INTRODUCTION

The King County Department of Assessments is required by State law to appraise all property at its full market value. For residential property, the primary method used is mass appraisal. The Area Reports produced by the Department of Assessments are intended to fulfill the requirements of State law and conform to generally accepted appraisal principles. Specifically, the property values are appraisals and the Area Reports are mass appraisal reports prepared under the guidance of Standard 6 of the Uniform Standards of Professional Appraisal Practice which governs the Department's appraisal work.

The Area Reports are designed to fulfill step 7 of the requirement by allowing the Assessor to review the mass appraisal results for completeness and accuracy before accepting the recommendation of appraisal staff for valuation changes.

In reviewing a mass appraisal a primary tool is the ratio study. The ratio study compares appraised values to market values. The ratios themselves are formed by dividing appraised values by sales prices. As an example, a property recently sold for $105,000 (S) was last appraised at $100,000 (A) by the Assessor. The ratio of A/S is $100,000 / $105,000 = or 95.2%. The two primary aspects of mass appraisal accuracy measured by ratio studies are level and uniformity. Appraisal level refers to the typical ratio at which properties are appraised. Appraisal uniformity refers to the fair and equitable treatment of individual properties. Uniformity requires equity within groups and between groups. Uniformity within groups is determined by measuring the magnitude of the differences between each ratio and the average or middle ratio. Uniformity between groups of properties can be evaluated by comparing appraisal levels.

Measures of central tendency form the basis for estimates of appraisal level. Three widely used measures are the median, the mean and the weighted mean. In the Area Reports, these three measures, among others, are found in the Model Validation Section as calculated on spreadsheets labelled Improved Parcel Ratio Analysis. Measures of dispersion form the basis of uniformity estimates. Widely used measures of dispersion include:

All of these measures are also calculated and presented in the Model Validation Section. Basically, fulfilling the Assessor's lawful responsibility requires the achievement of measures of assessment level at or near one and measures of dispersion as small as possible.

One other element is necessary before we can move on to explain the contents of the Area Reports. As noted above, State law requires property be valued at full market value. State law also provides for a variety of reappraisal cycles among the counties. The King County reappraisal cycle is based upon annual revaluation with a six-year physical inspection schedule. Essentially, approximately one-sixth of the properties are physically reviewed and revalued each year. The other approximately five-sixths of the properties are revalued by statistical means. The former group is known as the Physical Inspection group while the latter is referred to as the Annual Update group. For the Physical Inspection group a full recalibration of the value model is undertaken (see Steps 3 and 4 above for the Mass Appraisal Process) while for the Annual Update group a Characteristic-Based Market Adjustment is performed. Annual Update complies with State law and appraisal practice by making an interim adjustment to assessed values based upon statistical means. Given these two sets of areas, there are two types of residential Area Report. In the case of the Physical Inspection Area the Executive Summary Report will refer to "Appraisal Date 1/1/2002 – 2002 Assessment Roll" whereas for an Annual Update Area the reference will be to "Characteristics-Based Market Adjustment." With this brief introduction we can move on to a discussion of individual sections of the Area Report.

The Executive Summary provides a highly condensed version of the information presented in the Area Report. The appraisal date is specified and the date of the previous physical inspection is listed. The market area of concern is identified by name and number. The prominent box contains the "Sales—Improved Valuation Change Summary" which shows summary statistics from the Ratio Study Reports which are found in the Model Validation Section of the Report. This exhibit presents at a glance the comparison between assessment level and assessment uniformity as measured by the relationship between sales prices and assessed values before and after the revaluation effort has been completed. Thus, for both years the average sale price is the same but the average assessed values are different. The change in ratio – here the weighted mean ratio -- should be in the direction of a level measurement of 1.0 and the change in assessment uniformity at least as small as the prior measure. In this box we are looking at the sales sample.

In the next section of the Executive Summary we see the change in average value in the population of residential parcels in the area as a result of applying the newly estimated valuation from the sales sample to the population as a whole. Finally, the Executive Summary contains the recommendation of the appraisal staff to the Assessor for a change in values in accordance with the mass appraisal performed.

Sales Sample as Representative of the Population

Mass appraisal depends upon the ability to infer values which apply to the population of residential properties from the sales sample. The sample must be representative of the population. Accordingly, the Area Report presents a series of graphics which indicate the degree to which the sales sample succeeds as a representation of the population in terms of several important characteristics. Step 3 of the mass appraisal process requires the appraisers to identify characteristics that affect the creation of value; we would definitely expect Age (here measured by Year Built), Size (as measured here by Above Grade Living Area), and Quality (here measured by Building Grade) to be important characteristics related to value of residential property. Accordingly, the tables and graphs in these exhibits show the degree to which the sales sample match the population of residential property in the area in terms of these dimensions.

The next set of graphic exhibits present bar charts which portray the distribution of the previous assessed values and the new assessed values across distribution of age, size and quality in the residential properties. The line portrayed in the graphics represents the average sale price per square foot of the total value for the residential sales sample across the same distribution of values. The idea here is to portray the movement of assessed values (the bar charts) to coincide with sale prices (the lines).

The Physical Inspection Process is a complete application of the mass appraisal process as described by Standard 6 including physical review of the properties. Statistical methods are used to establish the relationships between factors which influence value of residential property. As an example, given two houses identical in all respects save size, the observed difference in sales price could be used to infer the value adjustment for size which should be used to set values of unsold properties. Say we observe a house of 1,500 square feet size sell for $300,000 and one like it in all respects other than size with 1,800 square feet sell for $360,000. The difference in total sale price here is $60,000 which may all be attributed to difference in size. One may infer $60,000 / 300 square feet = $200 per square foot as the value of a square foot of living area. In a more abstract vein, the estimated value of the coefficient for the factor size is 200. The Assessor's staff collects a large amount of data on many characteristics of residential properties. Statistical methods allow for the estimation of coefficients for a considerable number of factors which have a role in explaining the value of houses.

As discussed earlier, the residential properties in King County are valued either as part of the Physical Inspection group in which the individual property is physically reviewed and a full model is specified and calibrated in order to set values, or as part of the Annual Update group in which prior values are included as a starting point in the estimation of updated values. The Annual Update process proceeds by statistical explanation of sale price using an independent set of variables which includes previous assessed value as well as the relevant characteristics which would generally be accepted as determinative of value (for instance, Age, Size and Quality).

Having performed the analysis, the appraisers are in a position to recommend a set of factors which may be applied to the previous value and measures of characteristics which achieve significance in order to estimate updated values. If no characteristics achieved significance in the market analysis the updated values would simply represent the overall market level change in the market area. Examining the characteristics allows a more refined analysis to capture potentially different rates of value change in the area. The end result of the mass appraisal model work is set forth in the section Specific Area Annual Update Model Adjustments.

A display of confidence intervals on these pages are designed to indicate the degree of reliability which may be assigned to the estimated coefficients. The confidence intervals shown present about the statistical low and high limits which contain the estimated adjustments. In terms of our example above with a $200 per square foot adjustment for size, a confidence interval might indicate a lower limit of $190 and an upper limit of $210. The application of statistical methods allows us to speak of our confidence the true value is within the range from $190 to $210. The estimated value of $200 is the best estimate available and stating the confidence intervals simply demonstrates how reliable the estimated value is.

The ratio study analysis presents both the ratio results which would have resulted from conducting the analysis in terms of the existing assessed values and the results which result from conducting the analysis in terms of the new assessed values. The key is in the box on the exhibit labeled Lien Date which is synonymous with appraisal date. In the case of the "before" analysis we are looking at an appraisal date one year prior to the current valuation date. In the case of the "after" analysis we are looking at an appraisal date which coincides with the current valuation date.

For example, if our concern is with values estimated as of January 1, 2002 for taxes payable in 2003, the "lien date" box for the "before" analysis will show January 1, 2001 while for the "after" analysis the date shown will be January 1, 2002. We then consider we are looking at the same sales which have occurred over a two year period.

The Ratio Analysis Reports included present a complete set of calculations which enable evaluation of the mass appraisal results. Measures of level, uniformity, regressivity or progressivity as well as measures of the adequacy of the sample size and normality of its distribution are all presented.

The statistical process is complex, and adheres to professional standards of appraisal and the requirements of state law. A recent Performance Audit validated and verified our process as fair, equitable and uniform. Please refer to the binocular icon on our home page, and click on March 12, 2002. For a broad look at real estate sales prices per square foot total value look at April 1, 2002, and note the results over a two year period, one year, and each quarter of 2001.

COMPARING YOUR PROPERTY TO SOLD PROPERTIES

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