This presentation describes techniques and issues relative to the challenges in assessing real estate in declining market.

1. HOW TO ASSESS IN A
DECLINING MARKET
Presented by: Rob Turner, Hillsborough County Property Appraiser
Tim Wilmath, MAI – Director of Valuation HCPA
Presented for: IAAO 2009 Special Topics Seminar
Kansas City, Missouri

2. BACKGROUND INFORMATION
Hillsborough County
 1,161 square miles
 Total county population – 1.1 million people
 525,000 parcels, including real estate and
TPP
 3 Municipalities:
--City of Tampa
--Temple Terrace
--Plant City

3. GOVERNING PROCEDURES AND RULES
 Florida Constitution
 Florida Statutes
 Florida Administrative Code
 Department of Revenue
 Court Cases
 Local Rules

4. FLORIDA PROPERTY TAX FORMULA
Just Value (Market Value)
less, CAP Amount =
Assessed Value
less, Exemptions =
Taxable Value
x Millage Rate =
Property Taxes

5. FLORIDA PROPERTY TAX PROCESS
Property Appraiser Taxing Authorities Property Appraiser mails
determines assessed value, calculate millage rates that “TRIM” notice to
applies exemptions and will produce the desired property owners
reports taxable value to revenue from current notifying them of value
taxing authorities. year’s taxable value. and proposed taxes.
Taxpayers may appeal to Tax Bills are prepared by Tax revenue is distributed
the Value Adjustment the Tax Collector and by the Tax Collector to
Board if they disagree with mailed in November, with Taxing Authorities.
value or exemption denial. payment due by the
following March 30th.

6. FLORIDA ASSESSMENT CAPS
Assessment increases
on Homestead
properties are capped
at 3% per year, or the
annual change in CPI,
whichever is less.
Assessment increases
on Non-Homestead
properties Are capped
at 10% per year.
(new for 2009).

7. 10000
12000
14000
16000
2000
4000
6000
8000
0
1990 5775
1991 6152
1992 5927
1993 5205
1994 3965
1995 3673
1996 2974
1997 2944
1998 2866
1999 2527
APPEALS
2000 2492
2001 3768
in Hillsborough County
2002 3752
2003 4437
2004 4205
Value Adjustment Board Petitions Filed
2005 4505
2006 6628
2007 9035
14993
2008

8. FIRST – HOW DID WE GET HERE?

9. SALE COUNTS
Historically, Hillsborough County had about 25,000
qualified sales a year. Beginning in 2003, sales volume
began to skyrocket.

10. LENDING
With lower lending standards (subprime mortgages), more
people could buy homes than ever before which
significantly increased demand.

11. MEDIAN PRICES
As sales volume increased, home prices increased at a rapid
pace - over 100% from 2001 to 2007. Household income
remained mostly level during the same time period.

12. BUILDING PERMITS
Source: Hillsborough County Planning Commission
As prices increased for single family homes, builders and
developers constructed new homes at a record pace to keep
up with this new demand.

13. ASSESSMENTS
With the run-up in property values during 2002-2006,
assessors had no choice but to follow the market.

14. ASSESSMENTS
During the height of the market, some property owners
saw assessments increase 20%, 30%, 50% even 100%.

15. LEGISLATION
Increases in property taxes were so dramatic, that the
Florida Legislature rushed to pass legislation to limit
increases, including a CAP on non-homestead properties.

16. POPULATION
Historically, Florida’s population grew each year, which
helped absorb newly built homes and existing inventory.
That has now changed.

17. INVENTORY
Source: Hillsborough County Planning Commission
With significant new construction, shrinking population,
and rising prices, inventory swelled.

18. MARKET VALUE
Source: Hillsborough County Planning Commission
Lower sales, rising inventories and falling prices resulted
in Hillsborough County experiencing the first decline in
market value in over 30 years.

19. MARKET VALUE
Source: Hillsborough County Planning Commission
Back to the Future……..
Residential properties are selling for about what they
sold for in 2004 – a drop of 40% since the peak in 2006.

20. FORECLOSURES
Source: Hillsborough County Planning Commission
As inventory swelled and demand decreased, many
homes fell into foreclosure. Florida consistently ranks
high in the number of foreclosed homes.

21. FORECLOSURES
Source: Hillsborough County Planning Commission
As foreclosures increased and sales volume hit record
lows, many subdivisions became scenes of vacant lots,
partially constructed and abandoned homes.

22. FORECLOSURES
Source: Hillsborough County Planning Commission
Many new subdivisions had significant numbers of
foreclosed homes making it almost impossible for existing
homes in the same neighborhood to sell.

23. FORECLOSURES
What exactly is a
foreclosure?

24. FORECLOSURES
Foreclosures take many legal forms
Lis Pendens – pending lawsuit on real property (usually 1st
step in all foreclosures)
Deed in lieu of foreclosure – Bank takes back property and
forgives note.
Short Sales – Lender accepts “discount” on a mortgage and
allows property to be sold at less than mtg. amount.
Cerificate of Title – a legal document recorded in the public
records that transfers the title of the real property to the
bank.
Warranty Deed from Bank to private party – Often when
banks sell to the public, they record a warranty deed.

25. FORECLOSURES
Source: Hillsborough County Planning Commission
Hillsborough County historically averaged around
5,000 Lis Pendens filings a year…Until 2007. We are
on pace to see over 30,000 filed in 2009.

26. FORECLOSURES
Source: RealtyTrac.com
Source: Hillsborough County Planning Commission
Although foreclosures represent a significant segment of
the market, they still sell for less than other properties.
This creates a challenge when valuing the population.

27. FORECLOSURES
Source: Hillsborough County Planning Commission
The number of foreclosures cause all sellers to re-consider
pricing.

28. FORECLOSURES
Trying to research the quantity and impact of
foreclosures can be a daunting task.

29. FORECLOSURES
Source: RealtyTrac.com

30. FORECLOSURES
Source: RealtyTrac.com
There are approximately 370,000 housing units in
Hillsborough County. According to RealtyTrac.com, there
are 16,613 in foreclosure (4.5%).

31. FORECLOSURES
Source: Hillsborough County Planning Commission
Hillsborough County ranks 5th statewide in the number of
foreclosures per month. Above are the number of
properties that received a foreclosure filing in April, 2009

32. FORECLOSURES
The Towers of
Channelside is a
257-unit condo
project built in
2006. It was
completely sold out
before construction
was finished.

33. FORECLOSURES
During 2007-2008
the market began a
steep decline which
resulted in most of
the condo units
buyers walking
away from their
purchase contracts.
Source: Hillsborough County Planning Commission

34. FORECLOSURES
In 2008 the
owners of the
project filed for
bankruptcy, with
hopes of
weathering the
storm.

35. FORECLOSURES
In April, 2009, the
owners handed
the keys back to
the bank, with
only half of the
units sold.

36. FORECLOSURES
Source: Hillsborough County Planning Commission
Source: Miami Sun Sentinel, 4/16/09

37. ASSESSMENT STRATEGY
What now?
•Fewer sales
• More forced sales, foreclosures & short sales
•Inconsistent prices – even with valid sales
•Difficult to track price trends

38. ASSESSMENT STRATEGY
Weighted Mean – Comparing
ratios between groups & property
types. (Target – 76.5%)
Coefficient of Dispersion –
Are ratios clustered or dispersed?
(Target - 95% – 105%)
Price Related Differential –
Measures equality between
low-value & high-value properties.
(Target – 98-103)

39. ASSESSMENT STRATEGY
Historically, our office averaged sales from the entire year
for valuing the population. In the current market, we are
time-adjusting our sales to reflect the monthly downturn.

40. ASSESSMENT STRATEGY
“Liars, Outliers, and out and out liars” – Even in a down
market not all foreclosures should be used.

41. ASSESSMENT STRATEGY
Even when foreclosures are used, they should be
inspected to check the condition. Often, the price isn’t
such a great deal when you look at the repairs needed.

42. ASSESSMENT STRATEGY
The PRD can be especially challenging when you have
extremely different homes in the same neighborhood.

43. ASSESSMENT STRATEGY
Source: RealtyTrac.com
Foreclosures tend to be lower priced homes, selling for
“below-market” prices. This tends to skew the PRD
upwards.

44. ASSESSMENT STRATEGY
We use SPSS to identify the median price in the county,
then designate that neighborhood as “high-value” or
“low value” depending on it’s median price.
Neighborhood adjustments are then tweaked to reflect
location AND it’s high value/low value designation.

45. ASSESSMENT STRATEGY
Foreclosures tend to be in poor condition as a result of
vandalism, neglect, etc. Adjusting the assessment on
these sales for deferred maintenance can improve your
COD and PRD significantly.

46. ASSESSMENT STRATEGY
Another factor
in reviewing
short sales and
foreclosures is
flipping.

47. ASSESSMENT STRATEGY
This home was flipped in the height of the market,
foreclosed and is now back on the flip train.

48. COMMERCIAL
Source: Hillsborough County Planning Commission
The commercial sector is feeling the effects of the
real estate downturn also.

49. COMMERCIAL
This VW dealership sold for $7,000,000 in 2008. That
price indicated a one-year upward trend of 25% for
auto dealerships.

50. COMMERCIAL
Meanwhile – this dealership across the street has
remained vacant and for sale for over a year.

51. COMMERCIAL
News about
automobile
dealerships was
not
encouraging…..
So why such a
high price for
the VW
Dealership?

52. COMMERCIAL
Not all auto
companies are
suffering.
How do you
assess auto
dealerships
when some are
tanking and
others are
prospering?

53. COMMERCIAL
Not all auto
companies are
suffering.
How do you
assess auto
dealerships
when some are
tanking and
others are
prospering?

54. COMMERCIAL
The ability of a
successful car
manufacturer to
“cherry pick” the
best properties in
terms of location,
condition and
design, does not
accurately reflect
the value for the
population of
dealerships.

55. COMMERCIAL
This is true for other
property types as well.
Office and retail
properties are feeling
the effects of the
recession through
higher vacancies and
lower rents. However,
prices have not
necessarily revealed
this trend (yet).

56. Pop Quiz!
Which state had the highest 2008 combined
State & Local taxes paid – as a percentage
of income?
 A: Florida
 B: California
 C: New Jersey
 D: Texas
 E: Massachusetts

57. Pop Quiz!
Which state had the highest 2008 combined
State & Local taxes paid – as a percentage
of income?
 A: Florida
 B: California
 C: New Jersey
 D: Texas
 E: Massachusetts
Source: www.TaxFoundation.org

58. Pop Quiz!
With 1 being the highest (N.J.) and Alaska
being the lowest, where does Florida rank
for state & Local taxes paid as a
percentage of income?
 A: 11th
 B: 19thth
 C: 47th
 D: 26th
 E: 30th

59. Pop Quiz!
With 1 being the highest (N.J.) and Alaska
being the lowest, where does Florida rank
for state & Local taxes paid as a
percentage of income?
 A: 11th
 B: 19thth
 C: 47th
 D: 26th
 E: 30th
Source: www.TaxFoundation.org

60. When will we see recovery of the
real estate market?

61. WHEN WILL WE RECOVER?
Associated Press – 4/25/09

62. WHEN WILL WE RECOVER?
USA Today – 5/5/2009

63. WHEN WILL WE RECOVER?
Associated Press – 4/29/09

64. WHEN WILL WE RECOVER?
Positive signs Negative signs
• First time homebuyer • Unemployment
$8,000 tax credit projected to increase
– maybe 10% or
• 50-year low interest worse.
rates (30-year fixed
< 5%). • More foreclosures
coming (see Lis
• Affordability Pendens)
• Bloated inventory
• Property tax relief

65. Conclusion
Appraisers are challenged more than
ever regarding accurate analysis.
 Market Data – Good Appraisal research and analysis of sales data is
mandatory.
 Honest assessment of the marketplace – recessionary conditions,
credit crisis, oversupply of existing inventory, short sales,
unemployment and other relevant market factors.
 Bulk Sales, Auctions and Short Sales are so prevalent in many
markets as to represent market value.
 Measuring External Obsolescence – discounted cash flow analysis
illustrates the impact of an unplanned long term holding period. The
holding/carrying cost is devastating to market value.

66. Rob Turner, Hillsborough County Property Appraiser
TurnerR@hcpafl.org Thank
Tim Wilmath, MAI
Wilmatht@hcpafl.org You!