5.1 Although the administration of property tax is a complex process in its entirety, there is no single element that cannot be explained in simple terms and judged by commonsense standards. Policy-makers and tax-payers are entitled to understand property tax issues. The public are increasingly intolerant of land administrators hiding behind technical jargon so it is important to keep the public well informed throughout and for the terms used to be clearly explained.
5.2 ‘Valuation method’ means the calculations and techniques used to arrive at the value. Valuers and non-valuers and policy-makers should keep in mind that there is only one simple test of a method. Does it work? If a valuation method is intended to provide an estimate of market value, does it correctly predict the selling price before the event in a market situation? Non-valuers are interested in the end result and not in the finer points of the techniques. In the case of valuations made for property tax, the test is whether the resulting figures are acceptable to most tax-payers as a fair representation of the value of the properties concerned, and whether those figures are defensible in court on appeal.
5.3 In fact the starting point is not the valuation method but the method of analysis of market transactions. The method of analysis, if successful, will be reflected in the method of valuation. For instance, dwelling houses are normally analysed and valued by reference to the floor area. It is known from the analysis of sales evidence that size, quality, age and location are significant factors and so values are determined using those factors. If someone devises an alternative method that works better, it will be used instead.
5.4 In property tax the most contentious problems of valuation arise when there is no sales or rental evidence of that class of property. For the small number of properties where this is the case there are conventional methods by which market values can be assessed.
5.5 Valuations for property tax are defined by national legislation which identifies what must be taken into account in such valuations.
5.6 Valuation standards define the matters to be taken into account in valuation practice primarily when dealing with valuations for private sector activities such as mortgages, investment and accounting. Such standards are increasingly international in character reflecting the growing awareness of the strong links between valuation standards, financial markets and globalization.
5.7 Mass appraisal is the process of valuing a large number of properties at the same time using standardized procedures. In many cases, it is the only practical way to complete a valuation list. When one person (the valuation officer) has responsibility for assessing perhaps 100,000 properties for property tax within a two-year period, the officer can accomplish this only by good organization and effective delegation. The valuation officer can personally value no more than perhaps 1000 properties in this period. The work must be done by valuers and valuation technicians working for the valuation officer but in accordance with established guidelines. Thus for instance agricultural land of category ‘x’ within a specified location is valued at ‘y’ per hectare. Perhaps houses of a certain category in a defined location are valued at ‘z’ per square metre of floor area. Of course the guidelines will become intricate because the resulting figure must be the market value as defined in the law. These mass appraisal methods are not new. There is evidence that the Romans used methods just as careful and complex.
5.8 How does ‘mass appraisal’ become ‘computer assisted mass appraisal’? If failure is to be avoided, the answer is that it must evolve in stages. The first stage in computerization is the handling of the data in the valuation list as a database. The next major priority will probably be the computerization of the collection process. Only when these applications are well established should attention turn to the computerization of the valuation process. It will be apparent from the description of the mass appraisal process above that many of the processes are very suitable for computer assistance. The guidelines can be computerized and the valuations automatically generated.
5.9 This approach works well but there are caveats. The guidelines, whether computerized or not, will not cover every case. For perhaps a maximum of 80 percent of the properties the guidelines will work without modification. The remaining properties will be atypical and require varying degrees of special attention. When handled manually the valuer or technician soon recognises when the guidelines are producing a wrong figure. It is more difficult when using computers and the design must reflect this. It must also be remembered that computers do not assist directly with the capture of information in the field which is a major part of the work. However, the use of simple inspection checklists that act as automated input forms, and palmtop and laptop computers, can be extremely helpful in the assessment process.
5.10 There is an essential stage in the mass appraisal process, which has not been examined in detail in this guide. Before the valuation officer can compile the valuation guidelines there must be an analysis of the market information. For instance, how many sales of agricultural land have there been? How much per hectare is agricultural land of category ‘x’ selling for on the open market? What are the significant valuation factors?
5.11 One analysis technique which can allow the valuer to make sense of market information is regression analysis which is particularly useful for handling large amounts of data. It helps to identify the significance of different factors and to identify trends. Information technology makes regression analysis simple and readily available. Regression analysis is also a key phase when the various applications above are linked to form an automated loop. Sales information is fed into the market information database and analysed directly through regression analysis. Alterations of value are detected and fed into the valuation guidelines from which, in turn, new valuations are generated. This process can allow for very efficient annual revaluations. The complete loop is unlikely to be feasible in some countries in the medium term because it relies on the vigorous operation of a property market and the complete and accurate reporting by the parties of the true sales price.
5.12 Regression analysis is not new. It is a well-established and widely used technique. It does not over-ride common sense. People make judgements everyday about the value of things - whether it is a bag of potatoes, a second-hand car or the house next door - without using regression analysis. In fact in the case of an individual valuation there may be fewer than ten relevant open market transactions and regression analysis is neither necessary nor helpful. However, regression analysis is a very useful and powerful technique in the right circumstances and particularly in the context of mass valuations for property taxation purposes.
