A decline in commercial property sales has complicated the task of reassessing property values in Polk County, said Mark Patterson, a deputy assessor in the Polk County assessor’s commercial real estate division. The office is preparing to mail out its 2009 assessment roll Friday.

When establishing the assessed value of unsold inventory in a given occupancy group, Patterson said, the assessor’s office initially conducts a sales ratio study. A sales ratio for each transaction is ascertained by dividing a property’s assessed value by its sales price. By comparing the sales price to the assessed value, the assessor is able to determine if the assessed value of the parcel close to its market value.

“The key to a significant sales ratio study is to have a sufficient number of sales,” Patterson said. “The sample size has to be significant enough where we can say that it is really representative.”

Compared with an average of 62.5 commercial property sales a month from July to December 2007, the last half of 2008 averaged only 48. The decline coincided with the economy’s initial slump in September, falling to 44 deals that month compared with 70 in August. The number dipped to 42 in October and 31 in November before rebounding slightly in December to 42.

The number of transactions plummeted further in the first quarter of 2009, with 19 in January, 24 in February and 17 in March.

Though the sales ratio study drives how closely the office looks at a given occupancy class or property, Patterson said assessors don’t look at a single sale in any given occupancy class and use it to determine that all other parcels in that occupancy group need to be revalued.

If there isn’t enough “market evidence” in any given occupancy group on which to base conclusions, Patterson said, the assessor can combine groups that are similar in nature or consider other criteria, such as the amount of income generated from a rental property or a building’s replacement cost minus depreciation. An insufficient quantity of sales may also lead the assessor to make no change at all.

The type of transaction must also be considered, as the assessor only studies sales that the Iowa Department of Revenue considers “good.”

“That influences our decisions, too, the number of quality sales,” said Deputy Assessor Rod Hervey. “If we only had one or two sales for a certain occupancy, we’re not going to rely on those two sales for determining the whole value of the county for that occupancy. We need good evidence to support what we do.”

The Iowa Department of Revenue’s list of “abnormal sales conditions” includes transactions such as sheriff sales, transfers of property between family members, easements and foreclosures.

In the last six months of 2008, the average number of “good sales” dropped to 11.2 per month from an average of 17.5 in the same period in 2007.

“If a sale happened and there was something influencing the sale price that we didn’t think was (related to the) market, we’d take it out of the study,” Patterson said. “The goal is to determine new values that are reflective of the market.”

According to the assessor’s office, of the county’s 72 commercial occupancy groups, notable adjustments will be made this assessment period to property valuations in the retail, warehouse and office categories. There will be assessment reductions of approximately 12 percent and 8.7 percent in the occupancies of restaurant/tavern and retail, respectively. Warehouse and service repair occupancies will be increased by about 7.6 percent and 14.7 percent, respectively. The office condominium group will be reduced by about 12.3 percent.

“This is the result of sales ratio studies that indicated that these occupancies had a median sales ratio outside the acceptable range of 95 to 105 percent,” Patterson said. “The Iowa Department of Revenue requires all assessors to maintain the assessment level for each property class in that range, or (it) will issue an equalization order to increase or decrease all properties in the class that do not fall in the range.”

The median ratio for the total number of “good” commercial sales is just below 97 percent for the entire inventory, Hervey said.

Overall, there were 955 sales of commercial properties in Polk County between July 1, 2007, and Dec. 31, 2008, compared with 1,191 for the prior assessment period of July 1, 2005, to Dec. 31, 2006.

As of Jan. 1, 2008, there were 11,167 commercial parcels in Polk County, with a total assessed value of more than $9 billion.