Equalization, Sales Studies, and Assessment Ratio Analysis
Equalization, Sales Studies, and Assessment Ratio Analysis
This domain tests the sales-ratio mechanics that keep assessments at the statutory 50% level and the equalization process that follows. Questions often ask you to compute a ratio, identify a non-arm’s-length sale, or explain why an equalization factor is applied.
Core rules
- Assessed value is locally set at 50% of true cash value. County equalization reviews the local roll and applies a factor so that the county aggregate is at 50%; the State Tax Commission equalizes among counties to produce SEV.
- A sales ratio is assessed value divided by sale price; the target is 0.50. Assessors typically study 12 to 24 months of sales, depending on the study purpose and State Tax Commission guidance.
- Sales must be screened. Exclude family transfers, foreclosure or distress, related-party sales, and sales with unusual financing or personal property. Time-adjust sales to the valuation date when the market moves.
- Measures of central tendency (median, mean) describe the level; the coefficient of dispersion (COD) describes uniformity. The price-related differential (PRD) flags vertical inequity between low- and high-priced properties.
- An equalization factor is not a tax increase by itself; it corrects the assessment level before millage is applied.
Worked example
Three valid sales show assessed values of $88,000, $100,000, and $112,000 against sale prices of $200,000, $200,000, and $220,000. Ratios are 0.44, 0.50, and 0.509. The median is 0.50, but the spread is wide. Aggregate ratio is $300,000 ÷ $620,000 = 0.484; a factor of about 1.033 (0.50 ÷ 0.484) moves the roll toward the target. The COD would show whether the problem is level or uniformity.
Traps
Do not include a sale that closed after the study period without time adjustment. Do not divide sale price by assessed value. Do not use SEV in a local ratio study if the question asks about the local assessor’s level; use the appropriate assessed value and document the choice. A median of 0.50 does not prove uniformity.