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Basic Course on Mass Appraisal (BCMA)

Module 7
Valuation
Testing for Mass
Appraisal
2nd Land Administration and Management Project (Property Valuation and Taxation Component)

OBJECTIVES:
At the end of the module, the participant will
be able to:
1. Cite the reason for testing the initial
schedule of market values (SMV);
2. Calculate and interpret the Value to Price
Ratio (VPR); and
3. Calculate and interpret the Coefficient of
Dispersion (COD)

SMV REVISION PROCESS


Data
Collection
& Field
Inspection

Data Entry
into RESAS
database

Data
Analysis

Quality
Testing of
Values

Application
of SMV to
individual
properties

Preparatio
n of SMV

DATA COLLECTION:

Sales Data can be obtained from:

Registrar of Deeds and Notaries Public


Assessors - as the custodian of sales records
LOCAL ASSESSMENT REGULATIONS NO. 1-2007.pptx
Appraisers - good source of information as they deal with
property
and value all the time.
Banks - they have access to transaction records of the
properties
they lend
Buyers and Sellers - direct parties to the sales transactions
Other sources such as Sales Agents, Brokers and
Developers know the true transaction price but
documentary evidence will be valuable as a means of
verification.
4
Asking Prices such as Internet, Newspaper, Salesboard

Conduct of Field Inspection and Verification


Land: Geographic location (eg. topography, squatters)
Physical condition eg. Shape, size, swamp
Land improvement eg. Plants, structures
Legal limitations eg. Zoning, easements
Service available eg. Utilities, amenities, facilities
Building:
Structural characteristics (e.g. kinds of constructions
materials, design
Building conditions (e.g. good, fair, poor)
Legal limitations (e.g. zoning, easement)
Lay-out (e.g. functionality(res,com, industrial, etc,)
Services available (e.g. utilities, amenities, facilities)
Machinery:
Specification ( e.g. brand, rated capacity)
Country of origin (e.g. imported, local)
5
Condition (e.g. brand new, reconditioned, second
hand)
Accessories (e.g. contrivances)

SMV REVISION PROCESS


Data
Collection
& Field
Inspection

Data Entry
into RESAS
database

Data
Analysis

Quality
Testing of
Values

Application
of SMV to
individual
properties

Preparatio
n of SMV

RESAS/VDIS MAIN FEATURE:


1. Store property sales transactions data for Res., Com, Agri,
Ind, Special Purpose, Minerals & Timberland
2. Store property rental/lease data
3. Building construction cost such as materials, labor,
professional fees and other service fees
4. Building construction/reproduction modelling tools
5. Various statistical and analysis reports

RESAS /VDIS OUTPUT


6. Property Sales Listings
7. Appraisal Listings
8. Building Construction Cost

SMV REVISION PROCESS


Data
Collection
& Field
Inspection

Data Entry
into RESAS
database

Data
Analysis

Quality
Testing of
Values

Application
of SMV to
individual
properties

Preparatio
n of SMV

Chapter 3,
Prescribed Format of the Schedule of
Sec. 5c of MRPAAO Fair
Market Value

GR Form No.1

Office Order/Schedule of Base Unit Market


Values for Residential, Commercial and
Industrial Land

GR Form No.2

Criteria for Sub-Classification of Urban Lands

GR Form No.3

Statement of Sales Value of Residential,


Commercial, and Industrial Lands

GR Form No.4

Tabulation of Sales Value in any Deed of


Conveyance offers or Auctions of each Class of
Residential, Commercial and Industrial Lands

GR Form No.5

Computation for the Unit Base Market Value of


Urban Land

GR Form No.6

Schedule of Unit Base Market Value for


Agricultural Land

GR Form No.7

Statement of Sales Value of agricultural Lands

GR Form No.8

Tabulation of Sales Value for each Class of


Agricultural Lands

GR Form No.9

Computation for the Unit


Base Market Value of Agricultural Lands

GR Form No.10

Schedule of Base Unit Cost for Building


(including Classification of Building/Structures
and Type of Construction

GR Form No.11

Schedule of Depreciation

GR Form No.12

Schedule of Unit Cost for Additional Items


Computation for Unit Costs of Buildings
Miscellaneous Provision or General Provision
Land Value Map
Data Source

SMV REVISION PROCESS


Data
Collection
& Field
Inspection

Data Entry
into RESAS
database

Data
Analysis

Quality
Testing of
Values

Application
of SMV to
individual
properties

Preparatio
n of SMV

Valuation Testing
Testing of results is essential in establishing the confidence
factor in any valuation process involving mass appraisal.
Mass appraisal adopts uniform unit value for various
elements pertaining to a property and then applies this to
other properties in order to establish the value of a large
number of similar properties at one time.Scan 1.jpg

Hence, some property values would fall outside the accepted


percentage of error.

The greater the accuracy of the appraisal, the lesser it


would evoke dissatisfaction and conflicts among
taxpayers.

General Procedure in Valuation Testing:


The Assessor must determine a tolerable margin of
error and test benchmarks to confirm the accuracy
and uniformity of the appraisal to ensure the
reliability of the mass appraisal exercise.
GR FORM NO 5.docx
Adjoining LGUs with common boundaries should
jointly set the accuracy level of values since it is likely
that they will have the same advantages and
disadvantages.

All completed work should be reviewed by the Assessor


or Supervising Appraiser to whom the final responsibility
for uniformity and equity rests
The supervisors field review should be conducted
immediately after receipt of the proposed base rates of

General Procedure in Valuation Testing:


Adjustments or corrections can be made before the
appraiser completes other value types and before any
dealings with the Provincial Assessor or submission to
the local council.

If errors are found, more properties should be inspected


to
establish the reasons for the discrepancies.

Errors should be documented and reviewed with the


appraiser so that corrective action can be taken.

Actual testing is
selecting a sold property within the range being
tested
for which a market value sale price is known
applying the proposed SMV rates to the
components of the particular property
to determine how accurate the derived
value is when compared to market
value.

If there are no market level sales, the LGU may have


to conduct a proper and independent evaluation of a
property as a de-facto sale and test the mass
appraisal result vs. the substitute transaction.

Quality Control Measures


The final stage in the mass appraisal process is the
statistical review and analysis of results.
Statistical review requires an analysis to determine
the level of accuracy and degree of uniformity
achieved in the appraisal process (Ratio Studies).
Ratio studies compare appraised values with
relevant market values determined from sales.

Quality Control Measures


Performance is measured
by:

Accuracy

The closeness of the valuation model (SMV) to the actual prices


Utilizing the Median Value to Price Ratio (VPR)
Uniformity
The consistency of the valuation model (SMV) across
various property values
Utilizing the Coefficient of Dispersion (COD)

ELEMENTS

ACCURACY
the closeness of a
valuation to actual
prices
Median Value to Price Ratio

Quality
Testing of
Values

Acceptable Tolerance: Median VPR > =


U90%
NIFORMITY

measures the consistency of


the level of accuracy

Coefficient of Dispersion (COD) measures

the average % deviation of the Ratios from the Median


Value to Price Ratio

IAAO Standard: COD <=20%


For example, a valuer who values 3 properties each
at 80% of actual price, although uniform, is not
accurate.

ccuracy and Reliability of Values


Accuracy is measured by comparing the values adopted vs.
the actual sale prices of those properties sold at a proper
market level within the sub-market group.
Value to Price Ratio (VPR)
100

VPR = (Value/Price) x

Example:

Sale Price = P 1,100,000

Value = P 1,020,000

VPR = (1,020,000/1,100,000) x 100 = 0.927 x 100


VPR = 92.7% or 93% (rounded)
Therefore, Assessors valuation is 93% accurate.
Benchmark (Rule of Thumb)

VPR of within the range of 90% to 110% = Good, generally


acceptable
Some adjustments need to be made for properties with <90%

esting Reliability of Values


Example:
List of sale prices and
LGU Proposed Values
If properties are outside
the 10% accuracy
range, the base
values/sq.m. rates
contributing to the
value are likely to be
wrong , thus, should be
reviewed. Or the
accuracy requirement
should be reconsidered.

Sale

Price

Value

1
1,220,000 1,065,000
2
1,250,000 1,100,000
3
1,350,000 1,200,000
4
1,450,000 1,350,000
5
1,100,000 1,020,000
6
925,000

874,000

7
1,365,000 1,300,000
8
1,050,000 1,010,000

VPR

Observati
on

esting Reliability of Values


Sale
1

Price
1,220,000

Value
1,065,000

VPR
87.3%

1,250,000

1,100,000

88%

Sale 1
VPR

Sale 2
VPR

= VALUE / SALE PRICE


= 1,065,000 / 1,220,000
= .87295 or 87.30%
= VALUE / SALE PRICE
= 1,100,000 / 1,250,000
= .88 or 88 %

esting Reliability of Values


Example:
List of sale prices and
LGU Proposed Values
If properties are outside
the 10% accuracy
range, the base
values/sq.m. rates
contributing to the
value are likely to be
wrong , thus, should be
reviewed. Or the
accuracy requirement
should be reconsidered.

Sale
1

Price

Value

1,220,000 1,065,000
2
1,250,000 1,100,000
3
1,350,000 1,200,000
4

VPR
Observation
87.30
20% (3/15)
are below the
88.00
10%
accuracy
88.89
range
93.10

1,450,000 1,350,000
5

92.73
1,100,000 1,020,000

94.49
925,000

874,000

95.24
1,365,000 1,300,000

96.19
1,050,000 1,010,000

9
1,150,000 1,100,000
10
1,000,000

975,000

80%
(12/15)of
95.65
properties
are within the
97.50
10%

esting Reliability of Values


Graphical presentation: Assessed Value and Selling Price

Observations:
At higher transaction
levels, the discrepancies
between assessed values
and selling prices are
more noticeable.
This could indicate
hesitance to apply full
value of properties at the
upper end of the value
scale.

esting Reliability of Values


Coefficient of Dispersion:
Measures the average percentage deviation of the ratios
from the median value to price ratio or average error.
Low rate indicates better appraisal and more uniform
spread of RPT
Computed as:

COD = (|VPR Median VPR|/n)/Median


VPR

COEFFICIENT OF DISPERSION
(COD)
A
Sale
1

D = C/B
Value Price Ratio
Sale Price Assessor's Value
(VPR)
1,220,000
1,065,000
0.8730

1,250,000

1,100,000

0.8800

1,350,000

1,200,000

0.8889

1,450,000

1,350,000

0.9310

1,100,000

1,020,000

0.9273

925,000

874,000

0.9449

1,365,000

1,300,000

0.9524

1,050,000

1,010,000

0.9619

1,150,000

1,100,000

0.9565

10

1,000,000

975,000

0.9750

11

965,000

960,000

0.9948

12

960,000

950,000

0.9896

13

875,000

885,000

1.0114

14

865,000

870,000

1.0058

15

990,000

1,010,000

1.0202

E = C-Median

F = Abs(E)

Difference of VPR
from Median VPR
E = .8730 - .9619

Absolute Difference of
VPR from Median VPR

3:
3: Subtract
Subtract
median
median from
from VPR
VPR

COEFFICIENT OF DISPERSION (COD)


A

Sale

Sale Price

1:
D = C/B
1:CCompute
Compute
Value
Price Ratio
VPR=Value/Price
VPR=Value/Price

Assessor's Value

(VPR)

1,220,000

1,065,000

0.8730

1,250,000

1,100,000

0.8800

1,350,000

1,200,000

0.8889

1,450,000

1,350,000

0.9310

1,100,000

1,020,000

0.9273

925,000

874,000

0.9449

1,365,000

1,300,000

0.9524

1,050,000

1,010,000

0.9619

1,150,000

1,100,000

0.9565

10

1,000,000

975,000

0.9750

11

965,000

0.9948

12
13
14
15

960,000
875,000
865,000
990,000

960,000
2:
2: Establish
Establish the
the
950,000
median
median VPR
VPR
885,000
870,000
1,010,000

0.9896
1.0114
1.0058
1.0202
Median =

E = D - Median VPR
Difference of VPR
from Median VPR

6:
6: Compute
Compute the
the
mean
mean
difference
difference =
=
total/no.
of
total/no. of
sales
sales

4: Get
Get the
the
4:
absolute
absolute
value of
of
value
difference
difference
F = Abs(E)
Absolute Difference of
VPR from Median VPR

5:
5: Total
Total the
the
absolute
absolute
differences
differences

0.0296
0.0514
0.0458
0.0602
7: Compute
Compute COD
COD =
=
7:
average/median
x
Average
(Mean)=
average/median
x
100
100

0.0348
0.0296
0.0514
0.0458
0.0602
Total =

3:
3: Subtract
Subtract
median
median from
from VPR
VPR

COEFFICIENT OF DISPERSION (COD)


A

Sale

Sale Price

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

1,220,000
1,250,000
1,350,000
1,450,000
1,100,000
925,000
1,365,000
1,050,000
1,150,000
1,000,000
965,000
960,000
875,000
865,000
990,000

D = C/B

1:
1: Compute
Compute
Value Price Ratio
VPR=Value/Price
VPR=Value/Price
Assessor's
Value
(VPR)
1,065,000
0.8730
1,100,000
0.8800
1,200,000
0.8889
1,350,000
0.9310
1,020,000
0.9273
874,000
0.9449
1,300,000
0.9524
1,010,000
0.9619
1,100,000
0.9565
975,000
0.9750
960,000
0.9948
950,000
0.9896
885,000
1.0114
870,000
1.0058
1,010,000
1.0202
Median = 0.9619
2:
2: Establish
Establish the
the
median
median VPR
VPR

E = D-Median VPR
Difference of VPR from
Median VPR

-0.0870
-0.0800
-0.0711
-0.0290
-0.0327
-0.0151
-0.0076
0.0019
-0.0035
0.0150
0.0348
6:
Compute
6: Compute
the
0.0296 the
mean
mean
0.0514
difference
difference =
=
0.0458
total/no.
of
total/no. of
sales
0.0602
sales

4: Get
Get the
the
4:
absolute
absolute
value of
of
value
difference
difference

F = Abs(E)

Absolute Difference of
VPR from Median VPR

0.0870
0.0800
0.0711
0.0290
0.0327
0.0151
0.0076
0.0019
0.0035
0.0150
0.0348
0.0296
5:
Total
the
5: Total
the
0.0514
absolute
absolute
0.0458
differences
differences
0.0602
Total = 0.5648

Average (Mean)= .5648/15 = 0.0377

COD= .0377/.9619 = 0.0391 or

3.91%
`

7
7:: Compute
Compute COD
COD =
=

average/median
average/median x
x

What if we add four


more additional VPRs?
What will be the calculated
COD?

e 4: Value Price Ratio (with additional data)


A
Sale

B
Sale Price

C
Assessor's Value

D
E
Value Price Ratio Difference of VPR
(VPR)
from Median VPR

1,220,000

1,065,000

0.87

1,250,000

1,100,000

0.88

1,350,000

1,200,000

0.89

1,450,000

1,350,000

0.93

1,100,000

1,020,000

0.93

925,000

874,000

0.94

1,365,000

1,300,000

0.95

1,050,000

1,010,000

0.96

1,150,000

1,100,000

0.96

10

1,000,000

975,000

0.98

11

965,000

960,000

0.99

12

960,000

950,000

0.99

13

875,000

885,000

1.01

14

865,000

870,000

1.01

15

990,000

1,010,000

1.02

16

972,000

1,220,000

1.26

F
Absolute Difference
of VPR from Median
VPR

e 4: Value Price Ratio (with additional data)


A
Sale
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19

B
Sale Price
1,220,000
1,250,000
1,350,000
1,450,000
1,100,000
925,000
1,365,000
1,050,000
1,150,000
1,000,000
965,000
960,000
875,000
865,000
990,000
972,000
1,000,000
1,050,000
950,000

C
Assessor's Value

D
E
Value Price Ratio Difference of VPR
(VPR)
from Median VPR

1,065,000
0.87
1,100,000
0.88
1,200,000
0.89
1,350,000
0.93
1,020,000
0.93
874,000
0.94
1,300,000
0.95
1,010,000
0.96
1,100,000
0.96
With 4 additional sales, the
975,000
0.98
COD increased to 10.29%.
960,000
0.99
These sales had a VPR >25%.
950,000
0.99
A review of
the
details
of
the 4
885,000
1.01
properties870,000
is necessary. 1.01
1,010,000
1.02
1,220,000
1.26
1,300,000
1.30
1,375,000
1.31
1,275,000
1.34
Median VPR
0.98

-11
-10
-9
-5
-5
-4
-3
-2
-2
0
1
1
3
3
4
28
32
33
36
Total
Average (Mean)
COD

F
Absolute Difference
of VPR from Median
VPR
11
10
9
5
5
4
3
2
2
0
1
1
3
3
4
28
32
33
36
192
10.09
10.29

PROPOSED SCHEDULE OF MARKET VALUES OF


SAN CARLOS CITY, NEGROS OCCIDENTAL
TESTING OF RESULTS

EVERY NOBLE WORK IS

AT FIRST IMPOSSIBLE.
Thomas Carlyle

END.

Accuracy and Reliability of Values


A small measure of dispersion is small is always
desirable; it means that the data are more or less
consistent, centering on their average.
LGU Assessors commonly seek opinion values from
other property professionals in order to contribute to
the values adopted by the LGU.
Possible sources of bias of opinion values:
The experience and nature of the property dealings the
person has.
The knowledge that the opinion value is being sought
for taxation purposes
The limited share of the property market in which that
particular person deals

Accuracy and Reliability of Values


Opinion providers are well aware that the opinion
they provide will not likely influence the actual
transaction prices/true values of properties.
Research undertaken by LGUs should be thorough
and much more reliable than that of done by the
outside parties.
Opinion values provide the opportunity to review
the LGU values which are proposed to be adopted.

Data Analysis.

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