Linn County

Sales Ratio

In Iowa, residential and commercial property is assessed at 100 percent market value. Therefore, sale prices and assessed values must stay in sync. If the median assessment to sale price ratio (e.g. assessments divided by sale prices) in any given area deviates from the statutory 100 percent level by a difference of more than plus or minus 5 percent, the Iowa Department of Revenue steps in and mandates an across the board adjustment to bring things back into compliance. This is called equalization, and is generally not a good thing because it means all property values are affected, when usually only some are causing the problem.

Arms length transaction Sales ratio

Ratio Study Statistics

Ratio study statistics provide concise, formal measures of appraisal performance and often constitute the primary basis for reappraisal or equalization decisions.

Sampling

Sampling is the foundation on which a ratio study is built. Statistics calculated in the ratio study are used to draw conclusions based on information contained in a sample, about a population of properties.

Population

Arrays Frequency Distributions

Measures of Appraisal Level

Measures of central tendency are used to estimate the overall appraisal level at which property is assessed.

Mean ratio (average)

Median ratio (middle value)

Weighted mean ratio

Measures of Appraisal Uniformity

Measures of dispersion are used to measure appraisal uniformity.

Coefficient of Dispersion (COD)

Measures the average percentage individual ratios vary from the median ratio

Price related differential (PRD)

Ratio of the mean ratio to the weighted mean ratio

Indicates whether low- and high- value properties are assessed at the same level

Sales Ratio Performance Standards

The Standard on Ratio Studies, published by the International Association of Assessing Officers (IAAO), has suggested sales ratio performance standards for jurisdictions, in which current market value is the legal basis for assessment. In general, when these standards are not met, reappraisal or other corrective measures should be taken.

Sales Ratio Performance Standards for Single Family Residential Property
Type Measure of Central Tendency COD PRD
Newer, more homogenous areas 0.09 to 1.10 5.0 to 10.0 .98 to 1.03
Older, heterogeneous areas 0.09 to 1.10 5.0 to 15.0 .98 to 1.03
Rural residential and seasonal 0.09 to 1.10 5.0 to 20.0 .98 to 1.03

Three step process

  1. Review all property sales within a jurisdiction and eliminate those that likely do not represent a full and fair "arms-length" transaction
    • For example, contract sales, foreclosures and intra-family sales might not have occurred in a fair market value and would skew median sales prices
  2. For the remaining transactions, a sales ratio is calculated. This is merely the result of dividing the current assessment by the sale price.
    • A property assessed at $80,000 that sold for $100,000 would have a ratio of .80
    • A property assessed at $125,000 that sold for $100,000 would have a ratio of 1.25
  3. Finally, all sales ratios are ranked from lowest to highest, in order to find the middle or median ratio.
    • If the median is above 1.00, it indicates the assessments are high, relative to the market
    • If the median is below 1.00, it indicates properties are generally selling for more than the assessment