PREPARING THE SMV AND CONDUCTING THE GENERAL REVISION OF PROPERTY ASSESSMENTS
THE SCHEDULE OF MARKET VALUES (SMVs) is a table of base unit values for all kinds of real properties (except machinery) prepared by local assessors as basis for appraisal and assessment of properties for real property tax purposes. The local council or the Sanggunian approves the SMV to be used by the local assessor for the General Revision of property assessments, which will be then collected by the local treasurer.
A GENERAL REVISION OF PROPERTY ASSESSMENTS AND CLASSIFICATIONS is the process of updating all real property records of the LGU for real property taxation using the updated SMV.
IMPOSING AND COLLECTING IDLE LAND TAX
The Local Government Code (LGC) empowers LGUs to levy an annual idle land tax up to a maximum of 5% of the assessed value of the land.
Section 239 of the LGC provides the process in determining and taxing idle lands as follows:
- The local assessor should keep an updated record of all idle lands located within the LGU´s area of jurisdiction
- For collection purposes, the same updated record of idle properties should be furnished to the local treasurer.
- Based on the provided records, the local treasurer will notify the property owner of the additional land tax imposed.
Preparing the SMV correctly is essential to develop an efficient process in the Assessor´s Office. Figure 1 set out the stages in SMV development using mass appraisal for taxation purposes. Individual LGUs may need to vary the sequence, depending on their capacity requirements, such as availability of staff or other resources, accessibility to information, and other variables. These activities mostly occur between January and September, before submitting the proposed SMV to the Sanggunian.
The four major stages in SMV development, as prescribed in Chapter 3 of the Mass Appraisal Guidebook, are the: (1) Preparatory Stage, (2) Data Collection, Stage (3) Data Analysis Stage, and (4) Testing of SMV Stage.
- Preparatory Stage
- Identify the "Date of Valuation"
- Prepare a Work Plan
- Organize Teams
- Establishing the Base Valuation Date
The date of valuation is the reference date of values to be considered in preparing the SMV. The date should be set in accordance to the Local Government Code (LGC), or any subsequent legislation. As much as possible, the dates should be closest to the revision date, provided there is a maximum amount of time to collect transaction data.
An overall work plan and timetable should be developed, identifying the major tasks and time-bound activities. The work plan should highlight the resources (personnel, equipment, and materials) requiring support from the LGU, and the potential impediments in revising the values.
As early as January 1st of the first year, teams should already be formed. Ideally, two teams are needed – the data gathering team and the database and value analysis team. The assessor should train the personnel based on the valuation model and the calendar of activities.
The date of valuation refers to the date the value estimate applies. This is not the date when the valuation was actually undertaken, the date when the inspection was made, or the date when the valuation report was signed, as these pertain to the "reference date." The date of submission by the Assessor to the Sanggunian will be the Base Valuation Date. In case the SMV will be approved at a date other than scheduled, the basis of the value will still be the date submitted by the assessor. The date of approval of the Sanggunian is the effectivity of the values.
The Assessment Calendar governs the calendar of activities in conducting the general revision of real property assessment. Such assessment calendar provides, among others, the preparation of the SMVs by the assessor.
- Data Collection Stage
- Identify the Market Area
- Establish a database/inventory
- Examine Transaction Database/Inventory
- Review Sales Prior to Inspection
- Investigate Data
- Collect, Validate and Filter Data
- Data Entry Into the Valuation Database Information System (VDIS)
A market area is a homogenous group of properties that share the same or similar characteristics, or which values are influenced by similar physical, social, economic, governmental and environmental factors. By determining the characteristics of the market area, the assessor can make better estimates of the values of the properties in it. The assessor can also determine the most suitable approach to determine the values of the properties.
Establishing a database/inventory and assembling all available and relevant information should be done early in the general revision of values. The bulk of this material comes from the details contained in the ownership records and assessment rolls already held by the LGU. The database should include all RPUs within the LGU.
All data, principal or complementary, that may be obtained from the market need to be validated with other market data sources.
Transaction data stored in a database need to be carefully examined to determine whether or not they appear to represent market value. This database provides valid and reliable material on which most of the revision is based. The most useful data are those arm´s length transactions occurring close to the reference date.
At this stage, valid sales from the transaction database should be thoroughly reviewed and sorted by location and use (commercial, residential, etc.) for both vacant (land) and improved properties. These sales information need to be investigated, and buyers, sellers or brokers need to be interviewed in order to verify the conditions of the sale and the purchase price.
All sales data that are considered relevant should be physically inspected to ensure reliability. The buyer, seller or broker should be interviewed to confirm the details of the sale. Factors such as related parties, seller´s terms, and owners of adjoining properties should be clarified through interview or by examining the information. Interviews will establish the reliability of the transaction and, in most cases, will determine the true purchase price. The true purchase price is the market level which will serve as basis for SMV preparation.
All data must be collected, evaluated and filtered prior to being entered into the database and subsequently be used to calculate values. If there are still questionable market transactions even after each transaction has been reviewed, then these should not be included in the database.
The VDIS is designed to store and process market transactions, individual appraisals, property rental or lease, building construction and machinery cost information. It is a tool to assist assessors and appraisers in performing property valuation. The system uses local appraisal terminologies based on the Assessment Manual and the Mass Appraisal Guidebook to make it straightforward and simple to use.
- Data Analysis Stage
- Review/Amend Existing Sub-market Areas
- Analyze Transaction Data
- Process Analyzed Data
Processing the analyzed data involves the following:
- Determining typical base lot descriptions,
- Preliminary cross referencing of sub-market areas,
- Unit building construction cost schedule,
- Cross referencing the cost schedule with actual new buildings,
- Establishing Replacement Costs New (RCN),
- Reviewing and analyzing land and improvement sales,
- Establishing depreciation table, and
- Determining the value of other structures
The submarket areas must be reviewed based on the criteria previously determined by the assessor, which includes geographical location, property classification, and quality. Once these are confirmed, the information can already be analyzed.
After the sales information have been assembled and verified, each transaction must be further processed to extract the information needed in the analysis process, and ultimately, determine the base rates of values for land and buildings. In the end, a unit value for land in different locations will be established, as well as the value added by various improvements.
- Testing of Schedule of Market Values (SMV)
- Set Interval or Value Ranges
- Develop the Working Land Value Map
- Test the Developed SMV
- Check Values of Adjoining LGUs
- Adjust the Developed/Proposed SMV
- Prepare the Final Draft of SMV
SMVs are not individual valuations. Value ranges must be established which encompass similar property and classification types. They are set together with the draft SMVs, both compensating each other during their development.
After setting the interval or value ranges, the geographic distribution of the unit values can now be plotted in a map. The range of values should be allocated on all the street frontages, sub-market areas and properties within a particular market area. These unit values will be the basis for the adoption of the final SMV. The values must be thoroughly cross referenced between locations and sub-market groups for consistency and relativity.
The value of a particular property in the sub-market area can be tested by adopting SMV rates.
Part of the final adjustment is to check the SMV with the SMV of other adjoining LGUs for consistency of values, especially for properties with revised geopolitical boundaries.
Whenever adjustments are made, based on the data of adjoining LGUs, the adjusted SMV needs to be re-tested.
After testing and re-testing, the SMV can be proposed and recorded on the land value maps of each barangay.