Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: October 29, 2018 FILE NO.: WR 155292

Assessed Person(s): Palanimuthu Sundararaj and Xianyu Tang Appellant(s): Palanimuthu Sundararaj and Xianyu Tang Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 03 Respondent(s): City of Ottawa

Property Location(s): 32 Cedar Park Street Municipality(ies): City of Ottawa Roll Number(s): 0614-084-804-00510-0000 Appeal Number(s): 3265533 and 3291699 Taxation Year(s): 2017 and 2018 Hearing Event No. 702869

Legislative Authority: Section 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended

Heard: September 6, 2018 in Ottawa, Ontario

APPEARANCES:

Parties	Representative
Palanimuthu Sundararaj and Xianyu Tang	Palanimuthu Sundararaj
MPAC	Liane Arcand
City of Ottawa	No one appeared

DECISION OF THE BOARD DELIVERED BY SCOTT McANSH

1Palanimuthu Sundararaj and Xianyu Tang (the “Taxpayers”) appeal the assessment of their home, located at 32 Cedar Park Street in the City of Ottawa, for the 2017 and 2018 taxation years. The property was assessed at $806,000 for the 2017 taxation year and at $757,000 for the 2018 taxation year. The Taxpayers argue that the assessment should be closer to $650,000 for both taxation years. MPAC argues that the assessment should be $757,000 for both taxation years. Both parties base their position on the time adjusted sales of similar properties in the area.

2For the reasons that follow, I find that the time adjustment of sale prices should be avoided if possible, especially where there is evidence from sale prices of similar properties that sold close to the valuation day. The sales of homes like the Taxpayers’, that took place near the January 1, 2016 valuation day, indicate that the Taxpayers’ home likely would have sold for $750,000 on that day. I find that to be the current value of the property. I also find that it would be fair and equitable to assess the property at that amount. I therefore reduce the 2017 taxation year assessment of the property from $806,000 to $750,000 and I reduce the 2018 taxation year assessment of the property from $757,000 to $750,000.

Background

3The property before me is located in west Ottawa on a lot with just over 60 feet of frontage and just over 100 feet of depth. The home on the property was built in 2001 and is two storeys with a finished basement. It is a large home, measuring over 3,300 square feet. The Taxpayers state that it does not have a high level of finish when compared to other properties in the area. They attribute this to the previous owners not investing in upgrades to the home. MPAC did not dispute that evidence.

the Law

4Clause 44(3)(a) of the Assessment Act, R.S.O 1990, c.A.31 (the “Act”) requires the Assessment Review Board (“Board”) to “determine the current value of the land.” Current value is defined in section 1 as “the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer.” That is, I must determine what the subject property would have sold for in an arm’s length transaction on the relevant valuation day, set pursuant to section 19.3 of the Act, as January 1, 2016 for the 2017 and 2018 taxation years.

5Once I have determined the current value, clause 44.(3)(b) requires that I “have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity” but only if that adjustment would result in a reduction of the assessment.

Current Value

6As with most residential properties, MPAC put forward an opinion of value based on the sale prices of similar properties. This is known as the direct comparison approach and is the most accepted way to value residential property. MPAC also time adjusted the sales that it presented to reflect what they likely would have sold for on January 1, 2016. The Taxpayers similarly presented comparable sales, but they selected sales that sold at the same time they purchased their house and time adjusted those 2009 sales to reflect what they likely would have sold for on the January 1, 2016 valuation day. MPAC objected to that time adjustment.

7Given the central role that time adjustment plays in this dispute, I must first review the time adjustment methodologies presented by each party and consider the appropriateness of time adjustment factors.

Time Adjustment

8Time adjustment can come in a variety of forms, but all forms are intended to adjust actual sale prices to what they would have been on another day. This reflects the reality that markets change over time and the sale of a property at one time is not likely reflective of the sale of the same property at another time. Time adjustment works by taking the average change in the market and applying that value to the particular sale value at issue. Averages always cover over nuances, and that means that time adjustment will never be perfect and that caution should always be exercised when relying on time adjustment.

9MPAC presented its standard time adjustment study in this hearing. That study compares the sale prices of properties to their assessed value. The difference is assumed to be nearly entirely attributable to the time of the sale, resulting in a percentage change over time. MPAC’s time adjustment study is based on the assumption that its assessments being an accurate reflection of current value on the valuation day. Given that MPAC’s assessment is the issue in dispute here, that assumption is not necessarily reasonable.

10The Taxpayers presented two time adjustment methods. First, they rely on the Teranet – National Bank of Canada House Price Index. That is a public house price trend tracking tool. The Taxpayers used the Ottawa-Gatineau data from that source to calculate average percentage increases over time. Secondly, they rely on Canada Mortgage and Housing Corporation’s Housing Now dataset for Ottawa to arrive at percentage increases over time. Both of those sources look at a fairly large geographic area and, by taking an average, smooth out all of the regional variability in price trends. Caution must, therefore, be exercised in applying those factors. It is highly likely that each area changes over time in its own way so these global trends are not likely to truly reflect the changes in particular sale prices.

11There are risks with both methods of time adjustment proposed. Neither is likely to be accurate most of the time. That is not to say that all time adjustment must be avoided. These methods can give come indication of where sales may have gone. But time adjustment should never replace sales that took place close to the valuation day. There is no better snapshot of how a housing market is behaving on a particular day than sales in that market near that day. Time adjustments should only be relied upon when no better evidence is available.

Sales

12MPAC presented 10 sales to support its opinion of current value, while the Taxpayers presented four. The Taxpayers also time adjusted their $547,000 purchase price of the property in October 2009, resulting in a value of approximately $610,000. The most relevant characteristics of the sales are set out in the table below.

	Address	House Size	Year Built	Sale Date	Sale Price
	32 Cedar Park	3,343	2001
1	57 Whitestone Drive	3,124	2000	June 2016	$715,000
2	48 Grenwich Circle	3,432	2006	June 2015	$880,000
3	49 Grenwich Circle	3,432	2010	June 2014	$734,000
4	277 Scout Street	3,124	2002	April 2016	$740,000
5	97 Whitestone Drive	3,065	2014	October 2014	$684,610
6	41 Whitestone Drive	2,706	2002	May 2013	$618,000
7	53 Whitestone Drive	2,791	1999	April 2015	$590,000
8	24 Crystal Park	2,706	1999	May 2015	$598,000
9	47 Whitestone Drive	2,706	2002	November 2013	$625,000
10	62 Grenwich Circle	3,343	2009	August 2014	$819,000
11	21 Grenwich Circle			June 2009	$552,500
12	51 Whitestone Drive			December 2009	$565,000
13	43 Whitestone Drive			November 2009	$550,000
14	267 Scout Street			October 2009	$550,000

13The Taxpayers selected the 2009 sales because they sold for nearly the same amount as their property around the same time. On that basis, they argue that the market has judged these as similar properties. That is a reasonable argument. However, as discussed above, I do not find it reasonable to rely on average changes in the housing market over a seven year period to predict the January 1, 2016 sale value of those properties. The time adjustment methods presented are not sufficiently robust to predict specific sale prices.

14The housing market in this area, near the January 1, 2016 valuation day, is best indicated through the sales of properties within a year of that day. That is a sufficiently close time to provide guidance on what properties were selling for at that time. Of the 14 sales before me, only five sold in 2015 or 2016—Sales 1, 2, 4, 7, and 8. Sale 1 is slightly smaller than the Taxpayers’ property and built around the same time, so it is inferior to the Taxpayers’ property. Sale 1 indicates that the Taxpayers’ property likely would have sold for more than $718,000. Sale 2 is larger and newer than the Taxpayers’ property, so it is superior to the Taxpayers’ property. Sale 2 indicates that the Taxpayers’ property would likely have sold for less than $880,000. Sale 4 is slightly smaller than the Taxpayers’ property and built around the same time, so it is inferior to the Taxpayers’ property. Sale 4 indicates that the Taxpayers’ property likely would have sold for more than $740,000. Sale 7 is smaller than the Taxpayers’ property and built around the same time, so it is inferior to the Taxpayers’ property. Sale 7 indicates that the Taxpayers’ property likely would have sold for more than $590,000. Finally, Sale 8 is smaller than the Taxpayers’ property and built around the same time, so it is inferior to the Taxpayers’ property. Sale 8 indicates that the Taxpayers’ property likely would have sold for more than $598,000.

15The sales indicate that the Taxpayers’ property likely would have sold for more than $740,000, and likely would have sold for less than $880,000. The Taxpayers argue that their home is not updated to the same degree as these comparable sales and provided some evidence of higher quality interior finishes in other homes that had sold. I accept that evidence and find that it would put the Taxpayers’ property at the lower end of the range indicated by the sales. Its size and age of the construction would, however, be stronger drivers of value than interior finishes. The evidence, on the whole, indicates that the Taxpayers’ property likely would have sold for $750,000 on January 1, 2016.

16I therefore find that the current value of the Taxpayers’ property for the 2017 and 2018 taxation years is $750,000.

Equity

17The Act requires that I look at the assessment of similar land in the vicinity to determine if it would be fair and equitable to assess the Taxpayers’ property at its current value of $750,000. MPAC presented a study of 30 properties that sold near the Taxpayers’ property between January 2013 and December 2016. MPAC also limited its search to homes between 2,706 and 3,432 square feet, built between 1999 and 2014, with lots between 0.09 acres and 0.34 acres, and a quality class of 7.0. MPAC’s argument is that the median level of appraisal of 1.014 indicates that the property is being assessed near its current value so no equity adjustment is required. The Taxpayers argued that they should be assessed like 69 Whitestone Drive, which is an identical model home, built at the same time, which is assessed at $663,000.

18This Board recently considered equity in Jay Patry Enterprises Inc. v Municipal Property Assessment Corporation, Region 05, 2019 CanLII 39629 (ON ARB), 2018 CanLII 70338 (ON ARB). In that case the Board held that a statistical analysis of sold properties is the best evidence of an inequity in assessment. The Board set out its views on statistics at paragraph 112:

First, means are the strongest and most reliable metric of central tendency in a data set. Means are also the only metric from which reliable error tolerances can be calculated. Those error ranges are important in determining if the true level of assessment of all similar property in the vicinity is below one hundred percent. We find that a 95% confidence interval is a reasonable error tolerance around a sample mean. Neither party provided those statistical metrics so we have calculated them ourselves when required.

19I agree with that assessment. A comparison to one home is not a reliable way to determine if MPAC is under-assessing properties in the vicinity. I do not accept the Taxpayers equity comparison. They acknowledge that the property at 69 Whitestone Drive is not identical to theirs, saying it has better interior finishes and a better location. It is therefore not a good single comparison for equity purposes.

20I calculate the mean assessment in MPAC’s study to be 103.00%. MPAC provides a measure that it calls the coefficient of disruption, which in this case is 4.9. That is not a metric that is common to apply to statistical samples. It basically calculates the average variation of each sample from the median. I find that the standard deviation is a more common metric. It shows how wide the distribution of the sample is from the mean and can be used to calculate confidence intervals. I calculate the standard deviation to be 6.29%. Based on that standard deviation, I find the 95% confidence interval to vary by 2.15% from the mean. That means that there is a 95% chance that the true mean level of assessment of property in the vicinity is between 100.85% and 105.15%. The sample provided by MPAC indicates that it is highly likely that property in the vicinity is assessed slightly above its sale value.

21Given that property in the vicinity is assessed, on average, at 103% of its current value, it would also be fair to assess the Taxpayers’ property at a similar level of assessment. However, that would increase the assessment and clause 44(3)(b) of the Act only permits adjustments “if such an adjustment would result in a reduction in the assessment of land.” I therefore make no adjustment for equity.

Conclusion

22I find that the current value of the Taxpayers’ property is $750,000 for the 2017 and 2018 taxation years. No adjustment is permitted to make that assessment equitable with that of similar lands in the vicinity. I therefore reduce the assessment for the 2017 taxation year from $806,000 to $750,000 and I reduce the assessment for the for the 2018 taxation year from $757,000 to $750,000.