BUSI 443

Question 1

Explain the property taxation principles of ability-to-pay and the benefits received. Provide two examples (one each) of situations where these principles are followed in raising local government revenue.

Answer 1

Ability-to-pay - Taxpayers should pay taxes according to their ability. The property tax is a tax on wealth where ability is measured by the “wealth” of the taxpayer - the value of their real property.
Example: ad valorem property taxes.

Benefits received - Taxpayers should pay taxes according to the benefits they receive. For example, those who use
recreational facilities or require garbage pick up should pay separately for these benefits. Typically fees
only cover a portion of the cost of providing the local government service.
Example: user fees of any kind.

Question 2

Is the incidence of property taxation progressive, regressive, or neutral? Provide reasons for your answer.

Answer 2

The incidence of taxation depends on your point of view. If the property tax is viewed as tax on the
consumption of real property, it appears to be regressive. This is because individuals with lower
incomes spend a greater proportion of their income on housing. However, if income is measured as
permanent income (a measure of current and future income) the property tax as a tax on consumption
appears to be proportional at minimum. If the tax is measured against equity rather than value, it
appears to be even more progressive. This occurs because the elderly taxpayers, although on fixed
incomes, typically have a great deal of equity in their homes. Furthermore, regressivity in the property
tax is frequently caused by poor assessment administration, such as assessments that are not at market value, and not the tax system itself.
If the property tax is viewed as a tax on capital, it appears progressive. This is because higher income
taxpayers spend proportionately more of their income on capital than lower income taxpayers.

Question 3

What are the expected benefits of site vale taxation as put forward by the proponents of this system? Under what circumstances do you feel site value taxation would be appropriate?

Answer 3

Proponents for site value taxation base their support on the allocative efficiency of the tax - the taxation
of land only should promote development, redevelopment, and lead to the highest and best use of the land. This is based on two separate theories: the liquidity effect and the incentive effect.

The Liquidity Effect - This theory states that under land value taxation, the increased holding costs will provide an incentive for landowners to develop or sell property. A pure land tax will also decrease the value of land as the
tax is capitalized into the value of the land. These two effects should make land more saleable, or
liquid.
The Incentive Effect - The incentive effect holds that a reduction in the tax on improvements will lead to an increase in the supply of improvements. Land is fixed in supply and therefore a tax on land will not affect the amount of land supplied. Demand for improvements, however, is elastic. The more elastic the demand, the
greater the effect land value taxation will have on the supply of improvements.

Advocates for land value taxation argue that the liquidity and the incentive effects will reduce urban
sprawl, lessen inner city decline, and provide incentive to develop land to its highest and best use.

Circumstances where site value taxation could be appropriate include areas in which rapid development
is desired, for example in new and growing cities or in the declining neighbourhoods of inner cities.

Question 4

Provide two examples of how legislation could prohibit an assessor from maintaining the valuation principles of the ad valorem system.

Answer 4

Examples of how legislation could prohibit an assessor from assigning a market value:
• use value assessment: assess on the basis of current use rather than highest and best use; e.g.,
farmland.
• required to use cost manual; may not reflect current market value
• assessment restrictions are in place; e.g., assessment averaging, proposition 13, limits on
assessment increases, etc.

Question 5

For non-assessment real estate professionals, such as appraisers and real estate brokers, what assessment issues must be taken into consideration during the performance of their jobs?

Answer 5

A few assessment related issues that may be of interest to non-assessment real estate professionals are:
• tax rates
• assessment basis…highest and best use, or value in use
• approaches to value commonly used (i.e., is it solely cost based assessments)

Question 6

Given the situation in Assignment No. 3, Question 4, what could the assessor have done to avoid this situation?

Answer 6

The assessor could have explained in general terms how the property assessment and taxation system
operates. He or she could have then reviewed the past relationship between value and property taxes.
Mary could have been directed to the municipality for more information or the assessor could have
contacted the municipality on her behalf. At no time should the assessor have given Mary an estimate
of property taxes on her specific property without first contacting the municipality.

Question 7

The functions an assessor performs can be broadly classified as either judicial (including quasi-judicial) or administrative. Why is the distinction between judicial and administrative functions important?

Answer 7

Judicial decisions can be appealed to courts and tribunals for review. Administrative actions are not
subject to review by courts unless specifically provided for in the statute.

Question 8

In a situation in which an appraiser must assign a market value, indicate whether or not each of the following restrictions in use should be taken into consideration and discuss why or why not.

(a) A registered right of way in favor of the provincial hydro authority.
(b) Rents restricted by provincial rent control.
(c) An unregistered agreements with the owner of neighboring property to allow access along the driveway of the propety.

Answer 8

Given the decision reached in Consolidated Shelter Corp. v. Rural Municipality of Fort Garry (1965)
49 O.L.R. (2d) 565 (Man. C.A.), assessors can ignore the effect of any restrictions on use that have
been placed there by the owner. The assessor will, however, consider all restrictions that affect market
value and bind subsequent owners.
(a) taken into consideration; restricts the current and all future owners’ use of the property;
Alternative answer: if a student specifically states that the interest to be valued is the fee simple
interest (e.g., as required in the B.C. Assessment Act), then it would be correct to state that
this interest is not to be taken into consideration. Reference must be given to valuing the full
fee simple interest.
(b) taken into consideration; ultimately, the effect on value would be reflected in lower sale prices
for rental properties;
(c) ignored; unregistered and therefore does not affect subsequent owners.

Question 9

In order to make residents pay for local services, Jorden Candell, the mayor of Ottawa , is considering implementing a fixed annual tax which will be levied on individuals living within the local area. In general, this type of tax will likely be problematic for all of the reasons below, Except:

1) there will be a greater difficultly in determining land values.
2) people will likely evade the tax.
3) the registration process will create significant cost
4) it is a regressive tax

Answer 9

1)
The tax proposed by the Mayor is similar to a poll tax. Option (1) is the correct answer, as difficulty
in valuing land is associated with a land value tax, not a poll tax. A poll tax is a regressive tax that
creates evasion and enforcement difficulties. Because people are mobile, it is usually difficult and
expensive to register people for the tax.

Question 10

Two effects of site value taxation are the liquidity effect and the incentive effect. Which statement below is FALSE?

1) liquidity effect: land tax increases holding costs
2) incentive effect: the supple curve for improvements shifts to the right.
3) incentive effect: tax on land will affect the quality of land supplied
4) both the incentive and liquidity effect will reduce urban sprawl

Answer 10

3)
Option (3) is a false statement because with the incentive effect a tax on land will NOT affect the
quantity of land supplied. This is due to the fact that the supply of land is fixed or inelastic.

Question 11

Which of the following is NOT a direct problem resulting from Proposition 13?

1) the system discriminates against growing families
2) valuation in California has become more complex
3) the system is based on legality rather than market value
4) there is an incentive to conduct property transactions so that reported sale prices appear lower

Answer 11

3)
Proposition 13 has created several problems in the state of California including: a system that
discriminates against growing families; incentives to conduct property transactions under the table; and
appraisal, valuation, appeal, and administration functions have become more complex, with errors in
inventory gathering and administration. Option (3) outlines the intent of the Proposition 13 legislation,
rather than a direct problem resulting from it.

Question 12

Which of the following statements is/are true?
A) local control of assessment promotes uniformity of administrative procedures.
B) Canada has a more integrated property tax system than Denmark.
C) some countries only tax land.
D) in Canada, property taxes are administered federally.
1) A and D
2) A, B, and C
3) C only
4) All of the statements are true

Answer 12

3)
Statement C is the only true statement. Statement A is false, because central control of assessment
promotes uniformity of administrative procedures. Statement B is false, because Denmark is well noted
for its extensive integrated tax system. Statement D is incorrect, as property tax in Canada is
administered locally by municipal governments.

Question 13

Which of the following is NOT generally considered to be a regressive tax?

1) pure income tax
2) the goods and services tax
3) a poll tax
4) a tax that represents a larger proportion of income for those who earn a lower income compared to those who earn a higher income.

Answer 13

1)
Option (1) is the correct answer. The pure income tax is a progressive tax because tax rates increase
as income increases. Option (2), the Goods and Services Tax (GST), is a sales tax in Canada. Sales
taxes in general are often argued to be regressive because those with lower incomes spend a larger
proportion of their income on consumption. Option (3), a poll tax, is not based on income, but rather
a charge on everyone (i.e., the poorer you are, the bigger proportion of your income is going to the tax,
compared to a rich person). Option (4) is the definition of a regressive tax.

Question 14

The definition of the “Old View” perspective regarding the regressiveness and progressiveness of taxes, holds all of the following EXCEPT:

1) tax on structures can be shifted to consumers
2) property taxes are imposed at a uniform rate across the country
3) property tax that falls on land mus be borne by landowners
4) land is assumed to be fixed in supply

Answer 14

2)
The “Old View” regarding the regressiveness and progressiveness of tax divides property tax into two
categories: land and improvements (structures). Because structures are investment decisions, the
property tax that falls on the structure can be shifted to the price of the consumer goods and services
that are provided by the structures. Assuming that land is fixed in supply, property taxes that fall on
land must be borne by landowners, because they cannot alter the quantity of land supplied and thus pass
the tax onto consumers. Option (2) is an assumption of the “New View” of property tax incidence.

Question 15

Which of the following statements regarding the benefits received principle is/are TRUE?
A) taxpayers should pay according to their ability to pay
B) the value of ones real property is used as a proxy for ones ability to pay
C) it is not fair to fund people-related services such as schools and parks through property taxation because renters would be benefiting but not paying their fair share
D) A tax levied on the owners of real property is justified because benefits go to the properties.

1) only A and B are true
2) only C is true
3) only C and D are true
4) only D is true

Answer 15

4)
Statement D refers to the benefits received principle – property taxes are justified because the services
of local government accrue directly to property, such as roads, sewers, and fire protection. Statement
A and B both refer to the principle of ability to pay. Statement C is false because contemporary theory
on property tax incidence shows that renters also pay a share of property tax through their rent, and thus
the benefits received principle can be used to justify using property taxes to pay for “people-related”
services.

Question 16

Which if the following is a problem associated with levying a uniform ad valorem tax on both tangible and intangible forms of wealth?

1) intangible personal propety is easy to hide from the appraisers.
2) in today’s economy, tangible personal property is difficult to value due to no active secondary resale market.
3) double taxation of wealth may occur because some intangibles are wealth and some are rights over taxable tangibles
4) all of the above are problems associated with levying a uniform ad valorem tax on both tangible and intangible forms of wealth.

Answer 16

4) All statements are correct.

Question 17

Imagine a system of taxation where commercial and industrial properties are subject to a higher tax rate than residential properties. As owners of residential properties make up the majority of taxpayers, they will tend to demand a greater level of services because the bulk of the cost would be borne by commercial and industrial taxpayers. Since commercial and industrial properties typically have customers from outside they city, the increased tax burden here would be exported to these external customers rather than the taxes being borne by those receiving the services within the city.
The above scenario violates:
1) the accountability principle because tax is being exported
2) the fairness principle because residential property owners should make up the bulk of tax revenues, rather than commercial and industrial taxpayers
3) the neutrality principle because industrial taxpayers
4) none of the above

Answer 17

1)

The scenario violates the accountability principle, which says that tax burdens should not be exported.

Question 18

Leigh Gershwin is considering implementing and ad valorem tax system in her city. Which of the following is a consideration in developing an optimal taxation system?

1) administration and accountability
2) vertical equity
3) stable levels of tax revenue
4) all of the above

Answer 18

4)
Leigh should focus on all of the principles listed. Administration, accountability, neutrality, fairness
(including horizontal and vertical equity), and a stable tax base are all important criteria that would exist
in a good property taxation system.

Question 19

Which of the following statements is FALSE regarding propery taxation in Canada?

1) In some provinces, the provincial government is responsible for the whole assessment function
2) In some provinces, charitable organizations are exempt from property taxation
3) Mandetory exemptions from property tax liability are stipulated by provincial legislation
4) residential property typically bears a higher tax burden than commercial property

Answer 19

4)

Residential property typically bears a lower tax burden than commercial property.

Question 20

Which of the following statements are true regarding the assessors duties with respect to the completion of an assessment roll?
A) An assessor is required to locate and identify all taxable property within thier jurisdiction, to determine the extent of the taxability of eac property according to legislation, and to notify the owners of the assessed value of thier properties only if there has been a change made from the previous assessment.
B) it is important for an assessor to make an inventory of all the important characteristics of all taxable property in order to ensure that taxes are applied equitablity to similar properties.
C) the property tax rate is applied to the market value of a taxable property if it is greater than the amount specified in the assessment roll. The assessor would be required to adequately justify this to the appeal body and to the taxpayer.
D) Assessors are responsible for the assessment roll, and they must be able to justify the appraisal methods and valuations even if contract appraisers made the appraisals.
1) Both A and B are true.
2) Both D and C are true.
3) Statements B and D are true.
4) Statements A, B, and C are true

Answer 20

3)
Statement A is false as, in most cases, owners must be notified of their assessment whether it has
changed or not. Statement C is false because the property tax rate of each tax district is applied to the
assessed value. Statements B and D are true.

Question 21

Identify the three basic approaches to estimating the value of a taxable property.

1) Direct comparison approach, property analysis approach, appraisal approach.
2) value estimate approach, cost approach, taxable income approach.
3) value estimate approach, legal assessment approach, taxable income approach
4) cost approach, direct comparison approach, income approach

Answer 21

4)
The three basic approaches an assessor uses in estimating the value of a property are the cost approach,
the sales comparison approach, and the income approach. The other approaches are not recognized
methods of estimating the value of a property.

Question 22

Identify the three primary assessment responsibilities in accordance with property tax policy in a real estate assessment system.

1) supervision, valuation, appea
2) categorization, taxation, listing
3) equalization, valuation, review
4) discovery, listing, valuation

Answer 22

4)
The primary steps that the assessor carries out in the real estate assessment are: discovery and data gathering
activities, valuation and property appraisal, and listing and assessment activities. Supervision,
equalization, appeal, and appraisal review are responsibilities of the assessor related to assessment, but
are not the primary steps of the assessment roll process.

Question 23

Certain property owners are typically granted exceptions from property taxation because of the benefits they provide to society e.g. churches and non-profit assistance groups. Why would the assessor assess a tax exempt property?

1) If low intensity properties were not assessed, the property owner may be tempted to convert the property to a higher intensity use for a greater financial return.
2) A tax exempt property is assessed if it is not at it’s highest and best use and if the property owner wishes to sell the property on the open market.
3) An assessment informs taxpayers and government bodies of the amount of subsidy that the owners of tax exempt properties are receiving
4) An assessment informs taxpayers and governments bodies of the amount of subsidy that the owners of tax exempt properties are receiving.

Answer 23

4)
An assessor needs to assess the property values of all the properties within a given jurisdiction, even
those which are tax exempt. The purpose of an assessment is to provide property value and taxation
information to property owners and government bodies, regardless of the current or intended use of the
land.

Question 24

Which of the following statements regarding periodic ratio studies are true?

1) a low coefficient of dispersion indicates that the central tendencies of the properties are not an accurate estimate of the market values of the given properties.
2) a high coefficient of despersion indicates that the central tendency is an accurate representation of all the different market values of the given properties.
3) coefficient of dispersion shows whether or not properties within an area or class are appraised uniformity.
4) all of the above statements are true

Answer 24

3)
The coefficient of dispersion (COD) measures the average percentage with which the individual
assessment ratios vary from the median ratio. A low COD indicates that the appraisals within the area
are uniform and do not deviate extensively from the median. A high COD indicates that the assessed
values of the properties are at varying or inconsistent percentages to the market values of the properties.

Question 25

Which of the following statements is TRUE regarding appraised value and assessed vaue?

1) the assessed value is always less than the sales ratio for each propety.
2) the appraised value of a property is determined according to the judgement of an appraiser on a specified appraisal date.
3) Under the ad valorem taxation system, the assessed value of the property is always a fraction of appraised market value of the property.
4) legislative policy determines the appraised market value of a property

Answer 25

2)
Option (1) is false — the sales ratio is a ratio of appraised/assessed value to market value. It will
typically be expressed as a percent, e.g., 90% or 115%; this number will be much smaller than the
assessed value. Option (3) is false because the assessed value of the property may either be a fraction
of the full appraised market value or it may be the full market value. Option (4) is false because
legislative policy does not determine market value – legislation can set assessment ratios and define
what is to be assessed, but it is the appraisal process that determines market value. Option (2) is true.

Question 26

An effective assessment system requires a string legal framework that does NOT include which of the following features?

1) establish a framework of appraisal techniques to estimate the value of a taxable property.
2) establish effective assessment notification, review, and appeal
3) mandate the disclosure to assessors of such market data as sale prices and terms, rents, and operating expenses
4) require public notice of, and controls on, increases in tax levies made possible by reappeals

Answer 26

1)
All statements are a feature of the legal framework of an effective assessment system except for Option
(1). A framework of appraisal techniques to estimate value is one of the primary tasks performed by
assessors working toward completion of an assessment roll.

Question 27

An effective assessment system includes features for effective internal controls within the assessment process. These internal control features include which one of the following?

1) complete maps and property data that updated regularly to show changes in parcel boundaries or other physical characteristics.
2) standards of practice manuals to establish work procedures and polices. These may incorporate laws, regulations, and policy memoranda.
3) accurate market data records that contain complete and accurate information about sales prices and conditions of properties sold within a jurisdiction
4) an active public relations program that includes talking to the public and the news media, and providing printed information and correspondence.

Answer 27

2)
Complete maps and property data, periodic ratio studies, and accurate market data are features of an
effective assessment system, not of effective internal controls.

Question 28

The market value of a property is $150,000, property tax is $1,200 per year, and the assessment ratio is 0.60 of the appraised value. What is the effective tax rate?

1) 0.48 percent
2) 0.80 percent
3) 1.33 percent
4) cannot be determined with the info provided.

Answer 28

2)
The effective tax rate is based on the market value of the property:
Effective Tax Rate = 1,200 150,000 = 0.008 OR 0.80 percent
The nominal tax rate is based on the taxable value of the property:
Nominal Tax Rate = 1,200 (150,000 0.6) = 0.0133.

Question 29

Regarding the valuation of property, which of the following statements is FALSE?

1) It is inappropriate for the appraiser to add special value to a particular owner. A family who pays a premium for a property formerly in the family contains a special value which should be included.
2) An appraiser may value the land according to its highest and best use and then value the improvements on some other basis, even if total value exceeds the highest and best use value as improved.
3) The appraiser has a responsibility to value all of the different interests in a property.
4) The appraiser is required to ignore the effect of any restrictions on use that have been placed there by the owner

Answer 29

Answer: 2
Option (2) is a false statement because according to Toronto v. Ontario Jockey Club an assessor may
NOT value the land according to its highest a best use and then value the improvements on some other
basis.

Question 30

The functions an assessor performs can be broadly classified as either judicial (including quasi-judicial) or administrative. Identify which of the following functions is administrative.

1) An assessor determines that a certain piece of equipment qualities for an exemption from taxation because it is used to abdate pollution.
2) The assessor alters the assessment notice to enhance taxpayer understanding
3) The assessor appeals and assessment because of incorrect inventory: the original assessment was based on land only, but a building has been constructed and now occupies the site.
4) None of the above

Answer 30

Answer: 2
Option (2) is administrative because it involves discretion, but does not affect the rights or obligations
of the taxpayers. Option (1) is judicial because it affects the taxes paid and involves discretion. Option
(3) is judicial because a decision to bring an error or omission forward to the appropriate court of
review involves discretion and affects the taxes paid by the property owner.

Question 31

Mr. Yon sold his house and is currently moving out. As he is packing, Mr. Yon comes across his 10’ x 14’ metal tool shed in his yard, which is not affixed and simply sits by its own weight on the ground. Mr. Yon personally purchased this tool shed many years ago and wants to know if he can disassemble it and bring it to his new yard. What is the best advice you could offer Mr. Yon?

1) Mr. Yon should leave the tool shed because it is a structure and cannot be removed from the premises.
2) Mr. Yon should leave the tool shed because the purpose of the tool shed is for the enhancement of the premises.
3) Mr. Yon should take the tool shed because the shed is attached to the land only by its own weight
4) Mr. Yon should take the tool shed because be bought it personally

Answer 31

Answer: 3
Option (3) is correct because the tool shed is only connected to the land by its own weight and therefore
is considered a chattel. Option (1) is incorrect, as it does not matter if the tool shed is a structure, it
can still be considered a chattel as long as it is not affixed to the ground. Option (2) is incorrect: if an
item fails the first part of the two part test (degree of affixation), then the second part of the test is
inconsequential. Because it has already been determined that the tool shed is not affixed to the land,
the purpose of affixation has no bearing. Option (4) is incorrect because it does not matter who
originally purchased the tool shed.

Question 32

Mary was considering the purchase of a small office building in which to carry on her accounting business. She was concerned about expecting increases in property taxes and approached the assessor for assistance. The assessor informed Mary that “the excepted increase in taxes is about 15%” Behind the counter was a notice stating, in part:
“the employees of this office cannot provide accurate information about expecting property taxes. Any taxpayer who relies on such advice does at their own risk.”
Mary purchased the office building and six months later received a tax bill that was double the previous years bill. The assessor was unaware that the municipality hand intended to shift he tax load to business property. Mary is forced to relocate.
Given the above scenario, pick out the statement which is TRUE concerning Mary’s Legal position.
1) Mary may have a claim in negligent misrepresentation against the assessment authority
2) Mary may have a claim in negligent misrepresentation against only the assessor
3) Mary will be unlikely to succeed in a claim in negligent misrepresentation because the assessment office has a disclaimer notice.
4) None of the above.

Answer 32

Answer: 1
Option (1) is correct: Mary can initiate an action against the employer based on vicarious liability.
Option (2) is false because legally Mary can take action against the employer as well. Option (3) is false
because the disclaimer was not properly brought to Mary’s attention. As well, because the disclaimer
was behind the counter it is unlikely that it was properly displayed for Mary to see.
Four elements must be present to initiate an action of negligent misrepresentation against the assessor
and the assessor’s employer:
• apparent knowledge — it is reasonable to assume the assessor would be knowledgeable about
property taxes;
• wrong advice — the assessor was wrong about the increase in taxes;
• reliance — Mary relied on the assessor’s advice and assumed she would be able to afford the
property taxes if she purchased the property;
• damage — Mary had to relocate her business, at some cost and inconvenience, because of the
unexpected property tax bill;
The disclaimer will not protect the assessor because it was not brought to Mary’s attention.
Furthermore, the assessor made no effort to ensure the information was correct. He or she was relying
on past increases in taxes and could have easily phoned the municipality to check.

Question 33

Judge Cindy Hirotucka is making a ruling which falls under the “assessment act” in her province. In order for Judge Hirotucka is correctly interpret certain words in the Act, she could consider and take into account:
A) Black’s Law Dictionary’s definitions of certain words.
B) the grammatical and ordinary sense of the words.
C) that the title and preamble are not a part of the statute that will aid Judge Hirotucka
D) that general words are not restricted to the same class as the specific words which precede them
1) Both A and B
2) Only B
3) Both B and D
4) Both C and D

Answer 33

Answer: 1
Statement A is true, as Black’s Law Dictionary can be a useful tool to a Judge interpreting a particular
word in a statute. Statement B is true. Statement C is false because title and preamble are part of the
statute. Statement D is false as words ARE restricted to the same class as the specific words which
precede them.

Question 34

An Appraiser has relied upon the owner’s information with respect to a property. Which of the following statements regarding appraiser’s liability is false?

1) If the appraiser did not make a responsible effort to ensure that the advice was correct, then the appraiser can be held reliable.
2) To be held liable, it is not necessary to establish that the appraiser know the advice was incorrect
3) There is a duty to take reasonable care to ensure that information is kept confidential
4) It is necessary that the appraiser intended a particular act to cause harm in order to prove liability.

Answer 34

Answer: 4

Option (4) is the false statement. Intent to cause harm is not necessary to prove someone liable.

Question 35

Regarding the functions performed by assessors, which statement is True?

1) The use of the word “may” in a statute indicates an absolute discretion to determine the matter as the decision-maker sees fit.
2) Whether or not property is assessable can be decided irrevocably by the assessor.
3) Errors and omissions must be brought forward for correction.
4) all of the above

Answer 35

Answer: 3
Option (3) is correct; the assessor has a duty to bring all errors and omissions forward. Option (1) is
false, because the use of the word “may” in a statute does not indicate an absolute discretion to
determine the matter as the decision-maker sees fit. Option (2) is false, because whether or not the
property is assessable can be decided irrevocably by the courts not the assessor.

Question 36

Some assessment jurisdictions operate with legislation that stipulates the basis of valuation to be full market value or a fixed percentage of market value for all classes of property. Many of these jurisdictions also have provisions which direct appeal tribunals and the courts to consider equitable treatment of property owners when reaching their decisions on valuation appeals.
Referring to the courts decisions on the Campeau Developments and Bramalea cases, what problems could you forsee if the appeal tribunals and courts gave priority to equity as opposed to the attainment of full market value, in their decisions?
A) Over time, assessments could be lowered to the lowest assessment for the district
B) Assessment staff may tend to err on the side of low assessments to avoid appeals based on equity alone.
C) The tax base would be eroded.
D) Taxpayers with more funds would be more likely to appeal and succeed; eventually this could create a two-tiered assessment system
1) A and C
2) B and D
3) A, B, and D
4) All of the above

Answer 36

Answer: 4

All of the statements are problems associated with pursuit of equity rather than achieving market value.

Question 37

In certain situations, appraisers may account for the effect that restrictions on use have on a property’s market value, while in other situations they must ignore these restrictions on use. In which one of the following situations would the appraiser take the restrictions on use into consideration?

1) An agreement between the owner and the Canada Mortgage and Housing Corporation to restrict rents in return for a favorable mortgage rate.
2) A registered easement with the municipality allowing access along the driveway of the property
3) A registered lease between the owner and a tenant who is occupying a workshop on the property.
4) The appraiser would ignore restrictions on use in all of the situations above.

Answer 37

Answer: 2
Option (1) and (3) should be ignored because the municipality was not a party to these agreements and
therefore should not be expected to lower property taxes as a result of them. Option (2) should be taken
into consideration because the municipality was a party to the agreement and should therefore consider
the restricted use of the property tax payable.

Question 38

Regarding the decision reached in Metals and Alloys Co. Ltd. v. Regional Assessment Commissioner, No. 31, which statement is TRUE?

1) Once an item is determined to be a building, it is possible for it to be a machinery as well.
2) An integration test should be used to determine whether a structure should be exempt from taxation.
3) It should first be decided if the structure is a building, and therefore subject to tax
4) If an item that looks like a building is essential to the machine it enclose, it will be considered part of the machine.

Answer 38

Answer: 3
The decision reached in Metals and Alloys Co. Ltd. v. Regional Assessment Commissioner, No. 31 is
important because it assists in determining the definition of a building. A building is taxable whereas
machinery and equipment may either not be taxed or may receive favourable tax treatment.
The Court decided that the structure must be considered on its own characteristics: if it looks like a
building or is constructed like a building it should be considered a building and therefore be subject to
tax. This is true even if the building is essential to the machinery it encloses.
Prior to this decision, an integration test was applied. The integration test determined whether the
process was an integral part of the overall or general process. If it was, it must be machinery. The
integration test no longer applies given the decision reached in Metals and Alloys Co. Ltd. which has
been affirmed in subsequent decisions.
Option (1) is false because once an item is determined to be a building it is NOT possible for it to be
machinery as well. Option (2) is false because an integration test was in common use before the Metals
and Alloys case. Option (4) is incorrect because if a structure looks like a building and is constructed
like one, it cannot be considered a machine as well.

Question 39

What are some of the different ways an assessor can obtain an up-to-date property inventory when time is very short?

Answer 39

Review by exception — check data to see if it is reasonable and consistent; only properties that fail these
check are field reviewed.
Inventory Mailer Program — mail property information requests to property owners; field review
property where information supplied differs from assessment agency inventory.
Phone checks and field checks — check existing information by telephone and conduct field checks
where there are substantial inventory changes

Question 40

Computerized cost procedures can be either formula driven or cost manual driven.

a) how does the manual driven cost manual operate?
b) What are some of the model advantages of using a formula driven cost model?

Answer 40

(a) Manual driven cost models use tables and other pricing schedules that are loaded into the
computer exactly as they appear in the manual. The logic the manual applies for calculating
values — looking up values in the table, rounding, interpolating, and totalling component values
— is completely programmed into the computer.
(b) Formula driven cost models replace tables by formulas that reflect the underlying cost approach
to value. They are preferred because they are created locally using local properties and
updated locally. There is no need to rely on an outside service to provide updates and local
factors. The data inventory can be recorded in a format that suits the assessment jurisdiction
rather than the manual company. Any irregularities in the manual driven approach are
eliminated with a formula driven approach. With trained staff, formula driven cost models are
less expensive.

Question 41

In evaluating bids fro contracting out assessment valuation work, the assessor will clearly want to consider the technical expertise for the contractor. What other factors should the assessor consider?

Answer 41

Aside from the technical expertise of the contractor, the assessor should consider:
• past performance: completed on time and of acceptable quality?
• staff: depth, quality, experience, training
• financial stability
• references
• site visits where work previously completed

Question 42

Regarding data verification and data collection, which of the following statements is TRUE?

1) If the tax rate is fairly low, the community will require a high level of accuracy on the valuations.
2) If permission to inspect the property is refused, then the appraiser can still estimate the property’s value.
3) Self-reporting should not be used because people will falsify the value of their house in order to avoid property taxes
4) Review by exception means that appraisers are required to review all properties in the field without any exceptions

Answer 42

Answer: 2
Option (1) is false because if the tax rate is HIGH, the community will require a high level of accuracy
on the valuations. Option (3) is false because self-reporting can be used to detail and describe
improvements made on the property. Option (4) is false because review by exception refers to the
process by which only properties that fail certain data checks will be field reviewed. Option (2) is true:
if permission to inspect the property is refused, then the appraiser can still estimate the property’s value,
but the taxpayer may lose the right to appeal the valuation.

Question 43

Quilan McDermont has decided to do an in-house revaluation. Which of the following statements regarding in-house revaluation is FASLE?

1) Key employees may be reassigned to manage certain phases of the revaluation
2) Appraisal staff cannot be reassigned to do data collection
3) Statutory requirements and dates will constrain the scheduling of some tasks.
4) A full-time project coordinator should ideally be assigned to organize and manage a large scale project

Answer 43

Answer: 2
Option (2) is false; Quilan should be aware that he can reassign his appraisal staff to do data collection.
Options (1), (3), and (4) are true.

Question 44

Mathew Cognax has put out a request for proposals. He is worried that the bid will be evaluated solely on the basis of cost rather than on the quality of the vendor. Matthew wishes to avoid this problem. Which actions(s) could Matthew take in order to ensure that the bid decision is not based solely on the price?

1) Matthew can have potential contractors attend a conference where the technical requirements are explained by the assessment staff.
2) Matthew can begin by obtaining only technical proposals from potential contractors that do not include prices.
3) Both Options 1 and 2
4) None of the above

Answer 44

Answer: 3
Both Options (1) and (2) will help to ensure that the winning bid is based on quality and not just low
cost.

Question 45

Which statement regarding revaluation is TRUE?

1) Revaluation can create tax shifts that may have negative political repercussions
2) Appraisal inequities do not cause significant problems, because, overall, the city will collect the same amount of taxes.
3) Over appraisal creates a lower tax base which causes the community to set higher tax rates.
4) A full revaluation involves the collection and verification of property characteristics and the estimation of new value for only a single property.

Answer 45

Answer: 1
Option (2) is false. Appraisal inequities can cause harm to the community as dissatisfied taxpayers will
seek review, and these reviews cost general taxpayers money. Option (3) is false because under appraisal, not over appraisal, creates a lower tax base that causes the community to set higher tax
rates. Option (4) is incorrect because a full revaluation involves the collection and verification of
property characteristics and the estimation of new value for multiple properties.

Question 46

The bid process to buy a CAMA system begins when the request for proposals is issued. What is a step that the assessment office could perform when preparing and collecting bids?

1) Someone with experience should be assigned to review the bids
2) Hire a consultant to assess the bid
3) Talk to vendors at conferences and see demonstrations of their CAMA system.
4) All of the above

Answer 46

Answer: 4

The assessment office should perform all of the steps when preparing and collecting bids

Question 47

Maria Olet wants to select a vendor who will install a CAMA system. Which of the following statements described aspects that Maria should be concerned with?

1) Whether the vendor is financially stable
2) Whether the vendors references are valid
3) Whether the company has performed similar projects
4) All of the above

Answer 47

Answer: 4

Maria should be concerned with all of the options listed.

Question 48

Maria Olet has chosen a vendor for a CAMA system “CAMA Sutra”, and is currently writing up the contract. Which of the following statements regarding contracts is TRUE?

1) If the contract is cancelled by the jurisdiction, then the jurisdiction would usually pay the vendor for reasonable closedown costs
2) A 100% performance bond with not help to ensure that a project is completed
3) Payment schedules should not be included in the contract, rather the total amount of the contract should be included
4) A contract cannot be cancelled even if key deliverables, on which the contract depends, are not available.

Answer 48

Answer: 1
Option (1) is true. Option (2) is false because a 100 percent performance bond should help to ensure
that the project is completed. Option (3) is false as payment schedules should be included in the
contract. Option (4) is false because a contract can be cancelled if key deliverables are not available.

Question 49

Eliza Vera is in charge of a revaluation project in Wichtuck, a small town of 3000 people. The town conducts a revaluation every few years. Eliza has a fast approaching deadline and a very small staff who are always very busy. In preparation for this project, Eliza will most likely do which of the following?
A) Create a budget
B) Install a CAMA system
C) Hire additional staff
D) Clearly define her goals

1) A B and D
2) B and C
3) A C and D
4) All of the above

Answer 49

Answer: 3
Eliza would most likely create a budget and clearly define her goals for the project. Because Eliza is
in a small town and because she has a fast-approaching deadline, she would also most likely hire
additional staff. Eliza would not likely install a CAMA system, as it would be hard to justify a large
and costly system for such a small jurisdiction and relatively small project.

Question 50

Eliza Vera is now considering which valuation approach she should take on a certain property. There is a single two-storey building on the property, with the Kwikee Convenience Store on the first floor and a family renting the upstairs portion. Assume that the building is in its highest and best use. Which approach would most likely be ideal for valuing this unique property?

1) The cost approach
2) The direct comparison approach
3) The income approach
4) the residual approach

Answer 50

9. Answer: 3
   Eliza would likely use the income approach to value this property. For commercial properties, the
   income approach is usually most appropriate, since you will be determining the value of an income
   stream. The sales comparison approach would be inappropriate as the property is unique and unlikely
   to have sales comparables

Question 51

Tina Turnip is worried that the vendor “Dupyew”, which she hired to install a CAMA system, is no going to perform acceptable or timely work. On the other hand, “Dupeyew” does not particularly trust Mrs. Turnip to pay them for their contract. Which of the following options helps to ensure that the contractor will get paid, that the standard of work will be acceptable, and the work will be completed on time?

Answer 51

Answer: 4
All of the options are methods that ensure the contractor will get paid and that the standard of work is
acceptable.

Question 52

There are five subsystems in a mass appraisal system: data management, valuation, performance analysis, administrative/support, and appeals. Which do you feel is the most important subsystem and why?

Answer 52

The data management system is the most important because the other four subsystems — valuation,
performance analysis, administration/support, and appeals — depend on the quality of data. If the data
management system is inadequate, the other four subsystems cannot work well. The data management
system is also the most expensive to implement; it is very important to design it carefully.

Question 53

a) What is meant by “model specification” and “model calibration” in the context of mass appraisal?
b) provide an example of what a model could look like in equation form. Supply your own variables.

Answer 53

(a) Model specification — specifying a model which sets out the framework replicating the forces
of demand and supply in the real estate market. The appraiser specifies:
• which variables are important in determining value,
• how they are related to one another,
• how they are related to value, and therefore
• which variable will be included in the model in what format.
Models must reflect the way buyers and sellers value real estate.
Model calibration — coefficients or values are assigned to the variables included in the
specified model based on market analysis.
(b) Example:
MV = NBHD TIMEADJ (BLDGQUAL (SQFT B ) + (BEDROOMS B ) + 1 2
(BATHROOMS B ) + (SQFTLAND B ))

Question 54

What are the major features of model calibration using the cost approach to value?

Answer 54

Supply side of market — costs; determination of replacement cost new.
Demand side of market — land value; depreciation; time and location adjustment.

Question 55

Discuss the difference between single-property appraisal and mass appraisal.

Answer 55

Single-property appraisal
• value a single parcel only
• valuation model developed can only value that single property
• quality of appraisal determined by comparisons with sales of similar properties
• generally, one client to satisfy
• output is an appraisal report with one statement of value
Mass appraisal
• develop valuation model to mirror demand and supply forces over large area
• adjustments because of differences in architecture, age, condition, location, etc. are standardized
• standardized adjustments must reflect market and be explainable
• statistical methods used for quality control
• must satisfy many different groups: taxpayers, politicians, municipalities and other taxing
authorities
• must value according to statute
• output is an assessment roll stating assessed value of all properties in jurisdiction

Question 56

Describe the principles of anticipation and substitution as applied in appraisal. Use examples of each in your answers.

Answer 56

Anticipation:
• investors demand property because they anticipate future stream of benefits or future reversion on
sale of property
• e.g., all income producing property such as apartment buildings, offices, etc.; bare land
Substitution:
• this principle is used in all three approaches to value
• a buyer will pay no more for a property than the cost of obtaining a functional equivalent to the
subject property
• e.g., pay no more for a house than cost of buying a lot and building a functionally equivalent house
• an investor will substitute other types of investment for real estate if the return is greater, for
similar risk.

Question 57

Are there any advantages or disadvantages to using a discounted cash flow model over a direct capitalization model in the income method of appraisal?

Answer 57

Advantages of discounted cash flow over direct capitalization 1
• flexibility in estimating cash flows; e.g., can accommodate the cash flows of a new development
that is not 100% leased in the first year
• can take impact of resale into account separately; this is important if the resale is expected to
provide the majority of the return
• can vary financing, vacancy, expense assumptions and examine impact
Disadvantages of discounted cash flow compared to direct capitalization
• more complicated
• requires a considerable amount of forecasting
• requires much more information that may be difficult to obtain
• may not provide more accuracy than direct capitalization
Ultimately, must value property using the same methods as the market.

Question 58

Define the “highest and best use” and briefly explain how an appraisal based on highest and best use differs from an appraisal based on value in use. List an example of each type of appraisal.

Answer 58

Highest and best use represents market value of a property at its most profitable legal use which may
or may not be its current use. Highest and best use is a function of potential utility. An example of
valuing according to highest and best use is market value assessment.
Use value is the value of property in a specific use. An example of valuing according to use is the
assessment of farmland even though a more profitable use is available.

Question 59

Describe some of the different types of boundaries than can form a neighborhood. Provide examples.

Answer 59

• Natural boundaries: river, ridge, greenbelt, waterfront
• Man-made boundaries: highway, major intersection, points of access to freeway, major
public institution such as a university, golf course
• Political boundaries: street boundary between two municipalities, boundary between
developed property and agricultural land reserve
• Land use: agricultural area, central business district, strip commercial
development, apartment area

Question 60

You are appraising a commercial building consisting of a restaurant and small number of offices. What kind of information do you need and what sources would you use to collect this information?

Answer 60

General data — social, economic, governmental and environmental
• municipality
• Statistics Canada — demographics, income, nationality, interest rates
• public library
Comparative data — data from other comparable real estate
• lease/rental rates — leasing agents, Canada Mortgage and Housing Corporation
• sales of comparable buildings — realtors, MLS services, real estate board, property purchase tax
department of government, land registry office
Cost data — site preparation, demolition, excavation, building costs, landscaping, licenses, fees,
permits, professional fees
• contractors, builders, developers
• municipality
• published cost manuals and indexes
Income data — vacancy rates, bad debts, expenses
• expenses — leasing agents, realtors, property managers
• vacancy, bad debt rates — C.M.H.C., published sources, property managers

Question 61

Regarding model calibration for direct comparison approach, which statements is TRUE?

1) Simple linear regression analysis is the foremost mass appraisal application.
2) Base home tables are complicated and require simplification so that taxpayers can understand mass appraisal models.
3) Adaptive estimation procedure can be used to adjust cost data to the market.
4) Sale prices of comparable sales are not adjusted for physical and locational differences from the subject property, as it is important to maintain consistency.

Answer 61

Answer: (3)
Option (1) is false because multiple regression, not simple linear regression, is the most common mass
appraisal application. Option (2) is false because base home tables are in themselves simplifications
intended to help users and taxpayers understand and accept mass appraisal models. Option (4) is false
because the sales prices of comparables are adjusted for physical and locational differences from the
subject property. Option (3) is the true statement. AEP is a technique that can be used to adjust cost
data to the market.

Question 62

The valuation subsystem interacts with which of the other subsystems:

1) Data management subsystem
2) Performance analysis subsystem
3) Administrative/ Support subsystem
4) All of the above

Answer 62

Answer: (4)
The valuation subsystem uses property characteristics from the data management subsystem. As well,
the valuation subsystem uses sales data and ratio study results from the performance analysis subsystem.
Finally, the values produced in the valuation subsystem are used in the performance analysis subsystem
and the administrative/support subsystem.

Question 63

Which of the following are four actions an appraiser must take in defining an appraisal problem?

1) Identify property to be appraised, determine rights involved, define purpose and function of the appraisal, specify date of appraisal.
2) Preliminary survey and analysis, collect data, analyze market, perform highest and best use analysis.
3) Build valuation model, calibration model, test model, correlate values
4) Identify property to be appraised, perform highest and best use analysis, determine the title owner of the land, determine market value.

Answer 63

Answer: (1)
The steps an appraiser must take in defining the appraisal problem are: identify property to be
appraised, determine rights involved, define purpose and function of the appraisal, and specify date of
appraisal.

Question 64

Mac Donald, an appraiser, has created a mass appraisal model to estimate values of residential properties in a neighborhood of new and fairly similar residences. He is now carrying out his model testing and quality control. He is using the coefficient of dispersion, with respect to the median ratio, to measure uniformity. He is aiming for a target coefficient of dispersion of 20%. Which of the following statements is TRUE?

1) Mac’s calculation of uniformity is correct because in areas of newer and fairly similar residences, the coefficient of dispersion should be 20% or less.
2) Mac’s calculation of uniformity is incorrect because for newer and fairly similar residential properties, the coefficient of dispersion should be 10% or less.
3) Mac’s calculation of uniformity is correct because in urban areas, income-producing properties require a coefficient of dispersion of 20%, and these are income producing properties.
4) Coefficient of dispersion is not a measure of uniformity

Answer 64

Answer: 2
For residential properties, uniformity, as measured by the coefficient of dispersion, with respect to the
median ratio, should be 15 percent or less generally, and 10 percent or less in areas of newer and fairly
similar residences. Mac is correct to use the coefficient of dispersion to measure uniformity, but his
target should be 10 percent or less.

Question 65

Jim Duncan has a cabin in the woods that he wants to rent out in order to make some extra income. He estimates that the cabin will provide a perpetual income of $15,000 per year. The rate of return on similar investments of similar risk is 12%. Using this information, Jim calculates the value of the property to be:

1) $128,000
2) $140,000
3) $125,000
4) $124,500

Answer 65

Answer: 3
Using the capitalization formula, we can calculate the value of a property that provides a perpetual
income, using a given rate of return for investments that have a similar level of risk. The formula is
V = I R.

Question 66

When performing a city and regional analysis, and appraiser must consider many economic forces that affect property values through both the demand and supply sides of the market. Which of the following is not a factor that affects the supply side of the market?

1) Availability of vacant land
2) Construction trends and costs
3) Gender trends in real property prices and rents
4) Building codes

Answer 66

Answer: 3
General trends in real property prices and rents are macroeconomic factors affecting the demand side
of the market, not the supply side.

Question 67

The two statements below describe an aspect of either single property appraisal, mass appraisal, neither or both.
A. The output is an appraisal report with one statement of value
B. Statistical methods are relied on for quality control
Statement A most accurately describes a component of:
1) single-property appraisal
2) mass appraisal
3) both single and mass appraisal
4) none of the above

Answer 67

Answer: 1
A single-property appraisal has one appraisal report with one statement of value, whereas a mass
appraisal’s output will have several statements of value for various properties.

Question 68

The two statements below describe an aspect of either single property appraisal, mass appraisal, neither or both.
A. The output is an appraisal report with one statement of value
B. Statistical methods are relied on for quality control
Statement B most accurately describes a component of:
1) single-property appraisal
2) mass appraisal
3) both single and mass appraisal
4) none of the above

Answer 68

Answer: 2

Mass appraisal uses statistical methods for gauging accuracy and consistency of valuations.