Introduction

The King County Department of Assessments is required by State law to appraise all property at its full market value. For commercial 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 $10,500,000 (S) was last appraised at $10,000,000 (A) by the Assessor. The ratio of A/S is $10,000,000 / $10,500,000 = 0.95 or 95.0%. 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 labeled 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 both physically reviewed and revalued each year. The other approximately five-sixths of the properties are revalued using the existing data. With this brief introduction we can move on to a discussion of individual sections of the Area Reports.

Executive Summary 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 commercial 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.

Report Body

Revaluation Process

The revaluation process is a complete application of the mass appraisal process as described by Standard 6 including physical review of the properties. The appraisal staff analyze sales, cost of construction, and prevailing levels of rents and operating expenses as they seek to apply the Sales Comparison Approach, the Cost Approach and the Income Approach to valuation. Statistical methods may be used to establish the relationships between factors which influence values of commercial property. The Assessor's staff collects a large amount of data on many characteristics of commercial properties. Statistical methods may allow for the estimation of coefficients for a considerable number of factors which have a role in explaining the value of property.

The Income Approach

The single most important difference between the valuation of commercial properties and residential properties is the importance of the Income Approach to value as applied to commercial property. Appraisal principles and Washington State Law are in agreement; the income approach is relevant for property which is primarily income-producing in nature. The basic steps in the income approach are as follows:

Model Validation

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.

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.