real estate professionals, like you, keep their clients and potential clients informed of the proprety assessment and tax process.

[Adirondack Waterfront Property]

Beaver County Assessment information data is provided by the Beaver County Assessment Office. The information contained on this Website reflects property record data as of the immediate preceding revision as authorized by the Beaver County Board of Assessment Appeals. The Law also permits revisions to the roll on physical characteristic changes to properties, which were determined to occur in the prior calendar year, and approved by the Beaver County Board of Assessment Appeals. Thanks for sharing.