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 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 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 five years.

Sales That Are Included/Excluded

DTA is usually good about removing sales 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.

In the past, DTA's software was unable to account for both sales if a property sold twice in one year. Apparently that problem has now been fixed.

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 because it was in poor condition and will 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.

DTA argues that a property might be in very poor condition due to the owner's financial situation and might therefore suggest that the sale was made under duress (e.g. the owner was forced to sell or face foreclosure). The problem with the duress criterion is that there is no way to capture the buyer being under duress (i.e. needing to buy a house immediately so as to have some place to live). Consequently, duress will almost always work to remove only the low price properties from the list of sales in the assessment neighborhood.

DTA provides homeowners with their assessments in late February. To meet that deadline, DTA cuts off sales it uses to calculate the ASR before the end of the year, sometimes as early as November. In other words, only 10 months of sales are included. This creates a bias for higher assessments because properties sold in November and December almost always sell at lower prices than homes sold during the spring and summer when the market is more active. DTA is aware of this problem, and has said (at a Board of Equalization hearing among other places) that they can go back an extra six months if they need to. Of course doing so adds the months of October, September, August, and July, making the upward bias even worse. DTA should use the assessments for a full 12 months, using November and December from the previous year, but no more months should be added at the back end than were dropped out at the front end. The "fewer than twelve months" problem was an on-going problem as late the 2006 assessments (for sales in 2005), but this problem appears to have been solved in the 2007 assessments (for sales in 2006).

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 the 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.

When you look up the previous year's assessment of a property that sold, also check if the previous sale was between 2001 and 2005. If so, check the assessment it got after that sale. If the ASR was less than 91%, that's a property that is incorrectly increasing your assessment in the current cycle.

Seller Subsidies

In the boom real estate market of the past few years, properties sold for asking price or more, often without any contingencies on the offer. In the last year, this hasn't been the case; it's been a buyer's market. Instead of lowering the asking price, sellers have often offered subsidies to the buyer. Often this is 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.

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. Large concessions would have to be offered by the seller when the property was in worse conditions than other homes, and in such cases DTA would be biasing the assessment neighborhood's sales prices higher by excluding sales those houses. DTA would be correct in excluding such concessions when a scam is suspected.

In its correspondence with me, DTA has said that they have not taken subsidies into account in the 2007 assessments (except for the special cases listed above). They believe that this year's "subsidies are historically what has been reflective of a 'normal' real estate market. As you know, the overall assessment to sale ratio for residential properties in Fairfax County typically is typically around .92. By maintaining the overall ratio around .92 there is a built in mechanism to allow for the potential for some of these types of subsidies which may not be readily identifiable during the sale review process." However, DTA did say that they may, in the future, find it necessary to take seller subsidies into account.

It's worth noting, therefore, 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.

Conclusion

Homeowners and citizens associations should check DTA's calculations of their assessments annually. Having done so for the past six 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.

Copyright Forward Fairfax and Doug Boulter, 2007