1 Guidance on International Mass Appraisal and Related Tax Policy Prepared by Alan S. Dornfest, AAS Property Tax Policy Bureau Chief Idaho State Tax Commission August 26, 2013

2  IAAO provides guidance on mass appraisal o Standards o Textbooks o Educational offerings o Member networking and expertise  IAAO studies property tax assessment and mass appraisal operations and outcomes in the United States and Canada through periodic surveys o Both countries have federal government structures with sharing of powers between levels of government o Most nations have unitary structures with regional government power derived from national government Background

3  Responsibilities decentralized in United States o 12,724 assessment districts (year 2000) o Often state has oversight role and may appraise certain properties such as public utilities and railroads  No state oversight in Hawaii and Delaware; limited in Connecticut  State fully responsible in Montana and Maryland o Local assessors may be appointed or elected Approaches to Mass Appraisal for Property Tax

4  Responsibilities in Canadian provinces more likely to be centralized (at provincial level) o But, may involve quasi-governmental entities that work with provincial governments Approaches to Mass Appraisal for Property Tax

5  Mission is to promote innovation and excellence in: o Property appraisal o Property tax policy o Assessment administration  Precepts embodied in Standards o Do not prevail over state/provincial laws o Carry a disclaimer―advisory in nature o Cover a broad range of topics o Represent current consensus of assessment professionals on given topics Guiding Precepts of IAAO― Beyond National Borders

6  Provide broadly agreed upon goals and underlying basis for: o Valuation system―mass appraisal; automated valuation models (AVMs)  Special situations or property types: – Contaminated property – Mapping – Markets driven by foreclosures – Lack of sufficient sales data o Equalization system o Taxation system (tax reform)  Assessing officers encouraged to use and promote  Policy makers―standards provide independent, largely objective back up Significance of IAAO Standards

7  Current version January, 2012  Major Sections: o Collecting and Maintaining Property Data o Valuation  Models  Frequency of reappraisals  Managerial considerations o Staffing o Data processing―hardware and software o Benefit-cost considerations IAAO Mass Appraisal Standard

8  Market value for assessment purposes is generally determined through the application of mass appraisal techniques. o value as of given date o Uses common data and standardized methods o Statistical testing  …results in valuation system characterized by accuracy, uniformity, equity, reliability, and low per-parcel costs IAAO Mass Appraisal Standard Introduction

9  Periodic field inspections―ensure complete and accurate property characteristics data  Identify new construction activity through building permits  Physical review every 4–6 years o On-site verification o Partial re-measurement o May supplement with digital imaging technology IAAO Mass Appraisal Standard Maintenance and Inspection

10  Represent the market for a specific type of property in a specified area  Specification o Identification of variables that influence value  Calibration o Determination of adjustments or coefficients that represent value contributions of variables chosen  Stratification o Geographic o Property type IAAO Mass Appraisal Standard Valuation Models

11  Reappraise every 4–6 years o Establish periodic intervals o Set up cycle—i.e., 25 percent of all property reappraised each year o Establish priority system based on ratio studies  Identify areas or types of property with equity concerns  Target these areas or types for more frequent reappraisal  Keeping the base for a recurrent tax current o Annual reassessment—may not require annual reappraisal  Trending factors derived from ratio studies and market analysis  Effective in maintaining equity between strata when appraisals uniform in each stratum  Cannot correct uniformity within stratum. IAAO Mass Appraisal Standard Reappraisal Frequency

12  Valuation authority―state/province, alternate level of government  Valuation assistance―services and support state/province provides  Education and certification requirements for appraisers  Commonly used and legally required reappraisal cycles  Enforcement and oversight of locally determined assessments  Inspection practices  Regulation of locally used software by state agencies  Enforcement actions related to non-compliance with reappraisal requirements, including equalization of property values  Frequency and major uses of ratio studies  Statistical standards for evaluating mass appraisal quality Surveys in United States and Canada Provide Data on Structure and Typical Practices

13  Project development o International Valuation Standards Council (IVSC)  Revised Standards in 2011 to eliminate their Guidance note on Mass Appraisal for Property Taxation  Created a gap with respect to the international mass appraisal community o Representatives from the Netherlands asked IAAO to develop a Standard to fill this gap Providing Mass Appraisal Guidance to the Broader International Community

14  Technical Standards Committee o Began working on this project in November, 2011 o With considerable input from Netherlands representatives, developed draft in early 2012 o Sent to larger international community for comments o Follow up with focus group at 2012 IAAO Conference International Guidance (continued)

15  Concerns and Issues o Needs to be broader than current Standard on Mass Appraisal  Cannot assume well established markets, data bases, legislation  Difficult to engage some countries in mass appraisal techniques because of limited revenue from property tax o Need to support transparency and uniformity as justification International Guidance (continued)

16  Document expanded to include discussions of o Appeals o Non-market bases o Tax policy (e.g., levy v. rate driven systems) o Public relations and transparency  Because of the diversity of needs and issues, the Committee is reluctant to deem the document a “standard” so has chosen the more generic “Guidance…” International Guidance (continued)

17  Additional drafts have been prepared and distributed to international community and the IAAO International Special Committee  Additional opportunities for input during current conference, including an international panel discussion  Final (hopefully) review and revisions by committee in its Fall, 2013 meeting  Submittal to Board for review and approval early in 2014 Plans for Completion

18  Scope o The primary focus is on mass appraisal for value-based property taxes (also known as “rates on property.”) o mass appraisal can be successfully implemented even if some recommendations are not implemented. Substance of Latest Draft

19  Scope o An effective market value-based property tax system requires the following components:  supportive underlying legal and administrative framework  accurate property characteristics and market data  skilled valuers  effective valuation models  quality assurance  effective management  sufficient resources  appeals mechanisms  transparency Substance of Latest Draft (continued)

20  Introduction o Importance of complete and correct data o Value and non-value base orientation  Advantages/disadvantages  Applicability of mass appraisal to both o Liability for property tax―person v. property o Valuation principles  Transparency  Relation to taxation  Cost/benefit (frequency of reappraisal) Substance of Latest Draft (continued)

21  Supportive legal framework o Common law v. civil law o Sales and ownership data o Reappraisal cycle o Oversight and enforcement o Notice and appeals o Tax relief o Title registration  Maps and property records Substance of Latest Draft (continued)

22  Market data o Sales o Income and expense o Cost and depreciation  Property characteristics data o Residential and commercial examples o Data collection and accuracy (quality control) o Maintenance o Inspections and alternatives Substance of Latest Draft (continued)

23  Mass Appraisal Modeling for Market Value o Valuation models (general) o Application in the three approaches to value  Quality Assurance o Model diagnostics o Ratio Studies (including description of methods, standards, and statistical examples) o Holdout samples Substance of Latest Draft (continued)

24  Appeals o Importance for open and transparent process o Value defense; timing and notification o System examples o Hearings and public relations  Transparency and public relations (in general) o Importance o Documentation of valuation procedures  Management and resources o Funding o Training o Hardware and software Substance of Latest Draft (continued)

25  Review the current draft  Explain needs that may be unfulfilled  Provide additional perspective  Do it now! o The IAAO Technical Standards Committee has one more planned meeting before submitting the document to the IAAO Board for approval (November, 2013) o We need your comments and feedback prior to that meeting Join in the Development!