Residential Assessed Values: the Variance File

Greg Petzold AAM describes a variety of sources of variance in residential sale prices. Greg creates MRA based residential models for City of Winnipeg Assessment.


Excuse, noun (\ik-‘skyus\):

  • A reason or explanation in order to justify a fault.
  • Synonyms-alibi, justification, rationalization, cover, defense, evasion, extenuation, grounds, mitigation, plea, stall, stopgap, story, subterfuge, vindication, cop-out, cover story, song and dance.  

“Excuse” can be an ugly word. In reality, there are many legitimate reasons for assessed values to vary from sale prices or perceived values. Some factors go unrecorded, some factors are considered not assessable, and some are difficult to record and quantify systematically.

These factors are both positive and negative. Some can be addressed by valuators, but as we will see from the following selection, many are difficult to deal with.

The Physical: there are always bricks and mortar issues.

The Ugly Factor: Beauty is in the eye of the beholder.

Most market participants will agree that some structures lack street appeal due to their exterior design. While the home has typical utility and quality of construction, demand may be reduced to some degree. One example in older areas is the conversion of former corner stores to residences. These will have an unusual appearance and often lack the typical setback for the neighbourhood, instead hugging the sidewalk.

Ugly duckling: a double attached garage design home with (?) no garage

 

Home Staging: today reality television brings real estate marketing to everyone’s living room.

For many homes, the point of sale is their prom night. Most homes will never look so good again. The majority of vendors do their best to repair and redecorate to maximize appeal. Professional stagers can help with primping for sales, providing advice and even props.

Décor can’t be assessed but it is vital to capture any real upgrades wherever possible. Otherwise the inventory population values will be inflated.

No more residential “mug shots”-today listings may boast dozens of artistic photos or even video


Design: room layout is tough to categorize.

Many old homes are a warren of small rooms. In modern homes a more open design is desirable, within limits.

I once inspected a house where the entire second storey had been turned into a 1,000 square foot master bedroom-perhaps not a desirable design for the typical buyer.

Or, there was the home where I had to walk through the washroom to get to the stairs to the upper floor. So homes can be either overly customized or outmoded.

Landscaping: landscaping is a major expense for new homes, and existing homes have an enormous range in the level of attention and expense devoted to their yards.

The level of maintenance varies dramatically.

And what about the quality of outside improvements? All the homes might have driveways; but are they made of gravel or concrete or expensive manufactured stone?

Landscaping: it can be a pleasing green space or a goat pasture


Structural issues: the ultimate individual factor.

Tagging a property as fair or poor condition is just too crude. Legitimate cost to cure allows us to arrive at a permanent percentage adjustment until repairs are made.

Typically these would be excluded from sales analysis due to their extreme range of severity.

Some homes may be condemned as unsafe, others just have a little unevenness that some purchasers may not even take notice of.

Data limits: using square foot based variables in additive models can have limitations.


Adding the same additional dollar value for every square foot of variable may break down with extreme data. Capping size for some variables such as very large lots, decks or garages may be in order.


Or split rates can be developed with lower rates for additional units beyond a normal base. Or the variables can be converted to a nonlinear structure to create a curve that reflects the principle of diminishing returns.


The Location: location can cause macro and micro problems.

Anomalous age or type: infill homes can be 100 years newer than their neighbours.

Median age by neighbourhood can be calculated and significant deviance from the norm can be analyzed. However, in some cases sales for infill homes are too few for conclusions. A “global” analysis may be necessary to arrive at general parameters for dealing with the issue.

New neighbors don’t always fit in well in established neighbourhoods


The Neighbours: neighbours may have unkept yards, peeling paint, too many vehicles and make too much noise.

The house next door might be an eyesore. Yet the assessor cannot adjust for individuals. On the other hand, if the neighbourhood does have a widespread problem, sales will reflect this and generate lower value levels.

Relative Severity of Influences: positive and negative influences like water views or commercial views are not generic.

Treating them as simple binaries may be inappropriate. The relative strength of a factor can be linearized. For example, the value impact of retention ponds may vary between neighborhoods.

The difficulty lies in influences captured as basic yes/no binaries such as commercial, where the commercial universe of properties may represent a dramatic range. Is there a busy convenience store next door or a tony legal office in a historic home conversion?

Recording a major or minor commercial influence might be an improvement.

 

Configuration: the placement and orientation of buildings on the site can be a value factor.

Loss of privacy or loss of utility is possible, often occurring on corners where homes are oriented to side streets, ending up with a “sideyard” rather than a backyard.

Non conforming setbacks may reduce usability.Premium or inferior streets: the level of development can vary street by street.

During the valuation process sales ratios can be reviewed by street for possible adjustment, but only where there are sufficient sales.

The Missing: do we still lack data?

No variable or rare features: some variables are not recorded or have not yet been fully populated.

This can be due to changes in building technology or simple rarity. An example is super energy efficient homes or LEED certified properties. Valuation systems also evolve over time and may collect more data, or simplify-eliminating what is perceived as redundant or low value data.

Orientation: orientation or view can be highly variable, and might not be fully captured. Is the condo unit on the north or south side of the building? Does it have an open view or does it face a neighboring high-rise? Views can be diverse and subjective.

What’s the view? The fifth floor might have a mountain view, but the second floor might have a view of the dumpsters in the back lane.


The Legal: Charles Dickens’ Mr. Bumble said the law was an ass. We can at least agree the law is a constraint.

Legislative interference: legislation can limit assessors. In the province of Manitoba, assessors are precluded from fully assessing geo-thermal or ground source heat pump systems. This is a political initiative intended to support green technology.

Court decisions: court decisions can reduce accuracy by placing limitations on the scope of the valuation. For example, apartment condo owners may have varying rights. One individual owner may have one parking stall, another two stalls, and yet another none. Where decisions hold the parking part of the common element and not assessable, the assessor is unable to account for this variation in arriving at values.


The Vendor:The who in a transaction can sometimes explain the why.

Rental, Hoarders: previous occupants sometimes present challenges. If the home is rented it may be more difficult to polish it up for sale. Hoarders now have their own television show too, but in this kind of “home and contents” sale, the contents do not normally interest The Antiques Road Show.

Frequent vendor/purchasers. Are the buyers home renovators or “flippers”? These buyers are usually picking up distressed properties, often circumventing the open market. The sales are not really useful for valuation. In some cases multiple sales may be taking place for legal or tax strategies.

The Circumstances: Houses may be described as cookie-cutter, but every sales transaction has a back-story.

New home sales: Most new home sales represent payment for the home only. Homeowners must still put in lawns, trees, fencing, and decks or patios. In addition, buyers may make additional payments for upgrades that do not appear in the registered sale price. Thus the recorded sale price does not represent the full cost of the new home.

Chattels: vendors can sweeten the deal with inclusions that range through appliances and furniture. For some situations like recreation properties, this may even be the norm.

Vacant/estate: time constraints for vacant homes or settling estates do not encourage maximum values.

Financing: non-market financing can affect the sale price. Vendors may also offer credits or cash payments intended to address work needed on the property.

The Esoteric: They say truth is stranger than fiction. What are considered rare situations or events do happen-more often than you think.

Historic merit: No, I haven’t valued a home where George Washington slept. On the other hand, I have valued a home that was advertised as ‘Winston Churchill slept here’. This one would be really tough to quantify.


Fame: A recent case in point: the very modest childhood home of the late rock musician Kurt Cobain (of Nirvana) has been advertised for sale at $500,000. Located in small town Aberdeen, Washington, two hours from Seattle, it was most recently assessed at less than $67,000.

 

Death: tragic events are troubling to most prospective buyers. In notorious cases homes have been demolished in the aftermath.

Early on in my career, while verifying sales I knocked on a door and was advised that there had been a murder there. Another low sale caused me to phone the new homeowner-he told me the previous owners had both died of carbon monoxide poisoning.


After yet another low sale in a peaceful suburb, the new homeowner came to the office to discuss his slightly “over-assessed” home. He confessed that he purchased the home after someone drowned in the pool.

The Future: time is money, value is a snapshot on a timeline.

Redevelopment: generally values are based on current use. Potential re-development is speculative. Where a change of use is planned, the future business plan will determine the limit of the current sale price. The sale price may have little meaning for an inventory population valued by the income approach. This warehouse might be ripe for redevelopment, but not every warehouse.

Hundred year-old warehouse under conversion to apartments


Living in the Past: values are always based on past sales performance, and often fixed at a historic date.


The gyrations of today’s market should not affect the acceptance of an assessed value. Nevertheless, when the market experiences a downturn, increased debate regarding values is probably inevitable. Even influences can change where there is a significant lag between reassessments. To the dismay of nearby homeowners, a heavy traffic arterial road may be developed on what was previously perceived as a green space. Buyers may not account for such planned influences until they are physically present.

Finale:

Assessed values don’t always match sales perfectly-who knew? There are many subjective factors. And there are transitory factors . And there are legal and regulatory limits. That’s what keeps assessors and appraisers busy.

Related articles

You may also be interested in

Manitoba Government Job Opportunities

Assessment Officer AS2 Assessment Officer 2; AS3 Assessment Officer 3 Regular/full-time Municipal RelationsAssessment Services, Municipal Governance & Advisory Services Portage la Prairie MB, Morden MB

Hot daily news right into your inbox.