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How Real Estate Assessments Are Done in Fairfax County

Revised March 2011

SUMMARY:  While most homeowners are familiar with individual appraisals, real estate tax assessments are done through a mass appraisal process. This process compares the sales prices of properties sold in a given year with the previous year's assessments for those properties. A median assessment-to-sale ratio is calculated for the neighborhood, and the percentage increase required to bring the ASR up to fair market value (91-95% of the sales price) is determined. The assessments for all properties in the neighborhood are then increased or decreased by that same percentage.


Individual vs. Mass Appraisals

How is your property assessed for real estate tax purposes? Most people are familiar with an individual appraisal in which an appraiser visits a home and looks it over thoroughly to evaluate its size, features, and condition. The appraiser then looks for similar or comparable homes nearby that recently sold and notes the prices at which they sold. Using his or her experience and skill, the appraiser then uses those "comps" to determine a market price for the home being appraised. That's not how assessments are done for real estate tax purposes, however.

The problem is that such a process would never work in a large jurisdiction like Fairfax County in which the value of each home must, by state law, be assessed every year for real estate tax purposes. For example, the entire Virginia Hills neighborhood of 842 homes was evaluated by the Department of Tax Administration (DTA) in 2005, with DTA personnel going door-to-door (but not inside the homes) to check for new construction and exterior condition. DTA assessors asked homeowners to verify interior data if the homeowners were home; if they were not home, DTA left a form to be returned. It took the entire staff of DTA assessors approximately three weeks to assess the value of the 842 homes in Virginia Hills. Imagine how long it would take to do all 300,000+ homes in Fairfax County. Consequently, the County's Department of Tax Administration uses a technique known as "mass appraisal," a technique used in almost every jurisdiction in which there are more than just a few properties to appraise. This article explains how mass appraisal works.

The Mass Appraisal Process:  Finding the "Comps"

Each jurisdiction (county, independent city, etc.) is broken down into assessment neighborhoods. Your assessment neighborhood may be your subdivision, some part of your subdivision, or several subdivisions in which the houses are of similar construction and value. An assessment neighborhood should be large enough that there are a fairly large number of sales each year; the more sales, the more accurate the assessment process will be. If 40 houses are sold in a year, that larger number will smooth out wide swings in results. If only five houses are sold, the results are more problematic.

DTA begins the assessment process by looking at all the sales in an assessment neighborhood in the previous year. They will then remove from consideration those sales that are not arms-length transactions at fair market value. Let's say parents sell their house to their child at half of what it's worth. That sale would not be at arms-length, and would not be at fair market value. While most such sales are below fair market value, it's also possible to sell above fair market value. Recent schemes have been uncovered where dishonest individuals created a string of sales at ever-increasing prices above the market in order to defraud lenders. One recent example is reported here:

Washington Post Article:  "Scam Artist Sentenced to 24 Years; Banks Lost Millions in Real Estate Scheme"

Sales that are not arms-length at fair market value are removed from the list of sales.

Foreclosures show up as sales because the property is transferred from the former owner to the lender. The recorded price for the sale is the value of the loan, which has no relation to the fair market value of the property, and foreclosures are also removed from the list of sales.

Sales made "under duress" also removed from the list. These include liquidations and forced sales, to include short sales. It is arguable whether such sales reflect fair market value, and good cases could be made for both keeping them on the list of sales or removing them.

Some re-sales by lenders of foreclosed properties are also removed as being below the sale price of comparable properties. Again, a case could be made for retaining them on the list.

Once this process is complete, DTA has a list of the properties it considers to be valid and verified sales at fair market value. These are the sales used to determine assessments.

Determining the ASR

Once DTA has scrubbed the sales for the assessment neighborhood and removed those not at fair market value, they then look at their assessment for the previous year for each of the remaining properties sold. Next, they divide that assessment by the sales price to come up with an assessment-to-sales ratio (ASR) for each property. From that information they calculate the average (median) ASR for the assessment neighborhood. Then they determine how much the median ASR would have to increase or decrease to get it to their target range of 91-95% for the ASR.

Let's look at an example. The table below reflects the sales for an actual assessment neighborhood in Fairfax County in 2005 that we'll call East Glen (not its real name).

Address Style Sale Date Sale Price Previous
Assessment
ASR Deviation
from Median
248 North St. 2 Story 5/18/2005 $500,000 $438,740 0.877 0.103
123 Main St. Split Level 3/2/2005 $410,000 $351,100 0.856 0.082
450 South St. Split Level 7/7/2005 $472,500 $381,690 0.808 0.033
451 South St. Split Foyer 10/3/2005 $459,000 $359,600 0.783 0.009
462 South St. 2 Story 5/2/2005 $500,000 $389,660 0.779 0.005
712 West St. Split Foyer 11/21/2005 $514,900 $400,030 0.777 0.002
124 Main St. 2 Story 9/22/2005 $499,900 $387,230 0.775 0.000
453 South St. 2 Story 6/8/2005 $515,000 $392,500 0.762 0.012
125 Main St. 1 Story 4/19/2005 $422,000 $319,970 0.758 0.016
210 Front St. 2 Story 6/3/2005 $502,000 $376,200 0.749 0.025
713 West St. 2 Story 7/26/2005 $550,000 $399,870 0.727 0.048
126 Main St. Split Foyer 8/1/2005 $530,000 $375,230 0.708 0.067
127 Main St. 1 1/2 Story 8/24/2005 $500,000 $338,740 0.677 0.097
Median ASR for all properties 0.775 .

The median ASR for East Glen is .775. Doing some basic math would show that the assessments for East Suburbs would have to go up about 17.5% to get the assessments to the desired 91% level or 22.5% to get them to the 95% level.

(Desired ASR / Actual median ASR) - 1 = increase or decrease required (multiply by 100 to get the percentage increase)

The New Assessment for Each Property

DTA then applies the percentage increase or decrease just determined to the previous year's assessment of each property in the assessment neighborhood. DTA talks on their web site of assessing the value of the land and of the improvements (buildings). While they may spend time deciding how to do this, it's rarely relevant to your new assessment. The fact is that the assessment of each property goes up by the same percentage as everyone else's assessment in that assessment neighborhood for the year in question. DTA is concerned with land values so that they can better assess empty buildable lots, and is concerned with improvement values so they can calculate the value of additions and other improvements. What DTA is really doing is starting from the overall increase and then allocating that increase between land and improvements.

The one situation where land and improvements become relevant is when DTA learns, most often from a building permit or from the data recorded as part of a sale of a property, that construction has taken place. In that case, DTA will increase the assessment of a property by more than the required percentage to account for the construction. If a homeowner has made no improvements, however, the new assessment will just be the percentage increase described above.

The Check on Mass Appraisal:  Coefficient of Dispersion

Assessors test their work by calculating the "coefficient of dispersion." This may sound like some mysterious measurement, but it's actually a common statistical tool. You start with the median ASR, and then determine the difference between the median and the ASR for each house sold (see the far right column in the East Glen table above). That's the deviation from the median for that property. You then find the (arithmetic) average deviation from the median for all the properties in question. For East Glen, that was .038. Finally, divide that average deviation by the median (for our example .038/.775) and you get the coefficient of dispersion of .049 or 4.9%. That's a good result. Assessors desire a level no greater than 15% assuming there are enough sales available for statistical validity.

Challenging Your Assessment

If you lived in East Glen, in 2006 you would have found your combined total assessment for your land and improvements going up by 17.5%. If you felt that was too much, you could appeal to a local board for review (in the case of Fairfax County, the Board of Equalization). Appeals are rarely upheld by most reviewing authorities. Homeowners attempt to challenge an assessment as if they had gotten an individual appraisal. If the local authority has properly applied the mass appraisal technique described above, absent any special circumstances, the appeal will likely be denied.

It's important to remember that the assessment of your home is only indirectly responsible for your real estate taxes going up or down. The local jurisdiction's governing authority, in this case the County Board of Supervisors, sets the tax rate, the amount of tax on each $100 of assessed value. Even if property values decline, the Board can increase the tax rate you pay; if that increase is high enough, it will result in an increase in total tax in spite of any decline in assessed value.

In the companion article to this one, we look at possible problems with the assessment process.




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