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Property Value Process
How Properties are Valued
Massachusetts is a state which requires that all property be valued at 100% of "fair market value". Prior to 1961, assessments were done haphazardly. There was little if any equity. Equity means that all taxpayers pay a proportionately equal tax bill. Assessed values must reflect market value in several stratifications. The assessor cannot make an across the board percent adjustment to values. To develop values, the assessor conducts an analysis of the sale of real estate during the previous year (in this case, 2020.)
The 2020 sales are put through an exhaustive statistical analysis. In calendar 2020 there were 406 single family sales. These sales are scrutinized to ensure that only "arms length transactions" were included in the analysis. Sales between family members, sales that were improved or demolished after the transfer date, "transactions of convenience" (putting properties in trusts etc.) and many others, including foreclosures were excluded. For the fiscal year 2022 analysis, 295 residential arms length sales were used. These properties were then stratified by neighborhood, style, age, sale date, and sale price.
Value to Sale Price Ratio
The first test is a ratio of assessed value to the sale price. To meet state requirements, the overall median assessment to sales ratio must be between 90% and 110%. Then, each stratification must also fall within this ratio, i.e. all Capes must be between 90% and 110%, all properties built between 1900 and 1920, etc. Sale date, age, and sale price ratios are studied in quartiles (i.e. sales for each of the 4 quarters, January through March, April through June etc.) are looked at individually. Furthermore, a neighborhood stratification is then required. For example, all colonial style houses in a particular neighborhood are reviewed. This must be done for each style of house in each neighborhood.
When that analysis is completed, the assessor must develop a coefficient of dispersion for each category previously mentioned. That is to say that all sales in a particular grouping must fall within a range that produces a coefficient of dispersion of less than 10 to ensure uniformity of assessment across all types of property. This litmus test is done for numerous stratifications, in addition to those mentioned above. It is then extensively reviewed by the Massachusetts Department of Revenue to ensure that all properties are being assessed in an equitable manner.
Land Residual Analysis
Land values are also exhaustively reviewed to ensure that they are being assigned value that accurately reflects the marketplace. In Needham, where sales of vacant lots are few and far between, a method called Land Residual Analysis is employed. This method involves subtracting the computer-generated depreciated value of the building from the total sale price of a property. The remainder or "residual" is assumed to be the value attributable to the land in the transaction. The proposed land value is divided by this "residual" ($400,000 proposed value divided by $395,000 "Residual" equals 1.01.) The median ratio of all the Land Residual Analysis transactions tested must meet the same 90% to 110% outlined above. A three-year study of "teardown" land sales, done in preparation for the Fiscal Year 20 mandated re-certification, resulted in significant across the board increases in land values, reflecting the booming residential real estate market in Needham.
The overall assessment to sales ratio for single family homes of all types and in all neighborhoods in Needham for the fiscal year 2022 is .95. All other assessment to sales stratifications fell within .05 (.90 to 1.00) of the .95. In other words, all single family homes in Needham are being assessed at a rate that is very close to the recently demonstrated market price for that type of home.