Example Of How Depreciation Can Be Manipulated.
This example was e-mailed to ADOR and JCBOE on 3/30/2008. So far no reply.
Depreciation
I found the following example while going through the land value calculations for my neighborhood in
the fall of 2007. Since all activity for this parcel occurred before the current owner purchased this
property, I am not as concerned about protecting personal privacy.
The property sold in Oct 2005. Before and after the sale there are records showing the home was
considered 85% good, or 15% depreciated.. Yet long after the Oct 2005 sale for the purpose of land
value calculation about March 2007 this was changed to 60% good, or 40% depreciation. This
amounted to a $43,000 decrease in property value.
What happened? Was there major damage to this home that was later repaired? No.
There have been no major improvements to this home in the magnitude of $43,000 based on the fact
that no building permits have been issued. The JCBOE has indicated there are no additional records for
this parcel.
The change about March 2007 may have been made to make the land value calculation work. If 85%
good was used for the property it would have been far outside the control limits for the Sales Ratio
reported to the State.
Whether or not this change was legitimate, this shows how easy it is to make dramatic changes but
leave no audit trail or supporting documentation.
The land value spread sheet still shows 80% good for this property while the building value is actually
based on 60%, why?
The home sold again in March 2007 at a higher price and will appear in the new land value
calculations. Will the % good be set back to 85%?
This example shows three things
1. How easy it is to change % good based on JUDGMENT – with lack of audit trail
2. How land value calculations can be manipulated. Overstating depreciation inflates land values
which are in turn spread throughout the neighborhood.
3. How sales ratio has no control over potential favoritism because the number can be so easily
manipulated.
This example was e-mailed to ADOR and JCBOE on 3/30/2008. So far no reply.
Depreciation
I found the following example while going through the land value calculations for my neighborhood in
the fall of 2007. Since all activity for this parcel occurred before the current owner purchased this
property, I am not as concerned about protecting personal privacy.
The property sold in Oct 2005. Before and after the sale there are records showing the home was
considered 85% good, or 15% depreciated.. Yet long after the Oct 2005 sale for the purpose of land
value calculation about March 2007 this was changed to 60% good, or 40% depreciation. This
amounted to a $43,000 decrease in property value.
What happened? Was there major damage to this home that was later repaired? No.
There have been no major improvements to this home in the magnitude of $43,000 based on the fact
that no building permits have been issued. The JCBOE has indicated there are no additional records for
this parcel.
The change about March 2007 may have been made to make the land value calculation work. If 85%
good was used for the property it would have been far outside the control limits for the Sales Ratio
reported to the State.
Whether or not this change was legitimate, this shows how easy it is to make dramatic changes but
leave no audit trail or supporting documentation.
The land value spread sheet still shows 80% good for this property while the building value is actually
based on 60%, why?
The home sold again in March 2007 at a higher price and will appear in the new land value
calculations. Will the % good be set back to 85%?
This example shows three things
1. How easy it is to change % good based on JUDGMENT – with lack of audit trail
2. How land value calculations can be manipulated. Overstating depreciation inflates land values
which are in turn spread throughout the neighborhood.
3. How sales ratio has no control over potential favoritism because the number can be so easily
manipulated.
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