Equalized Value

[William Hochstedler]

Great podcast.

Ankit described using equalized values during the due diligence period. I am not familiar with this term. What are equalized values and how are they used in the analysis?

Thanks,
Wm

[Dion DePaoli]

Originally posted by @William Hochstedler:

@Dion

Thanks for the info. A few things:

Do you mean "accessed value" or "assessed value"? If so, I need more help on what that means. I think you must also mean "millage rate" rather than "mileage rate"

So to clarify, we're actually talking about 3 different values:

1. Assessed Market Value

2. Taxable Value

3. True market value

The relationship between 1 and 2 is based on the millage rate, and the relationship between 1 and 3 is the equalization rate. Is this correct?

In our county (Cache, Utah), all properties (45K parcels) are reassessed every 5 years with land and improvements on a staggered schedule so I would think a ER for the area would be impossible. I'd love a bit more information on who is determining the ER and in what context (e.g. rapidly changing markets).

In the podcast, Ankit was talking about his due diligence process in New Jersey. Because he's buying tax liens, his starting point is the list of props with liens for sale. After your clarification, he must be getting an assessed value included in that list and have to use an adjustment (ER) to arrive at market values to analyze the risk.

Thanks,
Wm

Sorry about the spelling errors, coffee must have inhibited my eyes from reading what I was typing while also making me type faster. The spelling corrections you made/assume are correct.

Millage Rate is applied to Taxable Value to produce the amount of taxes due.

Taxable Value can differ from Assessed Value based on caps applied to value increases. In other words, the Assessed Value can be $100 but the Tax Value can be $70 because value increase caps (maximums) are applied preventing the Taxable Value to be $100, so it get's capped at $70. Without the idea of the cap to increases, the numbers would be the same and there would be no need for different terminology. Another way to look at it is the Taxable Value is personal to the owner and the Assessed Value is to the public since certain actions can be taken by owners (like Homesteading) which create the cap on the Taxable Value. I believe the most common cap is a tax increase cap in many states of about 3%.

If you look up your county you likely have some type of board with a name similar to Board of Equalization. Essentially the folks who review the rolls of the county. I just looked it up for you HERE

Here is your states guidance on the process and the laws that govern it for all the counties UTAH Publication on Equalization

I am not familiar with the podcast. What you describe sounds like what I would assume he is trying to do. Since the process of equalization is to create 'fair' taxation based on the assets you could use it to reverse engineer the Fair Market Value they used.

That said, certainly the time which the FMV is actually relevant to the market will matter. So, where ER is 90%, you could use the Assessed Value to find the FMV they equalized to. However, if the review is old, they will not be so accurate. Remember that most of the time these analytics are in the past to begin with. In addition, the overall percent is not an asset level percent; it is the entire group the average (likely weighted). So an ER is X% but the particular asset can be plus or minus that. Essentially, I am saying it's a bunch of brain damage to have a "potential" value which frankly might not be so accurate based on time. It will put you in the ballpark, but so will Zillow if you know how to look at comps and derive a basic value from the data.

An Assessed Value is usually available in public record. Many folks try and use these numbers as evidence of FMV but they are not going to be as accurate as a formal appraisal or even a CMA or BPO. However, if you had a ER and the data is received with Assessed Value you could do some quick calculations to get in the ballpark on a global scale opposed to looking up individual properties.

To that degree, other asset classes do similar types of quick calculations to make sense out of the data. For instance in loans, we commonly use the a mix of the HPI and the Origination Date to determine how accurate a Seller's property value might be where we quickly calculate how much deprecation occurred in the market and see if it is close to the Seller delivered value.

For that type of information, this process would be valuable since data sets can be so large and you want to cut down into assets that matter rather quickly. I personally would not use any method like that as a final determination of value but as a cursury value it can be useful.