PROPERTY ASSESSMENTS:

1. PROPERTY ASSESSMENTS: UNDERSTANDING HOW PROPERTIES ARE VALUED FOR TAX PURPOSES

2. “Howdid you come up with this value?” “How could I sell my house for that much in this lousy market?” “I thought my taxes could only go up 2 ½ percent!!!” “My taxes are just too much!! Is there anything I can do about it?” “ I’ve lived in this town for 40 years. What can I do about my taxes so I can stay here?” “I don’t have that car anymore!!Whatis this Excise bill about?” “I only paid my father $2000 for the car. Why does this bill say it’s worth $8000?” “Do I have to pay this CPA surcharge thing?”

3. Table of Contents What is “Ad Valorem” Tax ? ………………………………Pg 3 What are “Arms Length Sales” ?…………………………..Pg 4-5 The “Mass Appraisal Process”……………………………..Pg 6-8 Taxation Law…………………………………………………Pg 9 Important Assessment Dates………………………………Pg 10 Things to Remember………………………………………..Pg 11-17 Mass Appraisal Case Study………………………………..Pg 18-36 Abatement or Exemption?………………………………….Pg 37-42 Auto Excise Explained………………………………………Pg 43-48 What is the CPA?……………………………………………Pg 49-50

4. Ad Valorem Taxation • Translated means: “To value” or “concerning value”. • Ad Valorem Tax: Is based on the principle that the amount of tax paid should depend on the value of property owned. • The data used to establish values are from “arms length sales”.

5. Arms Length Sale • Arms Length Sale: Is a sale between an informed, willing seller and buyer, both of whom are knowledgeable concerning all aspects and uses to which the property is adapted and is capable of being used. Also no side may have an advantage over the other party. The property needs to have reasonable exposure on the market and is based on the most probable price, not the highest, lowest, or average price.

6. TYPES OF NON ARMS LENGTH SALES EXCLUDED FROM MARKET ANALYSIS • Intra-Family sales • Intra-Corporate sales • Sales which include Personal Property • Grantor or Grantee is a Government agent • Transfer of Convenience (Know as “Dollar” sales) • Sale Resulting from Court Order • Sale from Bankruptcy • Sale of an Undivided Interest • Grantor or Grantee is a Tax Exempt Organization • Repossession of a foreclosed Property • Sale Included Cash and a Trade of Property • Multiple Sale of the Same Property within the year • Sale of a foreclosed Property • Substantial Physical Changes AFTER the Assessment Date, BEFORE sale • Sale of a Portion of the Assessed Unit • Substantial Physical Change AFTER the Sale • Change in use AFTER the Sale

7. Mass Appraisal • Is the systematic appraisal of groups of properties as of a given date (January 1st) using standardized procedures and statistical testing. These procedures and statistics are used to gauge and create accuracy and consistency. • Its purpose is the equitable and efficient appraisal of all property in a jurisdiction for Ad Valorem Tax purposes.

8. Mass AppraisalFrom the Ground Up • The Mass Appraisal process begins with land valuation. Land values in each of Needham’s two predominant zones (10,000 sq ft and one acre minimum lot size) are derived from sales (usually over the prior 18-24 months) of “Teardown” lots, subdivisions of existing lots that create new lots, and the increasingly rare sale of unimproved vacant land. These values must meet strict statistical criteria and undergo triennial review by the Massachusetts Department of Revenue.

9. Mass Appraisal Mirroring the Market • Analysis of arms length sales in a given calendar year. • Fiscal Year 2007 values are a product of analysis of calendar 2005 Sales • Needham uses a Computer Assisted Mass Appraisal System, (CAMA) administered by the Department of Revenue, that employs a market adjusted cost system. This adds a market derived land value to a computer generated building cost plus or minus any indicated market fluctuations.

10. State Laws which GovernAd Valorem Taxation • “Ad Valorem” Taxation is covered in the Massachusetts General Laws. • Most information can be found in Chapter 59 of the Massachusetts General Laws. http://www.mass.gov/legis/laws/mgl/gl-59-toc.htm

11. IMPORTANT DATES ON THE ASSESSMENT CALENDAR • Assessed values are as of January 1, 2006 for Fiscal Year 2007. • FY 2007 runs from July 1, 2006 through June 30, 2007 • Valid arms length sales from calendar year 2005 are used to set value as of January 1, 2006 for Fiscal Year 2007

12. Important to remember when reviewing your FY 2007 tax bill 1)The assessed value on the bill is a result of the analysis of sales that took place in calendar year 2005. 2)Recent media information, generally, refers to either statewide or national real estate trends that have begun to emerge in the 2006 market. Needham, because of its commuter and education friendly location and environment, is not a good microcosm of the rest of Massachusetts or the country. In any event, the affects of the calendar 2006 market will not be reflected in the assessments until the bill you receive in FY 2008.

13. 3) The law allows cities and towns to vote to shift a portion of the residential tax burden onto the owners of commercial property. Over the years Needham has voted to shift the maximum amount allowed by law to the commercial property. 4) The property tax levy funds more that 77% of the municipal budget. 5) Only the “Total” Tax Levy is affected by Proposition 2 ½ in that it can increase 2.5% from one year to the next. Proposition 2 ½ has no bearing on the change in value of individual properties. THINGS TO REMEMBER …

14. 6) Many of the components of the final budget for Public Safety, General Government, Public Works and Education are approved before assessments are finalized.7) The cost of Debt Exclusion overrides, approved by the voters for the Town construction projects, is a known quantity in the budget before final assessments are approved by the Department of Revenue in the late fall.8) Since the year 2000, voters have approved more than 116 million dollars for school and library construction alone.9) All of the above means that the “Total” for the budget equation is established BEFORE either the “assessed value” or the “tax rate” variables that make up that equation are in place. THINGS TO REMEMBER…

15. THINGS TO REMEMBER … 10) Since most of the budget is comprised of fixed costs, such as salaries and insurance, municipal budgets rarely decline. It follows that if the budget “Total” increases, the variables used to arrive at that total must change. This means the following: A) The changing nature of the real estate market causes fluctuations in the “assessed value” variable of the budget equation. B) The “tax rate” variable will rise or fall in relation to changes in the real estate variable. C) If the “assessed values” drop due to a declining real estate market in coming years, the “tax rate” side of the equation will increase to raise the amount required to fund the “Total”. The following is a hypothetical example: Fiscal Year 2007 Budget equals $70 million dollars Fiscal Year 2007 total assessed value equals $7 BILLION DOLLARS These numbers yield a “Tax Rate” of $10 dollars Fiscal Year 2008 Budget equals $70 million dollars Fiscal year 2008 total assessed value declines to $6 BILLION DOLLARS This would yield a “Tax Rate” of $11.67

16. The following example illustrates the calculation of a hypothetical single tax rate followed by the calculation of an actual tax bill using that rate. $70,000,000 (Budget)/“X” (Assessed Values) = “Y” (Tax Rate in dollars/ $1000 of value)The first variable computed is the total assessed value of all the property in Needham. This number is determined after analysis of the calendar 2005 sales, and adjustments, dictated by that market analysis, are made. You now have two parts of the equation, from which the second variable (Tax Rate) can be derived.$70,000,000 (Budget)/$7,000,000,000 (Assessed Values) = $10 Tax Rate per $1000 of assessed value. For Example, to compute the taxes on a 1 million dollar home $1,000,000/1000 (Remember you are paying the $10 Tax Rate for every $1000 worth of value) x $10 = $10,000

17. Mass Appraisal Process Smoothing out Ripples in the Marketplace • The Mass Appraisal Process uses statistical analysis of valid sales, and their assessments, in relation to their sale prices, to check the accuracy of assessments. Two of the key components of this statistical testing are the Median Assessmentto Sales Ratio (ASR) and the Co-efficient of Dispersion (COD). The Massachusetts Department of Revenue requires that the Median ASR be between .90 and 1.10. The COD must be less than 10.0.  • The ASR is calculated by dividing the assessed value by the sale price. • If a property assessed at $900,000 sells for $1,000,000 the ASR would be .90 • The overall Median is calculated by arranging all the ASR’s on individual sales in numerical order and finding the middle number.

18. SMOOTHING OUT THE RIPPLES… To calculate the COD of a group of properties that have been sold, you must find out how far each individual ASR is from the overall Median negative and find the average of those differences. If the Median for a group of sales is .93 and the ASR of a particular sale is .90, the Absolute Deviation is .90 minus .93 or .03 The Average Absolute Deviation (AAD) issimply the average of all the Absolute Deviations for a given set of sales. The final step in the COD calculation is to divide the AAD by the Median and multiply the result by 100 to turn it into a whole number. EXAMPLE: AAD = .081 Median = .92 COD = (.081/.92) x 100 or 8.81

19. TESTING THE DATA… The following 17 slides contain a random sample of sales from 2005 and some information about each of those properties. The calculation of the Median and COD for the sample follows them. The sample as a whole falls well within the parameters set by the Department of Revenue, despite the fact that one buyer pays far above assessed value on one end of the spectrum, while another pays far below assessed value on the other. This process was used on all of the nearly 300 sales in 2005 and passed statistical muster before values were established for similar unsold properties. The same set of 2005 sales was also grouped by Style, Age, Sale price, Square Feet of Living Area, Neighborhood and Land size and put through the same statistical analysis. In all cases for the different groupings, the Median and COD’s were within the required statistical parameters. Information on these sales are available at the Assessor’s Office.

20. SALE INFORMATION • Sale Price: $1,300,000 • Sale Date: 9/7/2005 • FY 2007 Assessment: $891,800 • Bedrooms: 6 • Baths: 2 • Living Area: 3,574 • Square Feet Land: 12,417 • Upgrades Since 1990: $35,000

21. SALE INFORMATION • Sale Price: $842,500 • Sale Date: 9/12/05 • FY 2007 Assessment: $624,300 • Bedrooms: 4 • Baths: 2.5 • Living Area: 1,765 • Square Feet Land: 10,215 • Upgrades Since 1990: $0

22. SALE INFORMATION • Sale Price: $1,250,000 • Sale Date: 7/8/2005 • FY 2007 Assessment: $1,069,400 • Bedrooms: 4 • Baths: 2.5 • Living Area: 3,136 • Square Feet Land: 10,260 • Upgrades Since 1990: $0

23. SALE INFORMATION • Sale Price: $790,000 • Sale Date: 8/15/05 • FY 2007 Assessment: $679,200 • Bedrooms: 5 • Baths: 1 • Half Baths: 2 • Living Area: 2,672 • Square Feet Land: 11,101 • Upgrades Since 1990: $80,000

24. SALE INFORMATION • Sale Price: $660,000 • Sale Date: 6/3/05 • FY 2007 Assessment: $543,500 • Bedrooms: 3 • Baths: 1.5 • Living Area: 1,461 • Square Feet Land: 10,707 • Upgrades Since 1990: $0

25. SALE INFORMATION • Sale Price: $970,000 • Sale Date: 3/31/05 • FY 2007 Assessment: $969,800 • Bedrooms: 6 • Baths: 4 • Living Area: 3,728 • Square Feet Land: 7,765 • Upgrades Since 1990: $0

26. SALE INFORMATION • Sale Price: $486,200 • Sale Date: 6/17/05 • FY 2007 Assessment: $435,400 • Bedrooms: 3 • Baths: 1.5 • Living Area: 995 • Square Feet Land: 11,065 • Updates Since 1990: $0

27. SALE INFORMATION • Sale Price: $833,00 • Sale Date: 8/2/05 • FY 2007 Assessment: $746,300 • Bedrooms: 4 • Baths: 2.5 • Living Area: 2,184 • Square Feet Land: 14,331 • Updates Since 1990: $108,073

28. SALE INFORMATION • Sale Price: $1,250,000 • Sale Date: 1/31/05 • FY 2007 Assessment: $1,201,900 • Bedrooms: 5 • Baths: 3 • Half-baths: 2 • Living Area: 3,534 • Square Feet Land: 25,219 • Updates Since 1990: $233,400

29. SALE INFORMATION • Sale Price: $682,500 • Sale Date: 10/28/05 • FY 2007 Assessment: $631,800 • Bedrooms : 3 • Baths: 2.5 • Living Area: 1,692 • Square Feet Land: 12,587 • Updates Since 1990: $1,500

30. SALE INFORMATION • Sale Price: $569,000 • Sale Date: 3/14/05 • FY 2007 Assessment: $504,000 • Bedrooms : 2 • Baths: 1.5 • Living Area: 1,524 • Square Feet Land: 11,033 • Upgrades Since 1990: $0

31. SALE INFORMATION • Sale Price: $739,000 • Sale Date: 7/1/05 • FY 2007 Assessment: $689,300 • Bedrooms: 4 • Baths: 2 • Half-Baths: 2 • Living Area: 2,454 • Square Feet Land: 8,980 • Upgrades Since 1990: $167,000

32. SALE INFORMATION • Sale Price: $518,000 • Sale Date: 5/27/05 • FY 2007 Assessment: $512,200 • Bedrooms: 3 • Baths: 2 • Living Area: 1,288 • Square Feet Land: 13,042 • Upgrades Since 1990: $0

33. SALE INFORMATION • Sale Price: $553,900 • Sale Date: 3/15/05 • FY 2007 Assessment: $541,300 • Bedrooms: 3 • Baths: 1 • Living Area: 1,253 • Square Feet Land: 7,808 • Upgrades Since 1990: $5,700

34. SALE INFORMATION • Sale Price: $475,000 • Sale Date: 11/3/05 • FY 2007 Assessment: $541,800 • Bedrooms: 2 • Baths: 1.5 • Living Area: 1,494 • Square Feet Land: 8,400 • Upgrades Since 1990: $6,135

35. SALE INFORMATION • Sale Price: $979,000 • Sale Date: 3/25/05 • FY 2007 Assessment: $1,058,000 • Bedrooms: 4 • Baths: 2.5 • Living Area: 3,923 • Square Feet Land: 9,000 • Upgrades Since 1990: $0

36. SALE INFORMATION • Sale Price: $849,000 • Sale Date: 8/9/05 • FY 2007 Assessment: $782,700 • Bedrooms: 4 • Baths: 2.5 • Living Area: 2,145 • Square Feet Land: 18,260 • Upgrades Since 1990: $110,000

38. ABATEMENT OR EXEMPTION ????????

39. ABATEMENT OR EXEMPTION 1)  If you find a discrepancy in the physical characteristics of your home in relation to the information on file at the Assessor’s Office ( i.e. four baths listed, when you only have three, or finished basement area that you do not have) please bring it to our attention so the problem can be corrected after an inspection of the property. 2)     If several houses in your neighborhood, similar in total building Square Footage and in total Land Area to yours, SOLD IN CALENDAR YEAR 2005 for less than the assessed value of your property please bring them to the Assessor’s attention. Neighborhood code information can be obtained from the Assessor’s Office.

40. ABATEMENT OR EXEMPTION 3)     If there are several houses in the neighborhood very similar in total building Square Footage, and in total Land Area to yours, that have not sold recently, but have a significantly lower assessment, please bring these properties to the attention of the Assessors. Please be sure that the EffectiveYear Built, Style, Finished Basement Area and Overall Grade match up closely with your property in addition to the building and land areas. All this information is available at the Assessor’s Office. 4)     Unfortunately, if your taxes are just “Too High” or the “House down thestreet,just like mine, sold last month for less than my assessment”, the abatement processmay not be the appropriate route to lower your tax bill.

41. ABATEMENT OR EXEMPTION   5) Exemptions from property taxes are available to qualifying members of the following groups: Veterans (or surviving spouses) Surviving Spouses,Legally Blind (certified as legally blind by the Mass Commission for the Blind) Older Citizens (qualification begins at age 65) Poverty and/or Infirmity. Please contact the Assessor’s Office for information on these Exemptions. 6)  There are also specific Exemptions from the Community Preservation Act surcharge available. Qualifying factors for this Exemption are Age or Income. Please contact the Assessor’s Office for information.

42. ABATEMENT OR EXEMPTION 7) A reduction of the taxation “fund” is also available locally through The Elder and Disabled Taxation Relief Program, which is administered by the Collector/Treasurer’s office. Please contact that office for information. 8) A Tax Work Off programs is available to a limited number of individuals, who may wish to reduce their tax burden by working for the Town of Needham on a part-time basis. Please contact the Council on Aging for information on these programs.

43. ABATEMENT OR EXEMPTION 9) Please check with your tax accountant or the Needham Council on Aging to establish eligibility to receive a state income tax credit under provisions of the Circuit Breaker Tax Credit

44. Additional Assistance Programs… In conjunction with the Abatement and Excise possibilities, there are other assistance programs in the following areas, for those financially eligible, through the Needham Board of Health Federal Fuel Assistance Program Salvation Army Good Neighbor Program Town Water Abatement Program Food Stamps for Senior and Disabled residents The Community Council Food Pantry

45. Massachusetts Excise Tax

46. Chapter 60 A of the Mass General Laws states that “Every motor vehicle and trailer registered in the Commonwealth is subject to motor vehicle excise unless expressly exempted.” Some of the more common exemptions are for:1) Former POW’s or their surviving spouses 2) Certain documented permanently disabled owners. 3) Certain documented permanently disabled veterans. 4) Certain Businesses and Charitable organizations. 5) Certain active duty military personnel.

47. Calculation of the Excise TaxThe tax is based on the Manufacturer’s Suggested Retail Price (MSRP). The actual sale price of the vehicle is NOT the basis for computing the tax.Every vehicle is taxed at the rate of $25 dollars per thousand dollars of value.A 2008 model purchased in 2007 is taxed @ 50 % of the MSRP.Example: $ 20000 x .5 = $ 10000 $10000 / 1000 = 10 $25 x 10 = $250 of Excise Tax for the portion of 2007 that the vehicle is owned. Remember that 2008 models would not generally be available until mid to late 2007.For the full calendar year 2008 the excise tax is 90% of the MSRP.Example: $20000 x .9 = $18000 $18000 / 1000 = 18 $25 x 18 = $450 of Excise Tax for all of 2008 In the ensuing years the percentage of the MSRP drops from 90% - > 60% -> 40% -> 25% -> 10%. It then remains at 10% for as long as the vehicle remains in your possession using the same license plates.

48. Grounds for Excise AbatementIn most cases abatements are partial refunds dating from the first day of the month after the plates are transferred or turned in. If a car is totaled on June 2, the abatement will cover July to December of the year.Vehicle Overvaluation – Since MSRP determines value this is rare.Vehicle is Sold / Totaled / Donated – Plates are transferred to another vehicle or turned in. Owner must produce registration showing plates on another vehicle or “Plate Return Receipt” issued by the Registry if plates are turned in.Name change on registration: Example Mr. Jones & Mrs. Jones to just Mr. Jones or just Mrs. Jones., registration change parent to child, etc.

49. IMPORTANT FACTS TO REMEMBERExcise tax bills are issued by the Massachusetts Registry of Motor Vehicles. NOT by individual towns.A yearly bill is generated based on the place of garaging in the Registry’s records. In the case of a move from one Massachusetts location to another it is up to the owner to report this information to the Registry. If a car moves from Needham to Somerville in February, a bill will be generated showing Needham for that whole year. The easiest solution is to pay the bill and inform the Registry of the new address so the bill will be generated in Somerville the following year.

50. The Community Preservation Act (CPA)The CPA establishes a fund to allow Needham to finance projects involvingOpenSpace, Historic Preservation, RecreationFacilities and Community Housing assets. The CPA was approved by Needham voters in November of 2004. the primary source of funding is a 2% surcharge on the tax bills of Residential and Commercial property owners.