VERTICAL EQUITY IN REAL ESTATE ASSESSMENT: A FAIR APPRAISAL

While real estate taxes are the primary form of local revenue in the US, the assessment process is plagued by inappropriate statistical procedures. These biased procedures result in systematic under-assessment of high-value properties and over-assessment of low-value properties. These errors are analogous to problems of forecasting and predicting in general. This study offers major improvements in the traditional tests that minimize the problem of regressivity. The improvement in assessment procedure is demonstrated by sampling property tax data from King County, Washington. The improvements are based on the efficiency of the assessment estimate. Given the efficiency of available data, it follows that the forecast error will be uncorrelated with the assessment itself, and becomes a simple implication of the efficiency of the estimate. The assessment can also be improved by considering additional information concerning the selling price.