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City Council - 04/28/1988 APPROVED MINUTES SPECIAL EDEN PRAIRIE CITY COUNCIL MEETING THURSDAY , APRIL 28 , 1988 6 : 00 PM, CITY COUNCIL CHAMBERS 7600 Executive Drive CITY COUNCIL MEMBERS : Gary Peterson, Richard Anderson , George Bentley, Jean Harris, and Patricia Pidcock CITY COUNCIL STAFF: City Manager Carl J. Jullie, Assistant to the City Manager Craig Dawson, City Assessor Steve Sinell , and Recording Secretary Jan Nelson ROLL CALL: Councilmember Harris was absent. I . APPROVAL OF AGENDA Mayor Peterson called attention to his memo to John Frane, City Clerk, calling this Special Meeting for the purpose of discussing the City' s real property assessment procedures and policies. He then thanked City Assessor Steve Sinell for his efforts in putting together the material explaining the City' s assessing procedures . MOTION: Bentley moved , seconded by Anderson , to approve the Agenda as published. Motion carried unanimously. II . DISCUSSION - REVIEW OF CITY ' S PROPERTY VALUATION PROCEDURES s City Manager Jullie introduced the City Assessing Staff. He then reviewed City Assessor Sinell 's memo of April 22, 1988 , with attachments, explaining the January 2, 1988 Assessment and the procedures used in conducting the annual assessment of properties . Bentley asked why the median of value was used rather than the mean. City Assessor Sinell replied that the median is used because it is less likely to be skewed by extremely high or low ratios . Sinell said the State and County Tax Boards have accepted the median as best. e k Pidcock asked what tools are used when property is re-evaluated. Sinell said every year the Assessing Staff analyzes sales that have occurred by breaking down the sales into their component parts, analyzing the trends for different types of sales, and analyzing the sales figures for old and new housing. He said they use this information to come up with a mass appraisal model which is then used as a basis against .-`iich to do the actual evaluation of properties . City Council Minutes 2 April 28 , 1988 Sinell then noted that, while the mass appraisal model approach is a very accurate one, it :4s not perfect and that is why they rely on the appeal process to check the mass appraisal approach on an individual basis. Pidcock asked what the procedure was for cases where there were no sales for a particular type of property. Sinell said they will go outside Eden Prairie and compare with the models Hennepin County has set up for their areas of responsibility. Peterson asked if they would check back to preceding years to look at actual purchase prices. Sinell said they would do that by com- paring how that type sold against another type in a previous year and then use that ratio to determine what the type without current sales figures might have sold for this year. Pidcock then asked if a decrease in property value is taken into consideration , particularly for property older than five years which has to compete against the large amount of new construction in Eden Prairie . She said there are some older properties which have difficulty competing against the availability of new property. She said that the first resale of a property purchased from a builder may well be less than the original purchase price. Sinell said that they constantly analyze sales of older property to see how those compare to the sale of new property. If the spread between such sales is bigger than the previous year, they will make the spread bigger in their appraisal model . He said the revaluation process is also used to reflect properties that haven ' t increased as much as others of a similar type. Bentley asked if the figures used in the typical adjustments by property type cited in Mr . Sinell ' s memo was the median in- crease only rather than an across-the-board increase. Sinell said the overall increases were very close to the figures listed in the memo; however , the review of some neighborhoods showed that there should be a different increase, whether more or less than the typical adjustment. Sinell noted that the overall residential tax base will show that typically we are short so we will have to come up by the typical adjustment to meet the standard; however, a sales study is done on each property re- viewed. Pidcock said her concern is that the average sales price in Eden Prairie has risen considerably in the last few years because of the large amount of new construction and that the percentages used for the adjustments are being heavily weighted by the increased costs for labor and material for the new construction rather than by actual appreciation of property values. She said such a situation is not fair , nor is it equitable. Hennepin County Representative Don Monk said that the sales ratio studies are heavily weighted to existing property, not City Council Minutes 3 April 28, 1988 new construction. He said the lack of appreciation in the actual property value has its influence in the market place and that is what is measured in the sales ratio studies. He said the process of analyzing the sales in Eden Prairie is done very carefully and the results are very good, in that the:• meet the minimum level of assessment and the quality is better than average. Pidcock noted that there are a lot of taxpayers in Eden Prairie who are complaining about this problem and she believed there seems to be a focus on appreciation across the board with no depreciation. Mr . Monk said that a focus on appreciation is a necessary part of market analysis and that the process does include consideration of depreciation. Peterson said he wanted to be satisfied that his 14-year-old house doesn ' t suffer from some escalation factor of the new construction, and that they are not applying the same criteria for evaluation on his house as on the new construction. Mr . Monk said the new housing costs have an influence on old housing costs by providing a mix of competition in the market place . Sinell said there are several different things Eden Prairie does to ensure that an older house does not have a market value that is greater than the average. One of those is to break dawn the City into several hundred different neighborhoods where houses are likely to be about the same age and then to study sales in some of those neighborhoods each year. Another is a price-related differential which tells whether high-priced properties are being treated differently from low-priced ones . Don Monk handed out a statistical report of sales ratio figures for the City (Attachment A) . Peterson asked Pidcock if her concern was that there is an in- appropriate correlation between the new and the existing stock, and that, therefore, the existing stock is overvalued . Pidcock agreed. Peterson said he thought the actual 1987 sales figures for older stock illustrated the accuracy of the valuation for those specific houses. He said he thought the numbers show that we are close. Bentley said if the numbers are right across the board , then the methodology used is valid. He said the function of this meet- ing then comes in to play where those that are overvalued have the opportunity to have their values reviewed. Pidcock said people don ' t usually get involved in the process until they are selling a house and then discover that they cannot get what the property is valued at. She said she thought there was also a fear that the value would go higher if the appraised valuation is questioned. Peterson asked what the percentage is of sales that came in at or less than the assessed valuation. Sinell said for the 1987 values a a t City Council Minutes 4 April 28, 1988 only 25 out of more than 800 sales were less than the valuation. A discussion followed regarding the meaning of fair market value. Pidcock said no one wants to pay more than their property is worth and that ' s where the problem of equity enters in. She said that people who purchase from builders are often paying more than the house will sell for on its first resale. Anderson said we don ' t know if the 25 sales were pressure sales and that 25 seemed like a relatively small amount. Sinell noted that the statistical measures that are used in the City ' s assessment are the same as those used in other communities. He said that many times those properties that are overvalued are those that the assessors have not been able to enter and, there- fore, the assessors have had to do estimates. MOTION: Bentley moved , seconded by Anderson, to adjourn the meeting at 7 : 25 PM. Motion carried unanimously. i t