Response to Department of Revenue Comments of Proposed SF0144 Regulations
By Theodore R. Smith
November 16, 2009
ESTA Technical Director
Alpine, Wyoming
The Department of Revenue’s (DOR) comments in response to information that was submitted on the proposed changes in property tax regulations commence with the following unfounded statement: “many of the comments and criticisms received were reflective of an advocacy for the use of an ‘acquisition cost’ methodology to value residential properties” and it concluded, “These comments may well be appropriate in the legislative arena but they are not germane to the draft rules which are currently being promulgated within Wyoming’s constitutional and statutory framework.” I personally submitted 26 pages of comments related to the proposed regulations, apparently comprising the majority of comments received by the DOR. At no point were any of my observations and comments reflective of any particular form of taxation; rather each of the points raised was based upon (1) the failure of the proposed regulations to comply with Wyoming’s constitutional and statutory framework or (2) placing the homeowner at a further disadvantage in understanding and appealing their assessment. My comments were founded on more than 30 years of professional experience in the property valuation and assessment field and as a consultant to more than two-dozen local, state and national jurisdictions.
Only in limited instances does the DOR’s response acknowledge deficiencies in the draft regulations, most notable being recognition of the problem associated in removed language from the existing regulation on adjusting comparable sales; in this instance they alleged the removal was a typographical error in their fully vetted document. Most notable in all of the responses presented by the DOR was their failure to address two of the most crucial comments presented:
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Providing for County Assessors to subjectively determine assessment adjustment ratios through an iteration process; and,
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Declaring the “preferred method” of valuation that of adjusting RCNLD by a sale ratio, which is not a true sales comparison approach.
The combination of these two proposed features in the draft regulations will virtually eliminate any ability for the average homeowner to understand how their assessment was actually determined and make it almost impossible for the homeowner to successfully challenge the assessor’s determination of value through the submission of valid comparable sales information.
In the following pages I present the comment information supplied by the DOR as well as the DOR response followed by my comments, which are identified by the heading “TRS Response.”
Comment:
The CAMA program is not an Automated Valuation Model, rather it is a computer assisted program that generates cost estimates for building improvements and imputes other information that has been manually calculated, such as the estimate of land value. Similarly, SPSS represents computer programs that can be used to generate statistics and regression estimates. The model is designed by the modeler not by the CAMA system nor the SPSS programs. The definition of AVM requires that the program “produce an estimate of market value based upon market analysis of location, market conditions, and real estate characteristics. The current and proposed use of SPSS and the CAMA programs by these regulations do not take these factors into consideration.
DOR Response:
The sentence relating CAMA and SPSS to an AVM was removed. To further address the above comment, the CAMA system will calculate an estimated “fair market value” based on all three approaches to value: Cost, Sales Comparison and Income. It is not strictly a system based on “cost estimates” as stated in the above comment.
TRS Response:
The DOR correctly removed the reference to the CAMA program as an Automatic Valuation Model. The more significant point is that the CAMA program as it is currently used, and as it is proposed to be used by the regulations under consideration, is limited to an estimate of the cost approach, it does not generate values based on the Sales Comparison Approach.
Comment:
The Coefficient of Variation (COV) compares populations or samples with different means and standard deviations. It should therefore be noted that the COV is not limited to samples; this is incorrectly stated in the IAAO Standard on Ratio Studies from which the proposed definition has been copied. The COV may be used to measure the relative dispersion of non-sales oriented data and in those instances would not necessarily have to be limited to sample data.
DOR Response:
The COV is the ratio of a standard deviation of a sample to its mean. It does not “compare”. It is defined in the IAAO AVM standard in paragraph. 8.4.2.2 Coefficient of Variation. The language of Senate File 144 states that IAAO standards be used; therefore, the IAAO definition of COV will remain in the Chapter 9 Rules. Support for this decision can be found in the IAAO Glossary for Property Appraisal and Assessment (copyright 1997) page 26, The IAAO textbook Mass Appraisal of Real Property (copyright 1999) authored by Robert J. Gloudemans, page 359, additionally found in Chapter 4 Mass Appraisal Model Calibration.
TRS Response:
This comment was included merely as a clarification based on the belief that the Wyoming regulations should correctly reflect statistical concepts that are to be applied within the state. The point to be made is that the COV is applicable to both samples and the population and it is not limited to samples as suggested by the IAAO and Gloudemans. Moreover, when evaluating the relative dispersion of samples it is used as a statistic for comparison between samples or populations.
Comment:
A confidence interval is based upon probability distributions and as such it is based on the mean and standard deviation: it is therefore incorrect to include the “median” as part of the calculation unless it is known that the population is normally distributed. This is not a characteristic of most real estate distributions.
DOR Response:
The median in used extensively in the appraisal field and addressed extensively in the relevant IAAO standards. The definition of confidence interval in both, the IAAO textbook Mass Appraisal of Real Property (page 360), as well as the IAAO Glossary (page 29) both include the term median in this definition.
TRS Response:
The DOR incorrectly states that the median is used extensively in the “appraisal field.” It is, however, used in assessment administration. This can be verified by reference to the section on “Mathematics & Statistics in Appraising,” The Appraisal of Real Estate, published by The Appraisal Institute. The point the DOR fails to recognize is that the rules are different if a measure of central tendency is going to be used in Bayesian statistical estimates of probability not traditional assessment administration. The conflict heard from many assessors is central to this point; statistical techniques are being introduced without any prior knowledge of statistics.
Comment:
(re: definition of depreciation)Technically, this definition is correct; however, these regulations are described at the outset as providing “manuals, formulae, methods, systems, computations, standards, guidelines and criteria to be used” by the assessor. Unfortunately, there are indications that a great deal of assistance is needed by the assessors to truly understand these concepts and correctly enter the necessary data into the system so that the Marshall & Swift calculations can produce accurate estimates of “depreciation”. Moreover, there is no guideline or explanation as to how the assessor should allocate economic obsolescence between land and improvements.
DOR Response:
The rules are not meant to be a substitution for recognized appraisal textbooks, education or training. Assessors are following USPAP guidelines in applying their subjective judgments regarding all forms of depreciation. Assessors are provided with DOR published manuals as well as IAAO materials to assist them in developing their values. The DOR provides education classes each year that address appraisal issues such as depreciation in an effort to keep Assessors and their staff up to date on current appraisal methods. CCI has hard copy and digital instruction available to Assessors to assist with entering information in to the CAMA system.
TRS Response:
The introduction of the regulations states very clearly that: “These rules will set forth manuals, formulae, methods, systems, computations, standards, guidelines and criteria to be used by the County Assessors to determine fair market value.” If assessors are to look elsewhere for guidance, the proposed regulations should give direction, since the assessors are not provided the information they promise. There remains a problem with how assessors determine depreciation which is not addressed by the DOR’s response.
Comment:
(definition of economic area) This definition is ambiguous and fails to explain how the economic area is differentiated from the land economic area and it does not provide the methodology for determination of an economic area.
DOR Response:
Economic area in the CAMA system does nothing more than carry the local cost multipliers out of the Marshall & Swift cost manuals. It can also be used to sort and query the data housed within the CAMA system. These multipliers are universally applied to the improvements of the properties being appraised within an economic area. There can be multiple LEAs and neighborhoods in each economic area. Each of these terms has a separate definition in the rules.
TRS Response:
The ambiguity remains. SF0144 was intended to clarify confusion among property owners in understanding their assessment: how does it help to have three levels of classification for each property, without any explanation of how they are determined? Is the DOR response intended to imply that the Economic Area is the entire county, or is there a methodology for determination of the Economic Area?
Comment:
There is no methodology provided on how an LEA would be delineated. The regulation does not identify what the “economic forces” might be that would lead to a region being included in a specific LEA; confusion on this issue has been seen in actual determination of these areas within County jurisdictions. For example, how would this concept take into consideration property where the overarching “economic force” was tourism but there were significant differences in zoning, location and proximity to attractions and negative externalities?
DOR Response:
These rules are not meant to be a textbook. The DOR cannot address every contingency that may arise throughout the appraisal process in the rules. The LEA is determined by grouping similar land parcels through the subjective judgments made by the Assessor at the time of the appraisal. The property “PEGS” (physical, economic, governmental, and social characteristics) are considered by the Assessor throughout the appraisal process. The economic forces relating to land could include proximity to tourism, view, parcel size, etc. Assessors are encouraged to use reference materials and training provided by the DOR, as well as the IAAO in determining how to stratify and value land. CCI has offered training regarding land economic areas. CCI also has both hard copy and digital instruction available to Assessors on how to handle LEA’s within the CAMA system. The last sentence regarding “land only” has been removed from the proposed rules.
TRS Response:
While the rules are not intended to be a textbook, they are defined as a statement of the methodology to be used by the County Assessors. What the DOR appears to be stating herein is that there is no defined methodology or procedure for delineating LEAs; rather they are subjectively drawn by an assessor. By eliminating the last sentence regarding “land only,” are we to conclude that a LEA is now the same as a Neighborhood? The question arises again, how does the LEA differ from an Economic Area? What rules, regulation, procedures and methods exist for making these distinctions? This is an important point since further in the DOR responses the rules stress the importance of homogeneous neighborhoods and LEAs in the valuation of land.
Comment:
It should be understood that a Market Adjustment Factor is not a method of appraising; it is designed to adjust incorrect estimates of RCNLD. This definition (in the proposed rules) only partially quotes the IAAO Standard on Mass Appraisal of Real Property which goes on to state: “Accurate cost schedules, condition ratings, and depreciation schedules will minimize the need for market adjustment factors.” As already indicated, assessors clearly experience problems in estimating depreciation. In addition there are problems in estimating land values, thus the adjustment factor appears to be a means of adjusting for incorrect application of the Replacement Cost Approach. Also the Market Adjustment Factors are not generally representative of the non-sold properties that are being adjusted and do not meet the requirement that they be “applied to the type of property.” One of the outgrowths of this application of adjustment factors is the over-valuation of homes where individual home owners have made additional improvements what would not normally be considered as adding to market value.
DOR Response:
The definition of market adjustment factor has been changed to the complete IAAO definition.
A sales ratio study is a tool used by appraisers which aims to measure a variety of market forces which may influence the value of a property during any given cycle. As an example: a sales ratio study may indicate that there is an over-supply of homes on the market, and because of these current conditions, the market value of a particular home is actually less than the cost of the materials and labor used to construct the home. Conversely, if there is a shortage of housing, a sales ratio study may show that prospective purchasers are willing to pay an amount higher than what the actual materials and labor cost to construct it.
Market adjustment factors are not used as an individual appraisal method, but instead as an accepted tool to uniformly account for market conditions. Market adjustment factors are calculated for every neighborhood within a county and applied to the base value (RCNLD) of all homes, sold and un-sold alike. This is done because Assessors are required to complete their valuation assignments equitable, and because it is likely the market forces influencing the value of one home, would typically have the same influence among other like-type properties. This is a solid analytic approach. A baseline value for each property is needed to perform a sales-comparison analysis, and RCNLD has been that robust baseline. This system constitutes an accurate statistical means of estimating market values of the properties, without performing a fee appraisal on each and every property, the latter being cost-prohibitive for the State and counties. CCI's CAMA adoption by the Legislature years ago included exhaustive debate of its efficacy.
TRS Response:
It would take several pages to respond to the incongruity of the DOR’s response. It is appreciated that the DOR has included the full IAAO paragraph. The comment regarding the unwillingness in the market to pay more than the cost of acquiring land and improvements describes the appraisal Principle of Substitution, which is used in the appraisal profession to explain that the Cost Approach to value sets the upper limit of valuations. We certainly agree with that Principle, which is why it is so distressing for the DOR to require the cost approach to be the basis of individual assessments.
What the DOR fails to recognize or understand is that applying one adjustment factor to a population of properties does not yield uniformity within a classification of properties. IAAO Standards have cautioned as follows:
Assessors, appeal boards, taxpayers and taxing authorities can use ratio studies to evaluate the fairness of funding distributions, the merits of class action claims, or the degree of discrimination. However, ratio study statistics cannot be used to judge the level of appraisal of an individual parcel.
IAAO Standards on Ratio Studies are quite clear; they make the distinction between direct and indirect equalization, with direct impacting individual properties. In Section 2.2.1 of the IAAO Standards they explain that direct equalization might be of assistance in equalizing a lack of uniformity between classifications of property, using as an example where residential property is valued at 80% and commercial is at 90%. The IAAO is, however, very clear on one point: “States and provinces that employ direct equalization techniques should understand that such equalization is not a substitute for appraisal or reappraisal (p. 21).” They go on to emphasize: “such equalization cannot improve uniformity between properties within a given stratum (p. 22).”
The issue is one of basic mathematics: if we multiply a group of numbers by a constant, such as assessed values being multiplied by an adjustment ratio, it will not change their relative position, therefore uniformity in assessments is not improved by multiplication by a constant. Apparently we are dealing with an issue of semantics. If a ratio is used to arrive at a value for an individual property, it becomes an individual appraisal method—which is not allowed. The current approach being proposed is not a valid estimate of Fair Market Value using the Sales Comparison Approach.
Comment:.
(re: ratio study) Essentially this is the definition presented in the IAAO Standard on Ratio Studies. It is important to note that the definition defines the use of ratio studies as being helpful in determining the level of uniformity of the assessment; there is no mention here, nor in the full IAAO definition of using the ratio to change valuations.
DOR Response:
The ratio is not used to change valuations. A market adjustment is used to change valuations. The use of ratio studies and their associated market adjustments is covered in the IAAO Property Appraisal and Assessment Administration manual.
TRS Response:
According to the DOR, a Market Adjustment Factor is used to change valuation; the Market Adjustment Factor is obtained by dividing the assessor’s estimate of the Cost Approach (RCNLD & Land) by the Sale Price, this division yields a ratio: some would call this a sales ratio but apparently not the DOR. The fact remains that the primary component of a homeowner’s assessed value is the assessor’s estimate of land plus building value which, when it has been incorrectly calculated by the assessor, is adjusted by the assessor using a subjectively determined ratio. This is not transparency in assessment determination.
Comment:
(re: RCNLD) This definition does not appear to be complete. Earlier in these definitions three elements of depreciation were identified: physical, functional and economic obsolescence, the definition for RCNLD only utilizes two of the three, physical and economic. Moreover, it only allows for incurable physical depreciation, when in appraisal practice consideration would be given to both curable and incurable physical depreciation.
DOR Response:
This is out of the IAAO Mass Appraisal of Real Property. Per the IAAO Standard on Mass Appraisal “The replacement cost concept implicitly eliminates all functional obsolescence from the value given; thus, only physical depreciation and economic obsolescence need to be subtracted to obtain replacement cost new less depreciation (RCNLD)”.
TRS Response:
Wyoming presents a specific case where, given the number of older residences, one can expect to find widespread functional obsolescence. In order for RCNLD to reflect functional obsolescence, the field assessor must be trained to recognize its presence and to understand fully the basis of the Marshal & Swift cost estimates; this is complicated further by the Marshall & Swift system being California-based. In many counties in Wyoming field enumerators are used to inspect properties and collect information for inputting into the CAMA program; generally these individuals are not trained and experienced appraisers. Even when functional obsolescence is recognized there are questions about how it would enter into the RCNLD calculation for an older home in Wyoming. Moreover, herein lies another problem with basing assessments on the cost approach. Functional obsolescence is reflective of an additional penalty imposed by the market which will often times not be reflected in actual costs. For example, a narrow stairway may cost slightly less; however, prospective purchaser might discount the inconvenience of the stairway much more than the cost differential. Regardless of what the IAAO suggests, Wyoming assessments should recognize this form of obsolescence directly.
General Responses Regarding the Appraisal Methods: (inserted by DOR)
The three approaches to value are not independent and unrelated to each other. It may be necessary to use elements of one approach in some portions of another approach. This is a natural part of the valuation process.
The income capitalization approach is one of three traditional approaches that an appraiser may use in the valuation process. However, it is not an independent system of valuation that is unrelated to the other approaches. The valuation process as a whole is composed of integrated, interrelated, and inseparable techniques and procedures designed to produce a convincing and reliable estimate of value, usually market value.
The analysis of cost and sales data is often an integral part of the income capitalization approach, but capitalization techniques may be frequently employed in the cost and sales comparison approaches. Capitalization techniques are commonly used to analyze and adjust sales data in the sales comparison approach; in the cost approach obsolescence is often measured by capitalizing an estimated rent loss.
The entire valuation process is comprised of integrated, interrelated, and inseparable procedures with the common objective of arriving at a convincing and reliable estimate of value. Although the approaches may be documented and explained on different pages of the appraisal report, they are rarely truly independent and unrelated. At times, the three approaches (if used) are so intertwined that some appraisers prefer the “one approach” concept and do not subscribe to the custom of separate presentations of the sales comparison approach, the income capitalization approach, and the cost approach.
The Basic concept of the Cost Approach is that the replacement cost of the improvements, less accrued depreciation, plus land value “assumed vacant” equals an estimate of the property value. The accrued depreciation estimate is where the relationship between the Cost Approach and the Income Capitalization Approach is inescapable. While one can estimate physical deterioration on an independent basis, the estimates of functional and economic obsolescence are based on the current economics of the property relative to the market. As a result, the calculation of the obsolescence resulting from functional and economic abnormalities is circular, and therefore the value estimate by the Cost Approach would always approximate the Income Approach value estimate unless the market was perfectly in balance.
…the fact remains that the ultimate estimate of value is based upon an inseparable interrelation of the three traditional approaches to value. These interrelationships are critical in arriving at a reliable estimate of value. Assumptions derived from one approach form the basis for the analysis in another.
The different valuation approaches are not totally independent. Rather, they often have some degree of conceptual and practical overlap.
Per W.S. 39-13-103. Imposition (b) Basis of Tax. The following shall apply: (ii) All taxable property shall be annually valued at its fair market value. Except as otherwise provided by law for specific property, the department shall prescribe by rule and regulation the appraisal methods and systems for determining fair market value using generally accepted appraisal standards.
The Wyoming Constitution, Article 15 (Taxation and Revenue), Section 11. (Uniformity of Assessment Required), (d.) All taxation shall be equal and uniform within each class of property. The legislature shall prescribe such regulations as shall secure a just valuation for taxation of all property, real and personal.
Since the implementation of fair market value in 1984 and the advent of computer assisted mass appraisal method (CAMA), CAMA has been upheld by the Wyoming Supreme Court in numerous cases. The Court has held that CAMA conforms with the equal and uniform taxation requirements of the Constitution. See the following Wyoming Supreme Court Case References:
-Gray v. Wyoming State Bd. Of Equalization, 896 P2.d 1347,1995 Wyo. LEXIS 97 (Wyo. 1995).
-Cited in Collier v. Hilltop Nat’l Bank, 920 P2.d 1241, 1996 Wyo. LEXIS 99 (Wyo. 1996)
-Wyodak Res. Dev. Corp. v. Wyo. Dep’t of Revenue, 2002 WY 181, 60 P.3d 129, 2002 Wyo LEXIS 217 (Wyo. 2002)
-Airtouch Communs., Inc. v. Dep’t of Revenue, 2003 WY 114, 76 P.3d 342, 2003 Wyo. LEXIS 140 (Wyo. 2003)
-Milnes v. Milnes, 2008 WY 11, 175 P.3d 1164, 2008 Wyo. LEXIS 12 (Feb. 1, 2008)
-Britt v. Fremont County Assessor, 2006 WY 10, ¶17,126,P.3d 117, 123 (Wyo. 2006). “In fact, the Wyoming Supreme Court rejected the use of actual sales price for properties in favor of the value established by the CAMA system because of the equality and uniformity which result from its use. Gray, supra, at 1351”
TRS Response:
The commenter makes a valid observation when the relationship between the three approaches are mentioned and adds that it is often thought that there is essentially actually only one approach to value. This philosophy was advocated by the late Bill Kinnard, Professor at the University Connecticut, one of the founders of the Society of Real Estate Appraisers and a personal friend. Professor Kinnard championed the one and only approach significant in appraisal as the Sales Comparison Approach, not the cost approach that is being proposed by the DOR as the preferred method of valuation.
Comment:
There is a certain amount of ambiguity in this section. In a previous section the regulations adopted these same IAAO standards and incorporated them as a part to the regulations. In this section it states that the standards only apply if they do not conflict with Wyoming Statute or Rule. In several instances these proposed rules are at variance with the IAAO standards, so it is inconsistent to say the IAAO standards apply when Rules are being adopted that do not agree with the standards. Regardless of what has been said in the courts and in SBOE hearings: the CAMA program is not an approach to value.
DOR Response:
Each IAAO Standard has a disclaimer on the front page stating “The Standards presented here are advisory in nature and the use of, or compliance with, such standards is purely voluntary. If any portion of these standards is found to be in conflict with the Uniform Standards of Professional Appraisal Practice (USPAP) or state laws, USPAP and state laws shall govern.”
TRS Response:
In most instances the IAAO standard are not in conflict with USPAP standard; indeed, IAAO standards were the basis for USPAP standards on mass appraisal. Also the IAAO standards do not conflict with acceptable appraisal practices. The DOR is recommending rules & regulations that are at variance with acceptable appraisal standards, and they are declaring that their proposed regulations trump IAAO standards. This is of little benefit to the homeowners and taxpayers of Wyoming.
Comment:
It is inconceivable that the committee would remove the following sentence from the State’s property tax regulations: “Comparable sales shall be adjusted to reflect differences in time, location, size, physical attributes, financing terms or other differences which affect value”.
This sentence is at the heart of the Sales Comparison Approach and without it there is no market or sales comparison approach within the Wyoming property tax regulations.
Valid determination of Fair Market Value for homeowners in Wyoming is further undermined by the assertion in the proposed regulations that makes adjusted RCNLD the “preferred method of valuation.” What these changes in the regulations have done is remove any reasonable and professionally acceptable basis for challenging assessment that may have been arbitrarily determined by the assessor through the use of a subjectively determined neighborhood adjustment factor.
DOR Response:
The sentence regarding time, location, size, etc. has been reinstituted in to the rules. Removal of this sentence may have been a typographical error. Market adjustments are established using market sales and objective statistical analysis.
From The Appraisal of Real Estate, 12th Ed.,(Chicago: Appraisal Institute, 2001), page 419, Applicability and Limitations: “The sales comparison approach is applicable to all types of real property interests when there are sufficient recent, reliable transactions to indicate value patterns or trends in the market. For property types that are bought and sold regularly, the sales comparison approach often provides a supportable indication of market value. When data is available, this is the most straight-forward and simple way to explain and support a value opinion. When the market is weak and few market transactions are available, the applicability of the sales comparison approach may be limited. For example, the sales comparison approach is usually not applied to special-purpose properties because few similar properties may be sold in a given market, even one that is geographically broad. To value special-purpose properties, the cost approach may be more appropriate and reliable. Nevertheless, sales and offers for properties in the same general category may be analyzed to establish broad limits for value of the property being appraised, which may help support the findings of the other value approaches applied.” The CAMA system is designed to handle all three approaches to income; it is only limited by the data available. It is up to the Assessor to reconcile the three approaches and determine the value of properties within their jurisdiction.
TRS Response:
The DOR response is that the removal of the sentence on how to adjust a comparable sale was a typographical error; this is difficult to understand. The proposed regulations were supposedly vetted by all member of the Committee who participated in their drafting. Officials from the DOR reviewed the proposed regulations and the DOR conducted a seminar for assessors on June 9, 2009 in Saratoga where details of the proposed regulations, were discussed. The question remains, how could such a significant component of the existing rules & regulations be “lined out” without someone recognizing it was merely a “typographical error.” It is reassuring to learn that it has been re-instated.
It is difficult to understand why the DOR inserted the quotation from The Appraisal Institute’s book; appraisers do not deny that cost may be the only source of information when confronted with a “special purpose” property: these are not homes. In the quotation presented by the DOR it states that even in the case of special purpose properties, sales and offers for properties should be analyzed; neither the DOR nor the SBOE recognize offers submitted on listed properties, yet they include this citation validating their use.
While the CAMA program is designed to utilize the three approaches to value, the fact is that it is not well-suited to Wyoming because of the limitations of sales information. What must remain in the rules & regulations is that the most appropriate means of defending an assessed value is the Sale Comparison Approach, not an adjusted Cost Approach.
Comment:
What the definition fails to explain is that the replacement cost approach is considered to represent the “upper limit” to value based on the principle of substitution (Section 5(a)(ii)). Since the cost approach is the upper limit, it is important to have an objective indication of how the market would value the property; this has been removed with the elimination of comparable sale adjustments to the subject property.
It seems unethical to name a specific company, such as Marshall & Swift in a State Government’s property tax regulations. At some future date the situation may develop where a determination is made to change software venders and Marshal & Swift may not be the preferred source of cost data. Under that condition it is not inconceivable that the company would claim they are the sole source vender based on regulations thus resulting in legal complications for the State. The proposed regulations also require “accurate, current land values;” however, the simple regression being proposed for the valuation of land is not an “accurate” indicator of land values.
DOR Response:
Regardless of which approach is used the goal of the Assessor is always fair market value. If the Assessor is using the cost approach, the sales will be adjusted up or down using a market adjustment factor in order to bring the properties up or down to market value. The rules have established statistical parameters that must be met to ensure reliability and equity regardless of which approach to value is used.
The entire valuation process is comprised of integrated, interrelated, and inseparable procedures with the common objective of arriving at a convincing and reliable estimate of value. Although the approaches may be documented and explained on different pages of the appraisal report, they are rarely truly independent and unrelated. At times, the three approaches (if used) are so intertwined that some appraisers prefer the “one approach” concept and do not subscribe to the custom of separate presentations of the sales comparison approach, the income capitalization approach, and the cost approach. Marshall & Swift is the only approved cost manual for locally assessed real property in the State of Wyoming. This cost system has been a recognized authority in the appraisal field for over 70 years. If in the future the State no longer uses Marshall & Swift the rules will be changed accordingly.
TRS Response:
It is difficult to understand the DOR’s response when it states that “the sales will be adjusted up or down using a market adjustment factor in order to bring the properties up or down to market value.” This makes no sense. The response does not address the comment regarding problems with the cost estimates and the determination of land values.
Comment:
(net operating income-capitalization rate) There is no Section 4 (f) in the proposed regulations: what are the methods purportedly described in Section 4(a)(vi)?
DOR Response:
This was a typographical error that has been corrected. The methods can be found in Section 4 (vi).
TRS Response:
It is good to see the DOR has also corrected this typographical error.
Comment:
The proposed rule does not comply with minimum state statutory requirements because it fails to use the sales comparison methods to estimate property values.
DOR Response:
Section 2.1 of the IAAO Standard on Ratio Studies provides the basis for using Ratio Analyses to estimate Market Values of sold and unsold properties, as follows:
“Market value is a concept in economic theory and cannot be observed directly. However, market values can be represented in ratio studies by sales prices (market prices) that have been confirmed, screened, and adjusted as necessary (see Appendix A, “Sales Validation Guidelines”). Sales prices provide the most objective estimates of market values and under normal circumstances should provide good indicators of market value.”
The comments here are alluding to a “pure” sales comparison approach which is not feasible in mass appraisal. In order to perform a pure sales comparison on each property in the state Assessors would need to at least quadruple their staff. The most feasible way for an Assessor to apply the sales comparison approach is through the use a Multiple Regression Analysis (MRA). The IAAO states that “Usually, however, the sales comparison approach takes the form of developing a valuation model using multiple regression analysis (MRA) or other techniques such as the adaptive estimation procedure (AEP, or feedback) to calibrate (estimate the coefficients for) the model.” The text goes on to state “The sales comparison approach may not be applicable where there is little market activity (for example, in smaller jurisdictions, in depressed areas with few sales, or for property classes with sparse sales data).” Many jurisdictions in Wyoming simply do not have enough sales in a given strata to reliably produce an estimate of value using the sales comparison approach. Thus many counties are using a market (sales) adjusted cost estimate of value.
TRS Response:
The sales comparison component of the CAMA programs is based on SPSS multiple regression estimation; it is true there are insufficient observations to estimate multiple regression coefficients, which is one of the reasons the current CAMA program is ill-suited for Wyoming. The statutes are clear: the Sales Comparison Approach is required. There are several reasons why adjustment of the cost estimates is not a valid application of the Sales Comparison approach; these points have been made to the DOR of previous occasions.
Comment:
As a practical matter, the proposed rule adopts an unnecessarily complicated and opaque method of determining the assessed value of residential property in Wyoming. Its adoption will only increase the frustration already felt by Wyoming taxpayers.
DOR Response:
Per W.S. 39-13-103. Imposition (b) Basis of Tax. The following shall apply: (ii) All taxable property shall be annually valued at its fair market value. Except as otherwise provided by law for specific property, the department shall prescribe by rule and regulation the appraisal methods and systems for determining fair market value using generally accepted appraisal standards.
The Wyoming Constitution, Article 15 (Taxation and Revenue), Section 11. (Uniformity of Assessment Required), (d.) All taxation shall be equal and uniform within each class of property. The legislature shall prescribe such regulations as shall secure a just valuation for taxation of all property, real and personal.
Since the implementation of fair market value in 1984 and the advent of computer assisted mass appraisal method (CAMA), CAMA has been upheld by the Wyoming Supreme Court in numerous cases. The Court has held that CAMA conforms with the equal and uniform taxation requirements of the Constitution. See the following Wyoming Supreme Court Case References:
-Gray v. Wyoming State Bd. Of Equalization, 896 P2.d 1347,1995 Wyo. LEXIS 97 (Wyo. 1995).
-Cited in Collier v. Hilltop Nat’l Bank, 920 P2.d 1241, 1996 Wyo. LEXIS 99 (Wyo. 1996)
-Wyodak Res. Dev. Corp. v. Wyo. Dep’t of Revenue, 2002 WY 181, 60 P.3d 129, 2002 Wyo LEXIS 217 (Wyo. 2002)
-Airtouch Communs., Inc. v. Dep’t of Revenue, 2003 WY 114, 76 P.3d 342, 2003 Wyo. LEXIS 140 (Wyo. 2003)
-Milnes v. Milnes, 2008 WY 11, 175 P.3d 1164, 2008 Wyo. LEXIS 12 (Feb. 1, 2008)
-Britt v. Fremont County Assessor, 2006 WY 10, ¶17,126,P.3d 117, 123 (Wyo. 2006). “In fact, the Wyoming Supreme Court rejected the use of actual sales price for properties in favor of the value established by the CAMA system because of the equality and uniformity which result from its use. Gray, supra, at 1351”
Senate File 144 requires “The rules shall include requirements for the format and quality of a written explanation of the county assessor’s residential assessment methodology, including an explanation and description of the parameters used to develop any market adjustment factors utilized to arrive at a fair market value for a property.” This is further explained in Section 11. of the proposed chapter 9 rules. Further, this particular comment is advocating the dismissal of the fair market value system in Wyoming which would be in direct conflict with the Wyoming Constitution, Wyoming Statutes, and Wyoming Department of Revenue Rules. The system being advocated is “acquisition valuation” and violates the above references to the constitution and statutes.
TRS Response:
Having written this comment I can attest to the fact that it does not “advocate dismissal of the fair market value system in Wyoming. One can only assume that the DOR was at a loss to respond to the comment so there was a clear and intended effort to discredit what was said. The comment was sincerely presented because of the level of confusion that is introduced to the assessment process. The intent of SF 0144 was to make understanding of assessments clear to homeowners; the proposed regulations are at variance with this intended aspect of the legislation. It is virtually impossible for homeowners to understand an assessed value that has been determined by an assessor taking a subjectively determined ratio and appling it to the assessor’s estimate of RCNLD and then adding land value. The DOR has not responded to the comment.
Comment:
Section 6 (a)(i) After “or other stratum”, add the words “unless the confidence interval of the mean sales ratio of fewer sales meets the statistical test in (v) of this section.”
DOR Response:
The statistical committee did take this under consideration but found no support through IAAO that using less than five (5) sales was reliable; using fewer than five sales even though the mean ratio meets compliancy was one of the reasons behind the conception of Senate File 144.
TRS Response:
I would not agree with either the comment or the response. There is no statistical test to determine if even 5 sales are representative of the population of unsold properties being valued through a sales generated ratio; therefore, even 5 sales may be insufficient. The IAAO comment on the sufficiency of 5 sales in not based on any empirical evidence.
Comment:
Section 6 (iv) change the word after “sold or unsold property in the” from neighborhood to “stratum”.
DOR Response:
The word stratum is referring to a group of data, which means that one adjustment could be applied to improvement in multiple neighborhoods. By using the word Neighborhood in Section 6(iv), a single Market Adjustment Factor is applied to what the Assessor determined is a group of like type improvements. If multiple neighborhoods were used, as a stratum, to develop the market adjustment, the same market adjustment would be applied to each neighborhood used in the analysis.
TRS Response:
The DOR did not respond to my comment on Section 6 (iv); the issue is not “stratum,” the issue is that the adjustment ratio is “calculated iteratively” to arrive at “the final desired Level of Assessment.” This suggests that the assessor is subjectively determining the adjustment factor in order to arrive at a pre-determined level of assessment. This is probably the most egregious element in all of the proposed regulations. Any semblance of objectively or transparency of Fair Market Value is stripped from the proposed regulations.
Comment:
A sample size of 5 appears to conflict with the State Board of equalization Rules, Chapter 5, §3(a)(xii) which states a representative sample size is .5% of total properties in that class of properties. In addition, most statisticians and statistical literature suggest a sample size of at least 30 to draw statistical inference. A significance level of.05, for a sample size of only 5, results in a high standard error. See attached – X – County Sales Ratio by LEA.
DOR Response:
Senate File 144 states that the Department shall promulgate rules to establish the “adequacy of the number of arms length sales to be used in any sales comparison analysis and the use of appropriate statistical tests against the statistical likelihood that any property in any stratum is over assessed.” IAAO Standard on Ratio Studies, page 9, in 3.4- Collection and Preparation of Market Data says; “A ratio study sample with fewer than five sales tends to have exceptionally poor reliability and is not very useful.” In many jurisdictions in this state a minimum sample size of 30 may never be achievable even with an extended time trending period. Secondly, the SBOE Rules, Chapter 5, §3(a)(xii) deals with equalization which is an evaluation tool not a valuation tool.
TRS Response:
The author of this comment was on the correct tract; however, the sufficiency of a sample size is generally determined by the distribution of the population. The IAAO is incorrect in suggesting that 5 sales would be sufficient without prior knowledge of the population of unsold properties and a determination as to whether or not the distribution of the sold properties is reflective of the non-sold population.
Comment:
How can a sale be rejected as invalid, and then somehow be valid simply because more sales are needed?
DOR Response:
The IAAO standard used in this paragraph is pretty self explanatory. For example, A sale can be rejected because it had personal property involved in the sale. If the personal property is subtracted from the sale, then the sale can be considered a valid sale. The Assessor may not have had adequate staff or time to review a property at the time of sale resulting in invalidation, later there may be more time available for validation and research.
TRS Response:
Here is another point where the assessor is left to make subjective determinations. At the same time sales that are the result of property foreclosure are rejected, even though they would serve to benefit property owners in the community. The author of this comment made a valid point.
Comment:
Is this a mean or median ratio? Sales data which has a non-normal distribution requires use of nonparametric statistics, i.e. the median, rather than the mean. Use of a mean ratio may well limit the assessors to an even smaller window of compliance when they are evaluated by the SBOE, (instead of .95 to 1.05, now .95 – 1.00). See attached- X – County Residential Improved 2008 Time Adjusted Sales Price (non-normal Distribution examples 1 & 2) graphs.
DOR Response:
Under the new rules the sales ratio puts more weight on the mean than the median. With the assessors having the ability to trim outliers, it may cut the number of sales but the remaining sales will be more evenly distributed. The new range for the mean is (.90-1.00), so the ability for the assessors to achieve the appropriate level of assessment for the SBOE won’t be hindered.
TRS Response:
Not being able to see the accompanying examples makes a response to this comment difficult; however, if Bayesian statistics is being used to determine probability distributions, the mean would generally be appropriate.
Comment:
Is a recommended level of assessment of .96 allowable? The Wyoming Constitution and statutes require full value and fair market which would indicate the recommended level should be 1.00.
DOR Response:
In Senate File 144 the assessors are to protect against the statistical likelihood that any property in any stratum is over assessed. If the assessors are meeting the constitutional requirements of 1.00, then approximately 50% of all properties are over assessed. When the assessors try to achieve .96 then the majority of the properties are under 1.00, which fulfills the Senate File 144 requirements.
TRS Response:
The Wyoming Constitution requires uniformity among classification of properties. It would make no difference if 50% of the homeowners were above 1.00 or .96; in either case 50% of the population of homeowners are being assessed at a level greater than the other 50%. This point has been brought to the attention of the DOR previously, and they have not responded.
Comment:
The following comment was received in regard to Section 6 (a)(v): “This is only at a 95% level of significance with high standard error. The standard error is the standard deviation of the sampling distribution associated with the mean.”
DOR Response:
Since the mean is the central tendency that is being measured for ratio standards, then the 95% level of significance must be considered. This was recommended by the committee in accord with Section 2 of Senate File 144 stating that: In preparing the rules required by section 1 of this act, the department of revenue shall consider the published rules and procedures in other states employing a computer assisted mass appraisal system. Dr. Wirth and Rep. Dr. Madden both supported this level of significance patterned after the State of Utah rules.
TRS Response:
This response has little meaning. The issue is whether or not the mean sale ratio and its corresponding distribution is representative of the population; it is of little value to assign an arbitrary confidence interval. The author of the comment was correct in bringing into question the standard deviation of the sample mean. What is required is a test that compares a parametric known value for the population with the mean and standard deviation of the sold properties. This might be accomplished by using mean RCNLD from the population of unsold properties and the mean and standard deviation for sample of sales RCNLD: those are known values.
Comment:
The following comment was received in regard to Section 6 (a)(vii): “Doesn’t this requirement, in effect, eliminate any assessor judgment, and place the Department in the position of establishing methods of valuation outside of the rule-making process?”
DOR Response:
One of the Department’s roles is to oversee the valuation process of the assessor’s office. If the assessor cannot achieve the desired compliancy, then it would be up to the Department to assist the assessor’s office in determining the proper method to use in order to achieve compliancy. The Assessors are bound by DOR rules and IAAO standards thus any adjustment outside of the DOR rules or IAAO standards is not valid.
TRS Response:
The unfortunate aspect of this section is that it will probably limit property owners from utilizing more appropriate statistical tests when challenging assessments and determinations made by the assessor. This is another case of the proposed regulations not being in the homeowner’s best interest.
Comment:
It is laudable to require a minimum of 5 sales, which is the IAAO minimum; however, this misses the entire point of whether or not these sales are comparable to the unsold properties that will be adjusted though an entirely inappropriate method. There should be a statistical test to determine if the “sample” of 5 or more is actually reflective of the greater universe of properties where the RCNLD for unsold property will be adjusted. One method of testing would be a simple statistical means test comparing the RCNLD of sold and unsold properties. In one instance where I possessed sufficient data I conducted such a test and the sample was not statistically significant and should not be used to adjust the unsold properties.
DOR Response:
The committee charged with developing these rules had two PhD’s offering statistical guidance, Rep. Mike Madden and John Wirth, both of whom agreed that the parameters set forth in the proposed rules were statistically adequate. The minimum sample size is in agreement with the IAAO. Before any analysis is performed the assessor takes the time to determine the grouping of like type homes into neighborhoods. Then the statistical test is performed on the sold properties, and by meeting the 95% confidence level, definitely tells the assessor if the neighborhoods are homogenous. The mean is the central tendency that is used on the sold properties.
TRS Response:
Unfortunately what is described in the DOR response does not provide assurance that the neighborhoods are homogeneous. The assessor has been charged with subjectively determining neighborhoods and LEAs; apparently there is no standard or methodology for determining these areas according to DOR comments above. For example, there may be 5 sales of properties at the lower end of the price range for a neighborhood and they may have all sold at similar assessment/sale ratios; that does not mean that these properties are representative of properties at the higher end of the value spectrum.
Comment :
“Restratification” (sic) would suggest the neighborhood designations are of little significance and can be arbitrarily adjusted by the assessor to meet their immediate needs. If there is no sales activity in a neighborhood it would signify a decline in the market and most likely a decline in property values. “Restratification” (sic) gives the impression the assessor may be gerrymandering in order to achieve a pre-conceived notion that the current value is insufficient.
DOR Response:
Location, Location, Location is one of the primary aspects of appraisal. If there are two neighborhoods in a close proximity to each other, with similar characteristics, it would be foolish not to combine them. If each neighborhood has only 1 or 2 sales, then by combining them it would give the assessor a better idea of what the those similar type of homes are selling for. The IAAO Standard on Ratio Studies, Section 6.4 Remedies for Adequate Samples: If levels of appraisal are similar or properties are homogenous, broader strata containing larger samples can be created by combining existing strata or by stratifying on a different basis.
TRS Response:
Presumably the assessor has already defined two separate neighborhoods because there were significant differences between properties in each neighborhood. We are now told that those differences are insignificant when it comes to allowing the assessor to adjust values. This is exactly why it is important to have established procedures and rules for delineating neighborhoods and that those rules and procedures be clearly understandable to the average homeowner.
Comment:
The method of time trending is not specified or clear; most assessors have no experience in the development of economic models that could adequately identify the impact of time and other economic variables on the actual sale price. A simple two variable function relating sales price to time would be sufficient to accomplish this objective.
DOR Response:
The Department of Revenue has offered multiple courses and continued educational opportunities on the aspects of time trending. These rules are not meant to be a text book (sic).
TRS Response:
I question the use of simple two variable regression equations to adjust for time. We have seen recently that only properties at the lower end of the value range have been selling. It would be incorrect to confuse the change in price over time for these properties versus the change for larger homes with a variety of amenities.
Comment:
The following comments were made regarding Section 6 (a):
This suggestion would lead to massive over assessment; moreover, there is no justification or statistical test to provide assurances that the enlarged ‘sample’ is representative of the unsold properties. It would assure that 50% of the unsold properties are over assessed relative to other properties. Committee member John Wirth essentially acknowledges this in his comments at the Saratoga meeting with assessors.
Reducing the target Level of Assessment (LOA) to .96 does not resolve the issue of relative over assessment and the constitutionally mandated requirement of uniformity in assessments. If ratio adjustments are used to reach a .96 LOA then 50% of the assessments will be above that benchmark and therefore assessed at higher levels than other properties in the LEA; there will be no beneficial impact on uniformity. If a universe of unsold properties is multiplied by a constant, such as the neighborhood adjustment factor, the relative disparity in uniformity would be to have market-based estimated of fair market value derived from sales data.
It has been the standard practice for assessors to utilize the median assessment/sales ratio in an objective manner; it is not clear if this regulation no longer requires use of the median or if the ratio decided upon the assessor is a subjective decision. Nothing in this section explains how the “desired level of Assessment” will be determined and without the requirement specifying the use of comparable sales adjustments individual property owners are left without any guideline they can rely upon when attempting to determine the performance of the assessor relative to their property. This level of vagary should not be allowed within Wyoming statutes and regulations.
DOR Response:
The commenter was not in attendance at the July 9, 2009 Saratoga meeting with the Wyoming County Assessors Association. In step D, of the Standard on Ratio Studies, IAAO acknowledges an overall county average to adjust for the NBHD that had insufficient sales. The only time that 50% of the properties will be over assessed is when the assessor achieves a mean ratio of 1.00.
Per the IAAO Standard on Ratio Studies (2007), 11.1.1 Purpose of Level-of-Appraisal Standard:
“The purpose of a performance standard that allows reasonable variation from 100 percent of market value is to recognize uncontrollable sampling error and the limiting conditions that may constrain the degree of accuracy that is possible and cost-effective within an assessment jurisdiction. Further, the effect of performance standards on local assessors must be considered in light of expectations of public policy and resources available. For these reasons, states or oversight agencies may adopt performance standards for appraisal level that allow some variance from the 100 percent goal of market value.”
The nature of most statistical methods are such that about half of the populations lie above the mean and about half lie below. The Committee addressed this issue after extensive analysis and deliberations by providing a target for the mean, i.e.
(iii.) Level of Appraisal. The level of appraisal for any LEA, Neighborhood or other stratum of residential improved or vacant property, shall lie between 0.90 and 1.00.
Statistically to protect against the likelihood of over assessment of properties the recommended Level of Assessment for residential improved properties is 0.96.
In par. 6 (a) (v.) restraining the dispersion of the mean sales ratio and resulting neighborhood adjustment factor in the assessors’ ratio analyses as follows:
(v.) Confidence Interval of Mean Sales Ratio. For residential improved properties the upper and lower limits of the 95% confidence interval of the mean sales ratio for any LEA, Neighborhood or other stratum shall lie between .85 and 1.05.
Mr. John Wirth Ph.D., Rep. Mike Madden Ph.D. and Jack Rehm Principal Appraiser, through extensive statistical analysis discovered that .96 on a two tail test of the mean, concluded that the majority of the properties will fall below 1.00, which is in compliance with Senate File 144 “to protect against the statistical likelihood that any property in any stratum is over assessed.”
TRS Response:
One can only assume that those not in attendance at the Saratoga meeting would be able to rely on the DOR minutes from the meeting. This point gets back to the issue of sold and unsold properties. Calculated ratios are based on sold properties and do not necessarily reflect characteristics of unsold properties unless there has been a specific test to validate the assumption of “comparability.” At no point within the proposed regulations is there any effort to address the issue as to whether or not sold and unsold properties are comparable. If the ratio that is used for adjustment is based on a median or mean value, essentially half the properties that are being adjusted will be overvalued in relation to the other properties in their classification.
Comment:
Sale ratio analysis is an accepted administrative procedure that enables assessment officials to determine if the level of dispersion is greater than required norms and to make and administrative decision as to whether or not an identified area or neighborhood should be re-valued. The IAAO Standard on Ratio Studies is designed to assist assessment administrators in making these types of decisions regarding uniformity. Under no circumstances should the ratio indicators of dispersion and central tendency be used to infer values to non-sold properties that have not been cleared as being directly comparable to the sold properties. These are two distinctly different issues, and it is unfortunate that these proposed regulations fail to make this critical distinction. The issue becomes, when applying Senate File 144, what statistical test is being applied to determine whether or not properties are indeed comparable when assigning valuation to unsold properties?
DOR Response:
The rules state that in any stratum statistics shall conform to Section 9.2, Appraisal Uniformity, of the IAAO Standard on Ratio Studies. A sales ratio is performed on each neighborhood to look for consistency and the 95% level of confidence is used to compare the sold properties against the unsold properties to validate uniformity. The three main central tendencies, mean, median and weighted mean, are widely accepted through the mass appraisal foundation as being reliable.
TRS Response:
This is one of the better responses by the DOR. It states that there is a comparison of mean, median and weighted mean for sold and unsold properties. We know there is no sale/assessment ratio for unsold properties and discussions with county assessors have suggested that this is neither something with which they are familiar nor something they undertake. The result of a statistical means test for RCNLD was presented to the DOR which suggested that the sample was only valid at the .78 level of significance, not .95. In a letter dated March 5, 2009, addressed to Mr. Marvin Applequist, Administrator, Department of Revenue, the following question was asked: “Does the State apply this or similar statistical tests to determine if the sample size is sufficient to represent a population of unsold properties?” No response was ever received.
Comment:
If the observed 95% confidence interval falls outside of the upper or lower bounds what would be the administrative corrective action?
DOR Response:
If corrective actions are found necessary within a county the DOR may utilize informal conversations with the county assessor or formal visitation by property tax division staff to implement procedures/plans in order to bring the county back in compliance with DOR rules. See W.S. 39-11-102 (c)(xvi)(xviii).
TRS Response:
This is a very reasonable response.
Comment:
According to the IAAO Standard on Automated Valuation Models, the Sales Comparison Approach is the primary method for estimating the market value of land. The dependant variable in a sales comparison model should be the sales price or the sales price per unit. For example, if land sales in an area are based on square feet of land area, then the dependant variables should be sale price per square foot. Typical independent variables include property use, zoning, size or location, site characteristics; amenities (positive influences); and negative influences. A simple two variable equation with one dependant variable equal to price and one independent variable represented by parcel size reflects a grossly inaccurate estimate of land values within any area being assessed.
DOR Response:
When developing a Land Economic Area (LEA), the site, location, amenities, zoning, property use and characteristics are considered. By using the sale comparison approach a land model is developed in the LEA tables. Square foot lots are compared to square foot lots, acre tracts to acre tracts and site built lots to site built lots, etc. The rules do not state that properties must be valued using a curve but after they have been valued the data points “fit a regression curve which is derived from sold properties”. A linear line or regression curve is necessary when developing land value because not all land is sold in equal shares. Generally, larger tracts sell at a lower price per unit. This is where the regression curve comes into play. Again these rules are not meant to be a textbook.
TRS Response:
There seems to be some ambiguity on this point. After the DOR has stressed throughout that direct comparison of sold and unsold properties is not possible, the DOR’s current response suggests that every property is evaluated for location, amenities, zoning and property use characteristics. Adjustments are made for these differences and each parcel is assigned a unit value. After each property has been appraised on a unit cost basis, it is adjusted for size based on a simple regression estimate that is calculated using sale price and parcel size. According to the proposed regulations: “The equation of the regression lines is used to assess the land value of all sold and unsold properties in the LEA.” (Note: there is only one line for each equation). This apparently means that the regression line is used to assess (appraise) the sold and unsold properties; there is nothing in this paragraph that describes the process as indicated in the DOR response. Moreover, having observed situations where assessors have valued 3.5 acres of land using a simple regression curve estimated with land ranging in size from a 1-acre city subdivision to a 100-acre agricultural parcel, it would appear not all assessors are using the process outlined by the DOR. Also, if one reviews the sample forms prepared by the Committee for land valuation it would appear to indicate that the approach described by the DOR is not being applied.
Comment:
There appears little justification for the State of Wyoming to incorporate the name of a software vendor in the Rules & Regulations. CCI is in the business of combining software packages such a Marshall & Swift, SPSS, MS Office and Oracle; these software packages are responsible for the major portion of the operations that are required by Wyoming’s county assessors. This provision, providing a sole-source license to a specific vendor, has the potential of doing significant damage to property tax administration within the state. There are many software packages that are superior to the system provided to Wyoming by CCI. Most of these have been developed internally by varying taxing jurisdictions’ own staff, often times using the same software packages incorporated within the CCI system. What this regulation does is limit internal system development and prevents a superior competitor from replacing CCI, which might be to the benefit of Wyoming assessors and property owners. It would be more reasonable to leave the availability of assessment software up to the Department of Revenue rather than institutionalize a single vendor in these regulations.
DOR Response:
The Department does not accept this comment as CCI was awarded the contract for a statewide CAMA program via a mandated RFP bid, as well as DOR and Assessor review. This was an open RFP bid to all CAMA vendors. CCI was awarded the contract to this RFP process. The DOR does not have discretion to arbitrarily change CAMA vendors without meeting legislative bid and contract requirements.
TRS Response:
The DOR’s response is well-taken: it is unfortunate that the CAMA program is not able to provide the type of Sales Comparison valuation required by SF 0144.
Comment:
Section 9. Reconciliation. (re: paragraph (a.)) The inclusion of this paragraph is now superfluous since the only approach for the valuation of residential property is proposed to be the adjusted cost approach. There is no real market based sales comparison approach available for use.
DOR Response:
All three approaches to value are still included in the rules. The CAMA system has built in sales comparison and income capitalization functions. Regardless of what approach is used to determine value, the statistical parameters in Section 6 must be met. We have not removed the sales comparison approach from these rules.
…the fact remains that the ultimate estimate of value is based upon an inseparable interrelation of the three traditional approaches to value. These interrelationships are critical in arriving at a reliable estimate of value. Assumptions derived from one approach form the basis for the analysis in another.
In mass appraisal the Cost Approach is an easily applied, fair, uniform and equitable method of valuing properties.
TRS Response:
The DOR response is not a valid interpretation of the proposed regulations. While they have agreed to reinstate the sentence describing how a comparable sale should be adjusted, they have allowed their statement declaring the ratio adjusted cost approach as being the “preferred method of valuation” (Section 6 (a)(i) to stand. This point was raised in the comments submitted to the DOR, and nowhere in this document is it acknowledged. This one sentence makes it essentially impossible for a homeowner to show that their property has been over-assessed.
Forms: Comment:
One of the areas that present the greatest problem is the “land value summary”, which requires several assumptions when attempting to understand what the architects of the forms are attempting to achieve. It would appear their method of valuation is by “MRA” which by definition in Chapter 9 is incorrect. Assessors have been instructed they will utilize simple regression estimates with one dependent variable (price) and one independent variable (land area). If they were to use MRA (multiple regression analysis) there would be two or more independent variables. In order to understand the simple regression estimates and know if the coefficients were statistically significant the form should include the coefficients for the equation as well as the number of observations and the value of the “student’s score”. None of this supporting information is included.
DOR Response:
The assessor may value land by many different methods($/sf, $/acre, site value, etc.) The “MRA” in the system is just a generic title for regression analysis. The forms did not include the t-statistic, R values, etc. as the committee was under a time restraint to get things done. The software vendor is struggling to get the changes that were made done. Any further information such as the t-stat, etc. will be available from the Assessor upon request. The assessor may decide to include this information in their narrative report (the DOR recommends that a printout of any analysis and statistical information be placed in a file for future reference and for taxpayer inquiries).
TRS Response:
MRA has a specific meaning to statisticians and econometricians. It signifies that more than one independent variable was being utilized; this is not the case in the Forms section addressing the issue of land valuation. Confusion relating to this section’s description of land valuation is essentially addressed by both the DOR and TRS above.
Comment:
The statistics that are being presented in the table represent information from sold properties; nothing on the form shows any statistics for the universe of unsold properties. In order to determine if the sold properties actually reflect characteristics of the unsold properties there needs to be a comparison between some measurable parameter for the sold versus unsold properties, such as the mean RCNLD. This consideration has been ignored throughout the draft regulations as well as on these forms.
DOR Response:
The State Board of Equalization during their abstract hearings annually performs evaluation analysis regarding the sold vs. unsold properties within a county as part of their equalization duties. The DOR provides assistance to county assessors in performing appraisal analysis intended to arrive at fair market value.
TRS Response:
This response by the DOR appears to be at variance with their response above whch suggests statistical tests are undertaken. If the assessor is going to use ratios “iteratively” derived from reviewing sold properties, it is essential that they—the assessors—be able to perform tests to determine if their sale/assessment ratios are representative of the characteristics of unsold properties which are having their valuations adjusted. This issue should no longer be only a SBOE function.
Comment:
In the past the techniques used by assessors to value homes made very little sense to the typical homeowner: that is why Senate File 144 was passed by the legislature. The intent was to help people know how their property had been appraised and why the assessor had assigned a specific value. The objective Senate File 144 was to improve this situation; unfortunately conditions have only become worse for homeowners, only now with fewer safeguards.
DOR Response:
The proposed rules are a significant improvement in opening the lines of communication between Assessors and taxpayers. Much of the information desired by the taxpayer will be available in the CCI reports and forms as well as detailed narrative reports available for each LEA and NBHD explaining the processes and steps used in reaching market value. The taxpayers will still retain their due process rights of appeal, if not satisfied with the disclosure of required information from county assessors.
TRS Response:
The mere fact that a subjectively determined ratio is used to adjust assessor calculated RCNLD & land value that and this is defined as the “preferred method of valuation,” makes it virtually impossible for a private citizen to prevail through the appeals process. These proposed regulations have not benefited the homeowner: their position has been further depreciated.
Comment:
No mention is made of the IAAO Standard on Assessment Appeals. Within that standard it specifies that (1) members of the board should be qualified knowledgeable individuals and (2) there should not be any conflict of interest. Within most counties neither of these conditions is present. The County Commissioners do not have valuation experience, nor for the most part do they have any understanding of statistics, yet they are making rulings on the validity of statistical techniques. There is clearly a conflict of financial interest when the County Commissioners are judging assessments which if reduced will lower the budget they have available to spend. This Standard also requires sufficient time for the property owner to present their case: the 15 minutes that is allowed on some counties is not sufficient for this purpose.
DOR Response:
The Department of Revenue has no authority under W.S. 39-11-102 to implement rules or procedures in the handling of taxpayer appeals. Each County Board of Equalization has the authority to establish rules and guidelines regarding appeal hearings.
TRS Response:
Clarification of this issue is appreciated and it will be addressed with the County Commissioners at the appropriate time.
IAAO, Standard on Ratio Studies, Part 1, Guidance for Local Jurisdictions, July 2007, p. 7.
Theodore R. Smith, Ph.D., a longtime resident of Wyoming, Dr. Smith has served on the staff of the International Tax Program at the Harvard Law School and has advised the IAAO and the Appraisal Institute on computerize valuation issues. He has published extensively in the property tax and appraisal fields and has consulted with governments throughout the United States and abroad.
Rocky Mountain Oil and Gas Association v. Bd. Of Equalization, 749 P. 2d 221 (Wyo.1987)
WYO STAT. § 39-2-102 (1994). |
