Bob and Donna McWilliams//March 22, 2015
//March 22, 2015
Every three years, the state will reassess the value of your property. And because real estate taxes are calculated by using a combination of the tax “rate” and assessed property values, how your assessment changes can have a substantial impact on what you’ll owe in real estate taxes.
There is often a lot of discussion about how politicians might modify “rates,” but the equally important component of assessed values often flies under the radar. When assessed values are rising, as is currently the condition, you will frequently hear the pols crow about how they aren’t increasing real estate taxes. But, all they’re really talking about is the tax “rate.” Even if they don’t increase the rate, tax revenues (and your tax bill) will still go up due to higher assessments. As a result, it’s important to know how the assessed value of your home is determined and whether or not it is an accurate reflection of what your property is really worth.
This year, all of the properties in Annapolis and southern Anne Arundel County were reassessed. That included our personal home in West River. The assessed value of our property from three years ago was $432,000; the new assessed value was $789,300, an increase of 83 percent. Now, we’ve only been real estate agents for 20 years, but we’re fairly confident that the value of our house didn’t increase by 83 percent in the last three years. Nor, do we believe we could sell the place today for anything near $790,000. Consequently, we decided to appeal our assessment.
In preparation for our hearing, the state sent us a few pieces of paper, presumably to show how they came up with the $789,000 figure. We got something called the Property Record Card, and after a lot of digging, we were able to decipher how the Record Card is used in combination with AAVS Dwelling Cost Valuation Method to generate the assessed value of our home. There’s no explanation of what AAVS is or how it works and even less information is provided about how they came up with the value of our land – a component of our assessment that increased by a whopping 123 percent. Nevertheless, we spent most of a snow day burning up Google in an attempt to understand how it all works. What we found was a bit disturbing.
First, let’s talk about the mysterious AAVS Dwelling Cost Valuation Method. Essentially, this is a computer program used by the state to estimate the value of property. In the private sector, banking, real estate and Internet firms have been diligently working to develop such programs. They’re commonly referred to as AVM’s or Automated Valuation Models. The problem is that these computerized systems are notoriously inaccurate. The well-known real estate website Zillow is a multibillion-dollar company, and they have invested heavily in AVMs. But despite all their effort, Zillow admits that the error rate for computer estimates of property values is very high.
So, let’s get back to the AAVS Dwelling Cost Valuation Method used by the state. AAVS stands for Assessment Administration and Valuation System. It’s a computer program that cost the state about $7 million; it was launched in April 2011. In a December 2013 report by the Maryland State Office of Legislative Audits, here’s what they had to say about AAVS.
“AAVS had access vulnerabilities that placed critical assessment data at risk of unauthorized modification and certain historical data was not archived … Due to deficiencies in the AAVS program, system users could perform modifications to critical data via commonly used functions without detection.”
“As of February 27, 2013, we noted DAT (Department of Assessment and Taxation) was running a version of AAVS that was eight versions behind the currently available version.”
“DAT did not ensure a historical record of changes to AAVS data pertaining to assessments for the 2012 – 2013 tax year … As a result, the trail of assessment changes or other supporting data recorded in AAVS for that year is no longer available.”
“DAT did not maintain complete records of the automated real property system conversion to ensure all property details were properly transferred.”
In short, the state just recently started using an automated valuation model (AVM), and there are some fairly significant questions about its security and the accuracy of the information it uses. Plus, they are apparently running a vastly outdated version. This is on top of the fact that AVMs of any kind are extraordinarily inaccurate to begin with. As computer jocks will tell you, garbage in garbage out.
In the Legislative Audit of the Department of Assessment and Taxation (DAT), there were also other findings about the assessment process. They include:
“DAT policies lacked specificity regarding the documentation to be maintained to support certain assessment values and to evidence the review and approval of those values by local office supervisors.”
“Physical exterior inspections were not performed for all properties in accordance with State Law and a record of inspections performed was not maintained.”
After reading the 2013 audit of the DAT and subsequent 2014 Assessment Workgroup report prepared for the governor and General Assembly, it was easy to see how the DAT could make frequent and substantial mistakes in estimating the value of property. It was clear that the DAT was struggling to implement an automated system, the accuracy of which was problematic at best, and existing issues regarding inspections and documentation only compounded the problem.
Furthermore, the ability of a taxpayer to challenge their assessment is also hampered by the lack of useful information supplied by the DAT with respect to how their assessment was made. The information we received would be virtually incomprehensible to anyone who didn’t have an advanced degree in mathematics and deep understanding of an appraisal process, including the many arcane or undefined procedures used by the DAT. For example, the DAT maintains that the value of our land increased by 123 percent in three years, but they don’t provide a single shred of documentation supporting that. A couple of lots recently sold in our neighborhood for about $50,000, so why does the DAT think our lot is worth $563,200?
On their website, the DAT also indicates that they double check the automated assessment system by doing comparisons with actual sales. We actually bought our current home in 2013 for $650,000, yet the state assessment says it’s worth $789,000 or 20 percent more than we just paid. It calls into question whether the DAT is actually making the sales comparison and how much of a variance there must be between sales prices and assessment estimates to trip the system. And finally, the median sales price in Anne Arundel County has gone up by about 8 percent over the past three years, so an assessment increase of 83 percent should indicate a problem with the system and be appropriately flagged without the need for us to appeal.
In fairness to the DAT, it has over 2 million properties to assess. Consequently, it can’t ponder each and every one and agonize over how the new granite in your kitchen or some other individual improvement might affect the value. Nevertheless, neither should the DAT pretend a level of accuracy that it doesn’t possess. Just because a computer spits out some number, that doesn’t mean it’s the right number. The departments need to do a much better job at helping the public understand the process and be more upfront about the limitations associated with automated valuation models. Only then, will the public have a fair shot at appealing their assessments and help insure the integrity of the system.C