posted by Tom Moertel at 11:36 PM /
This article is part of a series examining how Mt. Lebanon is likely to be affected by the recent county-wide reassessment. For other articles in the series, see Blog-Lebo’s Reassessment Series. —Tom
Via Chris Briem’s blog, I learned that the county hired an independent team to review the recent assessment process. That team’s report is offered as Exhibit 4 of a recent court filing, part of the ongoing court case at the center of the controversy.
The findings of the independent review support Blog-Lebo’s conclusion from March that the new assessments for Mt. Lebanon are unfairly biased toward overtaxing owners of low-end properties and undertaxing owners of high-end properties. In particular, the report gives the independent reviewers’ estimate of the coefficient of price-related bias for Mt. Lebanon as about −7.5% (see page 19 of the report; look for the PRB-coefficient value for school district 26, Mt. Lebanon).
The PRB coefficient is a crude measure of bias, but it’s telling. What that −7.5% means is that, when you examine residences of increasing value in Mt. Lebanon, as their market value doubles, the corresponding assessed value tends to get a 7.5% discount. For example, if residences worth $150,000 tend to be assessed at a full 100 cents on the dollar with respect to market value, residences worth $300,000 will tend to be assessed at only 92.5 cents on the dollar, and residences worth $600,000 will tend to be assessed at only 85 cents on the dollar.
As a result of this “regressive” bias, owners of low-end properties effectively wind up paying some of the property taxes for high-end properties.
How could this happen? The report suggests some answers.
According to the report (page 9), each residence was valued by (1) selecting similar, recently sold residences as comparables, (2) taking a weighted average of the comparables’ sale prices, and (3) adjusting that average based on how the comparables differed from the residence being valued, with this adjustment being done using a statistical predictive model. I have some concerns about this process, as applied to Mt. Lebanon.
One concern is that the model predicts property values based on their characteristics – bedrooms, bathrooms, fireplaces, living area, and so forth. But these characteristics tend to be underreported because many homeowners fail to fully declare them on property questionnaires for fear that, if they declare them, they’ll get overtaxed because everybody else is failing to declare them, for similar fears. The problem, then, is that if you do declare them, you’ll probably end up being assessed for them more than once – once through the comparables, and once again through the adjustment on top of the comparables, which assumes that the comparables’ sale prices don’t already account for these characteristics.
Another concern is that the predictive model ignores multiplicative effects. From page 7 of the report: “All models are additive, meaning that the contribution of the various terms in the model are added (rather than multiplied or some combination of additive and multiplicative adjustments).” What this means – oversimplifying a bit – is that when the model is trying to predict the value of a residence, if the model learns that the residence has, say, 3 bathrooms instead of 2, it will always add some constant third-bathroom increment to its current prediction, say $15,000 (I’m just making that figure up, by the way).
A better predictive model might add a varying third-bathroom increment based on what else it knows about the residence. It might adjust that increment upward (say, to $30,000) for high-end mansions and downward (say, to $7,500) for low-end ranch houses. Because that adjustment does not occur when the county’s model makes its predictions, however, the model ends up predicting too low for mansions and too high for ranch houses. That’s not a problem if your community is all mansions or all ranch houses, but if your community is like Mt. Lebanon and has properties all over the pricing spectrum, it is.
The report reveals a lot more about the assessments, too, and not just for Mt. Lebanon. I encourage you to read it for yourself, especially if you have an appeal hearing coming up.
Let me know if you find anything else interesting.
Via Chris Briem’s blog, I learned that the county hired an independent team to review the recent assessment process. That team’s report is offered as Exhibit 4 of a recent court filing, part of the ongoing court case at the center of the controversy.
The findings of the independent review support Blog-Lebo’s conclusion from March that the new assessments for Mt. Lebanon are unfairly biased toward overtaxing owners of low-end properties and undertaxing owners of high-end properties. In particular, the report gives the independent reviewers’ estimate of the coefficient of price-related bias for Mt. Lebanon as about −7.5% (see page 19 of the report; look for the PRB-coefficient value for school district 26, Mt. Lebanon).
The PRB coefficient is a crude measure of bias, but it’s telling. What that −7.5% means is that, when you examine residences of increasing value in Mt. Lebanon, as their market value doubles, the corresponding assessed value tends to get a 7.5% discount. For example, if residences worth $150,000 tend to be assessed at a full 100 cents on the dollar with respect to market value, residences worth $300,000 will tend to be assessed at only 92.5 cents on the dollar, and residences worth $600,000 will tend to be assessed at only 85 cents on the dollar.
As a result of this “regressive” bias, owners of low-end properties effectively wind up paying some of the property taxes for high-end properties.
How could this happen? The report suggests some answers.
According to the report (page 9), each residence was valued by (1) selecting similar, recently sold residences as comparables, (2) taking a weighted average of the comparables’ sale prices, and (3) adjusting that average based on how the comparables differed from the residence being valued, with this adjustment being done using a statistical predictive model. I have some concerns about this process, as applied to Mt. Lebanon.
One concern is that the model predicts property values based on their characteristics – bedrooms, bathrooms, fireplaces, living area, and so forth. But these characteristics tend to be underreported because many homeowners fail to fully declare them on property questionnaires for fear that, if they declare them, they’ll get overtaxed because everybody else is failing to declare them, for similar fears. The problem, then, is that if you do declare them, you’ll probably end up being assessed for them more than once – once through the comparables, and once again through the adjustment on top of the comparables, which assumes that the comparables’ sale prices don’t already account for these characteristics.
Another concern is that the predictive model ignores multiplicative effects. From page 7 of the report: “All models are additive, meaning that the contribution of the various terms in the model are added (rather than multiplied or some combination of additive and multiplicative adjustments).” What this means – oversimplifying a bit – is that when the model is trying to predict the value of a residence, if the model learns that the residence has, say, 3 bathrooms instead of 2, it will always add some constant third-bathroom increment to its current prediction, say $15,000 (I’m just making that figure up, by the way).
A better predictive model might add a varying third-bathroom increment based on what else it knows about the residence. It might adjust that increment upward (say, to $30,000) for high-end mansions and downward (say, to $7,500) for low-end ranch houses. Because that adjustment does not occur when the county’s model makes its predictions, however, the model ends up predicting too low for mansions and too high for ranch houses. That’s not a problem if your community is all mansions or all ranch houses, but if your community is like Mt. Lebanon and has properties all over the pricing spectrum, it is.
The report reveals a lot more about the assessments, too, and not just for Mt. Lebanon. I encourage you to read it for yourself, especially if you have an appeal hearing coming up.
Let me know if you find anything else interesting.
Labels: assessments, blog-lebo-series-reval, reassessments
5 Comments:
Excellent article, Tom.
Classic example: There is a home on Hoodridge, on the market for $1.1 million. Its current value is $407,800, with the reassessed value at $511,900. Something is not right.
Elaine Gillen
Tom,
Thank you for posting all this ! What a nightmare.
What do the odds-makers and legal community say about whether the County will be able to legally "certify" this disaster by December 17th. or year-end as required in order for the 2013 residential assessments and amendments thereto to become effective by Jan. 1, 2013 ?
If that is not likely to happen, what will happen ?
It would seem that a number of elected and appointed public officials and individuals should be headed for jail when the entire boondoggle of smoke & mirrors is fully investigated and ajudicated.
Bill Lewis
The decisions that governments at all levels have made to spend independent of the business cycle or their ability to pay has been very unfortunate.
I hope that everyone is watching the events in Europe. We're next. It's not clear when it will happen here, but it will happen here.
If you want the moratorium, you must email State Senators Pileggi and Scarnati.
These two blocked the Senate from voting on the already passed House version of the moratorium.
They could easily take it up in their short session this fall.
James Fraasch
The "regressive bias" in Mt. Lebanon's 2013 assessments is only a symptom of the problem with our property tax system; the actual problem is the property tax itself.
Although a case may be made for commercial property used to create profit, residential property produces nothing while it is held by the owner, and only shows a capital gain when it is sold; and sometimes not even then. There is no relationship between the tax and means to pay the tax. Of course, it is that very feature that makes property tax so attractive to the people who constitute a local government; by divorcing it from the means to pay it the tax becomes "reliable." (Keep in mind that local governments are not interested in people per se; rather, they see people as "economic units," and as such it matters not who pays the tax, as long as the tax is paid.)
Since the major consumers of property taxes are school districts real reform in this area will probably not occur until there are major changes in our public education system. Until that happens Mt. Lebanon property owners will remain financial targets; easily fleeced, and expected to "shut up and pay the tax!"
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