1. MAAO “How to Complete and Utilize Sales Ratio Studies”
MAAO Fall Conference
September 7, 2017
Bill Healey, Lewiston Tax Assessor
Dan Robinson, Kennebunk Tax Assessor

2. The Concepts of Market Value and Appraisal Accuracy
Market value is the major focus of most mass appraisal assignments. The major responsibility of assessing officers is estimating the market value of properties based on legal requirements or accepted appraisal definitions. The viability of the property tax depends largely on the accuracy of such value estimates. The accuracy of appraisals made for assessment purposes is therefore of concern, not only to assessors but also to taxing authorities, property taxpayers, and elected representatives.

3. The Concepts of Market Value and Appraisal Accuracy (cont’d)
Appraisal accuracy refers to the degree to which properties are appraised at market value, as defined by professional standards (see Glossary for Property Appraisal and Assessment [IAAO 1997]) and legal requirements. While a single sale may provide an indication of the market value of the property in question, it cannot form the basis for a ratio study, which provides information about the market values of groups of properties.

4. Assessment Ratio Calculation
The Assessment Ratio is calculated by dividing the assessed value (AV) of a property by its sale price (SP).
Assessment Ratio Calculation
$84,000 AV divided by $100,000 SP = 84%

5. Ratio Study
A ratio study is a statistical display of real estate sales
information where sales data is typically arranged under a
heading such as a class of property (e.g., waterfront or
nonwaterfront).

6. State of Maine Assessing Standards
Maximum Assessment Ratio = 110%
Minimum Assessment Ratio = 70%
Maximum Level of Assessment Quality = 20%

7. IAAO Assessment Standards
Assessment Ratio should be *90-110% for direct equalization and *95-105% for indirect equalization.
*of the legal required level of appraisal
Appraised level of each stratum should be within 5%
of the overall level of appraisal.

8. Uses of Ratio Studies Key uses of ratio studies are as follows:
• measurement and evaluation of the level and uniformity of mass appraisal models
• internal quality assurance and identification of appraisal priorities
• determination of whether administrative or statutory standards have been met
• determination of time trends
• adjustment of appraised values between reappraisals

9. Systematic Analysis – in 4 easy steps
Have complete and accurate data on all properties and recent sale properties
Stratify the properties into appropriate groups for analysis
Apply appropriate analytical techniques to each stratification group. Are assessments at the appropriate LOA? Are assessments uniform within the group.
Validate the results – conclusions supported by other appraisers, real estate brokers, lenders etc.

10. Sampling
Random sample – a sample in which each item of the population has an equal chance of being included.
Representative sample – a sample of observations from a larger population of observations, such that statistics can be expected to be representative of the population being studies.

11. Stratification
The act of dividing, for purposes of analysis, a sample of observations into two or more subsets according to some criterion or set of criteria.
For example, grouping waterfront properties with those on a busy highway would not be appropriate and would lead to unsupportable results.

12. Steps in the Process Review and Validate Sales
Select Sales for Analysis
Calculate Assessment Ratio for Each Sale
Array Sales by Ratio
Calculate Weighted Average

13. Steps in the Process 6. “Quartile Sales” to Review Central 70%
7. Calculate Average Ratio
8. Calculate Deviation for Each Sale
9. Calculate Average Deviation
10. Calculate Quality Rating

14. Weighted Average The weighted average is calculated by dividing the
total assessed values by the total sales prices for all
sales in a sales ratio study.

15. Weighted Average From Study
520 Sales in Study
Total Assessed Values - $60,104,250
Total Sale Prices - $74,532,260
$60,104,250/$74,532,260 = 81%

16. Average Ratio The average ratio is calculated by summing the sales
ratios in the central 70% of a ratio study and dividing
that sum by the total number of sales ratios in the
central 70% of that study.

17. Average Ratio From Study
520 Sales in Study
156 Sales Discarded - Upper and Lower 15%
364 Sales Analyzed - Central 70%
Average Ratio of Central 70% = 81%

18. Median Ratio
“Median Ratio” is the midpoint, or middle ratio, when the ratios are arrayed in order of magnitude. It divides the ratios into two equal groups and is therefore little affected by extreme ratios.

19. Median Ratio From Study
520 Sales in Study – Median is Average of Sales 260 & 261
Median Ratio = 80%

20. Deviation Deviation is a ratio study statistic equal to the
absolute percentage point difference between an
individual sales ratio and the average ratio in a ratio
study.

21. Average Deviation Average deviation is calculated by summing the
deviations of all the sales ratios in a ratio study and
dividing that sum by the total number of sales ratios
in that study.

22. Average Deviation From Study
Sum of All Deviations = 53.40
Divided by 520 Sales in Study = 10%

23. Quality Rating The quality rating is calculated by dividing the
average deviation by the average ratio. Quality rating
is a measure of how accurate a municipality’s
assessments are.

24. Quality Rating Average Deviation = 10% Average Ratio = 81%

25. Certified Ratio Certified Ratio is the overall ratio between assessed
value and market value for all property in a
municipality as determined by Maine Revenue
Services through an annual audit.

26. Declared Ratio
Declared ratio is the overall ratio of assessed value to
market value as determined by the municipality. It is
usually the same as the certified ratio. State Law
requires that exemptions and personal property be
factored by the municipality’s declared ratio.

27. Price Related Differential (PRD)
PRD is an indication of vertical equity (the equity of assessment ratios with respect to property value).
Calculated by dividing the mean by the weighted mean.
.98 – 1.03 is considered equitable with no bias with respect to value.
A PRD greater than 1.00 suggests that the higher value parcels are underappraised, pulling the weighted mean below the mean. Alternatively, if the PRD is less than 1.00, high value parcels are relatively overappraised, pulling the weighted mean above the mean.

28. Level of Assessment (LOA)
Assessments reflect current market values
Leave assessment.….make no change
Assessments uniform, but not at market value
May adjust by trending assessments
Some assessments are not at current market value
Appraise just those parcels not at 100%
(e.g. new construction, rehab’s, demolition)
Assessments are neither uniform or at market value
Must appraise all parcels

29. Level of Assessment (cont’d)
If the LOA is good and the uniformity is good (upper left box), no adjustment in the group is required to reflect market value.
If the LOA is not good, but the uniformity is good, trending can easily be used to bring assessments in the group to market value.
If the LOA is good, but the uniformity is not good, only the parcels in the group not at current market value should be adjusted.
If the LOA is not good, and the uniformity not good, then all parcels in the group should be appraised.

30. Beginning Observations City of Lewiston Sales Analysis
Sales Dates – 1/1/15 to 11/30/16
Property types - Single, two, and three family

31. Ratio Statistics - Land Use

32. Ratio Statistics Ratio Statistics - Style

33. Ratio Statistics Ratio Statistics - NBHD

34. Equalization
Direct equalization. The process of converting ratio study results into adjustment factors (trends) and changing locally determined appraised or assessed values to more nearly reflect market value or the legally required level of assessment.
Indirect equalization. The process of computing hypothetical values that represent the oversight agency’s best estimate of taxable value, given the legally required level of assessment or market value. Indirect equalization allows proper distribution of intergovernmental transfer payments between state or provincial and local governments despite different levels of appraisal between jurisdictions or property classes.

35. The end game…..
The purpose of a performance standard that allows reasonable variation from 100 percent of market value is to recognize uncontrollable sampling error and the limiting conditions that may constrain the degree of accuracy that is possible and cost-effective within an assessment jurisdiction. Further, the effect of performance standards on local assessors must be considered in light of public policy and resources available. In other words, do the best you can with what you got!