PROPERTY VALUATION

PROCESS

UNDERSTANDING HOW PROPERTIES

ARE VALUED FOR TAX PURPOSES

AD VALOREM TAXATION

Ad valorem means: “to value” or “concerning value”.

Ad valorem tax: is based on the principle that the amount of tax paid should depend on the value of property owned.

The data used to establish values is from “arms length sales”.

“Ad Valorem” Taxation is covered in the Massachusetts General Laws.

Most information can be found in Chapter 59 of the Massachusetts General Laws.

ARMS LENGTH SALE ARMS LENGTH SALE: Is a sale between an informed, willing

seller and buyer. Neither party may have an advantage over the other party. The property needs to have reasonable exposure on the open market and is based on the most probable price, not the highest, lowest, or average price.

Examples of non-arms length sales according to the DOR:Family salesRepossession or sale of a foreclosed

propertyPrivate sale not put on the market

MASS APPRAISAL Is the systematic appraisal of groups of

properties as of a given date (January 1st) using standardized procedures and statistical testing. These procedures and statistics are used to gauge and create accuracy and consistency.

Its purpose is the equitable and efficient appraisal of all property in a jurisdiction for Ad Valorem Tax purposes.

These values must meet strict statistical criteria and undergo triennial review by the Massachusetts Department of Revenue.

MASS APPRAISAL….. The Mass Appraisal process begins with land

valuation. Land values are derived from sales (usually over the prior 18-24 months) of “Teardown” lots, subdivisions of existing lots that create new lots, and the increasingly rare sale of unimproved vacant land.

There is an analysis of all arms length sales in a given calendar year.

FY 2011 values are a product of calendar 2009 sales.

Danvers uses a Computer Assisted Mass Appraisal System (CAMA) administered by Patriot Properties, Inc.

Their system uses a market adjusted cost approach…this adds a market derived land value to a computer generated building cost plus or minus any indicated market fluctuations.

MASS APPRAISAL…..

 

The Mass Appraisal Process uses statistical analysis of valid sales, and their assessments, in relation to their sale prices, to check the accuracy of assessments. Two of the key components of this statistical testing are the Median Assessment to Sales Ratio (ASR) and the Co-efficient of Dispersion (COD).

For single family homes, the Massachusetts Department of Revenue requires that the Median ASR be between .90 and 1.10. The COD must be less than 10.0. 

The ASR is calculated by dividing the assessed value by the sale price.

If a property assessed at $570,000 sells for $600,000 the ASR would be .95.

The overall MEDIAN is calculated by arranging all the ASR on individual sales in numerical order and finding the middle number.

MASS APPRAISAL…… To calculate the COD of a group of properties that have been

sold, you must find out how far each individual ASR is from the overall MEDIAN and find the average of those differences.

If the MEDIAN for a group of sales is .97 and the ASR of a particular sale is .90, the ABSOLUTE DEVIATION IS .90 MINUS .97 OR .071

The AVERAGE ABSOLUTE DEVIATION (ADD) is simply the average of all the ABSOLUTE DEVIATIONS for a given set of sales.

The final step in the COD calculation is to divide the ADD by the MEDIAN and multiply the result by 100 to turn it into a whole number.

EXAMPLE:AAD = .041

MEDIAN = .97COD = (.041/.97) x 100 or 4.27

Parcel ID Sale Date Sale Price FY 2011 Value ASR* Median AD**

050 134 27-Mar-09 351,600$ 315,800$ 0.90 0.97 0.072

045 143 10-Dec-09 395,000$ 355,300$ 0.90 0.97 0.071

050 056 26-Aug-09 342,500$ 310,100$ 0.91 0.97 0.065

036 222 16-Jul-09 310,500$ 282,500$ 0.91 0.97 0.060

036 013 1-Jul-09 441,000$ 403,300$ 0.91 0.97 0.055

050 172 3-Jul-09 275,000$ 257,800$ 0.94 0.97 0.033

041 150 15-Dec-09 341,500$ 328,200$ 0.96 0.97 0.009041 057 30-Nov-09 260,000$ 251,000$ 0.97 0.97 0.005050 164 30-Jul-09 290,000$ 283,400$ 0.98 0.97 0.007018 047 15-May-09 276,000$ 271,800$ 0.98 0.97 0.015

020 115 5-Mar-09 475,000$ 479,800$ 1.01 0.97 0.040

035 207A 12-Mar-09 400,000$ 405,700$ 1.01 0.97 0.044

044 126 30-Sep-09 280,000$ 284,200$ 1.02 0.97 0.045

036 201 20-Mar-09 266,000$ 270,300$ 1.02 0.97 0.046

010 036 27-Feb-09 658,000$ 672,900$ 1.02 0.97 0.053

AAD*** 0.041

*Assessment to Sales Ratio** Absolute Deviation MEDIAN 0.97***Average Absolute Deviation COD 4.27

COMMERCIAL/INDUSTRIAL VALUATION

Properties are valued using a market adjusted cost approach

The DOR requires that we develop a income approach as an additional approach to value

Send out I&E Forms each year Informative introduction letter I & E form has clear instructions Automatic ATB dismissal for non-compliance

Analyze I &E data

Develop/update our schedule of rents, vacancy, expenses Concentrate on the details of recent leases Become familiar with standard market based expense

ratios

Apply data to income approach section of software

ABATEMENTSYOU MIGHT BE ENTITLED TO AN ABATEMENT

If you find a discrepancy in the physical characteristics of your home in relation to what is on file at the Assessors Office (3 baths listed, when you only have 2, or a finished basement that you do not have).

If several houses in your neighborhood similar in style, total building square footage and total land area to yours, sold for less than the assessed value of your property during the time period Assessors used for valuation purposes for the fiscal year.

If several houses in your neighborhood similar in style, total building square footage and total land area to yours HAVE NOT sold recently, but have a significantly lower assessment than your property.

Note: other areas that should be considered for comparison purposes are: year built, grade, condition, # of bathrooms, etc.

  Unfortunately, if your taxes are just “Too High” or the “House down the street, just like mine, sold last month for less than my assessment”, the abatement process may not be the appropriate route to lower your tax bill.

PROPOSITION 2 ½ AND THE LEVY LIMIT

HELPFUL LINKS….. Information can be found in Chapter 58 of the

Massachusetts General Laws, which covers General Provisions Relative to Taxation

http://www.mass.gov/legis/laws/mgl/gl-58-toc.htm

Information can be found in Chapter 59 of the Massachusetts General Laws, which covers Assessment of Local Taxes

http://www.mass.gov/legis/laws/mgl/gl-59-toc.htm

Assessors Online Data Base can be found at http://danvers.patriotproperties.com/default.asp

Assessing Department Web Page can be found at http://www.danvers.govoffice.com/