This glossary defines terms related to property assessment in Philadelphia.
The exemption of all or part of the value of an improvement for a set number of years.
The market value of property at the time it was acquired by the present owner or the last major physical change made to the property.
Ad valorem tax
A tax levied in proportion to the value of property being taxed.
A photograph of a part of the Earth’s surface taken by an aircraft-supported camera.
Arm’s length sale
A sale between two unrelated parties, both seeking to maximize their positions from the transaction.
The status date for tax purposes. Appraised values reflect the status of the property and any partially completed construction as of this date.
The degree to which assessments have a consistent relationship to market value.
Assessment progressivity (regressivity)
An appraisal bias such that high-value properties are appraised higher (or lower) than low-value properties in relation to market values.
The fractional relationship an assessed value has to the market value of the property in question.
By extension, the fractional relationship the total of the assessment roll bears to the total market value of all taxable property in a jurisdiction.
Assessment ratio study
An investigation intended to determine the assessment ratio and assessment equity.
A scale map displaying property ownership boundaries and showing the dimensions of each parcel with related information such as parcel identifier, survey lines, and easements.
Any rate used to convert an estimate of future income to an estimate of present market value.
Property owners who have suffered damage to a structure, as a result of a fire or other natural disaster resulting in a decrease of 50% or more in property value, may qualify for a reduction in their property assessment.
A set of items defined by common characteristics.
- In property taxation, property classes such as residential, agricultural, and industrial may be defined.
- In assessment, a building classification system based on type of building design, quality of construction, or structural type are common.
- In statistics, a predefined category into which data may be put for further analysis. For example, ratios may be grouped into the following classes: less than 0.500, 0.500 to 0.599, 0.600 to 0.699, and so forth.
The act of reducing a description of a unique object, such as parcel of real estate to a set of one or more measures or counts of certain of its characteristics, such as square footage, number of bathrooms, and the like.
Encoding, a related term, is usually used to refer to the act of translating coded descriptions useful to human beings into a form that can be processed by computers.
Coding is sometimes also used to refer to writing of instructions that direct the processing done by computers.
- In a mathematical expression, a number or letter preceding and multiplying another quantity. For example, in the expression, 5x, 5 is the coefficient of x, and in the expression ay, a is the coefficient of y.
- A dimensionless statistic, useful as a measure of change or relationship; for example, correction coefficient.
Coefficient of dispersion
The coefficient of dispersion is a statistical tool used to measure the uniformity of assessments. Average deviation tells how much, on average, the sales ratios for individual properties differ or range apart from the median sales ratio.
Generally, any non-industrial, non-residential property used for commercial activity. Includes property used as a retail or wholesale establishment, hotel or motel, service station, commercial garage, warehouse, theater, bank, nursing home, etc.
Comparable sales, comparables
- Recently sold properties that are similar in important respects to the property being appraised. The sale price and the physical, functional, and locational characteristics of each of the properties are compared to those of the property being appraised in order to arrive at an estimate of value.
- By extension, the term “comparables” is sometimes used to refer to properties with rent or income patterns comparable to those of a property being appraised.
Comparative unit method
- A method of appraising land parcels in which an average or typical value is estimated for each stratum of land.
- A method of estimating replacement cost in which all the direct and indirect costs of structure (except perhaps architect’s fees) are aggregated and specified with reference to a unit of comparison such as square feet of ground area or floor area, or cubic content. Separate factors are commonly specified for different intervals of the unit of comparison and for different story heights, and separate schedules are commonly used for different building types and quality classes.
Computer-assisted mass appraisal
A system of appraising property, usually only certain types of real property, that uses computer-supported statistical analysis to assist the evaluator in estimating value.
A housing cooperative is when people own and operate the building where they live, but do not own individual units—forming a cooperative corporation. The corporation owns the actual building and people pay the right to occupy a unit within the co-op. (The unit is usually referred to as “your apartment.”)
If each month you pay an amount that covers your share of the expenses of the co-op—and pay all or a portion of your real estate property taxes jointly through a management agent or association, rather than paying your taxes separately from other units, then you most likely live in a co-op.
- One of the three approaches to value, the cost approach is based on the principle of substitution–that a rational, informed purchaser would pay no more for a property than the cost of building an acceptable substitute with like utility. The cost approach seeks to determine the replacement cost new of an improvement less depreciation plus land value.
- The method of estimating the value of property by (a) estimating the cost of construction based on replacement or reproduction cost new or trended historic cost (often adjusted by a local multiplier), (b) subtracting depreciation, and (c) adding the estimated land value. The land value is most frequently determined by the sales comparison approach.
Charts, tables, factors, curves, equations, and the like intended to help estimate the cost of replacing a structure from a knowledge of some other factors, such as its quality class and number of square feet.
The general term for an amount of numbers, codes, and symbols.
The process of examining a record’s data to ensure that element of data is reasonable and consistent with other recorded information for the same object, such as parcel of real estate.
Data editing, which may be done by persons or by computer, is essentially a mechanical process, and is different from verifying the recorded information by speaking with property owners.
The human (and sometimes computer) procedures used to ensure that no information is lost through careless handling of records from a file, that all information is property supplemented and up-to-date, and that all information is easily accessible.
Loss in value of an object, relative to its replacement cost, whatever the cause of loss in value. Depreciation is sometimes subdivided into three types:
- Physical deterioration due to wear and tear
- Outdated design in light of current technologies or tastes
- Becoming economically out-of-date, due to poor location or extremely low demand for product
Tables used in mass appraisals that show the typical loss in value at various ages or effective ages for different types of properties.
Disabled veterans tax exemption
Applicable veterans (or their surviving spouses) who have a 100% service-connected disability may qualify for a Real Estate Tax Exemption.
The rate of return on investment; the rate an investor requires to discount future income to its present worth.
Effective tax rate
The relationship between dollars of tax and dollars of market value of a property. The rate may be calculated either by dividing tax value or by multiplying a property’s assessment level by its nominal tax rate.
A measure of the responsiveness of tax yields to changes in economic conditions. The yield of an elastic tax increases rapidly in a growing economy. The yield of an inelastic tax increases slowly.
The process by which the correct area of government attempts to ensure that all property under its jurisdiction is assessed at the same assessment ratio or at the ratio(s) required by law. Equalization may be undertaken at many different levels. Equalization among use types (such as agricultural and industrial property) may be undertaken at the local level, as well as properties in a school district,
- In assessment, equity is the degree to which assessments have a steady relationship to market value.
- In ownership, equity is the financial interest or cash value of a property, minus the current loan balance(s).
The allowance, by statute or ordinance, for certain classes of property to not be taxed on its real property holdings.
The ratio of expenses to gross income.
- An underlying characteristic of something (such as a house) that may contribute to the value of a variable (such as its sale price), but is observable only indirectly. For example, construction quality is a factor defined by workmanship, spacing of joists, and materials used. Factor definition and measurement may be done by an individual or by a computer.
- Loosely, any characteristic used in adjusting the sales prices of comparable properties.
Assessments that by law or by practice have assessment ratios different from 1. Usually the assessment ratio is less than 1 and, if assessment biases are present, different classes of property may have different fractional ratios.
A standard measurement of land, applied at the frontage of its street line.
Geographic information system (GIS)
GIS is a system of hardware and software used for storage, retrieval, mapping, and analysis of geographic data.
Geographical Market Area (GMA)
Pockets of real estate activity where similar properties are selling for similar prices.
The payments to an owner that a property can generate before expenses are deducted.
Gross income multiplier
A capitalization technique that uses the ratio between the sale price of a property and its potential gross income or its effective gross income.
Effective for Tax Year 2014, the City will offer a Homestead Exemption to all Philadelphia homeowners. A Homestead Exemption means that if you own your home, you can qualify for a reduction of your home’s reassessment, and therefore reduce your tax bill.
One of the three approaches to value, based on concept that current value is the present worth of future benefits to be derived through income production by an asset over the remainder of its economic life. The Income Approach uses capitalization to convert the anticipated benefits of the ownership of property into an estimate of present value.
Generally, any property used in a manufacturing activity, such as a factory, wholesale bakery, food processing plant, mill, mine, or quarry.
Property or real estate, not including buildings or equipment, that does not occur naturally. Depending on the title, land ownership may also give the holder the rights to all natural resources on the land.
A description of dimensions, boundaries, and relevant attributes of a real property parcel that serve to identify the parcel for all purposes of law. The description may be in words or codes such as meters and bounds or coordinates. For a subdivided lot, the legal description would probably include lot and block numbers and subdivision name.
Level of appraisal
The common, or overall, ratio, of appraised values to market values. Three concepts are usually of interest: the level required by law, the true or actual level, and the computed level, based on ratio study.
Level of assessment, assessment ratio
The common or overall of assessed values to market values.
Levy property tax
- The total amount of money to be raised from the property tax as set forth in the budget of a taxing jurisdiction.
- Loosely, the millage rate or the property tax bill sent to an individual property owner.
A conventional representation, usually on a plane surface and at an established scale, of the physical features (natural, artificial, or both) of a part or the whole of the Earth’s surface. Features are identified by means of signs and symbols, and geographical orientation is indicated.
A map drawn to scale and delineated for lot lines or both, with dimensions or areas and identifying numbers, letters, or names for all delineated lots or parcels.
- The area of common interest in which buyers and seller interact.
- The collective body of buyer and sellers for a particular product.
Market adjustment factors
Market adjustment factors, reflecting supply and demand preferences, are often required to adjust values obtained from the cost approach to the market. These adjustments should be applied by type of property and area and are based on sales ratio studies or other market analyses. Accurate cost schedules, condition ratings, and depreciation schedules will minimize the need for market adjustment factors.
A study of real estate market conditions for specific types of property.
Market value is major focus of most real property appraisal assignments. Market value has been defined by the State Supreme Court as “the price in a competitive market a purchaser, willing but not obligated to buy, would pay an owner, willing but not obligated to sell, taking into consideration all legal uses to which the property can be adapted and might reasonably be applied.”
The price refers to the current value of the property as it stands today, which may be significantly different than what was paid for the property at another point in time or in different condition or use.
The process of valuing a group of properties as of a given date, using standard methods, employing common data, and allowing for statistical testing.
Mass appraisal model
A mathematical expression of how supply and demand factors interact in a market.
Mileage, mill rate
Millage is another term for tax rate, expressed as tax dollars per thousand dollars of assessed value. City Council sets the tax rates for the City and school district, which are then applied to the assessment to determine the taxes due. In cases where the entire assessment is not taxable, such as properties with abatements or exemptions, the tax rate is applied only to the taxable portion of the assessment.
- A representation of how something works.
- For purposes of appraisal, a representation (in words or an equation) that explains the relationship between values or estimated sale price and variables representing factors of supply and demand.
The development of adjustments, based on market analysis, that identifies specific factors with an actual effect on market value.
The formal development of a model in a statement or equation, based on data analysis and appraisal theory.
Multiple regression, multiple regression analysis (MRA)
A particular statistical technique, similar to correlation, used to analyze data in order to predict the value of one variable (the dependent variable), such as market value, from the known values of order variables (called “independent variables”), such as lot size, number of rooms, and so on. If only one independent variable is used, the procedure is called simple regression analysis and differs from correlation analysis only in that correlation measures the strength of relationship, whereas regression predicts the value of the other. When two or more variables are used, the procedure is called multiple regression analysis.
- The environment of the subject property that has a direct and immediate effect on value.
- A geographic area (in which there are typically fewer than several thousand properties) defined for some useful purpose, such as to ensure for later multiple regression modeling that the properties are consistent and share important locational characteristics.
The income expected from a property after deduction of allowable expenses.
Net income multiplier
A factor expressing the relationship between value and net operating income; the reciprocal of overall rate.
Non-profit tax exemption
Non-profit organizations typically perform activities and provide valuable services that benefit Philadelphians, and therefore, can become tax exempt.
A freely competitive market in which any buyer or seller may trade and in which prices are determined by competition.
Overall rate (OAR)
A capitalization rate that blends all requirements of discount, recapture, and effective tax rates for both land and improvement; used to convert annual net operating income into and indicates overall property value.
A contiguous area of land described in a single legal description or as one of a number of lots on a plot; separately owned, either publicly or privately; and capable of being separately conveyed.
A code, usually numerical, representing a specific land parcel’s legal description. The purpose of a parcel identifier is to permit reference to legal descriptions by using a code of uniform and manageable size, thereby facilitating record-keeping and handling. Also called parcel identification number.
Consists of every type of property that is not real property. Personal property is movable without damage to itself or the real estate and is subdivided into tangible and intangible.
Price, adjusted sale
The sale price that results from adjustment made to the stated sale price to account for the effects of time, personal property, atypical financing, etc.
- The actual amount of money exchanged for a unit of goods or services, whether or not established in a free and open market. An indicator of market value.
- Loosely used synonymously with “offering “or “asking” price. Note: The sale price is the “selling price” to the vendor and the “cost price” to the vendee.
- An aggregate of things or rights to things. These rights are protected by law. There are two basic types of property; real and personal.
- The legal interest of an owner in a parcel or thing.
Property record card (form)
An assessment document with blanks for the insertion of data for property identification and description, for value estimation, and for property owner satisfaction. The basic objectives of property record forms are:
- to serve as a repository of most of the information deemed necessary for identifying and describing a property, valuing a property, and assuring property owners that the assessor is conversant with their property; and
- to document property appraisals. Use of properly designed property record forms permits an organized and uniform approach to amassing a property inventory.
The property tax rate to be applied is specified in the budget or tax levy ordinance of a taxing jurisdiction, as opposed to the usual situation in which the total revenue to be raised is specified and the rate is calculated.
A study of the relationship between appraised or assessed values and market values. Indicators of market values may be either sales (sales ratio study) or independent “expert” appraisals (appraisal ratio study). Of common interest in ratio studies are the level and uniformity of the appraisals or assessments. See also “level of appraisal” and “level of assessment.”
The physical parcel of land and all improvements permanently attached.
Real property is commonly referred to as real estate and includes the land and improvements on the land (such as a home or garage). Real property does not include your personal property (such as a car or furniture).
The mass appraisal of all property within an assessment jurisdiction accomplished within or at the beginning of a reappraisal cycle. Also known as a “revaluation” or “reassessment.”
- The period of time necessary for a jurisdiction to have a complete reappraisal. For example, a cycle of five years occurs when a jurisdiction is reappraised over a five year period and also when a jurisdiction is reappraised all at once every five years.
- The maximum interval between reappraisals as stated in laws.
A property reassessment is a reevaluation of real property in Philadelphia with the goal of ensuring that all property values are in compliance with state statutes, applicable laws, and industry standards.
The final step in the valuation process wherein consideration is given to the relative strengths and weakness of the three approaches to value, the nature of the property appraised, and the quantity and quality of available data in formation of an overall opinion of value (either a single point estimate or a range of value). Also referred to as “correlation.”
A reappraisal of property; especially a complete reappraisal of real property after assessment for one or more years on valuations most (or all) of which were established in some prior year.
The degree to which measures are free from random error and therefore yield consistent results on repeated trials.
Replacement cost, replacement cost new
The cost of constructing a new property, reasonably identical (having the same characteristics) with the given property, excepting any observed physical depreciation, design, and quality of workmanship, computed on the basis of prevailing prices and on the assumption of normal competency and normal conditions.
Only the physical depreciation and economic obsolescence need to be subtracted to obtain replacement cost new less depreciation (RCNLD).
A property used for housing such as single-family residences, duplexes, or apartment buildings.
The difference between an observed value and a predicted value for a dependent variable.
A method of arriving at the unknown value of a property component by subtracting the known values of other components from a known overall value.
- Consideration by a board of review, or a court, of individual property class, or district assessments, whether for the purpose of adding omitted taxable property, removing exempt property, or equalizing the valuations placed on listed property.
- The act or process of critically studying a report, such as an appraisal prepared by another.
A file of sale data.
Sale, arm’s length
A sale in the open market between two unrelated parties, each of whom is reasonably knowledgeable of market conditions and under no undue pressure to buy or sell.
Sales comparison approach
One of three approaches to value the sales comparison approach estimates a property’s value (or some other characteristics such as its depreciation) by reference to comparable sales.
- Information about the nature of the transaction, the sale price, and the characteristics of a property as of the date of sale.
- The elements of information needed from each property for some purpose, such as appraising properties by the direct sales comparison approach.
Sales ratio study
A ratio study that uses sales prices as proxies for market values.
Single property appraisal
Systematic appraisal of properties one at a time.
Characteristics of (and data that describe) a particular property, land size, shape, topography, drainage and so on, as opposed to location and external economic forces.
A property adapted for a single use.
To divide, for purpose of analysis, a sample of observation into two or more subsets according to some criterion or set of criteria.
A class or subset that results from stratification.
A group of properties within a class, smaller than the class, usually (although not necessarily) defined by stratification rather than by sampling.
The property being appraised.
Having the quality of requiring judgment in arriving at an appropriate value.
Provision within a statute creating a law or agency and providing for the automatic termination of that law or agency at fixed date in future.
Economic costs or losses resulting from the imposition of tax. Burden can be determined only by detailed economic analysis of all economic changes resulting from the tax. In popular usage, the term often refers to the initial incidence rather than ultimate economic costs.
Tax increment financing (TIF)
The ideal that property taxes, or other revenue, resulting from the increase in a tax base (for example, property values or retail sales) in a specific area can be used to repay the cost of investment in that area.
Three approaches to value
A convenient way to group the various methods of appraising a property.
- The cost approach encompasses several methods for estimating replacement cost new of an improvement less depreciation plus land value.
- The sales comparison approach estimates values by comparison with similar properties for which sales prices are known.
- The methods included in the income approach are based on the assumption that value equals the present worth of the rights to future income.
Time-adjusted sale price
The price at which a property sold, adjusted for the effects of price changes reflected in the market between the date of sale and the date of analysis.
Adjustments in the values of variables for the effects of time. Usually used to refer to adjustments of assessments intended to reflect the effects of inflation and deflation.
A figure representing the increase in cost or selling price over a period of time. Trending accounts for the relative difference in the values of a dollar between two periods.
Uniform Standards of Professional Appraisal Practice
Annual publication of the Appraisal Standards Board of The Appraisal Foundation: “These Standards deal with the procedures to be followed in performing an appraisal review, or appraisal consulting service and the manner in which an appraisal, appraisal review, or appraisal consulting services is communicated… Standard 6 establishes requirements for the development and reporting of mass appraisals of a universe of properties for ad valorem tax purposes or any other intended use” (The Appraisal Foundation, Appraisal Standards Board 2002, Preamble, p. 6).
The equality of taxation in the method of assessment.
Unit of comparison
A property as a whole or some smaller measure of the size of the property used in the sales comparison approach to estimate a price per unit.
- A grouping of properties based on their use rather than, for example, their acreage or construction.
- One of the following classes of property; single-family residential, multifamily residential, agricultural, commercial, industrial, vacant land, and institutional /exempt.
- Any subclass refinement of the above – for example, townhouse, detached single-family, condominium, house on a farm, and so on.
- The value of property in a specific use.
- Property entirely used for a specific purpose or use that may entitle the property to be assessed at a different level than others in the jurisdiction. Examples of properties that may be assessed at use value under the statutes include agricultural land, timberland, and historical sites.
See “Uniform Standards of Professional Appraisal Practice.”
- The process of estimating the value—market, investment, insured, or other properly defined value—of a specific parcel or parcels of real estate or of an item or items of personal property as of given date.
- The process or business of appraising, of making estimates of the value of something. The value usually required to be estimated is market value.
The specific date as of which assessed values are set for purposes of property taxation. This date may also be known as the “date of finality.”
A representation in words or in an equation that explains the relationship between value or estimated sale price and variables representing factors of supply and demand.
- The relationship between an object desired and a potential owner; the characteristics of scarcity, utility, desirability, and transferability must be present for value to exist.
- Value may also be described as present worth of future benefits arising from the ownership of real or personal property.
- The estimate sought in a valuation.
An item of observation that can assume various values, for example, square feet, sales prices, or sales ratios. Variables are commonly described using measure of central tendency and dispersion.
To check the accuracy of something. For example, sales data may be verified by interviewing the purchaser of property, and check digits may verify data entries.