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Valuation Determination

Each year, the City Assessor shall determine the full and fair cash valuation of all real property and personal property estates for the purpose of taxation. M.G.L. Chapter 59, Sections 2A and 18. The Commissioner of Revenue shall triennially certify as to whether the City Assessor is assessing property at full and fair cash valuation. M.G.L. Chapter 40, Section 56.

The determination of each parcel's full and fair cash valuation is accomplished by individual data collection concerning each specific parcel, the use of computer assisted mass appraisal techniques and finally, statistical analysis to check both the level of assessment and its uniformity. The City of Worcester utilizes five separate computer applications to value each of the following types of properties: residential properties that are less than nine units; condominiums; mixed use and apartments; residential properties with at least two buildings per lot; commercial & industrial; exempt and personal property. The ultimate goal of the City Assessor is the equitable distribution of the tax burden through assessments that are fair, proportionate and reasonable.

There are three recognized approaches to the determination of value: the sales comparison approach, the income approach and the cost approach. The Department of Revenue (DOR) requires the sales comparison approach for residential properties and the income approach for commercial and industrial properties. The cost approach is utilized on unique properties, personal property and exempt property valuation. It is also used to check both the sales and income approaches.

The Assessor is on a nine-year cycle of property inspections as mandated by the DOR. This means that in any one year, over 5,000 properties will be inspected in order to comply with the complete inspection of all 47,444 taxable and exempt parcels within a nine-year cycle. Additionally, inspections are made on all parcels filing a major building permit and on parcels that have sold, in order to verify data kept on both our property record cards and computer records. In total, approximately 7,300 parcels receive an on-site inspection each year.

Residential Valuation

Each year the level of assessment is checked for residential properties by use of the assessment-to-sale ratio (ASR). ASR analysis is the process of comparing assessed values with the actual sale prices of properties that have sold in the previous calendar year. For example, if the assessed value of a single family was $200,000 but it sold for $250,000, this would produce a ratio of 0.80, or 80%.

Annually there are between 700 to 1,200 arms-length (valid) sales of single-family homes in the city. If the median (the middle) ASR is less than 95% or more than 105%, a revaluation is in order. It is more equitable for both the taxpayer and the city to revalue annually as opposed to the DOR mandated three-year cycle. In appreciating markets, this allows the level of assessment to keep pace with market value and in depreciating markets; assessments are lowered to reflect declining values.

After determining that a revaluation is in order, the next step is to carefully verify the validity of all known sales from the previous calendar year. Once completed, the computer modeling begins with only this validated data.

There is a formula utilized to determine the valuation of each residential property. There are about twenty-five (25) variables used each year, most are quantitative but some are qualitative. For instance; room count, bedrooms, bathrooms, half-bathrooms, lot area, garage, fireplaces, square feet of living area, square feet of porch/deck area and heating system type are all quantitative variables. Neighborhood location, style of house, quality of construction and condition of structure are all qualitative variables.

The Assessor has a complex computer application that calculates the values, called coefficients, assigned to each quantitative variable. Reference descriptors (factors) are the benchmark, or starting, values of the qualitative variables. The procedure used is called Adaptive Estimation Procedure (AEP or feedback), which was first introduced as an assessing technique in the early 1980s. The application is a statistical technique for estimating unknown data on the basis of known and available data. In computer assisted mass appraisal, the unknown data are market values. The known and available data are sales prices and property characteristics. The program models a relationship between the twenty-five variables and the known sales prices.

The proposed formula using these values is then entered into the VISION computer model, which calculates the valuations for all of the sale properties of the previous calendar year. The assessment-to-sales ratios (ASR) are calculated and the statistical analysis begins. Properties are sorted by neighborhood to verify each level of assessment (median ASR) and the uniformity of assessments (coefficient of dispersion - COD). Each style of home (colonial, ranch, Victorian, bungalow, etc.) is also similarly analyzed, as are two other categories specified by the DOR. First, each price quartile is analyzed, from the lowest quarter of sale prices, to the next highest quarter, and next quarter and finally the highest quarter of sale prices. This analysis ensures that all properties are assessed at the same level of assessment. The second DOR analysis is the time-of-sale quartiles (January-March, April-June, July-September and October-December). This ensures that our assessed values are uniform and equitable in translating the data collected over the entire twelve-month period. These initial statistical tests invariably show that some of the reference descriptors (factors) have to be adjusted to more accurately reflect the actual sale prices. The computer model is thus adjusted and re-run and, after 25 to 40 separate adjustments and re-runs, the coefficients and factors finally make the statistical hurdle in terms of both level and uniformity of assessments.

Over 1,000 statistical tests are conducted for the single-family homes alone. The median ASR of each separate group must be within five percent of the overall median ASR and the COD must be less than ten percent according to DOR standards. This means that our assessments are within ten percent of the exhibited sale prices. After obtaining this level of conformity, the formula is then applied to all 42,000 properties in the VISION model. This process of valuation and statistical analysis is carried out annually by the Assessor. The DOR audits our methods and practices every three years according to statute.

Commercial & Industrial Valuation

Commercial and industrial properties are normally bought and sold based on their income producing capabilities. The income approach to valuation is the process of converting anticipated net income into an estimate of value. This approach to value is preferred by the DOR due to a lack of valid sales in this category of properties.

Each year income and expense questionnaires are mailed to commercial and industrial taxpayers to verify financial information about their property. The basic formula for estimating value is: V = I/R, where V = valuation, I = net operating income and R = the capitalization rate.

Physical inspections of commercial and industrial properties occur at the same frequency as residential properties. They are on a six-year cyclical re-inspection cycle. Where physical additions to an existing building are observed, adjustments are made to reflect an increased income stream for the property. Sales that occur offer a reference point for the income approach to value, however, many times these sales also reflect personal property, business goodwill or other factors not related to a pure sale of real estate. Statistical analysis of these properties is performed by grouping similar properties (fast food restaurants, convenience stores, etc.). Like properties can then be compared and analyzed using per square foot comparisons, while sorting for age and type of building construction. As with residential properties, this process is carried out annually and is reviewed and audited by the DOR every three years.

Other Valuation Methods

Condominiums are valued by comparison of exhibited sales per square foot of comparable units in the preceding calendar year. Adjustments are made for the presence or lack of fireplaces, garages, story heights, end units, etc. Large apartment buildings and mixed-use properties are valued by a combination of the sales comparison and income approaches due to their inherent uniqueness.

Personal property is valued by the cost approach with most assets depreciating over an eight-year period down to a residual value-in-use of twenty percent (20%) of their original cost (higher tech items, like computers, are depreciated faster and have a five year life). The City of Worcester maintains over 5,000 personal property accounts.

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