How to read and understand the Commercial Appraisal Reports
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.
Standard 6 states: In developing a mass appraisal, an appraiser must be aware of, understand, and correctly employ those recognized methods and techniques necessary to produce and communicate credible mass appraisals. According to Standard 6, a mass appraisal includes:
- identifying properties to be appraised
- defining market area of consistent behavior that applies to properties
- identifying characteristics (supply and demand) that affect the creation of value in that market area
- developing a model structure that reflects the relationship among the characteristics affecting value in the market area
- calibrating the model structure to determine the contribution of the individual characteristics affecting value
- applying the conclusions reflected in the model to the characteristics of the property(ies) being appraised
- reviewing the mass appraisal results
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:
- range, quartiles, and percentiles
- coefficient of dispersion
- coefficient of variation
- price-related differential
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.