Is Undervalued Vacant Land just a Baltimore problem?
We compared it against every other Maryland county
Last August, the Center for Land Economics released a report detailing chronic undervaluation of vacant land in Baltimore by Maryland’s state property valuation agency, SDAT. Fortunately, SDAT responded quickly and began working on fixing the issue.
One of the questions we kept getting in the wake of that report was, “if Baltimore has this problem, what’s going on in the rest of the state? Is there a fundamental and universal problem with all of SDAT’s land valuations?”
Thanks to a follow-up report sponsored by the Henry George School of Social Science, we now have a clear answer:
No. Chronic under-valuation of vacant land is specific to Baltimore.
The full report, which includes a detailed explanation of our data sources and methodology, can be found on the official Center for Land Economics website:
For this report, we took a zoomed-out view of the entire state, measuring data from every county. Using a statewide parcel dataset sourced from both Maryland open data as well as through our data partnership with REGRID, we compared sales of vacant lots with their officially assessed values, to see if the chronic under-assessments we saw in Baltimore were a pervasive problem elsewhere.
The data was pretty clear—no other county sticks out like Baltimore:
There are two bits of good news here—first, it means that the problems we encountered in Baltimore are not fundamentally baked into SDAT’s methodology, but are localized to Baltimore itself. The problems we identified are correctable, and simply require paying some additional attention to this issue.
Second, that additional attention is already being paid as we speak. SDAT has acknowledged the problems in Baltimore, and publicly pledged to fix them. This work is now underway and many of the individual issues we highlighted in our report have already been fixed. For the avoidance of confusion, today’s report doesn’t take those recent fixes into account—it’s a side-by-side analysis of valuations in other Maryland counties before SDAT’s recent initiatives.
In order to be as fair as possible to SDAT, we employed a strict sales validation procedure, excluding any and all suspiciously low-priced sales that bore the signs of non-arms-length transactions; our exact procedure is outlined in the report.
Nobody likes to be the bearer of bad news, so we’re happy to find that the assessment problems detected in Maryland’s largest city are confined to that region.
This report has an intentionally narrow and limited scope, concerning itself solely with the overall assessment level of vacant lots throughout Maryland. There may or may not be other assessment quality issues, but this study does not go into them.
How to Improve
We’ve found that many of the largest issues with regards to land valuation often come down to simple consistency—are two parcels in the same location, with identical land characteristics (including zoning and all other land use regulations), being valued the same way? Our latest report does not concern itself with causes of undervaluation, but we can offer some general tips here in an informal matter:
First, we cannot emphasize enough the importance of data quality and proper sales validation. Valuation is a “garbage in, garbage out” process, and the fanciest algorithms will be utterly defeated by poorly cleaned data, as we outlined in this previous article:
On that note, state legislatures and other elected officials can improve the situation for taxpayers and assessors alike by ensuring that assessors always have access to the highest and best quality data sources. They can also ensure that other government offices in the data pipeline, particularly county recorders, are well trained and resourced.
Second, a particularly persistent cause of side-by-side discrepancies in otherwise identical vacant vs. improved lots, is a misapplication of the “allocation” method. This is a method where an assessor first deduces land value by taking the full market value of improved property, and then multiplies it against a percentage, such as 20%. Assuming the percentage itself is well supported, this can be one way to value land with mass appraisal. However, there is a right way and a wrong way to do it, as we outlined in this article:
The wrong way is to take every improved property in a given neighborhood, and simply apply the allocation percentage individually to each parcel. This yields uneven land valuations, as the land valuation comes to depend on differences in the buildings, not in the land itself:
The right way to apply the allocation method is to apply the allocation percentage against the prevailing (average or median) local price of improved property, and use that to come up with a single, standard, local land rate, and then use that single rate for all the land. In this way each lot within a homogenous area gets the same land valuation:
Of course, any land that has special characteristics that deviate from what’s typical for the local area—such as unique zoning, different size, shape, etc.—will need additional adjustments, which well trained assessors should know how to apply. The above example is simply a way to ensure that the “broad brush” land valuations achieve local consistency.
Finally, we’ve found that simply charting land values on a map, and especially visualizing them on a per square foot or per acre basis, makes side-by-side inconsistency issues very easy to detect. We maintain and publish our own such interactive 3D maps at www.civicmapper.org (please reach out if you’d like us to map your city!)
Curious — how sweeping is your data analysis? Could you do the whole country?
Great article! Has anyone ever looked at doing a flat land tax whereby all properties are taxed the same with an opt out for rural parcels via some sort of lease auction system?