Thursday, January 31, 2019

A Good Tax Assessment System Allows Easy Comparison of County vs.Town Ratios

COUNTYWIDE SALES RATIO - CLICK TO ENLARGE
FAIRLY-ASSESSED TOWN - CLICK TO ENLARGE
OVER-ASSESSED TOWN - CLICK TO ENLARGE
UNDER-ASSESSED TOWN - CLICK TO ENLARGE
Sales Ratio (County Market Value to Adjusted Sales Price) is a better indicator of the proper assessment level than the Assessment Ratio (County Assessed Value to Adjusted Sales), as the latter often includes Town-wise special assessment, abatement, exemption, etc. 

All sales therefore must be adjusted to the taxable status date so the two values (county market value vs. sales) are comparable and the resulting ratios are statistically significant. 

In this example, since the Countywide Median Sales Ratio is .778, all Towns in that County must be valued at or close to this ratio so that the Assessment Roll becomes fair and equitable. Better yet, compare the 25th to 75th percentile of the ratio curve. If the sales are individually validated for ratio eligibility (ours are not), a much wider range – say, 5th to 95th - could be considered.

The Fairly-Assessed Town has a very similar median ratio of .768, along with the 25th-to-75th expanse of the curve.

The Over-Assessed Town however shows a significantly higher Median Sales Ratio (.877), including the short end of the curve. The lower-value homes are generally over-assessed.

The Under-Assessed Town, on the other hand, shows a much lower Median Sales Ratio (.715), including the long end of the curve. The higher-value homes are generally under-assessed.

In order to introduce statistical validation of sales, AVM Ratios (AVM Value to ASP)  may be used to identify the irrational clusters on the curve, thus narrowing the universe of sales down to a more manageable pool requiring individual validation. It's imprudent to assign equal weights to the entire validation curve.  

While this is the Town-wise summary of ratios, in a separate Blog post we will further drill down to the areas in the Town - spatially - where the incidence of over and under assessments could be more severe. 

I picked the above tables from TownAnalyst.com as I own and operate it, to avoid having to deal with any copyright issues. My TownAnalyst site is totally free (no strings) and requires no login or registrations whatsoever. Please use the assessment evaluation system that works best for you.

Thursday, January 24, 2019

SkylineValue Produces Quick-Look Value of "Trophy" Office Property in 60 Seconds

(Click on the image to enlarge)
The above graphic represents a sample valuation of One World Trade Center, a trophy office property in Downtown Manhattan (NYC). A trophy property is different from a Class-A office property in that it showcases a major city. While Class-A office properties are plentiful in major cities around the world, trophies are simply few and far between. People recognize them by their name and fame. Even in Manhattan, a handful of office properties are considered trophies. In fact, in Downtown Manhattan, the World Trade Center is perhaps the lone ranger. 

Trophies generally fetch higher rental rates - both retail (ground floor) and offices  than Class-A's in the area. They tend to be architectural masterpieces as well. Empire State Building in Midtown Manhattan needed half a billion (perhaps millions more) in rehab capital to restore it to its old glory.

I used SkylineValue.com to produce this sample valuation as I own and operate the site, to avoid having to deal with any copyright issues. The site is mobile-friendly so no additional Apps are needed. It's also totally FREE and NO login/registration of any sort is required. 

In order to value an office property on this site, all one needs to know is the general location, rentable square feet and a few general property characteristics, all of which are easily obtainable online. Once these data elements are available, users can have the system process the valuation in 60 seconds or less. 

This system is designed for the Pros and Non-Pros, offering a "Quick Look" valuation and is intended to complement the traditional valuation, not replace it. 80 Major Office Markets in the US and Canada are currently covered. 

Just click on the market of your choice on our homepage and follow the prompt. If you need help, use 'TRY IT' from the homepage. Here is the link to SkylineValue.com:


What the Experts are Saying:
“I checked out SkylineValue.com and I have to say that its awesome.  This is a classic case of good things come in small packages.  I was excited to see that the [XXXXXX] market is included.  I could see this being a very handy tool for investors, appraisers, portfolio managers or just average Joe’s who like to dabble in Commercial real estate.   For my own purposes, I selected different parts of [XXXXXX] and different sub groups of properties and I was astonished at how much flexibility and how quickly I was able to retrieve accurate values without the need for full blown work ups.  The fact that I can get a valuation right on my device in about 60 seconds is a breath of fresh air.  I will be using SkylineValue regularly!”

Tuesday, January 22, 2019

Property Tax Appeals Consulting – A Good Part-time Business Opportunity (Part 2 of 2)


As I have indicated before, this professional domain is ready to be reinvented as the old strategies tend to significantly underperform in addressing and catering to the renewed market demands. Let’s recap why the old strategies have been underperforming:

a) Flawed AVM – At the parcel level (bottom-up), a competing Market AVM does not surgically identify the over-valued parcels on the roll; it usually cross-validates the roll values (as the AVM generating the roll and the challenger tax AVM share the same or very similar sales complexes and attributes). 

b) Failure to Establish the Ratio – While a leading local law firm may take the initiative to challenge the ratio (top-down), consultants rarely spend that extra money to study, negotiate and establish the ratio. An unadjusted Market AVM is therefore utterly ineffective. A prudent consultant must study and establish the ratio first, leading to a Ratio-adjusted Market AVM. Though an adjusted Market AVM is better than an unadjusted one, it nevertheless succumbs to an inherently inappropriate methodology given the market being targeted. Market research based off an inaccurate AVM could be more counter-productive meaning a vast majority of the real “meaty” cases could remain unidentified.


The Re-invention of Tax Appeals Consulting with Forward-looking Solutions

1. A Custom Tax Appeals AVM, not a Market AVM, is in order to Identify Over-valued Parcels on the Roll – A Tax Appeals AVM is a specialized AVM that surgically identifies and categorically defines the over-valued parcels, irrespective of the original construction of the roll, i.e., AVM or Comps-derived.  For example, after having identified the over-valued parcels on the roll, our proprietary Tax Appeals AVM breaks them down into three default categories:  a) MaxiMax (ex: 30% & above), b) MaxiMid (ex: 20-29%) and c) MaxiMin (ex: 10-19%). Of course, the categories can change based on client requests. Though MaxiMax represents the most over-valued category, it’s generally the least liquid (lowest frequency), while MaxiMin tends to be the most liquid.  

2. A Custom Tax Appeals AVM Offers Biggest Bang for the Buck – Although a Custom Tax Appeals AVM is more expensive than a generic Market AVM (as it is sold to a wide variety of users including the competing appeals consultants), it identifies the truly over-valued cases, thus offering much bigger bang per buck. Moreover, by walking down on the curve (MaxiMax to MaxiMid to MaxiMin), a consultant ensures targeting the most over-valued (hence most profitable) cases first. In other words, if a new consultant decides to target only the top two categories in the first year, s/he still achieves the biggest bang for the buck, potentially expanding into the third category in the following year. On the other hand, a Market AVM is a total hit or miss for appeals consultants, without any assurance that the most over-valued would be targeted at all.

3. A Custom Tax Appeals AVM makes Marketing a Scientific Exercise (Smart Marketing) – Since Appeals AVM precisely identifies and categorizes the over-valued parcels, the market penetration (targeting those homeowners) becomes an extremely easy exercise. Depending on the liquidity of the tranches, homeowners could be invited to attend outreach seminars. Due to the uniqueness and accuracy of the Tax Appeals AVM, a vast majority of those homeowners will – for the first time – find out how they are being over-assessed. In fact, this precise and scientific approach will help discover a market hitherto unknown and unexplored. While the clueless competition will continue to pour in money on useless Market AVMs chasing the meatless-to-less meaty market segments, this new generation of consultants will sign up the truly over-assessed clients at a rapid rate, proving that marketing is more a modern day science than an age-old art. Since this is primarily a contingency business (tax savings are generally split), targeting the right market segments is the key to success. Custom Tax Appeals AVM provides that scientific base.


What the New Consultants Need to Get Started

A. Acquire the Tax Roll from the Jurisdiction – As soon as the tax roll is published, they need to acquire a soft copy with a year worth of sales, should they decide to research the ratio. In fact, obtaining the sales data is highly recommended as the ratio study would get them started with the top-down knowledge as well. While negotiating with the AVM consultants, they should bundle the ratio study for a better price (if not free). The cost of the tax roll varies by the jurisdiction – free to low cost to $100’s of dollars. For instance, our county charges $10 for the entire roll including sales. In order to keep the cost of data manageable, the data pertaining to certain zip codes could be thought of (of course, the ratio study will require sales from across the county).   

B. Subscribe to a Comps Program – While the AVM will point to the over-valued cases, it does not replace the individual comps reports needed at the hearing. Brokerage sites are inadequate for two reasons: a) they show primarily the active listings, and b) even if they carry the recent sales, they do not provide the pre-formatted comps reports. The programs that allow dollar adjustments in terms of (sales) time and quantitative variables are preferred. While evaluating the various commercially available programs, the ease of use and flexibility of the adjustment matrix (where the coefficient values are stored) must be closely examined, to avoid having to deal with significant wasteful time and agony during the crunch time. Needless to say, month-to-month subscription contracts are preferred to annual contracts as the need to process comps reports would last only two to three months. Other basic business (including LLC, etc.) and bulk mailing costs must also be factored in.   

C. Two Complementary Minds could do Miracles – Teaming up with a buddy with complementary skill-set could be the way to go. Since the targeting window is quite short-lived, the outreach seminars could thus be simultaneously offered in two different parts of the town/county. The complementary skill-set works better as the business grows so one could handle operations and technical aspects while the other could concentrate on the marketing side. The advantage of the two-partner team from the get-go is that it helps create similar passion, knowledge and forward thinking.  People who pursue part-time opportunities must also know the conflict of interest rules their full-time jobs generally impose (no need to jeopardize the full-time job!).

Thursday, January 17, 2019

Property Tax Appeals Consulting – A Good Part-time Business Opportunity (Part 1 of 2)

If you are a marketing-oriented personality and are looking for a part-time business opportunity, explore property tax appeals consulting. In fact, evenings and weekends are perfect to host outreach programs to market such services to the homeowners (i.e., present your unique tax-saving program as compared to the competition’s and signing them up on the spot or via follow-up personal meetings).

Every tax jurisdiction offers short windows to allow filing of appeals, both on and offline, followed by face-to-face presentation of (over-assessment) cases to the hearing officers or the assessing staff. Of course, the case presentation generally takes place in weekdays so during that period you have to make yourself available in weekdays (check with your county/town re: the filing and case presentation windows). Assessment cycles are important determinants of appeals so you must know how your jurisdiction’s cycle operates. While 1 to 2-year assessment cycles tend to be more common, 3 to 4-year cycles are not too uncommon either.

The Current Consulting Environment

1. Inappropriate Market AVMs: Though many consultants started using 3rd party automated valuation model (AVM) values, they do not work well in identifying the over-assessed parcels on the roll as the underlying challenger AVMs tend to be Market AVMs as well. Since the 3rd party AVMs and Assessor AVMs would share very similar modeling sales samples (in terms of the time period, sales significance, etc.), they produce very similar values, thus essentially validating the tax roll values while costing a lot of money for those values.

2. Flawed Sub-market level AVMs: Many tax roll AVMs are built at the sub-market level, without jurisdiction-wide equalization and/or smoothing, thus distorting values along the sub-market lines. Let’s say Hillside Avenue divides the two sub-markets, despite having very similar, if not identical housing stocks on both sides. Since the two sub-market level modeling samples would be mutually exclusive, the housing stocks on either side would be valued differently. Obviously, if the internal QC fails to identify and correct those inconsistencies, the roll would be palatable to the consultants having access to jurisdiction-wide AVMs.

3. Some Consultants Take More Specialized (Non-AVM) Approach: Of course, there are other consultants who are more specialized in marketing their services; for example, Homes with GIS implications: close to major arteries, backing into the service roads to the highways, industrial areas, etc.; New Constructions: often, analysts apply basic cost approach rather than market-adjusted cost approach to new homes and subdivisions, thereby inflating their values significantly above the real market; Incomplete Improvements: Instead of applying some token values to incomplete improvements (hence unusable as of the roll date), analysts often apply cost (cost to cure, etc.), causing the age-old controversy, etc.

4. National Tax Firms Suffer from Similar Shortcomings: While some national tax firms pursue this business via their franchisees or licensees, they suffer from very similar shortcomings. They work with national AVM vendors to ascertain the “meaty” cases. Unfortunately, those are generic market model values, being sold to wide range of users – from banks/mortgages to private mortgage insurances to mortgage reits to tax consultants and others. Considering they are developed off of different sale periods and methodologies, they can produce very different values, not necessarily ideal to determine the accuracy of the tax rolls. Even when the methodology is similar, they are nonetheless market models, thus untenable as good challengers. 
  
5. Law Firms Often Challenge the Assessment Ratio: While some law firms in every jurisdiction represent certain home-owners, their primary focus is the metallurgy of overall assessment ratio (a.k.a., residential assessment ratio or RAR). Since assessment rolls must be fair and equitable, those law firms resort to independent RAR tests, internally or by hiring outside experts. Disputes over RAR, especially after major reassessment, often force tax rolls to the court. The retail consultants, therefore, have limited competition with the local law firms. Of course, the commercial space is a different ball game (and is outside the purview of this blog post).  

The point is, the methodologies and strategies used by the existing (mass) filers are often based off significant inadequacies (resulting from hit or miss analytics or inappropriate AVMs), paving the way for the old domain to be renewed and reinvented, with more scientific baseline work coupled with creative marketing strategies.

Thank you.

Monday, January 14, 2019

Homequant Offers QA/Review AVM for SFR to 4-Family Homes

SkylineValue Offers Custom Automated Valuation Modeling (AVM) for Office Properties

Friday, January 11, 2019

JustAutoValue Offers Auto Loan Portfolio Valuation Modeling (AVM)

Homequant Offers AVMs and Spatial Comps to Support Property Tax Reassessments