Tuesday, November 6, 2018

These 9 Enhancements will Make Property Assessment Fair and Equitable

9 Enhancements

1. Backward-bending Status/Valuation DateSince the Taxable Status Date (or the Valuation date) is generally a futuristic date, the available market information and data tend to be quite inadequate to develop proper predictive (mass appraisal) models that, in turn, generate the assessment roll. Case in point: Many taxing jurisdictions utilizing CAMA (mass appraisal) modeling generally build their models in August/September with the available data, targeting the next January as the status date, creating an enormous predictive (data) gap. FYI - A vast majority of those modelable sales would have been contracted in the first and early second quarter of the year (the gap is actually more dire!). We, therefore, need to set the status/valuation date back in line with the availability of the modelable data, to avoid having to produce (or gamble with) a futuristic roll. 

Here is the Published Paper on this topic
http://blog.homequant.com/2018/03/should-taxable-status-date-be-forward.html

2. Short-term Sales: When the holding period of the property is less than 2 years, those sale prices must be anchored as market values, thus forcing the potential gamers (institutions, flippers, etc.) to pay higher taxes. The point is, the rapid institutionalization of the housing market needs to be evaluated separately, to avoid having to redistribute their share (of the burden) on to the rest. Assessors must therefore aggressively lobby to remove the application of any state/charter restrictions (e.g., annual growth capped at 5%, etc.) from short-term sales so they stand on their own at the market level, without any pseudo protection. Exclusion: non-arms length sales (inter company, distressed, etc.).

3. AVM Application: Since Automated Valuation Modeling (AVM is a top-down econometric solution encompassing the vast majority of residential properties on the roll) is inherently more equitable, it must be applied on to the rest of the roll, including the non-arms length from #1. Exclusion: Unique properties.

4. Unique Properties: AVM is not meant for this group (trophies, large waterfronts, tiny oceanfront bungalows, etc.) so they must be hand-worked by the assessing staff. Obviously, the sale of unique or vastly atypical properties must not enter the modeling (AVM) sales sample, either.

5. Outsource AVM: It’s much cheaper to outsource residential AVMs to an economic consulting/research firm (not appraisal) than maintaining a dedicated group of in-house modelers. It’s also more effective because they would be non-political and be judged by an important metric: appeals %.

6. 2-to-4 Family Properties: Considering these are income-producing properties, they must not co-share the SFR roll. They must be modeled, valued and taxed as a separate group or as a sub-group (small cap) under the multifamily.

7. Manpower Planning: Larger jurisdictions must learn from the private (FedEx, UPS, Amazon, etc.) how to use the seasonal help. For example, the seasonal help could be used to process exemptions, appeals applications, income/expense statements, etc. They can be used to perform field operations and inspections too. Alternatively, counties/taxing jurisdictions may maintain a “Central Pool” agency to cater to the different agencies based on their seasonal manpower requirements. 

8. Practice Assessment: Instead of having an autonomous appeals/review department, it's better to have it under the Assessment umbrella. Having a separate government agency or department is inherently political and is not necessarily in the best interest of the taxpayers. Often, the focus of the autonomous appeals/review is to hire appraisers, rather than assessors, which does not promote equity of the roll. 

9. Commercial Assessment: In order to promote equity of the commercial segment of the tax roll, departments must practice assessment, not appraisal. It's therefore prudent to collect a sizeable Income and Expense (I/E) sample to develop meaningful local metrics for the commercial properties. In fact, I/Es could be used to develop Use-based AVMs to process the homogeneous properties, generally one sigma under the bell curve.  Commercial Assessors must also be groomed internally.  

Flood Zone Insurance: Last but not least, enforce flood zone insurance. Homeowners inside the designated flood zones must carry flood zone insurance. Should the situation arise, insurance companies would be on the hooks, not the rest of the taxpayers. Of course, an annual credit could be offered to offset a minimum policy deductible.  

Again, having an all-encompassing residential AVM does not make the roll fair and equitable; it must be properly sourced and targeted. Likewise, training and promoting a group of non-quant employees as AVM techs does true injustice to the roll. Finally, use-based Income AVMs could promote equity across the homogeneous stretch of commercial property groups.

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