TAXPERTS PROPERTY SERVICES LIMITED

8. HOW TO PICK RELEVANT PROPERTIES FOR AN APPEAL

There are some DOs and DON’Ts to get a substantial reduction in residential property assessments. If you are not going to hire a firm to represent you, you will need access to the Multiple Listing Service owned by the Toronto Real Estate Board for which an owner will need the assistance of a real estate agent or licensed appraiser. MLS data will help you to pick intelligent comparable sales and homes assessed lower than your assessment to show that your assessment is excessive. MPAC used sales data back 3 years from the assessment date of January 1, 2008 for 2009 property taxes. Our firm will be using sales from the early months of 2007 and through to the last several months of 2008 and early 2009 in seeking reductions in assessments. If using the assistance of a real estate agent or qualified appraiser, keep in mind that their methodology is much more precise than that used by MPAC for property assessments. An agent’s goal is to find a reasonable listing price for a vendor or properties listed at reasonable prices when acting for purchasers. Your goal is to identify sales of homes which are SIMILAR to your home. Real estate agents and appraisers use a ‘sales comparison analysis’ to determine a current listing value for your home. For property assessments the Municipal Property Assessment Corp. (MPAC) uses a market value analysis to determine the “current value” at the assessment date which averages sales prices over several years. To get a reduction in your assessment, you MUST adopt the MPAC methodology looking at sales from the beginning of 2007 into 2009 to find property sales and lower assessments for homes similar to your home that will assist you in getting your assessment reduced.

METHODOLOGY OF REAL ESTATE AGENTS/APPRAISERS:

• They apply their local knowledge and focus on sales on the same street or within one or two blocks.
  
• A `sales comparison analysis’ requires at least 3 sales for a reliable value. Emphasis will always be on nearby sales and on more recent sales - - say within the last 3 to 4 months. Agents use the process to get a reasonable listing price for a vendor or to look for properties priced favorably for purchasers. Appraisers will use it for mortgage lenders, insurance claims, estates and matrimonial actions.
  
• All of the features of your home will be noted in detail and special attention will be paid to differences in features between properties. Features include frontage and lot size, inside footage, the number of rooms, number of bedrooms and baths, number of fireplaces and the quality of materials and workmanship. Both positive or negative features which would either increase or decrease value are noted. A ‘dollar adjustment’ is made to take into account sales at different times (specifically a `time adjustment’ ) and dollar adjustments will also be made for any differences in lot and building features.
  
• In a stable market, sales several months apart may be given equal weight. Values rose steadily in 2007 and, in Toronto, there was a sales `bubble’ or ‘hump’ from December of 2007 until the end of February 2008 when purchasers were trying to avoid the new Toronto Land Transfer Tax. There was a slight trend upwards in the market during the first half of 2008 and a drop in values in the last half of 2008. These patterns make it more difficult to adjust for time but since agents and appraisers usually focus on the prior 3 months while keeping an eye on trends, they always arrive at a reasonable result.
  
• Differences in features can be allowed for. A property with an extra bedroom and 200 more inside square feet might be assigned a dollar differential of $40,000. For a frontage difference of 5 feet, $15,000 might be assigned. Agents can arrive at a precise opinion using properties which are similar but not identical. Specific dollar reductions can be made for negative features such as being on a street with heavy traffic or being located near a street with heavy traffic, a rail line or a hydro station.
• Opinions are more reliable if there many sales of homes similar in size, features and quality. In Toronto, this is true for homes selling in the $300,000 to $500,000 price range. For homes selling for over $500,000, it is more difficult to find sales of comparable homes as homes become more unique as prices rise and there are usually fewer sales of the more expensive homes. More work is needed to adjust for differences.

METHODOLOGY OF MUNICIPAL PROPERTY ASSESSMENT CORP.:

• The primary goal is to find properties sold at and similar properties assessed at LESS THAN your assessed value.
  
• Your starting point is to look at your “Property Assessment Notice for 2008” which the owner would have received in November or December of 2008. This will give you the assessed value at January 1, 2008 and the dollar figure for the assessed value for the prior assessment date of June 30, 2005. It will also give you the dollar differential between the two assessments. We have seen differing figures from MPAC and the Toronto Real Estate Board that the “average sales price” for this period in Toronto was from about 20% to 22% for this period. Some neighbourhoods rose more than those percentages while some less. Due to the problems in the auto industry with layoffs, cities like Oshawa saw actual drops in value for the period. In Toronto, if your assessment rose by 25% or higher, we recommend filing a Request for Reconsideration (RFR) to MPAC for which the deadline is March 31, 2009. There is no cost for this request. Nothing ventured, nothing gained so get your RFR in to leave you the option of going to a full Assessment Review Board (ARB) hearing. You MUST file an RFR with MPAC by March 31, 2009. The ARB appeal must be filed within 90 days after the MPAC Request for Reconsideration decision is MAILED.
  
• The MPAC approach is very simple but has almost no connection to what homes are selling for at the moment. Create a ‘box’ or a ‘quadrant’ 4-, 5- or even 6-blocks square. Look at the MPAC “Detailed Property Report” and see what the “Homogenous Neighbourhood” zone such as “C64” is for your “Subject Property” and your numbered “Properties of Interest”. Your comparable sales SHOULD be in the same neighbourhood zone. [ See our Sample of a “Detailed Property Report” under our heading number 4 entitled “Obtaining Data from the MPAC Website”. ] Make a point of asking your MPAC Assessor what are the specific street boundaries of your homogenous neighbourhood. MPAC refers to as what it characterizes as a distinct “homogenous neighborhood” used interchangeably with the terms “economic neighborhood”. The term “locational neighborhood” is used by MPAC to signify that the term identifies a well-known recognized area in Toronto such as Rosedale, Forest Hill and the Bridle Path which areas are renowned to include the more expensive homes. A box might cover Yonge east to Bayview Avenue and north to just south of the Lawrence Park area. As a general rule, do not cross over major streets but you might do this if: 1) there are too few sales in your specific neighbourhood; and, 2) that other area is similar to yours. Be prepared to argue that the homes and values are similar between the zones.
  
• The ONUS IS ON MPAC to prove the “fairness and accuracy” of the assessment. This onus to show that the property assessment is fair and accurate applies during the reconsideration process and at an Assessment Review Board appeal. There will be provision for time adjustments. The formal valuation date is January 1, 2008 which as stated above fell into a period when purchasers were looking to avoid the new Toronto Land Transfer Tax which started in March of 2008.
  
• MPAC places huge emphasis on inside square footage and will go 5 to 6 blocks within the same neighbourhood to find a home of the same size. Great weight is also placed on the “quality class”. MPAC then calculates a value per square foot for its comparable properties and `averages’ the properties on the basis of dollars per square foot of inside space. For example, $385 and $395 and $405 per square foot for 3 sales averages to $395 per square foot. MPAC thus throws out a broad net. It has been our experience that many properties which MPAC characterizes as comparable do not meet the test of being comparable or are sufficiently different that you can argue that the property should be given little or no weight in determining a fair and accurate assessment.
  
• Use common sense factors and stick to homes of the same quality and features - - such as detached 2-storey homes - - and place GREAT emphasis on properties with the same inside square footage since this is the factor upon which MPAC places the greatest emphasis. Homes very close in inside footage with lower sales prices OR lower assessed values are worth their weight in gold on a property appeal.
• You can access “About My Property” on the MPAC website and look at the information on up to 100 properties and request detailed reports on up to 24 properties. You should have your list of sales gathered from the MLS information and use the MLS to also identify similar properties assessed lower than your assessment and request detailed property reports on properties which the MLS data shows are similar to your home. The inside square footage which is only available on the MPAC database will be critical in finding properties similar to you own to use for comparison purposes.
  
• Specifically request that MPAC provide the “Quality Class” for each of the properties selected for a detailed report. Quality classes reflect the quality of materials, design and construction and is a primary factor in arriving at an assessment value. In 2009, MPAC identifies 10 different “Class Conditions” which is the same as the old term “quality code”. The Quality classes/codes range from the lowest of 1 up to the highest of 10 with half-point differentials. For example, your home might be assigned a quality class of 7.5. Look for comparable sales of properties assigned the same 7.5 quality class. A property with a lower Quality Class will not be of much help but a property with a higher Quality Class which sold for less than your property assessment or is assessed lower than your property is, again, worth its weight in gold. Find 2 or more such properties on sales and on assessments and you are the road to a substantial reduction in your assessed value.
  
• So, inside square footage and quality class are the two factors upon which MPAC places great emphasis. The other three main factors are location, lot dimensions and the age of the property. Dollar adjustments can be made for any differences. MPAC identifies secondary factors that will also affect value as finished basements, garages, pools, fireplaces, number of bathrooms and the type of heating or air conditioning as important in determining property value.
  
• Use MPAC’s ‘averaging’ approach to do your own analysis. If your 2600-square foot home is assessed at $930,000 and the average SALES cost per square foot of YOUR selections is $350/sq.ft., that gives your home a market value figure of $810,000. Your sales value MUST be substantially less than your property assessment. A difference of 3% to 5% or less is not encouraging since MPAC and persons presiding at Assessment Review Board hearings will recognize a variable allowance of about 2% to 5%. At 5%, you still might request a reduction during the reconsideration. With our example property with a $930,000 assessment and an apparent excess assessment of $35,000 to $40,000, push for a reduction. At $810,000 against an assessment of $930,000, it is about 12.7% less than the assessed value and you have good ammunition to demand a substantial reduction from the MPAC assessor and take your case to a formal ARB appeal if the MPAC Assessor does not offer a satisfactory reduction. The leverage you gain by insisting on taking your case to a full hearing of 2-3 hours often results in an increase in the amount of the reduction previously offered by the MPAC Assessor.
  
• There is a ‘time shoulder’ approach at ARB hearings. A sale from January 1, 2007 is treated as equal to a sale on December 31, 2008 or even early 2009. MPAC now proposes to do ‘time adjustments’ measured against the formal date of January 1, 2008 but agents will be able to do a more intelligent time adjustment than MPAC since they know the market better than the computer at MPAC. Common sense dictates that sales in the first 4 months of 2007 and last 4 months of 2008 will favor the owner appealing their property assessment. Push properties sold in those periods and see what type of response you get from MPAC as to time adjustments and argue that their methodology on time adjustments is flawed or that your time adjustments are more accurate. There are important nuances to the process with which only trained professional appraisers and experienced property tax appeal agents are familiar. It is a new system and everyone will be on a learning curve. We will be writing a discussion on time adjustments once a pattern begins to establish itself through dealings with MPAC and rulings made at Assessment Review Board hearings.
  
• Be prepared to argue for dollar adjustments for the 5 main factors and the secondary factors when comparing MPAC comparable properties to the home and make dollar adjustments for your own selected comparable sales you are using to argue that the assessment is too high. Also look at the issue of street parking vs. parking pods vs. a private or shared driveway as well as the extra issue of a single-car garage or a two-car garage as other important factors.
  
• Our experience is that a close analysis of MPAC properties presented as comparable to your property leads to the conclusion that their comparable properties occasionally do not meet the test of qualifying as a comparable property. This is an “apples to oranges’ attack and often occurred in appeals under the old regime. With more expensive properties, there is a much greater likelihood that MPAC comparables clearly do not qualify to be seen as comparable to your property. The McGuinty Liberal government has given orders to MPAC to operate in a more transparent, fair and reasonable fashion than was the case under the former property tax appeal process. It has yet to be seen whether MPAC will live up to those standards. Andre Marin’s report on the property appeal process and MPAC in his capacity as Ontario Ombudsman was highly critical of the lack of transparency and fairness of the earlier process. We are confident that with the much more detailed disclosure, access to the higher number of detailed property reports on sales, 24 versus the former figure of 6, and the new right of obtaining assessment values via their website on up to 100 homes that this signals that there will be a more level playing field and that MPAC Assessors will be fairer and more professional. Keep in mind that as recently as this past December, Premier McGuinty responding to complaints from home-owners referred to the new assessed values coming from MPAC for the 2009 year as “completely unreasonable”. This is disheartening yet also indicates that there are early signs, especially with the more expensive homes, that the assessed values spit out by the MPAC computers are almost as inconsistent and baffling as they were under the former process. We reviewed one whole street in Forest Hill and saw that the disparities were not as great with the new assessment but still had a few homes assessed 40% to 50% higher versus most homes on that street rising by only 20% t0 30%. So, if your assessed value reads high, there is a good chance of a substantial reduction through the reconsideration process or a formal appeal to ARB.