The Sale Confirmation

The key elements in an assessment sales ratio study are reliable and relevant data obtained from property sales.  It is the responsibility of the assessor to ensure that the sales information utilized in this analysis is accurate and complete.  It is also important for the assessor to understand the motivations of the buyer and the seller to determine if the transaction should be used for study purposes.  The process undertaken to comprehend the meaning and usefulness of a sale is known as a sale confirmation.  As a part of this procedure, the assessor will occasionally place telephone calls or conduct face-to-face interviews with a buyer, seller, realtor, or other persons involved with the property sale to review and verify the factors that may affect the purchase price.

Since it is a requirement of the law to fully disclose the sale price and provide relevant information about the transaction on the certificate of real estate value (CRV) filed with the county, why is it necessary for the assessor to ask more questions?

During the processing of the certificate of real estate value, the assessor may uncover incomplete or missing information that necessitates contact with the buyer, seller, or preparer of the document.  There are also instances when some verification is required given the property type, financial arrangements, type of acquisition, planned use of the property, and financing reported.  The additional questions are asked to assist the assessor in resolving whether the sale is an arms-length transaction that meets the qualifications of the market value definition (i.e. the buyer and sell were acting prudently and knowledgeably, the price was not affected by an undue stimulus, neither the buyer nor the seller was under pressure to complete the sale within a short time, and both parties were looking to obtain the greatest benefit).  Another reason the assessor may seek more information on a sale is to determine if the purchase price should be adjusted to reflect the price paid for only the real property. 

Does the assessor complete a sale confirmation on all property sales?

All certificates of real estate value filed with the county are manually verified and screened by the assessor.  They are reviewed on a mass basis that entails an examination of the names of both the buyer and seller, date of sale, legal description of the conveyed property, total purchase price, down payment, points paid by the seller, personal property included in the sale price, type of acquisition, property type transferred, intended use of the property, and the method of financing.  In regards to residential and seasonal recreational properties, the assessor may also contact the parties involved with the purchase to ensure that the information is reliable and to decide if the sale should be used or excluded from the study.  Commercial, industrial, apartment, and farm property sales are subject to a similar review, but additional information pertaining to such things as the sale price, a completed appraisal on the property, physical characteristics describing land and building features, and certain direct/indirect conditions are analyzed, too.  Ordinarily, the assessor completes a more thorough sale confirmation on these properties by placing telephone calls, sending surveys, or interviewing people with knowledge about the sale.  

What are some of the factors influencing the sale price of a property that are not disclosed on the certificate of real estate value and are usually uncovered in a sale confirmation?  How do these factors affect the use of the sale in the assessment sales ratio study?

Even though the market values of many sale properties may be similar to their sale prices, there are a variety of situations when the market values for some properties are different than the reported prices.  For instance, some sale prices include non-real estate items such as personal property, inventory, crops, machinery, closing costs, points, prepaid interest or rebates paid by the seller, additional money borrowed to repair or improve a property, and any premiums paid by the buyer to cover the down payment or make improvements to the property.  When these items are disclosed to the assessor during the sale confirmation, they are reported and deductions from the purchase prices are made before they are used in the study.  Another example when sale prices differ from the market values is when “distressed properties” are sold or transferred.  Sales to avoid foreclosure, resales of repossessed property, sales involving divorces, bankruptcies, and some estates generally do not meet the qualifications of the market value definition.  They are given little or no consideration and are not utilized.  One more illustration of a factor influencing the sale prices of properties is when buyers purchase other properties to complete “like-kind” 1031 tax exchanges.  If the buyers are not typically motivated or are under some duress to obtain properties within a short time, then higher prices may be paid.  Such sales when identified by the assessor are carefully scrutinized, reported, and rejected for use.  In all, it is the obligation of the assessor to investigate and measure these and other factors (i.e. partial-interest sales, physical changes to a property due to new construction or damages that have occurred after the assessment date, changes in the use of properties from one legal class to another, employee transfer or relation sales, sales with allocated sale prices, sale-leaseback arrangements, and properties bought by one buyer to assemble a package for later development) so that the integrity of the assessment sales ratio study is maintained.          .             

How important is a sale confirmation to the assessment sales ratio study and what impact, if any, does it have on the assessment and taxation of properties?

It has been said that the annual property assessment can be only as good as its sales data.  The validity of the assessment sales ratio study should always be based on open market, arms-length transactions that have been properly screened and verified before their use.  If a sale that should either be rejected or adjusted is taken at its face value and used for analytical purposes, then there is a possibility that the assessment level may be overstated or understated.  This circumstance, of course, would only occur if the sample size of the study was relatively small and little or no screening of the other sales was performed.  However, if this situation did exist, there could be equalization issues and more property tax appeals if the assessment sales ratio is above or below the acceptable assessment level.  It could also lead to an unequal distribution of school and local government aids as well as distorted tax rates, resulting in higher or lower tax bills for some or all property types.

If you have any questions regarding this information, or topic suggestions for a future column, please contact us.

Stearns County Assessor's Office
Administration Center, Room 37
705 Courthouse Square
St. Cloud MN 56303

Phone 320.656.3680

or e-mail the Assessor: gary.grossinger@co.stearns.mn.us