The Kansas real estate ratio study is a statistical performance evaluation tool that can be used to make inferences about the relative level and uniformity of appraised values. In a ratio study, the county’s appraised values are compared to true market value indicators (sale prices). Although market value cannot be observed directly, sale prices obtained from an open and competitive market can serve as a proxy for fair market value. To calculate a ratio, the county’s appraised value is divided by the property’s sale price. This is done throughout the year as sales occur.
The statistics presented below include the standard industry measures used to evaluate mass appraisal performance. These consist of the overall level of appraisal measured by the median ratio, the degree of uniformity measured by the coefficient of dispersion (COD), and the relative inequity between appraisals of high-dollar and low-dollar property which is measured by the price related differential (PRD).
The MEDIAN RATIO is the middle ratio in a sorted (low to high) array of sales ratios; 50% of the ratios lie above the median and 50% fall below it. The median ratio is the most commonly used point estimate because it is less influenced by outliers.
The MEDIAN RATIO CONFIDENCE INTERVAL provides the range in which the true county median ratio is expected to fall. The confidence interval is a more reliable indicator of the actual level of appraisal for all properties in the county, both sold (those used in the ratio study sample), and unsold. The confidence level used by the Property Valuation Division of the Department of Revenue (PVD) is 95%. The acceptable compliance range for the median ratio is 90.0 to 110.0 %.
The COEFFICIENT OF DISPERSION (COD) is the most common measure of uniformity in sales ratio studies. It indicates how tightly the ratios are clustered around the median ratio. The COD is a proportional measure found by taking the average of the absolute deviation of ratios about the median, and dividing by the median ratio. The lower the COD, the greater uniformity in appraised values. The maximum allowable COD is 20.0.
The COD CONFIDENCE INTERVAL provides a range estimate in which the true county COD is expected to lie with a 95% level of confidence. The standard in Kansas requires the COD to be 20.0 or less for both residential and commercial/industrial property in order for a county to be in compliance. Although the ideal COD is 0.0, that goal can never be expected in an open and dynamic real estate market. In order to achieve the minimum standard for compliance, the lower tail of the confidence interval must reach a COD of 20.0 or less.
The PRICE-RELATED DIFFERENTIAL (PRD) is used to measure value related inequities in the appraisal system, referred to as regressivity or progressivity. Appraised values are regressive if high value properties are under appraised relative to low value properties and progressive if high value properties are over appraised relative to the low value properties. The PRD is found by taking the mean (average) ratio of the sample and dividing by the weighted (aggregate) mean ratio.
The PRD CONFIDENCE INTERVAL provides a range in which the true county PRD is expected to lie with a 95% level of confidence. The standard calls for a PRD to fall between 0.98 and 1.03 in order for a county to be in compliance. A PRD above 1.03 suggest that the appraisal process may be regressive. A PRD below 0.98 suggest that the appraisal process may be progressive. The ideal confidence interval will overlap a measure of 1.00. In order to achieve the minimum standard for compliance one tail of the confidence interval must either overlap 0.98 or 1.03.
The TOTAL NUMBER OF VALID SALES is the sample size. The sample consist of verified, arms-length transactions in which a well-informed seller and buyer transfer the ownership of property in an open and competitive market, acting without undue compulsion, as described in K.S.A. 503a. Only valid sales are used in the ratio study. In order to eliminate the effects of large samples and provide a more accurate depiction of appraisal performance, large counties such as Shawnee only utilize a small random sample of residential sales.
The Property Valuation Division of the Department of Revenue conducts appraisal/sales ratio studies for all Kansas counties. The results of those studies are available on their web site.