2/21/16
CHAPTER 9
MAINTENANCE OF ASSESSMENTS
The assessor must maintain a continuous effort to keep assignments up to date. New properties must be added to the tax roll, and assessment once made must be checked to maintain the uniformity and equality of assessments in the taxing jurisdiction.
METHODS OF MAINTAINING ASSESSMENTS
Appraisal of New Real Estate
The appraisal of newly subdivided land and changes in improvements is an important part of the assessor's work . The assessor gets information about changes in land boundaries and new subdivisions from deeds and subdivision plans recorded in the land records. The information from such deeds and surveys must be recorded on the tax maps and noted in the property records as a routine part of the assessment process.
The ability of the assessor to read and interpret the information contained in deeds is of considerable significance. It is an important and necessary part of his expertise that every assessor should develop to a high degree because the courts have indicated, time and time again, that one of the best evidences of value of real property is to be found in the market –in sales of comparable properties. The elements that enter into sales transactions must be analyzed thoroughly in order to determine the relationship to market value. Data for analysis are found in:
1. Offers to sell -- which normally set the upper limit of value.
2. Offers to buy -- which normally set the lower limit of value.
3. Actual transfers -- which generally reflect actual value and fall
somewhere between buy and sell offers.
Sales are the best evidence of value available; and the most important source of information regarding sales, and the one most often used by assessors, is the deed filed in the land records. The information found in deeds that is of particular importance because of its bearing upon the value of property includes:
1. The date of the sale.
2. The type of conveyance.
3. The consideration involved.
The date of the sale is important to the assessor in determining the relationship of the sales price to current value.
The type of conveyance is important to the assessor in determining the validity, as a measure of value, of the consideration cited in the instrument conveying title.
For example:
1. A warranty deed, if free from private restrictions, is one of the best evidences of value.
2. A quit claim deed given only for the purpose of clearing title has no relationship whatever to value.
3. A deed which indicates a forced sale of property which has a defective title would, if it represented value at all, indicate only the minimum value.
The consideration is the most important information in the deed if the amount cited is valid. The validity of the consideration can be determined by (1) verifying it with one of the parties involved in the transaction –the buyer, seller, agent or attorney and by (2) the amount of the real estate conveyance tax affixed to the deed as required by Rhode Island law. In analyzing the consideration, many factors have to be considered.
1. Was it cash or an exchange in part or in whole of real or personal
property?
2. What were the motives of the parties involved:
3. Was the transaction normal and voluntary? Was it indeed an "arms
length transaction?"
4. Were the parties well informed? Did the buyer try to get it as
cheaply as possible? Did the seller try to get as much as possible?
5. Who were the parties involved--relatives? interrelated corporation?
corporations and stockholders? grantor who is the mortgagee? Was
condemnation involved?
The reading of deeds for the purpose of the assessment function (using the information contained in them to locate, list and value property) requires, in addition to the mere ability to read the printed word, a solid background and knowledge of the taxing jurisdiction, its people, its economic trends, and its social trends so that the assessor can correctly interpret and use the available information.
Reviewing Property Transfer Instruments
In addition to reading deeds for sales data, the assessor has other equally important reasons for reviewing property transfer instruments. The assessment process involves three basic steps -- discovery, listing, valuing.
All deeds describe the property conveyed. Deeds represent one of the best methods of locating and identifying not only property but its owner. Deed descriptions are often the only source of information available for tax map delineation of the parcels in the taxing jurisdiction.
Property not only has to be discovered and valued, it also must be listed in the name of the owner, the person liable for the tax. The accuracy of the assessors' ownership list is directly proportional to the effort expended reviewing the land records.
Recorded property transfer instruments offer a great deal of information, which will aid the assessor in establishing and maintaining accurate property ownership records as well as uniform and equitable assessments. There are many types of instruments recorded, and the assessor will find pertinent information in many of them. These include:
1. Warranty deeds
2. Trustee deeds
3. Quit Claims
4. Collectors' deeds
5. Court Decrees
6. Commissioners' deeds
7. Certificates of Distribution
8. Custodian of Alien Property deeds
9. Guardian deeds
10. Probate Court records on:
a. Wills
b. Inventories
c. Estates
d. Trustees, etc.
Information about new improvements or modification of existing improvements can be obtained from building permits, certificates of occupancy, field observations and inspections, deeds, newspapers and realtors. Assessments for these new properties should be made on the same basis as the assessments of older properties in the area, that is, the same base year cost schedule should be used for the new properties as for all other property in the taxing jurisdiction.
CHANGES IN EXEMPT PROPERTY
Assessment rolls must be kept up-to-date in respect to changes in ownership, which result in a change in tax status as in regards to exemption from taxation under the provisions of the General Laws of Rhode Island. Properties, which have ceased to be tax exempt must be identified, listed, valued and placed on the tax roll on the same basis as all other taxable property in the taxing jurisdiction.
CHANGES IN PROPERTY VALUES
The part of maintenance of assessments, which is not a routine part of the assessment process, is the identification of changes in property value, which affect the equality of assessments. If changes in property values affected all properties within the taxing jurisdiction similarly, no adjustments of uniformly made assessments would be necessary. However, economic, social and governmental influences affect properties within the taxing jurisdiction in various ways, depending on what the influences are, and where and when they are occurring. These changes may result in either increased or decreased property value. To measure these changes and to maintain uniformity of assessments, the assessor must make a continuous analysis of sales data. The information available by means of a study of sales prices must be analyzed and related to assessments to determine inequalities. The technique used to relate this data is known as sales-assessment ratio study.
SALES-ASSESSMENT RATIO STUDIES
A sales-assessment ratio study begins with recording of every sale taking place in the assessor's jurisdiction during the period under study.
Each sale must be analyzed, and those which do not meet the requirements of a bona fide sale excluded. The criteria for analyzing sales are the same as those listed in the discussion of sales data in Chapter 5. Usable sales should be further studied and classified by type of property, (residential, commercial or industrial), whether vacant land or land with improvements, and by neighborhoods or area.
A sales-assessment ratio must be determined for every sale, which has survived the screening process. This ratio is obtained by dividing the assessment by the sale price. For example:
2,000 Assessment= 40% sales-assessment ratio
5,000 Sale Price
10,000 Assessment= 125% sales-assessment ratio
8,000 Sale Price
The assessor is interested in computing sales-assessment ratios to check on property trends and on the degree to which he is achieving a designated percentage of market value. He will also be interested in the relationship of sale price to assessment for particular types of properties and for particular geographic areas. For this purpose, it will probably be sufficient merely to compute sales-assessment ratios for each property and to arrange these in numerical order. By so doing, the assessor can readily see which assessments deviate markedly from the percentage at which he is assessing property. It has been suggested that a 10 percent deviation from the stated percentage is not unreasonable; therefore, if the assessor is aiming for assessment at 60 percent, ratios ranging between 54 percent and 66 percent would fall within this margin. However, ratios above or below these figures should be investigated; and if no error in assessment or additional facts affecting the sale are revealed, the ratio is indicative of a change in property values. Some assessors have developed techniques for studying value trends by plotting unusual ratios on maps. These are particularly useful in spotting changing values in particular neighborhoods or among certain types of properties. Further study will reveal the nature and cause of value changes.
The assessor may desire to extend his study further to reveal the degree of uniformity among assessments throughout his jurisdiction. These studies are aimed not so much at measuring attainment of a stated percentage, but at measuring the quality of assessment practice. An accepted method of evaluating assessment uniformity is application of the "index of assessment inequality" developed by the late Dr. John H. Russell, former Director of Research, Virginia Department of Taxation. The "Russell Formula" involves the following steps:
1. Compute the ratio of assessed valuation to sale price for properties
sold.
2. Compute the average of all these ratios by adding all the ratios
and dividing by the number of ratios . This average is then presumed to be the assessment level at which the assessor aimed. The deviation from this average assessment ratio indicates the extent to which the assessor missed his goal.
3. Subtract the ratio of each property from the average ratio to determine the amount of deviation from the average for each.
4. Compute the average deviation by adding the deviations and dividing by the number of deviations.
5. Divide the average deviation by the average assessment ratio. This
figure, expressed as a percentage of the average ratio, is the index of assessment inequality.
For example, assume that four (4) properties assessed at $9,000, $4,000, $5,000 and $18,000 were found to have sold $12,000, $5,000, $7,500 and $20,000 respectively. The index of assessment inequality would be found as follows:
Assessment / SalePrice / Assessment Ratio /
Average
Ratio / Amount of Deviation from Average$ 9,000 / $12,000 / 75% / 78% / 3
4,000 / 5,000 / 80% / 78% / 2
5,000 / 7,500 / 67% / 78% / 11
18,000 / 20,000 / 90% / 78% / 12
Average Ratio - 78% (Sum of ratios + 4)
Average Deviation = 7 (Sum of deviation + 4)
Index of Assessment Inequality= 7 + 78 = 8.97
The lower the index figures, the more near1y uniform are the assessments. Dr. Russell maintained that “an index as low as 20 should be considered a goal desirable of achievement and reasonably attainable,” and that anything below this should be considered an excellent degree of equalization or uniformity. Conversely, he stated, “An index as high as 45 should be judged cause for gravest concern.”
While an index of 20 may indicate reasonable uniformity in some of the old central cities where there is a wide diversity of types of property and economic areas, in relatively new suburban areas an index of 10 or less is not only attainable, it should be the goal of every assessor.
The Russell formula operates independently of a stated assessment ratio and does not measure whether the assessor has attained his goal of assessment at 100 percent, 60 percent, or 40 percent of market value. Its purpose is to show whether or not he has achieved uniformity in assessments.
1