Crunching numbers: City omits short sales, foreclosures in averages
In a recent press release, the City of Charlottesville reported that 2012 assessments are down 1.22 percent overall, with existing residential properties declining an average of 3.08 percent. So how do we square this the city data to the Nest Realty 4th Quarter Market Report for 2011, which shows the average list price of a single-family home in the Charlottesville area decreasing 32.1 percent year-over-year?
Assessments, which are used by local governmentsto establish tax value, provide snapshots of property values as of January 1st. And tax value, a fixed figure unaffected by changes in interest rates or inventory, is determined in part by examining sales that have occurred within the market area.
A reporter decided to make a random sampling of 20 sales taken from the multiple listing system (MLS) for the period of May-October 2011, and the result reveals some intriguing information.
Seven of the MLS transactions reflect sales prices in excess of the current assessments, while the remaining 13 transactions show sales that occurred below the assessed values, all of them larger than the 3.08 percent government-noted residential decline.
A closer look at the online records shows that 10 of these 13 lower-than-assessment sales were rated a "3." Part of an internal coding system used by the city assessor’s office, the numeral indicates that these 10 transactions are all considered "invalid" and were therefore excluded from the calculations that yielded the figures reported in the press release.
City Assessor Roosevelt Barbour explains that an invalid sale is anything that is not considered an arm’s-length transaction. For instance, sales from one family member to another or transfers involving estate-owned properties would be considered invalid and would be excluded from the pool of data used to determine assessments. Not all situations are quite so clear-cut, however. Sales in which realtors act as principals may also be considered invalid, depending on the particulars of the transaction and the interpretation of the assessor reviewing the file.
Invalid transactions also do not include foreclosures and short sales, even though these have became a major part of the local market– 20 percent according to Nest realtor Jim Duncan on his blog– are also excluded from the official assessment calculations.
"I’d like to exclude the short sales in my market analyses," says Duncan, "but I’d probably be deemed incompetent by my profession, my clients and the market."
And here's a little surprise. Of the remaining seven transactions in the random sample– those in which sales price exceeded assessment– all were all considered valid.
To summarize, based on the random sample, the number of transactions reflecting a decrease in value was nearly double the number that reflected an increase, yet less than a quarter of these were deemed suitable for comparison purposes. This may help explain the miniscule decrease in value reported in the city’s press release as compared to the clear downward trend in value noted in the Nest report, but it may muddy the waters in other regards.
Extrapolating from this admittedly small sample, how is it that the majority of last year’s transactions reflecting declining values were deemed unsuitable for comparison purposes while the majority of transactions supporting consistent values were considered valid?
According to the assessor’s office, determining how to code a particular transaction is up to the assessor conducting the review, a policy that appears to allow no small amount of subjectivity. It also calls for a significant amount of trust on the part of city residents, whose tax bills reflect these policy decisions even if the taxpayers are losing faith in the accuracy of assessment process.
But there’s little question that it benefits the city coffers.
–online story updated 7:52am Friday, March 2 with quote and factoid from Duncan