#7 Property Revaluation
ASSESSOR’S MEMORANDUM
11 June 2009
TO: City Council
FROM: Richard Haviza, City Assessor
SUBJECT: City Council discussion and direction to staff on approach to comply with
State Statutes concerning property valuation.
Summary
State law requires a revaluation of property assessments for 2010 or 2011. Decisions on
completing the task have been delayed since this topic was last discussed with the Council
in an October 2008 study session. It is now crucial that decisions necessary to complete
revaluation activities for 2010 or 2011 be expedited. A critical decision rests with the City
Council in the form of implementing policy through funding. Assessor Division Staff
continues to support a traditional Full Revaluation, including property inspections, as that
approach:
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Is recommended by the Wisconsin Department of Revenue;
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Historically results in the best values (accurate and equitable);
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Provides the best foundation for efficiency / effectiveness in future operations; and
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May be prudent given the controversial history of the last revaluation in Janesville.
A Full Revaluation requires resources exceeding normal Assessment Division staffing and
has significant cost. Considering that and the dynamic change in the real estate market
and overall economy in the past year, alternatives to a Full Revaluation should be
reviewed. This memo outlines service options for City Council consideration and requests
direction for proceeding.
Division Recommendation
Assessment Staff recommends the City Council support:
1. A Full Revaluation of all residential and commercial properties for the 2011
Assessment Roll, said revaluation to be based on the interior/exterior inspection of
all structures; and
2. Authorize the City Manager to make application for a Wisconsin State Trust Fund
loan not to exceed $1,750,000 (the amount of the highest cost proposal). Actual
cost to reflect selected service provider, contract terms and loan interest cost.
Suggested Motion (Division)
I move to support a 2011 Full Revaluation of all properties based on interior/exterior
inspections and authorize the City Manager to make application to the Wisconsin State
Trust Fund for a loan not to exceed $1,750,000 in order to contract for the professional
services necessary to complete the revaluation.
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City Manager Recommendation
Based on current real estate market trends that for 2010 might place residential property
values very close to Full Value (Fair Market Value), the City Manager recommends the
City Council support:
1. Limited property revaluation activities for the 2010 Assessment Roll. Revaluation
activities will consist of a Full Revaluation of commercial class properties based on
interior/exterior inspections of only that class of properties.
2. The estimated cost would be mostly covered by the 2009 appropriations and prior
year encumbrances.
3. Should residential values not fall naturally into compliance for 2010, Assessment
staff could consider completing a Market Update Revaluation of that class of
property for 2011. A Market Update would not include residential property
inspections for all properties, only those affected by building permits, sales or
involving new construction.
4. This approach would allow the City to allow the market to come back in compliance
based on initial trends in 2010 and allow the City to not borrow for operating costs.
Suggested Motion (City Manager)
I move to direct the City Manager to proceed with a Full Revaluation of commercial class
properties and that any revaluation of residential class properties would consist of a Market
Update based on maintenance level inspections of properties subject to building permits,
sale and new construction.
Primary Discussion Points
Considering the depth of information included in this memo the following is a list of
discussion points that it may be beneficial to focus on:
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Real Estate Market / Economic Conditions.
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Property Inspections.
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Why revalue commercial but not residential properties?
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Cost.
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History.
Request
Wisconsin State Statute 70.05 mandates the service resulting in the requested action.
Background
The property assessment process is legislatively mandated but locally funded and
completed. Property assessment is the process of estimating the Full Value (Fair Market
Value) of each taxable property. Assessed values are used in the equations to calculate
the tax rate and individual property tax bills. Revaluation is the process of periodically
insuring that property is assessed equitably and as near Full Value as possible. The last
revaluation was in 2002. Assessments last met the definition of Full Value in 2004. Based
on Statutes property must be assessed at Full Value by 2011. The need for a revaluation
and a proposal for completing the task were first presented to the Administration in 2006.
Determining how the revaluation will be accomplished remains an open question resulting
from delays in the decision making process. Those can be attributed to: competing
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organizational priorities; a transition in upper management; tax levy limits and budget
impacts; and the general public’s dislike and misunderstanding of the revaluation process.
What service is required?
The primary requirement is to value taxable properties at Full Value for the 2011
Assessment Roll. Integral to completing that is maintaining the City’s property database,
which can be accessed on the city website. Data on the physical characteristics of each
property is collected and used in the process. Approximately 40 data fields are maintained
for each parcel. There are approximately 21,000 residential, 1,350 commercial and 300+/-
other improved parcels that we would attempt to inspect during a Full Revaluation.
According to whom is the service mandated and defined?
The customers and stakeholders of the service include:
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Property Owners – have a vested interest in assessed values as that is the
distribution component of the property tax equation;
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The Wisconsin Department of Revenue – responsible for overseeing legislated
assessment operations and for completing the annual equalization process and
distribution of various state aids;
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Users of assessment and property data – individuals and organizations such as
realtors, insurers, attorneys, mortgage lenders, builders, private appraisers, non-
profits and government agencies use assessment and property data for business
and personal real estate decisions.
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The City Council – through funding establishes policy and service levels for
assessment operations.
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City Administration, Departments and Division Staff – use assessment and property
information in daily activities associated with nearly all services.
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Assessment Division Staff – responsible for all aspects of maintaining the property
database and establishing assessed values.
How is the service defined?
Full Value (Fair Market Value) is generally defined as the selling price realized through
informed, open and competitive negotiation. Although detailed analysis of the level and
uniformity of assessments is completed, under Statute 70.05 compliance is defined as an
assessment ratio of 90–110% of Full Value (ratio = assessed values / sale prices), with the
major classes of residential and commercial also within that range. The following table and
chart summarize the overall ratios for 2002-08 and include an estimate for 2009. Year-to-
date sales data, which is relevant to the 2010 assessment cycle, indicates that sale prices
have continued to decline, potentially mirroring the national trend of hovering at near 2002
values. Staff has yet to field validate any 2009 sales and it is impossible to predict if
current trends will continue thru 2009 and beyond or if conditions will stabilize or improve.
In 2002 the average residential assessment was $107,800. From 2002 - 2008 property
values increased as established by sale prices. During that time no revaluation occurred
and assessed values did not change unless a property was affected by physical changes
that impacted its individual value. The chart illustrates that the Full Value of the average
assessed value home increased from $107,800 to $134,800 between 2002 and 2008.
Thus correspondingly the ratio for the 2002 average assessed home decreased each year
from 2002 – 2008 bottoming out at 79.98% as of 1/1/2008 ($107,800 / 134,800 = 79.99%).
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Assessment Ratios
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(est)
(last reval)(required)
% FV 97.99 96.24 92.55 88.72 84.79 81.89 79.99 84+/- ? 100+/-
Why do we need this service?
Other than compliance with a statutory mandate, why should customers and stakeholders
care if we complete a revaluation? Following are benefits of periodic revaluation:
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Verify the accuracy, completeness and consistency of quantitative and qualitative
property data;
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Accurately and equitably value properties to their Full Value; and
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Insure property owners pay only their proportionate share of local property taxes,
hopefully no more or no less.
What are we going to do and how are we going to do it?
The technical components of the assessment process are defined by State Statute, the
Wisconsin Property Assessment Manual, the Uniform Standards of Professional Appraisal
Practice, case law, best practice and limited local considerations. As with all public service
the goal is high value at low cost. When answering two questions, what and how, the City
Council must weigh customer and stakeholder considerations and through policy and
funding actions satisfy the statutory mandate. The following outlines options for completing
the required task.
General Approaches to Revaluation
The DOR has guidelines establishing three alternative approaches to revaluation:
Full Revaluation, External Review Revaluation and Market Update. Each
alternative approach involves component tasks including but not limited to:
property inspections
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neighborhood analysis
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sales analysis
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data entry
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computer system calibration and testing
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valuation, value analysis and verification
o
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assessment roll preparation
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distribution of assessment change notices
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conducting the Open Book and Board of Review appeals process
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defending values in subsequent appeals
o
public relations
o
Property inspections are typically an integral task in the revaluation process. They
are completed to verify the quantitative and qualitative data for each parcel, which is
then used in valuation models. Statutes outline that “Real property shall be valued
… from actual view or from the best information the assessor can practicably
obtain…” The “actual view” element has come to generally mean a full
interior/exterior inspection to collect and verify data on the physical characteristics
of each parcel. The following DOR guidelines address the recommended level of
property inspections:
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Full Revaluation. Includes interior/exterior inspections of all parcels and is
recommended when a full revaluation has not been performed for 10 years.
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External Review Valuation. Includes exterior inspections of all parcels and is
acceptable when property data issues can be verified without interior inspection.
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Market Update. Performed when there is confidence in the accuracy of property
data and a full revaluation has been completed in the past 5 years. Property
inspections are not completed for all properties.
Full Revaluation is the approach historically used in Janesville. Janesville’s last Full
Revaluation was in 1998 and was based on property inspections conducted in
1996-97. In the years 2000-02 Janesville used a hybrid model of annual Market
Updates coupled with inspecting 20% of properties each year. Thus in a five year
cycle all properties would likely be inspected at least once. That model was
discontinued in 2003 based on property owner protests. Since then there has been
no City Council / Administrative direction on approach for the next revaluation.
Methods of Completing a Revaluation
The following options are generally available for completing a revaluation:
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Contracted. Contracting with a professional revaluation firm. Working
cooperatively with City staff, the firm performs data collection, prepares
assessments and defends values at Open Book and Board of Review.
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Division Staff. Use of experienced Division Staff, often augmented with
temporary employees to assist in data collection / entry and possibly contracted
assistance from a professional revaluation firm for valuation tasks.
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Do Nothing. Failure to voluntarily comply would, by statute, require the DOR to
bid the work, hire a private firm and complete the revaluation (essentially the
same as Contracted method). The total cost of services (contract and DOR) is
billed to the community. This logically results in the highest cost and the City
gets no input or control in this process.
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An ala carte approach. Under this method consideration can be given to
changes in service levels to minimize various component costs. It is most
applicable to the Market Update concept. Considering the high cost to the other
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methods and the challenging economic conditions confronting city budgets, a
combination of components could be considered. Tasks may include:
Contracting for a Full Revaluation of commercial properties for 2010
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including full inspections of all structures.
Exclude property inspections for residential properties not affected by
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new construction, building permits or sales. Alternative means of data
verification could be considered rather than mass property inspections.
Examples of alternative approaches to data verification might include an
in-the-car, curb-side review of all parcels; asking residential property
owners to verify limited data by mail (a decision would be needed
regarding when call back inspections would occur); and technology
options including use of air photos. The alternatives in this option all
depart from the historical service level of interior/exterior inspections and
thus should be preceded by a policy discussion. This approach would be
coupled with a full commercial revaluation.
Not completing a residential revaluation but instead hedge that the
o
current trend in declining property values will continue through 2009 and
thus statutory compliance might be achieved naturally in 2010 and/or
2011. This should be coupled with a full commercial revaluation for 2010
as that class of property is less likely to naturally fall into compliance. This
approach has risk should values not drop sufficiently to achieve
compliance the DOR would order a revaluation as outlined in the Do
Nothing approach.
Considerations for Choosing Revaluation Approach and Methods
There are a number of factors to consider in choosing the approach and method for
completing a revaluation including the following:
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Property Data. Property data is the foundation for valuation and many other
public and private activities. Real estate is dynamic with physical and market
attributes constantly changing. Collecting and verifying data occurs through
inspections. Approximately 30% of properties were last inspected in 1996-97
and only 25% have had inspections in the last 5 years. A sampling of data
accuracy indicates that 24% of properties have completely accurate data, 74%
have data that is 90% or better and 2% have data less than 90% accurate.
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Division Staffing. Division staffing is based on completing annual assessing, not
the extra tasks of revaluation. Staff is young in tenure and experience with an
average of just 3 years in the profession. Three of six staff members (50%) are
new to the office and the profession since January 2008.
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Software. Staff is in the process of implementing new custom Computer
Assisted Mass Appraisal (CAMA) software. Implementing the CAMA will
consume significant staff resources through 2009 and into 2010 thus reducing
availability for revaluation activities.
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Community Acceptance. The 2002 revaluation resulted in controversy and a
divisive citizen petitioned DOR review of assessment practices. Although the
DOR ruled favorably on assessments and staff performance, citizen skeptics
likely remain. To dispel that, the revaluation should include a commitment to
accuracy and equity in assessments as mandated by property owners.
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Public Relations. Regardless of the reality that assessments are based on sound
economic principals and factual data, and that the revaluation process itself is
revenue neutral, property owners typically receive the results with an element of
fear and emotion. To counter misinformation and panic, a significant education/
public relations effort is necessary.
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Cost. Professional services, property inspections and data analysis tasks
associated with revaluation are labor intensive and expensive. Levy limits
impact how those can be funded.
Response to Request for Professional Services
Considering the above challenges, in March 2008 staff issued a Request for
Proposals (RFP) for revaluation services. The RFP presented two inspections
options for residential properties, 100% or 30% (primarily those not visited during
the 2000-02 cyclical inspections). The effort produced three bids from: Tyler/CLT in
st
West Allis, WI; 21 Century Appraisal of Middletown, PA; and Associated Appraisal
Consultants Inc of Appleton, WI.
RFP responses were evaluated based on written content and interviews. Tyler/CLT
st
was the strongest candidate (89%); followed by 21 Century (80%); and Associated
(70%). Tyler/CLT’s rating reflects their depth of resources, Wisconsin experience
and familiarity with our assessment operations. Tyler/CLT provided us limited
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contract assessment services from 5/03 thru 7/08. 21 Century rates well on public
relations/education, solid valuations and knowledge of the CAMA software we are
installing. Their shortcoming is knowledge/experience with Wisconsin’s assessment
law. Although viable, Associated Appraisal lacks experience with parcel counts our
size (22,000+) and knowledge of our CAMA software.
Original bids were due on April 1, 2008. Based on delays in the decision making
process the original quotes became void. We’ve received updated estimates for a
2011 revaluation and found, as expected, that costs increased. Following are
current estimated costs for the two revaluation options. We have not fully explored
costs under the Ala Carte method other than the commercial component. Regarding
residential properties, it appears more efficient and effective to first make the policy
decision and then arrive at the cost based on the assumption that reduced service
levels would logically result in less cost than the alternatives presented below.
BID SUMMARY HARRIS/21 st
CLT ASSOCIATED
Alternative C1 - complete inspection and revaluation of $179,000 $80,000 $121,000
all commercial properties (approximately 1,400 parcels)
Alternative R1 - complete inspection and revaluation of $1,229,000 $879,000 NA
all residential properties (approximately 21,000 parcels)
Alternative EX1 - complete inspection and value $33,000 $40,000 NA
estimates for all improved exempt parcels (approx 240)
Total Cost of Recommended Approach (C1+R1+EX1) $1,258,200* $999,000 $1,749,600
Alternative R2 - limited inspection (7,000 parcels) and $866,100 $549,000 NA
complete revaluation of all residential properties
Total Cost Substituting Residential Alt R2 (+C1+EX1) $966,500* $669,000 $1,402,900
In CLT proposal individual Alternative costs are bid as separate from a total revaluation or ala carte. The total cost of
*
combining all into one revaluation effort represents economy of scale and is therefore less than the sum of the parts.
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Budget Considerations
The following summarizes current and prior year funding considerations for
revaluation activities:
2005 - $50,000 Unexpended Division funds encumbered for CAMA data
conversion.
2006 - $50,000 Unexpended Division funds encumbered for CAMA data
conversion. Both 2005 & 06 funds might be available for
revaluation depending on contract specifications.
2009 - $117,700 Budgeted for revaluation activities ($22,700 postage; $17,500
advertising/promotions; and $77,500 – other ½ cost of
revaluing commercial properties).
Total = $217,700 potentially available funding - although $140,200 is to meet
revaluation contract commitments required of City for the reval
(postage, advertising, data conversions).
Considering financial constraints imposed by legislated tax levy limits, the
community’s desire for property tax control and declining economic conditions,
funding is not easily budgeted to complete a revaluation. Borrowing is an
alternative. Unlike capital projects, borrowing for services is taxable debt resulting in
higher interest charges. A review of funding sources for short term taxable debt
indicates that a Wisconsin State Trust Fund loan is a choice. An Accounting
Division analysis provides the following illustrative annual and total debt service
costs. Actual costs will vary based on the details of revaluation activities, interest at
time of borrowing (currently 3.5%) and any reduction of borrowed principal through
application of potentially available funding or partial funding in future budgets.
Annual Payment - Annual Payment - Limited
Full Revaluation (Alts Inspection Revaluation
Payment Option / Bid
C1, R1 & EX1) (Alts C1, R2 & EX1)
Price
3-Year Loan for High Bid $616,360 $494,230
3-Year Loan for Low Bid $351,940 $235,680
5-Year Loan for High Bid $382,110 $306,390
5-Year Loan for Low Bid $218,180 $146,110
3 year loan requires annual payments in 2010, 2011 & 2012
5 year loan requires annual payments in 2010, 2011, 2012, 2013 & 2014
Total Payment - Full Total Payment - Limited
Revaluation (Alts C1, Inspection Revaluation
Payment Option / Bid
R1 & EX1) (Alts C1, R2 & EX1)
Price
3-Year Loan for High Bid $1,849,100 $1,482,700
3-Year Loan for Low Bid $1,055,900 $707,100
5-Year Loan for High Bid $1,910,600 $1,532,000
5-Year Loan for Low Bid $1,090,900 $730,600
3 year loan total payments from 2010-12
5 year loan total payments from 2010-14
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Citizen Advisory Committee on Assessing Input
In 2003 the City Manager formed the ad hoc Citizen Advisory Committee on
Assessing to provide input on public relations issues resulting from the revaluation
conducted in 2002. The Committee was active 5/2003 – 9/2004, at which time they
completed their original charge. That included the recommendation that following
the completion of the next city wide property revaluation, we should enter into a
cycle of completing Market Update revaluations every other year. The premise was
that the next revaluation, that currently being discussed, would be a Full
Revaluation with interior/exterior inspections of all properties.
In September 2008 the Advisory Committee was reactivated with a new charge to
provide input on public relations efforts associated with a revaluation. In their initial
meeting we briefly revisited their prior achievements, including the recommendation
on revaluations and property inspection cycles. The Committee continued to
support their prior recommendation.
What values do we want to uphold in this decision and completing this task?
When faced with making decisions on service level changes it is beneficial to consider this
critical question. Answering this question can assist in establishing a common definition of
success for the task to be completed because without that we will likely not succeed. It will
help establish how customers and stakeholders should treat and respond to each other as
this necessary service is completed. Will we hold to traditional core values and:
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Be honest with each other and in our expectations;
If a reduced service level is chosen, is the community comfortable with the
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likely fact that property data and thus some assessments may not be
completely accurate?
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Respect each other’s rights within the context of applicable laws and rules;
Will participants operate within the normal appeals processes and not move
o
to politicize the assessment function?
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Act in a responsible and accountable manner;
Will participants engage in the process by becoming informed and
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knowledgeable of assessment practices and local real estate conditions?
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Demonstrate fairness in decision making without favoritism or prejudice;
Will participants look beyond individual situations and respect the relational
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integrity of the assessment process?
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Maintain civic responsibility in our common society;
Understand that the assessment process is based on statewide laws and tax
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policy that is not punitive, but intended to fairly apportion the cost of locally
provided public services. Will participants acknowledge that whenever
someone deliberately attempts to pay less than their fair share others will pay
more?
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Maintain compassion yet recognize that there is no room for subjectivity;
Will participants acknowledge that the process is based on factual data and
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that assessment staff and appeal bodies cannot respond arbitrarily to
individual financial conditions or “perceptions” of value?
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Have the courage to remain true to the charge;
If confronted with opposition will participants focus on the legal framework of
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the process and remain firm in the commitment to achieve the desired result?
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Pros and Cons of Approaches and Methods available for consideration
The tables on the following pages summarize pros and cons for the various approaches
and methods to completing the required revaluation.
THE WHAT - APPROACHES TO Full Reval Exterior Review Market Update
REVALUATION Reval
(Assumption: in all approaches inspections will occur
annually for properties subject to new construction,
building permits or a sale)
Pros of Approach to Revaluation
Complies with recommended DOR process
X
Will likely result in compliance with DOR
X X X
Level of Assessment
Will likely result in compliance with DOR
X X X
Uniformity within and between classes
Property owners have access to all
X
participation opportunities (full inspections)
Builds community trust in the process X
Provides customer direct (at their door)
X X
education & public relations
Creates accurate, complete and consistent
X
property data
Results in the most accurate and equitable
X
assessments.
Provides technical development
X X X
opportunities to Division Staff
Assists with CAMA Implementation by filling
X X
data voids
Moderate Value at Moderate Cost X
Cons of Approach
High Value at High Cost
X
Reduced Value at High Cost
X
Service reduction from prior practices
X X
Less accurate and equitable assessments. X X
May reduce long term acceptance of interior
X X
inspections
Completion requires 18-24+ months
X X X
Property owners do not have access to all
participation opportunities (no full
X X
inspections)
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THE HOW - METHODS OF Full Reval Exterior Review Market Update
COMPLETING A REVALUATION Reval
Pros of Method relative to Approach
Contracted Access to Access to Access to
professional professional professional
services results in services results in services results in
efficient / effective efficient / effective efficient / effective
revaluation along revaluation along revaluation along
with Division staff with Division staff with Division staff
development. development. development.
Division Staff NA NA NA
Do Nothing Postpones issue Postpones issue Postpones issue
& expense until & expense until & expense until
2012. 2012. 2012.
Contracted Commercial Revaluation Low cost solution Low cost solution Low cost solution
to most complex to most complex to most complex
task. Access to task. Access to task. Access to
professional professional professional
services results in services results in services results in
efficient /effective efficient /effective efficient /effective
reval with Division reval with Division reval with Division
staff development. staff development. staff development.
No Residential Inspections (use Reduce cost by
alternative data verification methods) reducing most
NA NA
labor intensive
task.
Rely on Declining Residential Property Reduce cost by
Values NA NA removing largest
task.
Cons of Method relative to Approach
Contracted High cost. High cost. High cost.
Division Staff Insufficient Insufficient Insufficient
resources to resources to resources to
complete tasks. complete tasks. complete tasks.
Do Nothing Likely the most Likely the most Likely the most
costly option. costly option. costly option.
Satisfies need but Satisfies need but Satisfies need but
sacrifices benefit. sacrifices benefit. sacrifices benefit.
No City control. No City control. No City control.
Contracted Commercial Revaluation Low cost. Low cost but less Current database
data accuracy. does not support.
No Residential Inspections (use Reduced service
alternative data verification methods) and sacrifices
NA NA
data and value
accuracy.
Rely on Declining Residential Property Results the same
Values as Do Nothing if
NA NA
values don't fall
into compliance.
c: Eric Levitt, City Manager
Jacob J. Winzenz, Director of Administrative Services
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