Hemmati v. Municipal Property Assessment Corporation Region 14, 2020 CanLII 44349

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE:

July 02, 2020

FILE NO.:

WR 164899

Assessed Person(s):

Alireza Hemmati; Zahra Hemmati

Appellant(s):

Alireza Hemmati; Zahra Hemmati

Respondent(s):

Municipal Property Assessment Corporation Region 14

Respondent(s):

Town of Richmond Hill

Property Location(s):

27 Hillhurst Drive

Municipality(ies):

Town of Richmond Hill

Roll Number(s):

1938-050-048-23994-0000

Appeal Number(s):

3369564 and 3404227

Taxation Year(s):

2019 and 2020

Hearing Event No.:

729903

Legislative Authority:

Section 40 of the Assessment Act, R.S.O. 1990, c. A.31

APPEARANCES:

Parties

Representative

Alireza Hemmati

Robert Baranowski

Municipal Property Assessment Corporation

Elva Yu

Town of Richmond Hill

No one appeared

HEARD:

April 15, 2020 by telephone conference call

ADJUDICATOR(S):

Dirk VanderBent, Vice Chair

DECISION

OVERVIEW

1Alireza Hemmati and Zahra Hemmati (the “Appellants”) are the owners of 27 Hillhurst Drive, Richmond Hill (the “Subject Property”), which is a residential property.

2Pursuant to the provisions of s. 40 of the Assessment Act, R.S.O. 1990, c. A.31 (“Act"), the assessment of land shall be based on its current value. The Act also provides that, for the 2017 to 2020 taxation years, the Municipal Property Assessment Corporation (“MPAC”) is required to assess this value as of the valuation date, January 1, 2016.

3MPAC has assessed the current value of the Subject Property, as of January 1, 2016, at $1,906,000.

4The Appellants have filed appeals for the 2019 and 2020 taxation years with the Assessment Review Board (the “Board”), pursuant to s. 40 of the Act. It is their position that MPAC’s assessment of current value is too high and that the correct current value is $1,652,896.

5MPAC takes the position that its assessed value is the correct current value, subject to one reduction. In the course of this proceeding, MPAC identified that its property detail record for the Subject Property was incorrect in that it showed that the Subject Property has a three-car garage, when, in fact, it only has a two-car garage. Adjusting for this discrepancy, it is MPAC's position that the correct current value of the Subject Property is $1,879,000.

6Pursuant to s. 40(11) of the Act, the Municipality, (in this case, the Town of Richmond Hill) is a party to this proceeding. However, the Municipality did not advise the Board of its position on the issues raised in these appeals, and no one appeared at the hearing on the Municipality’s behalf.

7Section 44(3)(b) of the Act, directs the Board to reduce the current value of the Subject Property if similar lands in the vicinity have been assessed at a lower value (“equitable reduction”). The purpose of this provision is to fairly distribute the municipal tax burden according to the value of the property possessed by each ratepayer.

8Based on an Assessment to Sales Ratio (“ASR”) analysis in an Equity Study prepared by MPAC, both MPAC and the Appellants, agree that the representative ASR value for the properties analyzed in the Equity Study is 0.95. MPAC takes the position that this value indicates that no equitable reduction is required. The Appellants take the position that, because this value is less than one, a reduction is required, more specifically a 5% reduction of the correct current value as determined by the Board.

Issues for the Hearing

9The issue(s) to be determined on this appeal are:

1. What is the correct current value of the Subject Property for the 2019 and 2020 taxation years; and

2. Should there be a 5% equitable reduction of the current value of the Subject Property pursuant to s. 44(3)(b) of the Act.

Result

10At the completion of the hearing, the Board reserved its decision. For the reasons that follow, the Board finds that the correct current value of the Subject Property for the 2019 and 2020 taxation years is $1,879,000. An equitable reduction of this value is not required.

ANALYSIS

Description of Subject Property

11The profile of the Subject Property references influential factors affecting current value:

1. Year Built: 1990

2. Total Building Area: 5,024 square feet (“sq. ft.”)

3. Location: Richmond Hill

4. Actual Site Area: .21 acres

5. Quality of Construction Rating: 7.5

6. Number of Storeys: 2

12The Subject Property has not been the subject of a market sale which occurred within reasonable proximity to the January 1, 2016 Valuation Date.

Issue 1: What is the correct current value of the Subject Property for the 2019 to 2020 taxation years?

MPAC’s Evidence

13Although it is MPAC's position that the correct current value of the Subject Property is its adjusted assessed value, MPAC adduced a Valuation Report prepared by Elva Yu, a property valuation analyst employed by MPAC. In her Report, Ms. Yu identified seven properties which were the subject of a sales occurring in the period from May 2015 to October 2016. She expressed her view that each of these properties was reasonably comparable to the Subject Property (none were described as being inferior or superior). The profiles of these suggested comparable properties are discussed below. Ms. Yu time adjusted these sale values to the January 1, 2016 Valuation Date, indicating that the average value is $2,169,000. As this value is higher than MPAC's adjusted assessed value of $1,879,000, Ms. Yu expressed her view that this analysis supports MPAC's position respecting the correct current value.

14Ms. Yu also stated that MPAC's assessed value already includes a downward adjustment of $199,000. She noted that this adjustment had been applied in determining the assessed value of the Subject Property for the previous assessment cycle, “based on market sales”. She explained that this adjustment has similarly been applied in the determining the assessed value of the Subject Property for the current assessment cycle.

15In cross-examination, Ms. Yu agreed that one of the Appellants’ proposed comparable properties (30 Hillhurst Drive) is comparable to the Subject Property.

Appellants’ Evidence

16The Appellants adduced a property profile summary respecting two properties, both located on the same street as the Subject Property (33 and 30 Hillhurst Drive). These properties were the subject of sales occurring in August and October 2015, respectively. Robert Baranowski, who testified for the Appellants, expressed his view that both proposed properties are comparable to the Subject Property. He pointed out, however, that the building area for 33 Hillhurst Drive is approximately 800 sq. ft. less than the Subject Property.

17For reasons discussed below, Mr. Baranowski expressed his view that none of MPAC's seven suggested properties are comparable. Therefore, he stated 33 Hillhurst Drive is the best comparable property and that the determination of the correct current value of the Subject Property should be based on only 30 Hillhurst Drive. The sale value of this property is $1,606,000. He indicated that he did not time adjust this value. He calculated that the sale value per sq. ft., based on building area, is $329 per sq. ft. Applying this rate to the building area of the Subject Property ($329 x 5,025) he calculated that the correct current value of the Subject Property is $1,652,896.

Findings on Issue 1

18The parties agreed that the applicable valuation methodology to be applied in determining correct current value is a comparable sales analysis. Each party relies on its sales analysis in support of its position. As discussed below, the Appellants argue that none of MPAC's proposed properties are comparable to the Subject Property.

19The Board accepts MPAC’s submission that all seven of MPAC's proposed properties are comparable to the Subject Property. In this regard, the Board notes that they are all within a reasonable geographical proximity to the Subject Property. The Appellants adduced no evidence to indicate that the residential real estate market for these properties differed from that of the Subject Property. The year built for all these properties is within two years of the Subject Property, and they are all two-storey residences with the same construction quality rating as the Subject Property. Their actual site areas range from .23 acres to .24 acres, whereas the site area for the Subject Property is .21 acres. Similarly, their total building areas range from 4,911 to 5,124 sq. ft., whereas the building area for the Subject Property is 5,025 sq. ft.

20The Appellants submit that the differences in actual site area and building area indicate that MPAC's suggested properties are not comparable to the Subject Property. The Board does not accept this submission. The Board notes there is not always a direct correlation between sale value and the site area and building area alone. In other words, in a competitive market for a residential property, a smaller site area or building area does not necessarily mean that the sale value will be lower.

21The two properties proposed by the Appellants provide an example. The building area of 33 Hillhurst Drive is 14% smaller than 30 Hillhurst Drive. The assumption would be that the sale value of 33 Hillhurst Drive should be 14% less than the sale value of 30 Hillhurst Drive ($1,606,000). However, this is not the case. A 14% reduction in the sale value of 30 Hillhurst Drive is $1,381,160, whereas the actual sale price of 33 Hillhurst Drive is $1,515,000. In providing this example, the Board recognizes that these sale values are not time adjusted values.

22In summary, when determining whether a property is comparable, all property profile factors must be considered in their totality. In this case, all the other property profile factors are closely comparable to those of the Subject Property and the variances in site and building areas are relatively minor when compared to the Subject Property. In particular, the Board notes that the variance for building size is only 100 sq. ft (approximate). For this reason, the Board finds that these variances are not sufficiently significant to indicate that these seven properties are not comparable to the Subject Property.

23Turning to the two proposed comparable properties presented by the Appellants, 30 and 33 Hillhurst Drive, MPAC acknowledges that 30 Hillhurst Drive is a comparable property. As noted above, 33 Hillhurst Drive is approximately 800 sq. ft. smaller in terms of building area, which is a more significant variance. However, even if both these properties are considered with MPAC's seven comparable properties, the mean sale value of the properties is $2,056,605, which supports MPAC's position.

24Based on the above findings and analysis, the Board finds that the correct current value of the Subject Property is $1,879,000.

Issue 2: Should there be a 5% equitable reduction of the current value of the Subject Property pursuant to s. 44(3)(b) of the Act?

Description of an ASR Analysis

25In order to understand the purpose of an ASR analysis, it is first necessary to briefly describe the meaning of current value, assessed value, and the principle of equitable reduction of current value.

26Section 1 of the Act defines current value as follows:

1. “current value” means, in relation to land, 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.

Section 19 of the Act states:

19(1) Assessment based on current value. – The assessment of land shall be based on its current value.

27Based on these definitions, a market sale of a property that occurred on the Valuation Date would provide the best evidence of its current value. However, as many properties have not been the subject of a market sale on or proximate to the valuation date, their current values must be estimated, i.e. assessed, by referencing other comparable properties which have been the subject of a market sales. As such, an assessed value of a property is usually an estimate of current value, in other words, a predicted value.

28Because assessed values are estimated values, there is the potential that an assessed value may be inaccurate. Where assessed values are lower than their market value, the owners of these properties will pay less than their fair share of the municipal tax burden. Therefore, where the Board has determined the correct current value of a property, it is possible that that the owner may be paying a higher share of the municipal tax burden in comparison to the owners of other similar properties in the vicinity. In such circumstances, the Act provides that the correct current value should be reduced, in order to achieve fairness (equity) in the tax system. This principle, often described as an equitable reduction, is enshrined in s. 44(3)(b) of the Act which states:

44(3) … in determining the value at which any land shall be assessed, the Board shall,

(b) 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 if such an adjustment would result in a reduction of the assessment of the land.

29Based on the wording of this subsection, more than one similar property must be considered. Section 44(3)(b) of the Act otherwise does not specify a formula to determine whether an equitable reduction is required.

30In summary, the Board observes that there is often a significant amount of estimation applied when determining the correct current value of a Subject Property, and in determining whether similar properties in the vicinity are assessed at values that are lower than their current values. As discussed below, statistical methods are often used to make these determinations. Therefore, there is always a question whether the statistical analysis is reliable. In other words, how much confidence can be placed on this analysis? Such statistical approaches also include methods to estimate this confidence level.

31An ASR analysis is a commonly used statistical method which predicts whether similar properties in the vicinity have been assessed at their current value. A number of similar properties that have been the subject of market sales are selected. The assessed value of each property is compared to its sale value, which is mathematically expressed as a ratio. If the assessed value is the same as the sale value, the ASR is equal to one. If the assessed value is less than the sale value, the ASR value is less than one. A representative ASR value for all the selected properties is chosen (typically, the median or the mean of all the ASR values) (“Level of Assessment”).

32As the individual ASRs may vary for each of the similar properties used in the ASR analysis, a further assumption is made where the mean or median ASR value for this dataset of properties (Level of Assessment) is considered to represent a common ASR for all the similar properties considered in the analysis. A further assumption is made that this Level of Assessment also applies to all other similar properties in the vicinity where no market sale has occurred. Given these predictive assumptions, there is always a question regarding the accuracy of the analysis. In other words, how reliable is the Level of Assessment? From a statistical perspective, if the Level of Assessment falls within the range of 0.95 to 1.05, this indicates that the prediction is reliable. For this reason, this range is sometimes referred to as a confidence interval. Because this range is so close to 1.0, a Level of Assessment in this range additionally indicates that that assessed values do reflect current values, and, therefore, an equitable reduction is not required.

33The Board has consistently accepted that it may rely on an ASR analysis when determining whether an equitable reduction is required.

Evidence and Parties’ Submissions

34In this case, MPAC conducted an ASR analysis and determined that the Level of Assessment is 0.95. The Appellants do not dispute this value. Ms. Yu testified that, if the Level of Assessment falls within a range of from 0.95 to 1.05, this indicates that the assessed values of the selected properties are closely equivalent to their sale values, which indicates that all similar properties in the vicinity are not under-assessed. In cross-examination, Ms. Yu indicated that a value falling within the range of .90 to 1.10 is recommended by the International Association of Assessment Officers, but MPAC uses a more conservative range of 0.95 to 1.05.

35The Appellants submit that, if the representative ASR value is less than 1.0, this indicates that that the similar properties in the vicinity are under-assessed, within the meaning of s. 44(3)(b) of the Act. Therefore, they argue that the current value as determined by the Board, should be changed to a value that is 95% of its correct current value. In other words, the correct current value should be reduced by 5%. The Appellants calculate that this reduction would result in a $1000 reduction in the amount of municipal taxes payable, which they assert is a significant amount of money.

Findings on Issue 2

36In this case, the Level of Assessment is .95. As noted above, a Level of Assessment that falls within the range of .95 to 1.05, indicates that that assessed values do reflect current values, and, therefore, an equitable reduction is not required.

37While the Board may consider an alternate approach to determine whether an equitable reduction is required, the Appellants’ have not adduced any other evidence or analysis to support their submission that a 5% equitable reduction is required.

38Based on the above analysis and findings, the Board finds that an equitable reduction of current value of the Subject Property is not required.

CONCLUSION

39The current value of the Subject Property is $1,879,000 for the 2019 and 2020 taxation years.

40An equitable reduction of the current value of the Subject Property pursuant to s. 44(3)(b) of the Act is not required.

ORDER

41The current value of the Subject Property is $1,879,000 for the 2019 and 2020 taxation years.