Charley Colatruglio, CAE Technical Assistance Project Coordinator colatruglio@iaao.org www.iaao.org

Where do we begin? Is Mass Appraisal within an Ad Valorem Taxation System an option to meeting UN Goal 17.1 Domestic Resource Mobilization?

Where do we begin? Question: Answer: Yes Is Mass Appraisal within an Ad Valorem Taxation System an option to meeting UN Goal 17.1 Domestic Resource Mobilization? Answer: Yes It provides a methodology to develop a capacity for tax collection and its end product “taxes” can provide capital to pay for services to enhance the quality of life for citizens.

Basic Premise of an Ad Valorem Taxation System Can be implemented at any jurisdictional level. Based on ability to pay – using a property’s value. A good functioning system: Transparent Equitable Fairness Current market base property values

Basic Premise of an Ad Valorem Taxation System There are two major components or operating functions: The Assessment or Valuation Function Discovering, listing, valuing all taxable properties and defending the value for equity and fairness. The Collection Function Tax billing and collection process related to the value of a property.

Distinction between Price, Cost, and Value The value of a property is the main consideration for an appraiser, assessor, and or surveyor regardless of the valuation methodology being employed. Regardless of the methodology being used the type of “value” must be defined: market, assessed, legislated, use, etc.

Distinction between Price, Cost, and Value Price is the amount actually paid for a property. Cost is cost of construction or overall development cost, including a profit of a building. Value is the anticipation of benefits to be obtained in the future and can change over time depending on the economic environment.

Three Approaches to Value Cost Comparable Sales Income

Cost Approach Based on the principle that no one would pay more for a property than the cost to buy land and build something equivalent, assuming a normal time to complete the development.

Market Approach The sales comparison approach is appropriate when recent arms-length sales are available. Opinion of value determined by analyzing similar properties and comparing these properties to the subject property. The major premise is that the market value of a property is related to the prices of comparable, competitive properties.

Income Approach Based on the principle of anticipation and defines value as the present worth of future benefits arising from the ownership of a property. The income stream is analyzed in terms of quantity, quality and duration and is converted by means of an appropriate capitalization rate into an indication of market value.

How to Start from a Valuation Perspective Earliest applications of mass appraisal techniques both historically and with regard to people new to the profession: “the cost approach”. Of the three classic valuation approaches to estimating value it is the easiest to learn and apply.

Cost Approach - Principle of Substitution “A prudent buyer will pay no more for a property than the cost to acquire a similar site and construct improvements of equivalent desirability.”

Cost Approach Calculate the value of the land Calculate the cost of the improvements Subtract all depreciation Add depreciated costs to the land value

Cadaster Map of Each Parcel Identification of the parcel, address or unique identifier, ownership. Basic dimensions of the parcels and total lot size. Use of land Simple model: Land Value = (Size * unit rate)*adjustments.

Land Valuation - One Approach Dollars/SQFT Euros/SQM Base Size 20,000 1,860 Base Rate $1.25 € 12.75 Base Cost $25,000 € 23,750 Subject Size 10,000 930 Difference -10,000 -930 Adjustment Factor $.50 € 5.00 Adjustment Amount -$5,000 -€ 4,650 Total Cost $20,000 € 19,100

Land Valuation - Equal Values 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000 24,000

Cost of Improvements Siding Fasteners Doors Windows Lumber Roofing Plumbing

Improvement Values Cost schedules should be no more complex than is necessary to support the majority of improvements in the area. Valuation systems are designed to cover the majority of improvements in a given area by construction type, style and quality with the remainder dealt with on an individual basis.

Improvement Values Suggested principle to follow: The valuation technique used should be based on the data available, local conditions and market.

Improvement Values Data for estimating the cost of the improvements can come from a various sources. Actual costs Market sales using residuals values (Abstraction Method) Cost-estimating services

Building Characteristics Dwelling and buildings type or style Size Age Key building amenities; would be dependent upon jurisdiction and ability to gain access to interior. Heating/cooling, rooms, bathrooms, kitchen.

Building Characteristics Condition and Quality of the buildings. Simple Model Main Building Value = Size * (unit rate + amenities)*depreciation*condition Other Buildings or Structures = Size * (unit rate + amenities)*depreciation*condition “Note this model assumes that the quality or construction is built into the unit rate.”

Abstraction Method Property Value $250,000 Land Value 50,000 Building Value $200,000

Neighborhood or District grouping for the parcels Total Value = (Land Value + All Building Value)* Neighborhood Adjustment

Other Key Components Sales Cost Manuals or Cost Letters Vacant Land Improved Property Cost Manuals or Cost Letters Industry Construction Costs

Next Steps This approach is dependent upon: the availability of data to support it, the relative skill of the people involved and the desire of the taxing authority. Next steps beyond the original cost estimate will require resources to: collect and improve the quality of data. Therefore it is important to establish the ultimate goal of this effort at its outset.

CAMA – What is it? Computerize Assisted Mass Appraisal System Provides increased efficiency and technical capabilities. “Provides the ability” to produces accurate and equitable valuations. Main Components Data Management System Sales Analysis System Valuation System Administrative System

Data Management System Data Entry and Editing Sketching Capabilities (preferably) Data Storage and Security

Sales Analysis System Sales Data Collection Sales Screening and Processing Ratio Studies (Quality Control) Sales Reporting

Valuation System Sales Comparison Approach Cost Approach Income Approach Valuation Review and Reconciliation

Administration System Budgeting, scheduling, planning Inquiry, analysis, reporting Assessment Rolls, notices

Other Systems CAMA integrated with other systems GIS Imagery Photographs Document Management System

Practical Steps to Professionalize Valuation Operations? What is working vs. what isn’t working. What are the current system issues; both manual and computerized...don’t ignore the desk drawer ones. Develop a long and short term plan. Ensure operational plans dovetail with yearly improvement plans. Benchmark to industry best practices and standards and adapt to local environment.

How Can Technology Help? CAMA Systems provides the ability to: Standardize data entry; same data elements entered. Hard and soft edits for data quality. Analyze data to develop standard unit table rates. Value a large group of property quickly. Support for defense of valuations. Develop valuations using three approaches to value.

Market Value or Use Value Model? Both have their application. Majority should be market based. Provides transparency for the rate payers and places onus the valuers to develop accurate values. Use value mainly for agricultural land boarding new development or special purposes.

Pitfalls to be Avoided? Don’t expect technology to be the answer without a sound implementation plan and well thought out business processes. Understand the amount of change your organization can absorb. Determine staff capabilities and training requirements. Implementation leader needs to understand Technology and Business Process.

IAAO Standards Guide to Assessment Administration Standards Standard on Mass Appraisal of Real Property Standard on Automated Valuation Models (AVMs) Standard on Verification and Adjustment of Sales Standard on Digital Cadastral Maps and Parcel Identifiers Standard on Manual Cadastral Maps and Parcel Identifiers Standard on Ratio Studies Standard on Oversight Agency Responsibilities Standard on Professional Development Standard on Property Tax Policy Standard on Assessment Appeal Standard on Public Relations Standard on the Valuation of Properties Affected by Environmental Contamination Standard on Valuation of Personal Property Standard on Contracting for Assessment Services

Conclusion The options for property taxation increase as: More data becomes available from the market. Skill and confidence of the appraisers improves. This presentation illustrates a point of beginning.

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