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HomeMy WebLinkAbout2007_Schedule_Reval_Manual_Appendix2 ScheduleofValues,Standards,andRules Appendix2-GlossaryandAssociatedBusinessRules New Hanover County, North Carolina Effective January 1, 2007 Appendix 2 - GlossaryPage 1 From time to time the Tax Administrator of New Hanover County may deem it necessary to add one or another definition or appraisal policy (expressed as a business rule) contained in this Schedule of Values, to address unforseen situations. All such new definition and policy are hereby incorporated into this Schedule of Values except that no new policy may negatively affect the integrity of (equality among) the valuations arising from the implementation of and continuing use of this Schedule, as approved. ACCESS (Microsoft Product) Microsoft Access is a database program. The appraisal staff are generally knowledgeable of this PC based package and management is adept in developingqueries and specialized tools ad hoc for appraisal, management, and quality control purposes. No other single program, including the CAMA system or ORACLEtools can match the power/efficiency this inexpensive ad hoc package provides the ?end user?. ADDN The name of the ORACLE table that stores residential building addition records. ADDN stands for residential building. Additions AGVAL The name of the ORACLE table that stores agricultural value records. AGVAL stands for . Agricultural Values AIR CONDITIONING The air in a building is actively cooled by permanently attached mechanical device(s), which may also provide heat to building occupants. Devices that may be temporarily placed in a wall or ceiling opening do not qualify the building as having conditioned air. (Alternate Key) ALT KEY A previous software system generated a sequential number upon parcel creation. For historical purposes only, this seven digit number will remain with parcels created in this prior system. The will no longer be generated for parcels created after conversion to the new system (2006). Alt Key ANCHOR STORE, HARDY FINISH This is a commercial building STRUCTURE and USE which is anchor store space for Community Retail Centers. This space is usually occupied by such high traffic retailers as grocery stores, pottery stores, drug stores, et cetera who require minimal in community centers but hardy interior finish. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. Page 2New Hanover County Tax Office ANCHOR STORE, FINE FINISH This is a commercial building STRUCTURE and USE which is large, upscale retail space and good interior finish (Department Store). This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. APRVAL The name of the ORACLE table that stores the CAMA module?s value estimates from the Cost Approach, Income Approach, and Market Approach, and provides an appraiser override feature. APRVAL stands for . Appraised Values APPLICATION (Program) ?...a program (as a word processor or a spreadsheet) that performs one of the major tasks for which a computer is used...? IAS has a major database, several major Webster?s Collegiate Dictionary modules, numerous sub-modules, and two separate interfaces but is also an ?application?. APPRAISER CONTRADICTION The definitions and business rules expressed in thisprovide the only Schedule of Values acceptable standard for describing a given property to the county?s CAMA system. Appraiser arises when at least one staff appraiser develops and uses his or her own standards, contradiction thereby contradicting the work of the other staff appraisers. This is NOT a good thing... ASMT The name of the ORACLE table that stores values from the Real and Personal Property appraisal modules, and applies any exemptions to arrive at . ASMT stands for . Taxable ValueAssessment ASSESSED VALUE In North Carolina, ?Assessed Value? is the same as ?Market Value. If a parcel is appraised for a Market Value of $100,000, the Assessed Value is also $100,000. However to say that a parcel has been ?assessed? means that someone has specifically done a Change Action on the administrative module?s ASMT Screen, which moves the value from the appraisal module. ASSESSMENT LEVEL The state-mandated percentage to be multiplied by the market value estimate, however derived. For real estate and personal property in North Carolina, the assessment level is 100%. If your property is appraised for $100,000, your assessed value is $100,000 ($100,000 X 1.00). ASSESSMENT RATIO STUDY A statistical tool used by appraisers to measure the assessment level in a county. Each arms- length sale, and each sold parcel's assessed value, is part of the market-selected statistical sample. Appendix 2 - GlossaryPage 3 First, the ratio of assessed value to sale price is calculated by dividing the assessed value of the parcel by the sale price of the parcel. This gives the parcel's assessment ratio. Second, standard statistical analysis is applied to all assessment ratios (one ratio per sale, not per parcel). This is the only measure of the quality of the appraisal effort for the year both in terms of the Assessment Level and Uniformity of Assessments. See TAX ROLL, SEGREGATION. ATTIC FINISH The rate tables assume that residential buildings with any fractional story height contains living space above the main heated areas. Business Rule: If a house has an elevated roof pitch and/or dormers but was constructed using a roof truss system that cannot be used (even for dry storage), charge the DWELDAT record with Unfinished Area (removes the finish). See STORY HEIGHT and ROOF PITCH. AUTOMOTIVE SERVICE GARAGE This is a commercial building USE which defines an automotive service garage that is not part of a full service dealership. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. AUTOMOTIVE FULL SERVICE DEALER This is a commercial building USE which defines a full service dealership. This code has an influence on the Cost Approach, and the Income Approach. Use this code to define any building For example, an on-site building used only as a body engaged in more than a service function. shop is a ?service garage?. Also please refer to the discussion of Net Operating Income below. BALCONY A balcony is an interior ?bridge? or other ?mezzanine? space overlooking BASE area, or it is a cantilevered exterior ?deck? (one whose supports do not reach the ground). BAR / LOUNGE This is a commercial building STRUCTURE and USE which has an influence on the Cost Approach, and the Income Approach. Code the space for bar and/or lounge when it was designed as such (and specifically is not logical former or future retail space, as in a retail Also please refer to the discussion of Net Operating Income above. center). BASE AREA Also called Living or Heated Area (see BUILDING ADDITION). Page 4New Hanover County Tax Office BASEMENT AREA In New Hanover County, with its high underground water table, discourages excavated basements (but they do exist). Therefore we have defined three types of residential basement: (1) Excavated (the hole is lined with poured concrete walls or concrete block walls, and floored); (2) Pilings (typical of newer ?beach construction?); and (3) Concrete Block , (typical of the older ?beach construction?, split-level and bi-level designs). Use the ?Basement Finish? field to denote living area in these sub-main-floor areas. A "furnace room" excavation with dirt walls (dirt and/or concrete floor) should not be picked up as a basement, for any quality of residential or commercial structure. Baths: HALF The count of 2 fixture baths. The lump sum cost per bath is modified by the Quality Grade modifier and is depreciated with the building. Baths: FULL The count of 3 fixture baths, otherwise known as a ?Full Bath?. The lump sum cost per bath is modified by the Quality Grade modifier and is depreciated with the building. Baths: EXTRA FIXTURE The count of ?extra? fixtures, to include hot water heater, kitchen or bathroom sink, etc. The lump sum cost per fixture contribution to building RCN will be modified by the Quality Grade modifier and is depreciated with the building. BEDROOM COUNT The count of bedrooms. This data does not affect the value produced by the Cost Approach. However "bedroom count" is a potential adjustment item in the Market Approach, so this data needs to be accurately and zealously collected. BIG BOX / DISCOUNT DEPARTMENT STORE This is a commercial building STRUCTURE and USE which is large retail space with high ceilings and minimal interior finish. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. BUILDING A building is a residential or commercial structure that has living (heated) area. While some (such as detached garages) are certainly ?buildings? to the Other Buildings and Yard Items layman, they are not "buildings" to the CAMA system. The market simply does not treat these structures the same as it does "normal" structures built to enclose living or working space. Appendix 2 - GlossaryPage 5 Building Addition: LIVING (or BASE) AREA, or NON-LIVING AREA A building must have one main living (heated) area. Most structures also have attached amenities as porches, decks, and/or garages or in the commercial world, canopies. Such amenities must be defined as building additions if the appraiser's intention is to depreciate the porch, deck, garage, or canopy with the building. BUSINESS RULE A defines or constrains one aspect of our business, appraisal, and is intended to Business Rule assert structure on, control over, or otherwise influence how we appraise real estate. Business rules must be well indexed in documentation and will have built-in Quality Control measures. Business rules often focus on control issues. For example: ? Split-level structures must be listed as being a one story structure with a ?concrete block? basement... .? Business rules may pertain to value calculations. For example: ?All parcels in Neighborhood will be appraised ?per Lot?. 2222 Some Business rules focus on policy. For example: ?Mobile Homes that are real estate will be flagged in two separate fields: (1) (for reporting purposes); (2) . Property Class Building Style CALP This is an acronym for(module). Computer Assisted Land Pricing CAMA This is an acronym for(system). Computer Assisted Mass Appraisal COMAPT The name of the ORACLE table that stores an inventory of rental apartments for the Income Approach. COMAPT stands for (inventory). Commercial Apartment COMDAT The name of the ORACLE table that holds commercial building records. COMDAT stands for . Also see COMFEAT, COMINTEXT. Commercial Data COMFEAT The name of the ORACLE table that holds commercial building feature records. COMFEAT stands for . Commercial Features COMINTEXT The name of the ORACLE table that stores commercial building section records and other, Page 6New Hanover County Tax Office similar building attributes. COMINTEXT stands for . Commercial Interior/Exterior COMMUNITY RETAIL CENTER This is a commercial building STRUCTURE and USE which is for retail space that has occupied anchor store space designed into the center. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. COMP In the Market Approach, an appraiser must find parcels comparable to the ?subject? parcel that have sold. These comparable sales are known as COMPs. COMUSE The name of the ORACLE table that stores ?use? information about a commercial parcel (for the Income Approach). COMUSE stands for . Commercial Use CONDITION, DESIRABILITY, and UTILITY (CDU) This is the appraiser's notation of the condition of the residential or commercial building, followed by the building?s desirability and utility to the market. It, together with or Year Built , will govern the amount of Physical Depreciation applied to a building. Effective Year Built Condition, like Quality Grade, should have a County-wide definition which does not change for: 1.(of Construction) - As structures or different Quality Grades are viewed, one Quality shouldnot think "Well... the CDU is average for a building of this quality."; 2. - As structures of different effective ages are viewed one should not think Effective Age "Well... the CDU is average for a building of this age."; 3.- View structures in different neighborhoods (locations) using the same County- Location wide definition of . Condition, Desirability, and Utility Some people have an unfortunate tendency to confuse and. The quality of ConditionQuality construction is set during original construction or during a major remodeling effort (rebuilt from the bone structure out). (of original construction) does not change because a structure is Quality in poor , even if the structure is literally falling down. Condition COST APPROACH The Cost Approach is one of three methods appraisers may use to estimate value (not every parcel is a candidate suitable to apply all three methods). Also see MARKET and INCOME. As a staff appraiser describes a building to the county?s CAMA system, the Cost module automatically generates an estimate of value via the Cost Approach. The CAMA system estimates the value of a given parcel?s improvements via the Cost Approach Appendix 2 - GlossaryPage 7 by calculating the value associated with every descriptive attribute for Replacement Cost New each building or OBY item. The CAMA system then ?looks up? and applies the depreciation of each improvement to calculate its . The CAMA Replacement Cost New Less Depreciation system then adds land value previously calculated in the CALP module. CULTURAL FACILITY This is a commercial building STRUCTURE and USE which is for museum-like space, almost but not quite institutional in nature. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. DEPRECIATION In the Cost Approach, an appraiser may observe up to three kinds of depreciation to measure a building?s loss in value (from ). They are: Replacement Cost New 1. - Bone structure aging, condition of the structure, and the typical Physical Deterioration effective age in the given neighborhood are components of this type of depreciation; 2. (FO) - Functional problems within the structure, such as dysfunctional unctionalbsolescence FO floor plans. Appraisers measure and enter FO as a percentage for this type of depreciation; 3. (LO or EO) - Locational problems, defined as ocational (or conomic)bsolescence LEO problems that arise outside of the parcel's borders such as an adjacent junk yard or major road. Appraisers measure and enter LO (EO) as a percentage for this type of depreciation. The appraisal software ?looks up? the estimate of physical building depreciation from appraiser's entries in the or and (CDU) fields. It applies the Year Built Effective Year BuiltCondition percentage found to the Replacement Cost New of all ?building? and its ?additions?. Functional or Locational (Economic) Obsolescence must be manually entered from an appraiser's observation of the property in question. The appraisal software then uses the entered percentage to ?add to? the amount of Physical Depreciation for both residential and commercial buildings. See PHYSICAL DETERIORATION, FUNCTIONAL and LOCATIONAL OBSOLESCENCE. DRY STORAGE This is a commercial building USE which is for space that was not designed for warehousing purposes. Except for Roofed Rack type of storage space, this USE code is intended to describe space whose only remaining use, as long as the roof continues to keep water out, is for storage. This code has an influence on the Cost Approach, and the Income Approach. DWELDAT The name of the ORACLE table that holds residential building records. DWELDAT stands for . Dwelling Data Page 8New Hanover County Tax Office (Residential and Commercial) ECONOMIC OBSOLESCENCE Locational problems, defined as problems that arise outside of the parcel's borders such as an adjacent junk yard, are measured and entered into the appraisal software as a percentage for this type of depreciation. (See the discussion under DEPRECIATION.) Economic Obsolescence (EO) is typically measured by capitalizing the rent loss arising from the problem. Apply EO evenly across all affected parcels as a percentage. Be roughly aware of the dollar amount of change in the appraised value to help gain the correct percentage. Taper the percentage used as the distance from the source of the problem increases. ALWAYS know the dollar change in value arising from applying EO to a Business Rule: building, being certain the percentage used addresses the problem sufficiently but does not overstate the cure, and ALWAYS explain any applied EO thoroughly in notes. Also, see PHYSICAL CURABLE DETERIORATION. EFFECTIVE YEAR BUILT The of a building is one of two major factors in the amount of physical depreciation Year Built for the building. The entry will override the building?s ?actual year built?. Effective Year Built In a building?s early years effective age and actual age are roughly synonymous. As the building ages, Effective Age becomes more and more relative to where the parcel?s neighborhood is in its , and somewhat relative to the condition of the structure. Together, the neighborhood?s life cycle life cycle position and building condition are always related to the effective age estimate (as inferred from or). Year Built Effective Year Built To clarify the above paragraph's statement, ask the age-old appraiser's question: ?How can I say this building has an effective age of ?fill in the blank? when is 50 years and the Life New building is already 150 years old?". The answer lies in the following "formula" (also see the definitions for LIFE NEW and REMAINING ECONOMIC LIFE). Life New = Effective Age + Remaining Economic Life This formula must always contain a true statement. is the stable, unchanging "constant" Life New value in the formula while andare mathematically Effective Age Remaining Economic Life "complementary" numbers. That is, always stays the same while must Life New Effective Age change if changes, and vice versa. Remaining Economic Life For example, as a building ages, it becomes more and more difficult to estimate its . Effective Age The decision should then revolve about the of the structure. Remaining Economic Life If given: = 50 Years for a given type of residential (or commercial) building Life New = 20 Years Remaining Economic Life Appendix 2 - GlossaryPage 9 Then the formula (and logic) demands: = +. Life NewEffective Age Remaining Economic Life 50 Years = + 20 Years Effective Age (Remaining Economic Life) 50 Years = 30 Years + 20 Years (Effective Age)(Remaining Economic Life) = 30 Years Effective Age The estimate of 50 years is the same for all similar buildings in the county and does not Life New change from neighborhood to neighborhood. The appraiser's estimate of 20 years for Remaining is based, in part, upon observation of and Economic Life the neighborhood's place in its life cycle the surrounding land use patterns. It is also based, in part, upon observation of the condition of relative to the condition of other buildings in the neighborhood. the house in question END USER End user is a non-technical term employed by the staff of an Information Technology department to identify those they serve. The typical end user is an expert in their field of endeavor. It is the end user?s job to know what software tools are needed, and how to use them to accomplish the job at hand. It is, therefore, the job of the Information Technology department to create and/or otherwise obtain and maintain the tools and required infrastructure at peak operational efficiency. ENTER The name of the ORACLE table that stores records relating to any on-site visits to a given parcel by an appraiser. ENTER stands for data. Entrance F TEST The is a ratio of that art of the sum of the squares accounted for by the regression F-statistic equation to the residual (that part of the sum of the squares not accounted for by the regression equation). We can consider our ?fit? to be better as the increases. The level of F-statistic certainty, a concept to be here accepted as a ?given?, increases to 98% as the increases F-statistic to 8.0. The has essentially the same significance, except in this case it tries to partial F-statistic assess the significance of a single term in the model rather than all the terms taken together. FEE APPRAISER A FEE appraiser appraises to solve a problem for the owner, or prospective owner, such as financing - one parcel at a time. One major difference between the MASS appraiser and the FEE appraiser is the amount of time available to appraise each individual parcel. A fee appraiser will spend as much time as required to understand and appraise a highly unique property while the mass appraiser must, of necessity, spend far less time appraising the same unique property. A second major difference arises from the fact that a FEE appraiser does not usually have to consider any appraisal work done on surrounding parcels when estimating the value of a parcel. Page 10New Hanover County Tax Office On the other hand, equity between appraisals is critical for the MASS appraiser. FEE SIMPLE To appraise a parcel for market value is to assume that all rights of real ownership are fee simple intact and vested in the owner-of-record (except as permanently limited by powers of the state). FENESTRATION The arrangement, proportioning, and design of any openings in a building?s envelope (windows, doors, skylights, soffits, archways, etc.) and accessories, or supplementary elements to a building. By our definition ?fenestration? includes, but is not limited to, such accessories or supplementary building elements as shutters, cornices, pilasters, lace-work, moldings, and built-in cabinets. FIREPLACES The count of fireboxes (openings) and chimneys (stacks). A fireplace is a metal prefabricated opening and, in most cases, a metal flue inserted into a wooden stack (a vent-free gas unit may not have a stack). A masonry stack is a normal fireplace. This field is not a required entry. Record the accurate count of openings and/or stacks for fireplaces (masonry or Business Rule: prefab). If the fireplace is closed off, determine the reason and enter sufficient Functional Obsolescence to account for the cost to return the fireplace to functional service. Do not write the fireplace?s contribution completely off via FO unless the stack must be replaced from the ground up. Always explain any applied Functional Obsolescence thoroughly in notes. FLEX SPACE This is a commercial building USE which is designed to be flexible (the tenant can use the space in many different ways including but not limited to retail, light manufacturing, and office uses. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. FUNCTIONAL OBSOLESCENCE (FO) Appraisers measure functional problems within a structure, and enter an amount of Functional Obsolescence (as a percentage) to address the issue. Functional Obsolescence (FO) include such problems as dysfunctional floor plans for residential structures and ceiling height too low for fork lifts to be used in warehouse structures. Because we use the appraisal concept of Replacement Cost New (versus Reproduction Cost New), most items of depreciation that are normally defined as Incurable Functional Obsolescence are not in the building?s Replacement Cost New. The appraiser must always be aware of the dollar amount of change in the appraised value to apply gain the correct percentage and fully document the reasons for the application of Functional Obsolescence. ALWAYS know the dollar change in value arising from applying FO to a Business Rule: Appendix 2 - GlossaryPage 11 building, being certain the percentage used addresses the problem sufficiently but does not overstate the cure, and ALWAYS explain any applied FO thoroughly in notes. Also see PHYSICAL CURABLE DETERIORATION and DEPRECIATION. GFLA Ground Floor Living Area GOALS OF THE NEW HANOVER COUNTY TAX DEPARTMENT Under N.C.G.S. 105-322 (g) (1) the is to ?review the Tax Board of Equalization and Review Lists ... to the end that all taxable property shall be ... appraised according to the standard required by N.C.G.S. 105-283....? The goal of the Tax Department, then, is to handle this duty in the most fair and equitable manner possible (so there are no problems for the Board to find). i.e.: 1.Review the appraised value of all real estate in the county (roughly 95,000 parcels) as of January 1 each year formarket value, as defined in North Carolina law. fee simple See MARKET VALUE for the definition according to N.C.G.S. 105-283. 2.Discover and value all unlisted real estate as of January 1 each year. 3.Hear all appeals where the owner disagrees with the Appraisal Division?s estimate of value, or where the owner feels the value is discriminatory in some way. When an owner appeals, the appraiser must come to a supported (documented) conclusion of value taking into account all pertinent factors as the real estate market treated them for the revaluation cycle. The appraiser?s decisions will not necessarily be for the same factors, or in exact dollar amounts important to (or suggested by) the owner. Where market facts do not support the appraiser?s value, the appraiser will give the benefit of any doubt to the appellant. While the appraiser will not present the case should the appeal move upward to the Board of the appraiser must defend his previously supported opinion of Equalization and Review, value by preparing the case, to the best of his or her ability, under the guidance of the Appraisal Supervisor. With few exceptions, there should be no second ?15 Day Letters?. (Residential and Commercial/Industrial) HIGHEST AND BEST USE That reasonably probable and legal use of vacant land, or improved property, which is physically possible, financially feasible, and which results in the highest possible land value. In most, but not all, situations the appraisal staff will assume that the of a parcel will present use represent its . For example, assume that an owner of a residential structure highest and best use that is zoned for commercial use and that is surrounded by commercial development continues to live in that residence. The of such a parcel will not be assumed to be residential use. present use In the example?s situation the land will be appraised, as though vacant, for its highest and best as a commercial site. The residential structure will clearly represent a mis-improvement of use the land, and will be valued according to its negligible contribution to the value of the whole Page 12New Hanover County Tax Office property. See MIS-IMPROVEMENT The Highest and Best Use of vacant land is dictated by the permanent zoning Business Rule: (or with the existence of temporary zoning-in-force, by the most likely permanent zoning) in force on the Effective Date of Appraisal. A property may be considered as under temporary zoning if the use of the land is tightly restricted to only one named use and owner is required to go through the entire zoning process to put the parcel to any other use. The appraiser will consider the cost of re-zoning the property to its most likely permanent zoning-in-force and the effect of the passage of time between January 1, 2007 and the time the likely date of such a change. IAS The appraisal and administrative software used by the Tax Administrator. The graphic on the following page displays these two modules of IAS and the flow of values through the system. INCOME APPROACH The Income Approach is one of three methods appraisers may use to estimate value (not every parcel is a candidate suitable for using all three methods). Also see COST and MARKET. The Income Approach estimates the total value of a given parcel by modeling the decisions of the typical investor in a given type of property. The Income module calculates the Net Operating associated with every part of the parcels capable of generating income. Income The CAMA system then applies a suitable to the Net Income via formula: Capitalization Rate . This is the same formula used to calculate the total Value = Net Operating Income / Cap Rate amount of money in a bank savings account if one knows the dollar amount of interest and the interest rate paid by the bank (). Principal = Interest Dollars / Interest Rate The Income Approach, therefore, is a Feasibility Study which guides investor decision making. It advises: ?An investor cannot pay more than ?Value? and still meet the investment goals of the typical investor (a component of the market-driven Capitalization Rate in the models).? The Income module will divide each parcel?s estimate of total value into Land Value, Building Value, and OBY Value as follows: Total Value (via the Income Approach) less Land Value (via the CALP module) less OBY Value (via the Cost module) Building Value (via the Income Approach) Residual Land is that part of a parcel?s land area that is not currently engaged Business Rule: in generating income for the owner. The appraiser must identify all such land and use the appropriate Land Code in the CALP module to describe such ?inactive? land. If the estimate of Total Value for a given parcel (via the Income Approach) is Business Rule: less than the land value for that parcel via the CALP module, the appraiser must carefully check and adjust all components of the Income and CALP modules. Page 14New Hanover County Tax Office Should the Income module?s Total Value remain equal to or below the estimate of land value after close review, the structure(s) on the land will represent an economic mis-improvement to the land. The appraiser will apply sufficientFunctional Obsolescence to recognize the existence of the improvements with a residual value (and very carefully note the reason). INTERFACE ?... to interact or coordinate harmoniously...? Webster?s Collegiate Dictionary As used in these Appendices, ?interface? means a collection of computer screens that enable the end user to view, understand, and maintain data in IAS (the public will have inquiry-only access). INTERIM USE The real estate market may not be ready to support an expensive-to-develop, intensive highest and for vacant acreage in the path of population growth or is otherwise near the border of more best use intensive uses. Rather than allow the property to sit idle, a knowledgeable owner will seek an interim use, one that will produce sufficient income to pay the parcel?stax bill, thus ad valorem eliminating a major holding cost. The best for such vacant land will require minimal interim uses investment in buildings, etc. (which will have to be razed when the market is ready for change). Appraise land in interim use forhighest and best use; recognize a holding period. Business Rule: KNEE WALL Short, vertical finished wall in a bonus room or in finished attic space. Knee walls are usually between three and six feet high. Measure the square footage of for all finished Usable Space attics and bonus rooms. Never measure as in contact with a Knee Wall that is less Usable Space than five feet high. Always measure from an estimated point(s) where the finished ceiling is at least five feet above the floor. Appendix 2 - GlossaryPage 15 LAND The name of the ORACLE table that stores Land Line data for the CALP module. LAND LINE The computer assisted land pricing (CALP) module of the CAMA system allows the appraiser to use multiple ?descriptions? to describe the land of any given parcel. Such a description is called a Land Line. For example, the typical house and its lot only require one Land Line to fully describe the lot. Alternately, a farm may require twenty Land Lines to fully describe the row crop areas, the ?high? wooded areas, the pasture lands, and the swampy areas. LIFE NEW The day a building is completed is the day it begins to age. Like our bodies, the building will reach the end of its life in an unknown number of years. Unlike our bodies, a building is said to have an economic life. That is, most buildings must continually justify its existence to an aware and knowledgeable owner or it will be removed from the land - regardless of age or condition. If we think for a moment, we can all remember buildings in good condition that have been razed or moved to prepare the land for a new use. Conversely, we all know of buildings that have "lived" for centuries. Since an appraiser's crystal ball is increasingly fuzzy into the future, the LIFE NEW of any building cannot logically be projected beyond a few score years. YES, with normal maintenance any given building will physically last longer - but at the outset one cannot predict the new building's neighborhood's life cycle or changes in general land use patterns for the long term. Also see DEPRECIATION, EFFECTIVE AGE, REMAINING ECONOMIC LIFE. LOV ?List of Values? (a list of valid codes for an edited field). MAP ID A unique number which identifies a parcel as originally mandated by statute. This is the main identifier used by the GIS system and is assigned by the Land Records staff. The Map ID is: NNNNNN.NN.NNNN.NNN Where: = The TILE or MAP Number for maps printed from the GIS system; NNNNNN = The BLOCK Number (within SubMap number); NN = The unique LOT Number for the parcel (within Block); NNNN = Decimal Extension Number (used for non-mapped parcels NNN such as condominium and other ?building only? parcels). In New Hanover County, the Land Department maintains all real estate maps, ownership, and Page 16New Hanover County Tax Office Parcel I.D. numbers. Also see PARCEL ID. MARKET: REAL ESTATE Unlike value in the stock market, market value for a given parcel in the real estate market cannot be observed directly. Parcels that have sold are used to infer the true but unknown market value for each parcel, whether it sold or not. Sales prices, therefore, are used as a substitute for market value in sales ratio studies and other analytical work. However: ?One sale does not make a market?. When appraising or appealing individual properties any subject sale (the sale of any appraised parcel) must be one of at least three sales used to analyze the property. This will help clarify whether the purchaser in a subject sale paid too much or too little (got a good deal). MARKET (Sales Comparison) APPROACH The Market Approach is one of three methods appraisers may use to estimate value (not every parcel is a candidate suitable for using all three methods). Also see COST and INCOME. The Market Approach estimates the total value of a given parcel by analyzing sales of similar property and adjusting for differences between the sale and the subject. Each parcel in the county is a ?subject? for the Market Approach. Because the sale price of the comparable property is known while the market value of the subject is not known (until the conclusion of the analysis), the appraiser always adjusts the to the and never vice versa. sale pricesubject parcel The correct mathematical direction for each such adjustment is revealed by the sentence: superior This sale isequalto the subject. inferior If an attribute of the sale is superior to the subject in some way, a downward adjustment of the sale price is appropriate to ?equalize? sale and subject. Likewise if an attribute of the sale is inferior to the subject, an upward adjustment of the sale price is appropriate. For example, assume the sale of a residence has a fireplace while the subject has none. The appraiser must alwaysreduce the sale price to account for the contribution of that fireplace. Of course, if an attribute of the sale is equal to that of the subject, no adjustment is needed. The Market module will divide each parcel?s estimate of total value into Land Value, Building Value, and OBY Value as follows: Total Value (via the Market Approach) less Land Value (via the CALP module) less OBY Value (via the Cost module) Building Value (via the Market Approach) Appendix 2 - GlossaryPage 17 MARKET VALUE N.C.G.S. 105-283 "All property ... shall as far as practicable be appraised or valued at its true value in money ... the price estimated in terms of money at which the property would change hands between a willing and financially able buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of all the uses to which the property is adapted and for which it is capable of being used...? Specifically to address the requirement to appraise all real property equitably, our goal is to appraise all properties in New Hanover County for market value. fee simple MASS APPRAISER A mass appraiser is charged with the responsibility to appraise all parcels in a jurisdiction, usually for ad-valorem taxation purposes. One major difference between the MASS appraiser and the FEE appraiser is the amount of time available to appraise each individual parcel. A second major difference arises from the fact that equity between appraisals is critical for the MASS appraiser. A FEE appraiser does not usually have to consider any previous appraisal work when estimating the value of a given parcel. MILLAGE RATE The root of the word is the Latin word (thousand). Please see . MillageMilleTax Rate MIS-IMPROVEMENT A structure that can be clearly demonstrated to be in conflict with the of Highest and Best Use the land. An example is a house on land zoned for ?high density? commercial use (and located in a neighborhood where such land is scarce). The Highest and Best Use of vacant land is dictated by the permanent zoning Business Rule: (or with the existence of temporary zoning-in-force, by the most likely permanent zoning) in force on the Effective Date of Appraisal. A property may be considered as under temporary zoning if the use of the land is tightly restricted to only one named use and owner is required to go through the entire re-zoning process to put the parcel to any other use. Land rates in the neighborhood are best estimated by analyzing sales of similarly zoned vacant land in the same neighborhood, or a highly similar neighborhood . For mass appraisal purposes, the present use of improved land is considered to Business Rule: be the Highest and Best Use, except where the present use is in conflict with permanent zoning in force on the parcel. A clear example is a residential structure, used as a residence, on land zoned for commercial use and in an area of predominantly commercial uses. Such non-conforming uses are generally permitted under zoning regulations and where not permitted, the use is ?grand fathered?. However continued use as a residence is clearly not the Highest and Best Use of the property. Page 18New Hanover County Tax Office Appraise the land of such property for its Highest and Best Use as though vacant (see Business Rule #1). Appraise the structure according to its contribution, but considering its non- conforming use (which usually means applying significant Locational Obsolescence). And always leave clear notes regarding your reasoning in the file. In cases where the Income Approach clearly demonstrates that a commercial or Business Rule: industrial building(s) is a mis-improvement to the land, the existence of the building(s) must be recognized by placing a sound value (a residual value) on the individual building. MIXED COMMERCIAL / RESIDENTIAL This is a commercial building STRUCTURE which is for a two to four story building that houses retail or office space on the lower floor(s) and has residential space on the upper floor(s). The preponderance of any income stream arises from the building?s commercial uses. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. MIXED RESIDENTIAL / COMMERCIAL This is a commercial building STRUCTURE which is for a five or more story building that houses retail or office space on the lower floor(s) and has residential space on the upper floor(s). The preponderance of any income stream arises from the building?s residential uses. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. MODEL Appraisal management will determine what the county?s most common types of residential and commercial/industrial structure are. As management further researches the most common characteristics for each type of structure and estimates ?cost rates? for each type, it becomes a ?model? for the appraisal software to use in appraising all structures via the Cost Approach. Likewise the Market Approach and the Income Approach both work by a process of modeling the market. A ?model? is NOT a builder?s ?model home? for a given subdivision. MULTIPLE REGRESSION (Mathematical or statistical) ?regression in which one variable is estimated by the use of more than one other variable.? Multiple regression is a tool of the CAMA Webster?s Collegiate Dictionary module used to indications of market value via the Market Approach where sufficient sales exist. NEIGHBORHOOD ?A portion of a larger community, or an entire community, in which there is a homogeneous grouping of inhabitants, buildings, or business enterprises. Inhabitants of a neighborhood usually have a more than casual community of interest and a similarity of economic level or cultural background. Neighborhood boundaries may consist of well-defined natural or man-made Appendix 2 - GlossaryPage 19 barriers or they may be more or less well defined by a distinct change in land use or in the character of the inhabitants.? Real Estate Appraisal Terminology, The American Institute of Real Estate Appraisers, The Society of Real Estate Appraisers, Boyce Neighborhood: APPRAISAL AREAS and Neighborhood MODELS Neighborhood Code is an eight byte, alpha-numeric code. However, the past appraisal system dictated a four byte, numeric only code. That practice continues, but neighborhood codes may be expanded as needed. There are seven appraisal areas, loosely defined as follows: th Area 0:, Smith Creek to Dawson, Cape Fear River to 17 Street Historic Wilmington (Neighborhood Codes = 0001 through 0999); th Area 1: , Smith Creek to Monkey Junction, 17 Street to Eastwood-College Roads Wilmington (Neighborhood Codes = 1001 through 1999); Area 2:, Smith Creek and US 17 to Castle Hayne; Pender to Pender Cape Fear Township County (Neighborhood Codes = 2000 through 2999); Area 3:, Eastwood Road to Pender County, US 17 to the Atlantic Ocean Harnett Township (Neighborhood Codes = 3000 through 3999); Area 4:, south of Snow?s Cut, west side of , Federal Point TownshipMasonboro Township Carolina Beach Road to Cape Fear River, Snow?s Cut to Monkey Junction (Neighborhood Codes = 4000 through 4999); Area 5:East side of , near Snow?s Cut to Oleander Drive, Bradley Creek Masonboro Township to College Road (Neighborhood Codes = 5001 through 5999); Area 6:, follows ?commercial? zoning districts as they occur throughout the county Commercial (Neighborhood Codes = 6001 through 6999). In addition: Area 7: projects, residential and commercial (Neighborhood Codes = 7000 Condominium through 7999 with the second byte reserved for Appraisal Area) Area 8: projects, residential and commercial (Neighborhood Codes = 8000 through Townhome 8999 with the second byte reserved for Appraisal Area) Appraisal Sub-Areas: The second byte of Neighborhood Code further defines the parcel?s location within the appraisal area.. For commercial neighborhoods, this second byte indicates the neighborhood?s ?township?. For example Neighborhood 6302 is the second commercial neighborhood in Area 3 while Neighborhood 7214 is the fourteenth condominium project in Area 2, etc. Neighborhood Models: For simplicity in valuing land and to constrain searches for comparable sales, the staff carefully Page 20New Hanover County Tax Office groups collections of similar neighborhoods into ?neighborhood models?. The Model Code is a four byte, numeric only code. The first two bytes of the Neighborhood Model Code will generally (but not always) indicate which Appraisal Sub-Area the similar neighborhoods are in. If a given neighborhood is more like neighborhoods in an adjoining Sub-Area, the appraiser is free to follow the market. In the third byte of the Neighborhood Model Code (fourth byte for commercial neighborhoods), the appraisal staff has inserted a code that indicates the relative ?hotness? of the group of neighborhoods in the market, as follows: 0 = Ocean(neighborhoods bordering the ocean) 1 = Sound( ? ? ? sound) 2 = Creek ( ? ? ? a salt-water creek) 3 = River ( ? ? ? the Cape Fear River) 4 = Golf( ? ? ? a Golf Course) 9 = ?A?(most desirable, non-recreational group of neighborhoods) 8 = ?B?(next most desirable ? grouping) 7 = ?C?( ? ? ? ? ? ) 6 = ?D?( ? ? ? ? ? ) 5 = ?E?( ? ? ? ? ? ) For residential models, the appraiser is free to use the fourth byte to distinguish one group of neighborhoods of equal ?hotness? from another. For commercial models, the ?hotness? indicator already occupies the fourth byte of the Model Code. In the rare case that two groups of commercial neighborhoods of equal hotness need to be separated, the appraiser is free to use the third byte (which usually indicates the Appraisal Sub-Area) to create a unique model. Neighborhood: BROCHURE (Folder for Models and Neighborhoods) Believing the real estate market is very local in nature, appraisal management has made no mass appraisal decisions that are county wide in nature. Such decisions are local to the Neighborhood or the Neighborhood Model. As the appraiser groups neighborhoods into models and makes such local decisions as land value rates and the change in value due to one or another condition, the decision must be recorded and placed in the neighborhood?s brochure (folder). Neighborhood: LIFE CYCLE ?The life of a neighborhood, usually involving the following stages, varying only in intensity and duration: (1) ; (2) ; and (3) . ?This Development and GrowthStabilityTransition and Decline pattern may be followed by renewal and rehabilitation, at which point the cycle is repeated.? Real Estate Appraisal Terminology, The American Institute of Real Estate Appraisers, The Society of Real Estate Appraisers, Boyce Appendix 2 - GlossaryPage 21 NEIGHBORHOOD RETAIL CENTER This is a commercial building STRUCTURE and USE which is for retail space with anchor store space designed into the center BUT the center has lost its anchor store(s). The anchor space is unoccupied, or has been converted to secondary use. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. NET OPERATING INCOME (NOI) An investor in commercial real estate is constantly judging the ,, and of qualityquantityduration the net income ?stream? a given property is capable of producing. The Investment Rating field on the Commercial Data (COMDAT) screen is where the appraiser recognizes the quality, quantity, and duration of the new income stream. NOI See Net Operating Income. NON-CONFORMING USE A grand fathered or other use of real property which is not permitted under current zoning regulations or under a special use permit. See MIS-IMPROVEMENT. (Commercial Only) NUMBER OF STORIES For commercial buildings, the appraiser will enter the for each section of BASE Story Height area in full story increments. There is no provision for entry of fractional(as in Story Height residential buildings). OBY The name of the ORACLE table that stores OBY data. OBY is an acronym that stands for Other .. Buildings and Yard Items OFF-LINE This technical data processing term is used to denote changes to computer files that occur in a batch. A given program will make the changes while the computer is off-line. This is normal night-time processing and is abnormal for day-time processing. ON-LINE This technical data processing term is used to denote a data entry person sitting at a terminal making changes to computer files. Page 22New Hanover County Tax Office OTHER BUILDINGS and YARD ITEMS (OBY) This term describes such "yard items" as detached garages, swimming pools, and the like. These parcel attributes are entered, costed and depreciated separately from "buildings". OBY values are added to the estimate of Replacement Cost New Less Depreciation of all buildings on the parcel. PP PersonalProperty. PARCEL One individually appraised unit of real estate. A parcel may be a vacant lot, a lot with house, the General Electric, a viable farm, or a 700 acre tract of land awaiting development. PARCEL ID (PID) A unique number which identifies a parcel, originally formulated for the original county maps (on Mylar). This is the identifier used by the appraisal staff and much of the public (although it has little meaning in defining the location of a parcel). For real estate parcels, the Parcel I.D. is: R0NNNN-NNN-NNN-NNN Where: = The Map or Sheet Number from the old Mylar maps; R0NNNN = The BLOCK Number given on the old Mylar maps; NNN = The LOT Number (within block number); NNN = The SUBLOT Number (within lot number). NNN In New Hanover County, the Land Department maintains all real estate maps, ownership, and Parcel I.D. numbers. Since the county moved to the GIS system Parcel ID is a secondary identifier, except that Parcel ID continues to be the key to the maps used by the appraisal staff. See MAP ID. PARDAT The name of the ORACLE table that stores parcel-level data. PARDAT is an acronym that stands for . Parcel Data PARTIAL CORRELATION The partial correlation is a measure of how closely the value of the independent variable or factor (such as the number of full baths), is related to the dependent variable (usually the sales price). The dependent variable is adjusted so that all of the other factors in the model are ?taken out? of the values in order for us to have a measure of how closely this particular variable is related to the remaining dependent variable. Mathematically, its maximum value is one. PERCENT COMPLETE of the Tax Administrator?s Office is to: ?Review the appraised value of all real estate Goal One Appendix 2 - GlossaryPage 23 in the county (roughly 95,000 parcels) as of January 1 each year for market value...?. fee simple Many structures whose construction begins in the Fall will be incomplete on January 1, yet the labor and materials thus assembled will contribute to the value of the parcel . This building-level field gives the reviewing appraiser a place to record their estimate of ?percent complete?on January 1. The system will apply the percentage to the building value for the year in question. PERMIT The name of the ORACLE table that stores building permit data. PHYSICAL DEPRECIATION Loss in value due to physical deterioration of the structure. There are two classes of Physical Deterioration: 1.Curable; and 2.Incurable. Depreciation schedules for Physical Incurable Depreciation, which reflect the real estate market's estimate loss in value of the bone structure of the building, are in Appendix 5. These depreciation schedules are preliminary and may change as appraisal management calibrates the rate ranges in Appendix 5 to the market in New Hanover County. The appraiser must calculate and enter Physical Curable Depreciation as an additional percentage in the Functional Obsolescence field and must list each item of Physical Curable Depreciation together with the item's cost-to-cure directly into the NOTE fields. Also see DEPRECIATION, FUNCTIONAL OBSOLESCENCE, ECONOMIC OBSOLESCENCE. PLUMBING FIXTURE A plumbing fixture is an opening in a wall which allows an appliance access to a water supply line and water or sewer drain line. ?Fixture? includes the appliance that is permanently attached to the building (a clothes washing machine and its connections do not qualify as a fixture). PRINCIPLES OF VALUE ?The following principles, which have evolved from economic doctrine, form the foundation for the concepts of value and highest and best use. These principles rarely, if ever, can be considered in isolation. They should be perceived as interrelated, for they complement and accompany one another (see Figure 2.3). Also, should be viewed not as an economic highest and best use principle or an isolated concept, but as the interrelationship among the basic appraisal principles.? The above paragraph, Figure 2.3, and all following ?principle definitions? are quoted from International Association of Assessing Officers, 1966 Property Assessment Valuation, Page 24New Hanover County Tax Office PRINCIPLE OF ANTICIPATION ?Value is the present worth of all the anticipated future benefits to be derived from a property. The benefits, in the form of an income stream or amenities, are those benefits anticipated by the market. The assessor should not allow personal opinion to influence the estimation of anticipated future benefits. Prior sales and prior income streams are important only when they parallel the current actions of buyers, thus providing an indication of what may be expected in the future. The is related to the , which can Principle of Anticipation Principle of Change sometimes make the prediction of future benefits difficult.? PRINCIPLE OF BALANCE ?Thehas one meaning when applied to an individual property, and another Principle of Balance when applied to neighborhoods. When applied to an individual property, the principle states that maximum market value is reached when the four agents of production attain a state of equilibrium. The four agents of production are: ?land ?labor ?capital ?management(coordination). Appendix 2 - GlossaryPage 25 ?Stated another way, balance means that the highest market value will result when the size and type of improvements are proportional to each other as well as to the land. For example, a three- car garage is out of balance with a two-bedroom house. ?When applied to a neighborhood, the indicates that maximum market Principle of Balance value is reached when the uses of land are perfectly complementary. For example, a single family residential neighborhood requires commercial facilities such as grocery stores, gasoline stations, and drugstores. The neighborhood also needs facilities such as churches, schools, and recreational facilities. The neighborhood and individual properties achieve maximum market value when these complementary uses are in balance. ?Balance can also be related to the When the Principle of Increasing and Decreasing Returns. four agents of production are in equilibrium (balance), the maximum market value is achieved. Investing more (or withdrawing) any of the agents of production will result in decreasing returns.? PRINCIPLE OF CHANGE ?This principle states that market value is never constant because environmental (physical), economic, social, and governmental forces are at work to change the property and its environment. When these forces are in balance, the market achieves a temporary state of rest called equilibrium. However, this state of rest does not last because aging and natural events, such as drought or flooding, change property over time. Thus, the estimate market value is valid only on the day it is made. The is related to the Principle of Change Principle of Anticipation and can affect the prediction of future benefits.? PRINCIPLE OF COMPETITION is created by the potential for profits, which attract new sellers and buyers to a ?Competition market. Competition among sellers may lead to an oversupply, which reduces prices and profits.? () Profits breed competition, excess profits breed ruinous competition. ?Competition among buyers may lead to shortages, which increase prices and profits to sellers. Applied to property, competition means that an excess of one type of facility will decrease the value of all such facilities. A neighborhood can support only so many bowling alleys, department stores, gas stations, and shopping centers. Excess competition destroys balance.? PRINCIPLE OF CONFORMITY ?The value of property depends, to some extent, on its relation to its surroundings. The Principle states that maximum market value is reached when there is reasonable similarity of Conformity among the improvements in a neighborhood, and when the residents have similar ages, incomes, education, attitudes, and so on. The works in conjunction with the Principle of Conformity .? Principles of Progression and Regression Page 26New Hanover County Tax Office PRINCIPLE OF CONSISTENT USE ?Thestates that the property must be value with a single use for the Principle of Consistent Use entire property. It is improper to value a property on the basis of one use for the land and another use for the improvements. This principle is especially important to remember when valuing a property in transition from one use to another. For example, a residence situated on a parcel that is zoned and surrounded by commercial property may have a remaining physical life. However, its economic life may have already ended. In this case, the improvements may have negative value, namely, the cost of demolition.? PRINCIPLE OF CONTRIBUTION ?The states that the value of a component of property depends upon its Principle of Contribution contribution to the whole. In other words, the cost of the component does not necessarily equal the value the component adds to the property. For example, a residential homeowner spends $7,500 to erect a garage. However, the market value is increased by only $5,000. In this case, $5,000 is the value contribution to the garage. ?In the case of income-producing properties, the value of a component can be measured by the amount it contributes to net operating income, because net operating income can be capitalized into value. For example, the owner of a small retail store finds that by spending $6,000 for an air-conditioning unit, annual gross income from rents can be increased by $1,800. Additional operating expense due to the air-conditioning unit will be only $1,200, including amortizing the investment. Thus, installing this unit will add value in excess of cost. ?Another situation that occurs, especially in areas experience in transition, is that the existing improvement does not provide a proper balance for the total property, because the current use does not fully utilize the land. However, this interim use may continue until it is economically feasible for someone to convert the property to a use that does fully utilize the land. Thus, the assessor must estimate the correct value contributed by the improvements to the property as a whole. ?The is the basis for the adjustment process in the sales comparison Principle of Contribution approach to value (see chapter 6); for determining whether physical deterioration and functional obsolescence are curable or incurable (see chapter 8); and for justifying remodeling and modernization. The is related to the , Principle of Contribution Principles of BalanceIncreasing , and , as shown in the examples provided.? and Decreasing ReturnsSurplus Productivity Appendix 2 - GlossaryPage 27 PRINCIPLE OF INCREASING AND DECREASING RETURNS ?The states that when successive increments of Principle of Increasing and Decreasing Returns one agent of production are added to fixed amounts of the other agents, future net benefits (income or amenities) will increase up to a certain point (the point of decreasing returns) after which successive increments will decrease future net benefits. For example, assume an investor is deciding how much capital to invest in constructing a commercial building. The investor?s analysis provides the following returns on different amounts of investment: ?a $500,000 building will earn a 1.4 percent return; ?a $600,000 building will earn a 5.5 percent return; ?a $700,000 building will earn an 8.0 percent return; ?an $800,000 building will earn a 5.8 percent return; ?a $900,000 building will earn a 1.2 percent return. ?Additional investment of capital produces increasing returns up to the point of $700,000 in this illustration. Beyond this point, the return on additional capital diminishes. The Principle of is related to the ,, and Increasing and Decreasing Returns Principles of BalanceContribution .? Surplus Productivity PRINCIPLES OF PROGRESSION AND REGRESSION ?The states that the value of a lower priced property is increased by Principle of Progression association with better properties of the same type. For example, a $90,000 house among $140,000 home could probably bring a price higher than $90,000 in the market. The Principle of states that the value of a better quality property is decreased by association with lower Regression quality properties in the same area. Thus, when a $120,000 house is located in an area where the typical home is about $70,000, the market value of the former will tend to fall. The $120,000 house in this example is an overimprovement for the neighborhood. The Principles of are related to the .? Progression and Regression Principle of Conformity PRINCIPLE OF SUBSTITUTION ?A property?s market value tends to be set by the cost of acquiring an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution. This principle underlies each of the three approaches to value- cost, sales comparison, and income.? PRINCIPLE OF SUPPLY AND DEMAND ?The theory of , as applied to property appraisal, holds that the price of a supply and demand property varies directly with demand and inversely with supply. In the market, sellers can control supply and price to influence demand. By failing to produce enough of a product to meet demand, sellers can raise prices. By raising prices, sellers can decrease demand. Buyers can influence price and supply by staying out of the market until prices decrease, which often happens when supply increases in relation to demand. Many forces, environmental (physical), Page 28New Hanover County Tax Office economic, social, and governmental, influence the behavior of buyers and sellers. ?... Supply is a function of the four agents of production: land, labor, capital, and management. More goods are produced as these agents become more available or decrease in price. The appraisal and , are defined Principles of Surplus ProductivityIncreasing and Decreasing Returns in terms of these four agents of production.? PRINCIPLE OF SURPLUS PRODUCTIVITY ?Surplus productivity is the net income remaining after the costs of labor, management, and capital (in that order) have been satisfied. The surplus productivity is the income earned by the land. The agents of production must be satisfied in the following order: labor, management, capital and land. ?As a result, land value tends to set by the cost of labor, management, and capital. The Principle is related to the ,, and of Surplus Productivity Principles of BalanceContributionIncreasing and .? Decreasing Returns PROPERTY RECORD CARD(S) Any Property Record Card is a ?report? that gathers all pertinent appraisal facts and other information about a parcel and prints it on paper, or onto microfiche. QUALITY GRADE Quality Grade is the appraiser's notation of the quality of original materials and workmanship in a structure. Care should be taken to avoid confusion between ORIGINAL QUALITY and OBSERVED CONDITION and LOCATION. By strict appraisal definition the above three terms are not interrelated. The real estate market interrelates them, but when listing or reviewing parcels the appraiser must not be confused. The following box illustrates the separateness of these ideas and definitions. Quality Grade is Quality Grade Location is Location (Neighborhood is Neighborhood) Effective Year Built is Relative to NBHD and Condition Condition is Condition has a jurisdiction-wide definition because the User Control Records are a county-wide Quality appraisal control. Because we account for locational differences by neighborhood assignment, the appraiser should always list buildingby County-wide definition. Quality Grade Theof a younger structure is correctly considered to be relative to its Effective Year Built chronological age. For older structures, is somewhat relative to its Effective Year Built (Age) Appendix 2 - GlossaryPage 29 neighborhood's place in its life cycle and to the condition of the structure. Accordingly, the appraiser defines the for his or her subject structure with an eye on its Effective Year Built neighborhood (location) while ignoring all other locations, and on its . Condition Non-professionals have an unfortunate tendency to confuse and. The quality ConditionQuality of original construction is set during original construction or during a major remodeling effort (rebuilt from the bone structure out).does not change because a structure is in Quality Grade poor, even if the structure is literally falling down. Condition Appraisers have an unfortunate tendency to vary a building?saccording to the Quality Grade neighborhood the building is in. They think: ?I decided the building next door was a ?___? , therefore this building must be a ?___?. Appraisers must judge the Quality GradeQuality notation for each building in turn according to the County-wide standard expressed in Grade Appendix 4. To judge by another standard is to introduce appraiser contradiction. Quality Grade R SQUARED Thestatistic is a ratio related to how well the data (sale prices) are fit by the regression R squared equation. It is equal to the complement of the residual sum of squares divided by the total sum of squares corrected for the mean, where the total sum of squares is the sum of the squares of the sales prices minus their mean value, and the residual sum of squares is the sum of the squares of the differences between the actual sales prices and those predicted by the regression equation. It is apparent that the closer is to 1, the better the ?fit? of the data. R squared RCN An appraisal acronym which stands for either: 1.ReplacementCostNew; or 2.ReproductionCostNew. New Hanover County incorporates the Replacement Cost New concept into its version of the Cost Approach. See REPLACEMENT COST NEW. RCNLD An appraisal acronym which stands for either: 1.ReplacementCostNewLessDepreciation; or 2.ReproductionCostNewLessDepreciation. New Hanover County appraisal staff devised their own depreciation tables from market information within the County. RATIO STUDY See SALES RATIO STUDY. Page 30New Hanover County Tax Office RECREATIONAL CENTER This is a commercial building USE which is for recreational space including but not limited to health club, bowling alley, and skating. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income above. REMAINING ECONOMIC LIFE The day a building is completed is the day it begins to age. Like our bodies the building will reach the end of its life in an unknown number of years. Unlike our bodies, a building has an economic life. The building must continually justify its existence or it will be removed from the land - regardless of its physical age or condition. TheRemainingEconomicLife (REL) is the appraiser's estimate of the amount of time the building will continue to justify its existence. Remaining Economic Life has a converse relationship with Effective Age. Therefore, as a building ages, Remaining Economic Life becomes easier to estimate and the Effective Year Built (Age) becomes harder to estimate. This may be directly observed in the following "formula". Life New = Effective Age + Remaining Economic Life This formula will always contain a true statement. Life New is a stable, unchanging "constant" value in the formula (it is the estimate of a NEW building's life). Effective Age and Remaining Economic Life are mathematically "complementary" numbers. That is, Life New always stays the same while Effective Age must change if Remaining Economic Life changes, and vice versa. Also see EFFECTIVE AGE, DEPRECIATION and LIFE NEW discussions. REPLACEMENT COST NEW One of two basic concepts within the Cost Approach, Replacement Cost New strives to reflect to cost to replace the function of a building rather than the cost to reproduce the building itself. This concept lends itself to mass appraisal much better than the concept of Reproduction Cost New because it does not reproduce the functional problems that older buildings tend to exhibit. In mathematically replacing the function of a building rather than the building itself, items of functional obsolescence (such as excessive or over-built foundations) are NOT introduced into the pricing algorithm. Such Functional Obsolescence actually existing in a given building must NOT be recognized or the appraiser will "kick the dog twice" (or remove the item twice). See RCN. RESIDENTIAL (ON) COMMERCIAL LAND There are five codes intended to be used to appraise residential buildings via the commercial cost approach algorithm, as backed up by the Income Approach. They are: RCLResidential on Commercial Land - Use for structures having non-residential uses. R1F, R2F, R3F, and R4FUse where multiple residential structures on one parcel are used for Appendix 2 - GlossaryPage 31 residential purposes. Residential appraisers will use these codes (and thereby, Business Rule: the commercial algorithms) to appraise multiple residential buildings on residential land. RESIDENTIAL TIMESHARE ?Joint ownership or rental of a vacation lodging (as a condominium) by several persons (or entities) with each occupying the premises in turn for short periods.? Webster?s Collegiate Dictionary When a timeshared property is viewed as a whole and under the operational Business Rule: management of one entity that is the de facto property manager / agent for all time-owners, all rights of ownership, to include possession, are viewed as being intact asrepresented by that entity. Therefore the Tax Administrator?s Office will appraise each such property as a whole, under one Parcel ID, for fee simple market value. The management company will have sole responsibility to apportion the resulting annual tax liability among the several time-owners. RESIDUAL LAND The IAS CAMA module reserves a specific meaning for the term ?Residual Land?. It is that part of a parcel?s land area that is not currently engaged in generating income for the owner. Residual may share road frontage with the portion(s) of the land that are generating income. As such Land and from time-to-time true ?residual? land may have a ?For Sale or Lease? or ?Build to Suit? sign on it.may also be ?rear? land available for (but not yet under) a separate use. Residual Land Specifically,can be sold or leased separately without harm to any current tenant?s Residual Land business practices (which is not the case with land needed for parking or required for a retention pond(s), for two examples). The CAMA system recognizes specific commercialas Land Codes being land ?residual? to the income approach. It will calculate the value of Residual Land Lines using the same land unit rates intended for the area. However the income approach will add in the value of any after the normal income analysis is completed. Residual Land Lines RESTAURANT This is a commercial building STRUCTURE and USE which has an influence on the Cost Approach, and the Income Approach. Code the space for restaurant use when it was designed as Also such (and specifically is not logical former or future retail space, as in a retail center). please refer to the discussion of Net Operating Income above. RETAIL, SINGLE OCCUPANCY This is a commercial building STRUCTURE and USE which is stand-alone retail space. Do not use this USE for Big Box space. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income below. ROLE As used in this document, a is a set of functions within the Tax Administrator?s Office. The Role security module of the CAMA system controls access to the interface by, an ?umbrella? of Role Page 32New Hanover County Tax Office common access rules under which each separate department operates.. ROLL Different types of property are commonly grouped together for ad valorem taxation. Real Estate, Personal Property (air planes, machinery and equipment, etc.), Intangible Personal Property (cash in bank accounts, stocks, etc.) are all examples of different tax rolls. New Hanover County has a ?Combined Roll?, meaning Real Estate (land, building(s), and miscellaneous improvements) may easily be combined with Personal Property items (boats, automobiles, etc.) on any tax bill. ROOF PITCH The ?pitch? of a roof measures the angle between the eave of the roof and the crown of the roof, and is expressed as a ?rise and run? fraction. For example, if a roof has a 6:12 pitch, it will rise six feet for every twelve feet of run (or six inches of rise for every foot of run). The typical residential roof (without dormers) must have a minimum 6:12 pitch to have enough usable attic space to call the 1.25 story. Of course, there will always be exceptions StoryHeight to every rule... Example of Roof Pitch Appendix 2 - GlossaryPage 33 (Residential Only) ROOF TYPE This residential field was designed to store a code defining a hip roof, a gambrel roof, or another type of roof for a building. Please accurately record this data. SALES RATIO STUDY A Sales Ratio Study is the tool we use to test the Cost Approach appraisal product of the County, the annual Tax Roll. This measures the performance in the interaction of land values, building data elements (or characteristics), and the rates in the User Control Tables. The Cost Approach is the default method of valuing each parcel in the County. A sales ratio is calculated by dividing the appraised value of a given parcel by the sale price of the parcel. For example, if a parcel is appraised for $80,000 but sold for $100,000, the sale ratio is .80 (or 80%). A sales ratio study is a statistical analysis of all sales ratios in the sample. The ratio study advises at least two critically important facts: 1.The level of appraised values as compared to sale prices; For example, a median ratio of .97 indicates that parcels are generally appraised for 97% of sale price. 2.The tightness of fit of the ratios in the sample about the median sales ratio. The Department of Revenue measures uniformity with the Coefficient of Dispersion (COD). The lower the COD number, the more uniform the values in the Tax Roll are. SECTION See ADDITION. SFLA Square Feet (of) Living Area SHELL SPACE Commercial rental space is often leased as a ?shell?. In new space, the landlord will enclose the space and provide roughed-in plumbing and electrical service. In previously leased space, the prior tenant?sare likely in place but may not meet the new tenant?s need. leasehold improvements For rentals (as opposed to rentals), the tenant builds the interior finish to suit. shellturn-key revert to the property owner at the end of the lease. Leasehold improvementsleased fee Interior finish is charged as real estate unless the Tax Administrator confirms Business Rule: that a tenant duly reported interior finish as a Leasehold Improvement (on a Listing Abstract). Should the Tax Administrator judge the listed amount for the leasehold improvement is realistic the appraiser shall remove the interior finish from the real appraisal for the year(s) in question. Page 34New Hanover County Tax Office SQRT Square Root (of a number) as used in certain formulas in the CAMA module. SOUND VALUE An appraiser's estimate of the residual value for an improvement that has reached the end of its economic life. As long as the improvement exists, it cannot be legally removed from the Tax Roll (exempted from taxation) unless it is so far gone that it literally contributes no value to the parcel. (In these cases, the appraiser must describe the item sufficient to identify it and note that it existed on a date certain.) Sound Values are quite low and are used to merely recognize the existence of the improvement as of January 1 of the year in question, the TAX DATE. STANDARD ERROR The square root of the gives an idea of the average amount by which mean square residual regression equation ?misses? actual sale prices. In a somewhat more precise statistical sense, we expect that roughly 2/3 of the regression estimates should be within one standard error (either high or low) of the actual sales price. In general, the smaller this number the better. (Residential Only) STORY HEIGHT For residential buildings, the story height for each section of BASE area is entered in quarter story sizes, from 1.00 story to 4.25 stories Generally, the residential appraiser selects the appropriate story height for a building according to the amount of area available in the upper floor areas as compared to the amount of BASE area in the ground floor. For example: _.00 Story =Less than 20 % usable area (?stick-built?, for attic living space). _.25 Story =20% to 40% usable area (?stick-built?, for attic living space). This attic space isunfinished for living purposes. Apply a ?dotted-in? , AFG , or Building Section to account for the living area finish in the attic. AFBARI _.50 Story =41% to 65% usable area (?stick-built?, for attic living space). This attic space isunfinished for living purposes. Apply a ?dotted-in? , AFG , or Building Section to account for the living area finish in the attic. AFBARI _.75 Story =66% to 90% usable area (?stick-built?, for attic living space). This attic space isunfinished for living purposes. Apply a ?dotted-in? , AFG , or Building Section to account for the living area finish in the attic. AFBARI See ROOF PITCH, and USABLE AREA. Appendix 2 - GlossaryPage 35 STRATIFICATION The process of segmenting, or layering, the appraisal database. Ratio studies available to New Hanover County enable us to study the entire county or a portion of the county. For example, sales may be restricted to sales of residential buildings that are of a certain age AND to buildings that are also 300. Quality Grade This enables us to seek common weaknesses in the appraisal product and correct them - before Notices of Value for a given year are mailed. Appendix 2 presents a detailed discussion of STRATIFICATION. STRIP RETAIL CENTER This is a commercial building USE which is for retail space in a complex designed without anchor store space. This code has an influence on the Cost Approach, and the Income Approach. Also please refer to the discussion of Net Operating Income above. STRUCTURE This is a required field for commercial buildings. It defines the purpose for which the building was designed and built, which may or may not be the present use of the building. The Structure code is an element of the Replacement Cost New of the building. T STATISTIC The is a ratio of the of a coefficient to the value of that coefficient. t-statisticstandard error Comparison with a table of c values would tell the probability that the given coefficient t-statisti is indeed statistically different from zero. This should give us the same answer as the F-statistic analysis. TABLE (Database) A table in a database contains data arrayed in rows and columns, just like a typical Excel or Lotus spreadsheet. The table?s rows contain data while the columns organize the data (each column contains the same type of data). Each column header names the data stored therein. For example Parcel ID, a basic way of relating parcel-level data housed in different tables, is always stored in a table column named PARID. No other kind of data will ever be found in this column. TAX RATE The is the result obtained by dividing the by the Tax RateTotal Approved BudgetTotal Tax Roll for the Tax District (Total of all Taxable Values). tax dollars are calculated via two factors: (1) the (appraised value less Ad valoremTaxable Value any exemptions) of a real estate or personal property parcel; and (2) the of the Tax Rate jurisdiction. It is our duty to fairly and equitably appraise all real estate for market value, without Page 36New Hanover County Tax Office prejudice for the county or any owner therein. TAXABLE VALUE The net result of subtracting the value of any exemptions from the Market Value or Use Value. This is the value used to calculate the annual tax bill. TAX DATE N.C.G.S. 105-285 mandates that property ownership will be kept, and parcels are to be appraised as of January 1 each year. For example, John Smith purchased a house on September 10, 2006. He is NOT the owner-of- record on the 2006 tax bill, but since he owns it on 01/01/2007 he will be the owner for 2007. The appraised value of John Smith's house will also reflect our opinion of the property's value as of January 1 of each of these years. If Mr. Smith adds a porch immediately upon purchase (finishing by December 31) he will also see a change in value (for 2007) on his 2007 Notice. TAX DISTRICT A given property in New Hanover County receives a given set of services from the County according to its location. "Tax District" is the term given to an area where governmental services are identical, so the parcels in each district will pay the same Millage Rates for those services. See MILLAGE RATE. (or Tax Scroll) TAX ROLL A ?Tax Roll" or ?Scroll? is a listing and summing of all taxable property in New Hanover County as broken into classes of property (Property Class is an entry on the ASMT screen). ?Tax Roll? or ?Scroll? is a North Carolina-specific term synonymous with Digest, Grand List, et cetera, used in other states. TIMESHARE See RESIDENTIAL TIMESHARE UNIT OF COMPARISON For a real estate appraiser, it is often times more meaningful to work with Units of Comparison rather than a whole number, such as a sale price or appraised value. For example, the sale price per acre of a large vacant parcel is much more applicable to other large vacant parcels than the whole sale price of the parcel. Several different kinds of Units of Comparison are important in appraisal work. For example, appropriate ?units? for land are- the Square Feet of land area, - the Front ?S??F? Appendix 2 - GlossaryPage 37 Feet along a road, - the Acreage (for larger parcels), or - for ?Unit? (value per lot). ?A??U? With improvements to land, the appropriate residential unit is the gross square feet of BASE (living) area. For commercial or industrial buildings, the gross or net square feet of BASE area is appropriate. For tank farms not charged as personal property, net cubic feet enclosed is appropriate, while the number of overhead doors (for truck terminals), the number of rooms (hotels and motels), etc. are also Units of Comparison appropriate for each industry. USABLE SPACE Measure the square footage of for all finished attics and bonus rooms and ?dot-in? Usable Space that space using one of your four codes for ?attic? (AFM, AFR, FAF, FAP). Never measure as in contact with a that is less than five feet high. Always measure Usable Space Knee Wall from an estimated point(s) where the finished ceiling is at least five feet above the floor. Finished space between the knee wall and the estimated ?point of usability? (as above) generally contributes little or no value to the parcel. VALUATION ENGINE As used herein, this term represents the IAS System?s algorithms and coefficients that work together to value property. WALL TYPE See EXTERIOR WALL TYPE. WIDTH See OTHER BUILDINGS AND YARD ITEMS. Page 38New Hanover County Tax Office YEAR BUILT Enter the year a building's foundation was started in this field. Partially complete buildings as of January 1 will be appraised as a given percent complete in the appraisal system. Also refer to the discussion in . Effective Year Built ZONING (Permanent) To appraise a parcel for market value is to assume that all rights of real ownership are fee simple intact and vested in the owner-of-record except as limited by the powers of state (as delegated to local jurisdictions). The zoning-in-force on a parcel limits one of the inherent rights of ownership: to use the property in any way the owner sees fit. Permanent zoning-in-force recognizes or lists the various specific uses permitted on parcels enjoying membership in a given Zoning District and, without question, the owner is free to choose among the several permitted uses. ZONING (Temporary) Jurisdictions in North Carolina are permitted to more tightly control the uses an owner may contemplate for property by allowing only one named use. Generally the temporary use is an interim use as requested by the owner at the time. If the owner wishes to change the parcel?s named use to any other use, to include reversion back to the formerly permitted use, the owner must reapply for a change in Zoning District and go through the entire re-zoning process. If a given property is clearly in an INTERIM USE (see discussion under this Business Rule: topic heading above) and the jurisdiction allows only one named use for the property, the appraiser must consider the named specific use to be a temporary zoning-in-force. Temporary zoning will in no manner represent or limit the most likely highest and best use of the parcel. Appraise land in interim use under temporary zoning-in-force for its most likely Business Rule: highest and best use, considering the permitted uses of surrounding and nearby parcels, and the demand for a change to the most likely highest and best use. The appraiser must recognize: (1) the cost of re-zoning the parcel; and (2) the holding period, during which the interim use is likely to continue while market demand increases for the change to the most likely highest and best use.