DougBoulter.com Logo


Real Estate Assessments:  How Mass Appraisal Can Get It Wrong

Revised March 2011

SUMMARY:  This article provides instructions on how to check a mass appraisal of the properties in your neighborhood and describes the ways in which a mass appraisal can introduce errors into the assessment process if not done correctly.


The companion article described how the residential real estate assessment process works. If you can use a spreadsheet, you can check DTA's work for your neighborhood without much difficulty.


Checking DTA's Work

If you go to the DTA real estate web site

Fairfax County Real Estate Assessment Information Site

you can type in your address and see the information held by DTA on your property. On the right hand column near the top of the link that comes up, you will see a link for "Neighborhood Sales." Clicking that link will show you the sales in your assessment neighborhood for the past year. Copy and paste (use "paste special" and "text") all the data that comes up (there may be multiple pages) to a spreadsheet.

DTA will mark the sales that they believe were not at fair market value. You can attempt to verify these determinations, and if you know of any of the sales which weren't at fair market value but not so marked by DTA, you should note them too. Such sales should be removed from the list – although you should run the data twice, once with DTA's fair market value sales and once with your own. The difference may not be significant, or you may find an issue with DTA's own calculations.

Now, here's where the work comes in. You must individually look up the previous year's assessment for each property that sold and make a new column in which to add it. Then add a column for the ASR of each property. You can then have the spreadsheet calculate the median ASR for the neighborhood. Separately divide the bounds of what constitutes fair market value, 91% and 95%, by the median ASR, subtract 1, multiply by 100 and you'll see the percentage range by which your assessment should increase.

If you'd like, you can add the data to calculate the coefficient of dispersion.


How DTA Might Get It Wrong

The following issues are based on a study of one older assessment neighborhood over the past ten years.

Getting Your Assessment Neighborhood Wrong

It would seem logical that assessment neighborhoods are created from similar homes - so that the "comps" are really comparable. In fact, when a new neighborhood is built, it often becomes its own assessment neighborhood. As a neighborhood ages, however, houses become less and less comparable; additions get built, landscaping gets done, homes are maintained or not maintained. In fact, the comparability of the homes isn't a key factor. The schools, the amenities in the neighborhood, the traffic, the surroundings do stay comparable for all the properties. Moreover, all the properties have had the same assessment changes over the years unless specific properties were improved.

In general, you should be in the same assessment neighborhood that you were in the previous year. If you are moved, there should be a good reason, and you should not suffer a higher assessment because of it.

Why might you be moved? One reason is that the neighborhood recorded on your deed is not the same as your assessment neighborhood. In many of the County's older neighborhoods, streets (or a side of streets have migrated into adjacent neighborhoods and have been there for decades. Often this related to school boundaries. My neighborhood, Virginia Hills, includes, and our citizens association has represented since the 1950s, the tiny neighborhoods of Country Club Estates and Glassellwood. It also includes one side of a street which is designated as part of a larger neighborhood, Groveton. Every so often, a new assessor is assigned to the territory and those pieces are all moved back into Groveton. The last time this happened, the people who were moved got a much larger increase in their assessments than those in the rest of Virginia Hills, and when they complained, DTA moved them back.

An example of a move that made sense was moving the few streets of a smaller, non-adjacent neighborhood out of the Virginia Hills assessment neighborhood. That neighborhood had long been included in Virginia Hills because the homes were of a similar type. But the neighborhood is served by a completely different pyramid of schools and is much closer to a major highway, commercial districts, and apartment complexes. Over the years, most of its homes had been extensively renovated. Sales price change trends there no longer tracked those in Virginia Hills.

Getting the Sales Used for the Assessment Wrong

Related Party Transactions and Scams

DTA is usually good about removing from the valid sales those between related parties. We have no data on sales above market value that are part of scams. However, if a property sells three times during a year, that should raise a red flag that something is going on with that property. The probably huge difference between the previous year's assessment and the final sale in the current year will increase the amount needed to adjust the ASR and absolutely should be excluded.

Handyman's Specials

One problem for DTA that relates to assessments is the so-called "handyman's special," particularly if it was not so designated in the real estate listing. A house may appear to have sold below fair market value, but was actually valued accurately by the buyer and the seller because it was in poor condition and would require a lot of work to bring it up to fair or good condition. In any neighborhood, especially the older ones, there will be a fair number of such properties, and excluding the sales of all or some of them will drive up assessments.

The fact is that every neighborhood will have some homes in poor condition - and they are part of the market for homes. Any methodology that excludes such homes from valid sales for the purpose of calculating assessments biases the results to the upside. It assumes that the assessor knows better than the market what a home is worth.

Duress and Short Sales

DTA argues that a property sold under duress (e.g. the owner was forced to sell or face foreclosure, or the owner had to move in a very short time for work, etc) is not a valid sale because it does not reflect a market price. The problem with the duress criterion is that it only goes one way. There is no way to capture the fact of the buyer being under duress (i.e. needing to buy a house immediately so as to have some place to live) and paying above the market price. Consequently, duress will always work to remove only the low price properties from the list of sales in the assessment neighborhood.

The phenomenon of short sales during the housing downturn illustrates the problem perfectly. A short sale occurs when a seller owes more on the mortgage than the property will sell for; the homeowner convinces the holder of the mortgage to accept the proceeds of the sale in lieu of the full amount of the mortgage owed. In fact, this is a perfect example of the market at work. The seller has a huge incentive to get the highest price possible for the home so that the lender will accept the amount of the sale and let the homeowner get out from under the mortgage.

Getting the Sales Price Wrong

If DTA gets the sales price too high, it will artificially increase the amount of the increase in assessments. Fortunately, DTA has access to sales records, so mistakes in actual sales prices are rare. However, as any homebuyer knows, except in a very strong seller's market, the sales price is not the price you pay. The actual price is usually reduced by buyer concessions or subsidies.

The most common concession comes in the form of points to allow the buyer to get a lower mortgage rate. However, there are other subsidies besides points. Sellers may include furniture, cars, or country club or pool memberships. They may make principal payments for the buyer, or a down payment. Sellers may pay closing costs not traditionally paid by the seller; the seller might pay for the buyer's home inspection. Currently, many sales include tens of thousands of dollars in seller subsidies, effectively lowering the closing price. There are numerous incentives in the system to sellers and real estate agents to retain a higher sales price and offset it with concessions

Through its access to the MRIS (Metropolitan Regional Information Service), DTA does have access to the total of all the subsidies as entered by the selling agent. This includes most of the traditional subsidies, particularly points. DTA has replied to me via e-mail that "If staff identifies a sale which appears to include atypical concessions they may decide to exclude the sale from the pool of bona fide sales from which they will make their appraisal decision." The problem is that an atypical concession would in all cases be one that staff deemed too large. The fact is that the true sales price is the amount the buyer pays after taking the concessions into account

DTA argues that the fact that it assesses properties at less than 100% (91% generally) of the sales prices will compensate for this issue, particularly since DTA will not be able to detect all concessions.

It's worth noting, however, that seller subsidies have not generally been taken into account in the sales prices since 2001 when we started monitoring the process. That time period includes a "normal" housing market, a rapidly rising market, and a falling market. Throughout that period, the ASR has remained at roughly .91-.92. Taking seller subsidies into account would in almost all cases lower your assessments.

Past Assessment Errors

If a property sells during the assessment cycle, it should be assessed at 91-95% of its sales price absent any unusual factors. Assessors have argued that they should have some flexibility on assessing those properties to account for unusual situations. Perhaps this is so, but unusual should mean rare. That is not the case in Fairfax County.

Starting in 2001, it appears that DTA began assessing some properties that sold in a given year by simply applying the percentage of increase for the whole neighborhood to the previous assessment. That was a great deal for the buyers; the property was assessed at significantly less than 91% of the sales price. It's not clear why this started happening in 2001, and it's even less clear why some properties were assessed that way when others were not. There are examples where 40+% of the assessments of properties sold got this sweetheart assessment. In other years in other neighborhoods, the number was between 10% and 20%.

Why does this matter? For every year after the house was sold, it will get the same assessment increase as every other non-sold house in the neighborhood. When it sells again, because of the original low post-sale assessment, it is likely to sell for much more than its current assessment, making for a low ASR. That low ASR will contribute to a low median ASR and therefore the need for a higher increase for the entire neighborhood than would otherwise be required. In other words, this sweetheart deal given to the buyer will eventually be paid for by the entire neighborhood. It's in everyone's interest that all properties be assessed as fairly and accurately as possible.

Not Doing Mass Appraisal

After explaining why jurisdictions do mass appraisal and how it is done, you can only scratch your head when government assessors throw their own process out the window. Here's a recent example we found.

A house sold for substantially more than expected. The price was justified. The inside of the house was in beautiful condition, and the landscaping was immaculate. The owner put in a huge amount of work, and it was rewarded in the sale price. No argument there. What DTA chose to do, however, was to raise the assessment of the property to the left, the two properties to the right, and the property across the street by the same amount as the increase of the property sold, substantially more than the increase for the assessment neighborhood as a whole. Of course those neighboring properties were just average properties. Because the homeowners did not challenge their assessments formally (several did call DTA), their high assessments stood.


Conclusion

Homeowners and citizens associations should check DTA's calculations of their assessments annually. Having done so for the past ten years, our association has found significant issues in several of the years. Real estate assessors have been very secretive about the weaknesses in the data they collect. Assessments must by law be done uniformly, and that means fairly. However, some homeowners and neighborhoods have gotten breaks, and some have been disadvantaged. The larger the problems, the less fair the assessments. The County owes its property owners fair assessment outcomes.

There is no reason to artificially increase assessments. The real estate tax a homeowner pays is determined by a political process of setting the tax rate, done by elected officials. It is the job of the staff to be fair and uniform. It is the job of elected officials to take the heat for the amount of tax they collect.

How to Challenge Your Assessment



I appreciate well thought out comments on these articles, and will sometimes incorporate them into a future draft of the article.

Send me an e-mail

Envelope: click here to e-mail me