Assessment Accuracy: Level and Uniformity
December 2001
Assessors have a responsibility to accurately estimate the market value of all taxable property. How well this task is met affects the share of local and state levies paid by taxpayers and the confidence they may have in the Minnesota property tax system. Thus, assessment accuracy is a principal concern of both assessors and the public when evaluating their property assessments.
What is considered an accurate assessment?
An accurate assessment is achieved when all property is assessed at a mandated and uniform percentage of market value. Assessors annually measure and monitor the quality of their appraisal work in regard to two factors: an assessment level (the overall ratio of assessments to market values) and a range of assessment uniformity (the degree to which different properties are assessed at equal percentages of market value). The legal assessment level in Minnesota is considered to be 100% of market value, but the acceptable level established by the Department of Revenue is when the overall ratio falls between 90% to 105% of market value. The standards of uniformity applied to assessments vary among the different property types because of the lack of homogeneity found in properties. However, it is suggested in the guidelines published by the International Association of Assessing Officers that all categories of property should be within a 10% to 20% band of the assessment level and other indices.
What method is used to measure the assessor’s appraisal performance?
The chief tool used to evaluate the assessment of properties is the sales ratio study. It is a statistical analysis that compares the assessor’s estimated market values with actual sale prices for a twelve-month study period that extends from October 1st through September 30th. This study identifies what is being done right, what is being done wrong, and what reappraisal activity is necessary for the next assessment year.
How is a sales ratio calculated?
A sales ratio is the result of a division. The numerator is the assessor’s estimated market value of a sale property, and the denominator is its cash equivalent sale price. For example, if a property sells for $100,000 cash and it is assessed at $85,000, the ratio of assessment to selling price is .850 or 85.0%.
Does one sale tell us something about the assessment level of properties?
One sale says little about the overall assessment. Conversely, when many sales of the same property type are reviewed in unison, it does establish certain trends and patterns that become meaningful. One such measure is the assessment level that is indicated by computing the central tendency (the mean, median, and aggregate) of all sales ratios that comprise the study sample. In mass appraisal, the utmost weight is given to the median ratio because it is both easy to understand and not sensitive to extreme ratios. This central point in the study is the middle ratio when all sales ratios are arrayed. For example, if a study sample has the following sales ratios: .80, .86, .90, .98, and .99, the assessment level is the median ratio of .90.
Are individual sales ratios also used to reveal the degree of assessment uniformity?
Yes, assessment uniformity among and between classes of property is determined by comparing the measures of central tendency that were derived from the individual sales ratios. Several systematic techniques can be applied as needed to discern any biases that are related to the value of properties. Some applications measure the average percentage deviation of each sales ratio with reference to the assessment level, while others measure variability, regressivity, and progressivity.