Does assessed value influence market value judgments?

Journal of Property Research, December 2003, 20(4) 305–318

Does assessed value influence market value judgments? MATTHEW L. CYPHER and J. ANDREW HANSZ* Department of Finance and Real Estate, University of Texas, Arlington, Box 19449, Arlington, TX 76019, USA

Received 19 August 2003 Revised 13 October 2003 Accepted 21 November 2003

Summary Assessed values are widely reported in US property markets and are often used by the public as a proxy for a property’s value. The results of this study indicated that an assessed value treatment did influence market value judgments by nonappraisers. However, despite the nonappraiser findings and the strong anchoring tendencies found in prior studies, expert US appraisers did not depart from normative theory and training and did not exhibit anchoring behaviours on an assessed value reference point. These results seem to indicate that expert appraisers need some content validity before using a reference point as a valuation anchor and make distinctions among unsanctioned anchors that are plausibly informative (such as a pending sale price or expert valuation opinion of another) and unsanctioned anchors that are fundamentally inappropriate. Although the usual caveats of clinical studies apply, this present study extends understanding of reference point usage on valuation judgment. Keywords: valuation judgment, geographic unfamiliarity, reference point anchoring, content validity, assessed value

1. Introduction Assessed value, as defined by the International Association of Assessing Officers (IAAO), is a value set on real estate and personal property by a government as a basis for levying taxes (IAAO, 1996). American property taxation authorities have not adopted British practices of residential assessment banding and tax-exempt status for vacant land. With exemptions for government property and some not-for-profit organizations, US property assessors have the tremendous responsibility of estimating values for all property (residential, commercial, industrial, and vacant land) in their jurisdiction for ad valorem taxation purposes. To estimate values, tax assessors employ a variety of mass valuation techniques that include multiple linear regression and variations on the traditional cost, sales comparison, and income valuation approaches. Real estate professionals recognize that the correlation between assessed value and *Author to whom correspondence should be addressed. E-mail: [email protected] Journal of Property Research ISSN 0959–9916 print/ISSN 1466–4453 online © 2003 Taylor & Francis Ltd http://www.tandf.co.uk/journals DOI: 10.1080/0959991042000182001

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market value is tenuous. First, assessed values are most likely based on outdated mass valuations. While some municipalities review assessed values annually, many municipalities may not reassess properties for several years or reassess only after a property is sold. Second, assessed values may deviate from market values due to fractional assessment ratios, partial exemptions, and decisions by assessing officials to override market values (Appraisal Institute, 2002, p.19). Third, any mass valuation technique is subject to a significant level of error.1 Motivated property owners may correct high assessed values through assessment appeals, but others may also accept high assessed values rather than incur the time, cost, and uncertain payoff of the appeal process. Also, it is likely that property owners with under-assessed properties, and relatively low property tax liabilities, rarely appeal. Kowalski and Colwell (1986) found significant differences between assessment based and market value based hedonic models for industrial land valuation. The structural problem appeared in relation to parcel size, frontage, and industrial park locations and the authors suggested reassessment using a model that was more similar to the market value model. Janssen and Soderberg (1999) also discussed differences between assessment and market based income property valuation models. Assessors and market participants considered different property features in arriving at market price contributing to overassessment or underassessment of property taxes. Clapp (1990) developed a model to correct measurement errors in assessed values for vacant land and proposes an assessment based price index. However, Malizia (1999) argued, based on a sample of innercity commercial properties, that overvaluations for tax purposes are infrequent and do not represent a systematic problem. Where the experienced, or expert, real estate professional understands the nature of assessed values, the non-real estate professional is not aware of these limitations and may view an assessed value as a highly reliable estimate of a property’s value. Prior research (see Northcraft and Neale, 1987; Diaz and Hansz, 1997) has documented that both expert appraisers and nonappraisers demonstrate reference point anchoring behaviours when faced with a valuation problem. Diaz and Hansz (2001) found anchoring tendencies on reference points both sanctioned and unsanctioned by normative appraisal theory and training. The purpose of this study was to investigate the extent to which expert appraisers and nonappraisers rely on assessed values in the formation of market value estimates. An experimental approach was employed to address the research question, ‘Does assessed value influence market value judgments and, in respect of this influence, do expert appraisers differ from non-appraisers?’

2. Literature review and research hypotheses Building upon the problem solving theories of cognitive psychology (see Newell and Simon, 1972 and Simon, 1978), Diaz and Gallimore developed a real estate research paradigm with the purpose of investigating experts solving problems in a real estate context.2 Clinical valuation research has revealed that expert appraisers depart from the 1See Linne et al. (2000) for an overview of mass appraisal and automated valuation models. 2This research is reviewed in Diaz (2002).

Does assessed value influence market value judgements?

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US normative valuation model3 (see Diaz, 1990 and Diaz et al., 2002) and both nonappraisers and experts employ heuristic behaviours (see Northcraft and Neale, 1987; Diaz, 1997; and Diaz and Hansz, 2001). Northcraft and Neale (1987), two psychologists, conducted a field experiment to investigate the robustness of the anchoring and adjustment heuristic.4 The ‘real world’ problem selected was to estimate the value of a single-family residential property. The research hypothesis was that subjects would anchor on a listing price reference point. A second research hypothesis stated that the biasing influence of the listing price will decrease as the listing price becomes a less credible reference point. Study participants, undergraduate business students and real estate sales agents, were transported to a residential neighbourhood to inspect a residential property and potential comparable sales. The treatment variable was list price at four levels, low-price, moderately low-price, moderately high-price, and high-price and list price knowledge, at all four levels, did have strong biasing influences on both nonappraiser groups. This early study was important because the results clearly demonstrated anchoring behaviours of nonappraisers in a real estate context. However, Northcraft and Neale were erroneous when they extended their discussion to examine problem-solving differences between expert appraisers and nonappraisers. In US property markets, sales and valuation are succinctly separate functions and US real estate sales agents are not typically trained or experienced in property valuation. Therefore, their discussion of expert appraiser versus nonappraiser behaviour must be discounted because they confounded expert and nonappraiser judgment with two levels of nonappraiser problem solving judgment. True expert appraisers may be more selective in relying on reference points and employing anchoring behaviours. Diaz initiated a series of studies investigating reference point usage by expert US appraisers. Diaz (1997) concluded that appraisers did not give significant weight to an anonymous expert’s valuation opinion when presented with a valuation problem in a familiar market. This finding is consistent with normative US training because appraisers are taught to develop independent valuation opinions (in fact, appraisers are also referred to as ‘independent fee appraisers’). However, Diaz and Hansz (1997) found that appraisers did anchor on an anonymous expert’s valuation opinion in areas of geographic uncertainty. Appraisers appeared to utilize an unsanctioned reference point when faced with a valuation problem in an unfamiliar setting and geographic uncertainty may trigger the use of nonsanctioned reference points. Diaz and Hansz (2001) evaluated the relative importance of a valuation opinion from an anonymous expert, a pending sales contract on the subject property, and a pending sales agreement on a neighbouring property as potential reference points. Significant 3See Appraisal Institute (2001 p. 51) for an overview of the normative valuation model. 4Tversky and Kahneman (1974) studied the coping strategies, called heuristics, that humans employ and the potential systematic errors resulting from heuristic use. All humans develop heuristics, or simplified production rules, to cope with complex problems. Heuristic development is a natural and important aspect of human problem solving but these mental shortcuts may lead to systematic errors. One of the most robust heuristics behaviours identified by Tversky and Kahneman was the use of reference points in reaching judgments (also referred to as anchoring and adjustment or simply anchoring). Anchoring occurs when a reference point is relied upon in solving an ill-defined problem. The reference point is used as a starting point in making an estimate or judgment. The bias occurs because problem solvers typically fail to make a sufficient adjustments from the initial reference or starting point.

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differences were found between a control group and the three treatment groups. The magnitude of the differences between groups was of particular interest. The strongest anchoring effect was found on the implicitly sanctioned treatments: the pending sales agreement on the comparable property and the pending sales agreement on the subject property. There was a significant difference between the control group and the treatment group receiving the anonymous expert value opinion, but this difference was relatively modest compared to the pending transaction groups. US normative valuation procedures suggest analysing a property’s assessed value and property taxes. If a property’s assessed value is unreasonable and property taxes are too high or low, the appraiser considers any residual impact on value. For example, an abnormally high assessed value and subsequent high property tax burden raises operating expense or holding costs and can negatively impact value. However, using assessed value as a proxy for a market value estimate is certainly not a prescribed practice. Similar to the use of an anonymous value opinion of another, the use of assessed value in estimating market value is not sanctioned by normative appraisal practices. Two forces affect the anticipated result of assessed value influence on expert judgment. On one hand, expert appraisers are knowledgeable regarding limitations of mass valuations and assessed value estimates and the use of assessed values in valuation judgment is contrary to prescribed practices and normative training. On the other hand, reference point influence on valuation judgment has been robust, with expert appraisers giving weight to reference points not sanctioned by normative valuation practices. It is expected that the human tendency to anchor on reference points may evoke departure from normative training. The anticipated result of assessed value influence on nonappraiser valuation judgment is more intuitive. Nonappraisers have not received formal valuation training and are not likely aware of assessed value estimation difficulties. It is anticipated that nonappraisers will place heavy weight on assessed value reference points. The research hypotheses are presented below. Assessed value will bias valuation judgment, where: RH Expert appraisers, without geographic familiarity, receiving a low/high assessed 1 value treatment will systematically produce lower/higher valuation judgments as compared to a control group, not receiving the assessed value treatment. RH Nonappraisers, without geographic familiarity, receiving a low/high assessed value 2 treatment will systematically produce lower/higher valuation judgments as compared to a control group, not receiving the assessed value treatment.

3. Research methods The methodology employed to investigate the research hypothesis was similar to that used in Diaz and Hansz (2001), a one-factor fixed effects experiment. The experimental factor (independent variable) was an assessed value reference point at three levels: no assessed value, low assessed value, and high assessed value. Participants were randomly assigned exclusively to one of the three groups. Valuation judgment was evaluated at two levels, expert and nonappraiser. The following section provides an overview of the measurement instrument, treatment, and sampling procedures.


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3.1. Measurement instrument The valuation task was to appraise an unimproved parcel of vacant industrial land. Vacant land was selected as the subject property because only one of the three traditional valuation approaches, the sales comparison approach, is typically used to value unimproved land. This simplified the valuation problem by eliminating the need for cost and income data. All information was contained in a written case that was similar to a case used in Hansz and Diaz (2001). The valuation case was nine pages and included maps and photographs. An introductory problem statement explained that the subject property was an unimproved industrial parcel located in Pennsylvania, USA. The appraisers were instructed to read the case carefully and determine the market value of the land. Information on five comparable sales was provided for basis of comparison to the subject property. Comparable sales ranged from US$70 022 to US$100 435 on a price per acre basis (mean price of US$85 029 per acre). Although the information in the case was based on an actual market, the comparable sale data had been manipulated to eliminate any obvious trends or adjustments. No cues would lead the appraiser to either the high or low ends of the comparable sale price range. This valuation problem was intentionally ill-defined so the participants would have to use judgment. 3.2. Treatment The assessed value treatments were set at two levels: low and high. The low assessed value treatment group received information that the property was currently assessed at US$296 000 or US$74 000 per acre. The high assessed value treatment group received information that the property was currently assessed at US$384 000 or US$96 000 per acre. Both low and high assessed value treatments were within the price per acre price range indicated by the comparable sales data. It was expected that the reference point treatments were within a reasonable and realistic valuation range. Treatment groups also received a statement indicating that the equalization ratio was 100% so it was clear that the assessed value was not a fractional portion of the assessor’s value estimate.5 3.3. Sampling procedures Expert appraisers were defined as MAI (Member of the Appraisal Institute) designated appraisers. The MAI designation was used to operationalize valuation expertise because this group of appraisers has achieved rigorous experience and educational requirements and the MAI designation is generally thought of as the highest level of accomplishment in the US valuation industry. A sample of MAI designated appraisers was taken from a list of appraisers based in the Los Angeles and Orange County Metropolitan Statistical Areas in California, USA. California typically reassesses a commercial property when the property is sold. Nonappraisers were operationalized as undergraduate students attending an introductory real estate principles course at the University of Texas, Arlington. 5Taxing jurisdictions can define assessed value as some fractional percentage of the assessor’s market value estimate. An equalization ratio of 100% indicated that the actual assessed value was equal to the assessor’s market value estimate.

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Diaz (1997) and Diaz and Hansz (1997) found that geographic unfamiliarity may contribute to reference point usage. Quan and Quigley (1991) and Geltner (1993) also find that geographic unfamiliarity increases problem uncertainty and the likelihood of reference point influence. The Los Angeles/Orange County MSAs were selected for the expert sample because of a large number of practicing appraisers in this geographic region who would likely be unfamiliar with industrial land values in Pennsylvania. A significant body of literature indicates that incentives, even token incentives, and prepaid return postage may increase survey response rates (for example, see Church, 1993; Warriner, et al., 1996; James and Bolstein, 1992). To encourage expert responses, a one-dollar (US) good faith cash incentive and prepaid postage return envelope was included with the study materials. For the expert groups, the experiment began with a cover letter, instructions, and a one-page questionnaire concerning experience/education (number of years, types of valuation assignments, designations and certifications, etc.) and familiarity with the Pennsylvania property market. In November 2002, the experiment was mailed to 120 appraisers (40 appraisers per experimental group). Forty-six cases were returned for a response rate of 38%. For the nonappraiser group, the experiment began with an abbreviated demographic questionnaire and was distributed during a class period in April 2003. The 53 nonappraisers were randomly assigned to groups and received the same case as administered to the expert appraisers. The next section provides an overview of the responding samples.

3.4. Sample characteristics Table 1 contains an overview of the expert sample profile including demographic and employment characteristics. Most participants were employed as appraisers full-time (98%). One respondent indicated significant ‘other’ employment and described his position as managerial and strategic planning in nature. Qualifying questions were posed to verify that participants were currently MAI designated and not geographically familiar with the case setting. Two appraisers were designated but held only the SRA designation, a residentially oriented credential. These two non-MAI respondents were eliminated from the sample and all remaining participants held the MAI designation.6 The appraisers indicated that they covered primarily local and regional geographic areas. Two questions were posed to screen for geographic familiarity with Pennsylvania land values. Only one appraiser had a Pennsylvania valuation assignment and none of the respondents claimed that they were familiar with industrial land values in northeast Pennsylvania. All participants had the same case data with no additional market specific knowledge. The respondents primarily worked in commercial (as opposed to residential) real 6One non-MAI respondent was in the control group and reported a value judgment of US$85 000. The second non-MAI respondent was in the high assessed value treatment group and reported a value judgment of US$90 000. These two respondents were inadvertently included in the sample frame and removing these observations from the sample had a negligible influence on the respective group means. It was also confirmed that the statistical findings did not change with or without these observations.


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Table 1. Expert appraiser sample profile – overview

Expert groups:

Control

Low treat.

Observations Currently employed as an appraiser? Percentage work commercial? Appraisal designations and certification: MAI SRA State certification What geographic area do you cover? Local Regional National Any recent assignments in PA? (yes) Familiar with industrial land values in NE? (yes)

14 100.00% 72.14%

14 93.33% 64.67%

16 100.00% 79.47%

44 97.78% 72.09%

100.00% 7.00% 86.00%

100.00% 7.00% 47.00%

100.00% 6.67% 53.33%

100.00% 6.89% 62.11%

29.00% 50.00% 21.00% 0.00% 0.00%

33.00% 53.00% 13.00% 7.00% 0.00%

40.00% 60.00% 0.00% 0.00% 0.00%

34.00% 54.33% 11.33% 2.33% 0.00%

48.93% 5.00% 13.21% 20.00% 12.86%

32.67% 9.00% 30.33% 23.67% 4.33%

48.53% 9.00% 12.20% 21.60% 8.67%

43.38% 7.67% 18.58% 21.76% 8.62%

90.64% 0.50% 8.79% 0.07% 24.57 23.07

78.13% 2.67% 19.07% 0.13% 25.40 24.80

94.40% 0.80% 4.47% 0.00% 25.73 24.33

87.72% 1.32% 10.78% 0.07% 25.23 24.06

Clients: Mortgages lenders Insurance companies & pension funds Tax appeal/condemnation/government Accountants or attorneys Other What is the nature of your assignments? Valuations Feasibility studies Consulting work Other How many years of RE experience? (avg. years) How many years of appraisal experience? (avg. years)

High treat.

Total*

Some question responses may not total to 100% in all cases due to rounding and incomplete responses. *Total includes the control and treatment groups.

estate markets (72%) with mortgage lenders (Commercial Banks, Savings & Loans, etc.) and accountants/attorneys the most typical clients (43% and 22%, respectively). The nature of their assignments was typically ‘valuations’ (88%) followed by consulting work (11%). The average number years of real estate experience was 25 years with almost 24 years of appraisal experience. In summary, all appraisers held the MAI designation and, with an average of over two decades of appraisal experience, qualified as valuation ‘experts.’ This sample was comprised of experienced appraisers with no significant differences between control and treatment groups in terms of qualifications and experience. Table 2 contains an overview of the nonappraiser sample characteristics. The average age was about 25 years with 34% of the participants female. Seven years of general work

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Table 2. Nonappraiser sample profile – overview

Nonappraiser Groups: Observations Age (avg. years) Gender (% female) Years of general work experience (avg. years) Employed in real estate industry? (yes) Do you hold any real estate licenses? (yes) Familiarity with PA industrial land values? (yes) Confidence in value estimate (1 lowest to 10 highest)

Control

Low treat.

High treat.

Total*

18 25.2 22.2% 6.4 0.0% 0.0% 0.0% 5.6

17 26.2 33.3% 8.7 0.0% 0.0% 0.0% 4.4

18 25.6 47.1% 6.6 11.8% 5.9% 0.0% 4.9

53 25.6 34.0% 7.1 4.0% 2.0% 0.0% 5.0

*Total includes the control and treatment groups.

experience was typical and two participants were actively employed in the real estate industry (a home builder and a leasing agent with a real estate sales license). None of the nonappraiser participants had familiarity with industrial land values in Pennsylvania. Nonappraisers typically described their confidence level in their value estimate as a 5 on a 10-point scale. No significant differences between nonappraiser experimental group characteristics were identified.

4. Results 4.1. Responses from experimental groups (expert and nonappraiser) The value estimates from the expert appraisers are reported in Table 3. The 14 responses from the control group ranged from US$80 000 to US$105 000 per acre with an average of US$90 464 per acre. The 14 low assessed value treatment group responses ranged from US$76 250 to US$102 000 per acre with an average of US$91 054 per acre and the 16 high assessed value treatment group responses ranged from US$85 000 to US$96 000 with an average of US$89 753 per acre. The absolute differences between the control group average and the low/high treatment group averages was US$590 and US$711, respectively. The difference between the low and high treatment group averages was US$1 301. The value estimates from the nonappraisers are reported in Table 4. The 18 responses from the control group ranged from US$75 000 to US$106 000 per acre with an average of US$85 338 per acre. The 17 low assessed value treatment group responses ranged from US$73 000 to US$94 100 per acre with an average of US$82 242 per acre and the 18 high assessed value treatment group responses ranged from US$75 000 to US$102 000 with an average of US$93 261 per acre. The absolute differences between the control group average and the low/high treatment group averages were US$3 096 and US$7 923, respectively. The difference between the low and high treatment group averages was US$11 019. The next section examines whether these differences are statistically significant.


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Table 3. Expert appraiser valuations (in US$)

Expert groups:

Number of responses Mean Standard deviation Range

Control (‘C’)

Low assessed value treatment (‘LT’)

High assessed value treatment (‘HT’)

105,000 100,000 100,000 95,000 91,500 90,000 90,000 90,000 90,000 85,000 85,000 85,000 80,000 80,000 — — 14

102,000 100,000 100,000 100,000 100,000 90,000 90,000 90,000 90,000 87,500 85,000 85,000 79,000 76,250 — — 14

96,000 95,000 95,000 91,250 90,000 90,000 90,000 90,000 90,000 90,000 87,500 87,500 87,000 86,800 85,000 85,000 16

90,464 7,464 25,000

91,054 8,269 25,750

89,753 3,350 11,000

4.2. Statistical examinations of the research hypotheses The research hypotheses (RH and RH ) result in the test hypotheses below. 1 2 For the expert appraisers (RH ): 1 (1) Ho : M óM óM 1 c lt ht Ha : At least two of the experimental group means differ. 1 For the nonappraisers (RH ): 2 (2) Ho : M óM óM 2 c lt ht Ha : At least two of the experimental group means differ. 2 where M óthe central tendency of the control group (no assessed value), M óthe c lt central tendency of the low assessed value treatment group, M óthe central tendency ht of the high assessed value treatment group. Analysis of variance (ANOVA) was used to test the null hypotheses of equality of the three population means for appraisers and nonappraisers. In ANOVA, the variation in the response variable (total sums of squares) was separated into variation due to the factor (sum of squares between groups) and variation due to the random error (sum of squares within groups). It is convenient to deal with quantities known as mean squares

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Table 4. Nonappraiser valuations (in US$) Nonappraiser Groups:

Number of Responses Mean Standard Deviation Range

Low assessed value treatment (‘LT’)

High assessed value treatment (‘HT’)

106,000 100,435 89,250 88,000 86,000 85,104 85,000 85,000 85,000 85,000 84,500 84,000 82,000 80,000 80,000 78,800 77,000 75,000 18

94,100 92,000 90,000 86,000 85,228 85,000 85,000 83,000 82,000 81,500 80,000 79,907 77,375 76,000 74,000 74,000 73,000 17

102,000 99,000 99,000 98,500 97,139 96,875 96,000 96,000 96,000 96,000 96,000 93,500 92,000 91,000 87,000 85,000 82,688 75,000 18

85,338 7,546 31,000

82,242 6,274 21,100

93,261 6,837 27,000

Control (‘C’)

instead of sums of squares. Mean squares were obtained by dividing each sum of squares by the corresponding degrees of freedom. Mean square between and mean square within groups can be denoted as MS and MS , respectively. B W The ratio of MS to MS is distributed as an F-variable with (pñ1) and (Nñp) B W degrees of freedom. If the computed F-statistic is greater than the critical value, the conclusion is that the null hypothesis is false at the predetermined level of significance. If any of the null hypotheses are rejected, Bonferroni multiple comparison procedures will be used to determine which means differ from each other.7 Table 5 contains a summary of the ANOVA for the expert appraisers.8 With a probability level of 0.865, the null hypothesis of equal expert group means is not rejected. Table 6 contains a summary of the ANOVA for the nonappraisers. With a probability level below 0.000, the null hypothesis of equal nonappraiser group means was rejected at the 0.05 significance level. Table 7 summarizes the multiple comparison procedures used to determine exactly which groups differ from each other. 7In the Bonferroni method, ordinary t-tests are used for pairwise comparisons, but the significance level is adjusted for the number of comparisons. With three comparisons, the Bonferroni t-tests will have to show significance beyond the 0.05/3ó0.02 level. 8All test statistics were calculated using SPSS for MS Windows software.


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Table 5. Analysis of variance--expert appraiser valuations

Between groups Within groups Total

Sum of Squares

df

Mean Square

F

Sig.

12,731,147 1.79Eò09 1.80Eò09

2 41 43

6,365,573.255 43,593,458.733

0.146

0.865

Table 6. Analysis of variance – nonappraiser valuations

Between groups Within groups Total

Sum of squares

df

Mean square

F

Sig.

1.14Eò09 2.39Eò09 3.53Eò09

2 50 52

570,090,754.1 47,851,127.916

11.914

0.000

Table 7. Multiple comparisons (Bonferroni) – nonappraiser valuations 95% Confidence interval Group (I) Control Low High

Mean difference (I-J)

Std. error

Low 3096.5131 High ñ7922.9444* Control ñ3096.5131 High ñ11,019.4575* Control 7922.9444* Low 11,019.4575*

2339.4803 2305.8170 2339.4803 2339.4803 2305.8170 2339.4803

(J)

Sig.

Lower bound

0.575 ñ2698.8433 0.004 ñ13,634.9101 0.575 ñ8891.8695 0.000 ñ16,814.8139 0.004 2210.9788 0.000 5224.1011

Upper bound 8891.8695 ñ2210.9788 2698.8433 ñ5224.1011 13,634.9101 16,814.8139

*The mean difference is significant at the 0.05 level.

Expert group mean comparisons that were significantly different at the 0.05 level include: M versus M where M \M , and M versus M where M \M . The next c ht c ht lt ht lt ht section is a discussion of the statistical findings.

5. Discussion Assessed values are widely reported in US property markets and nonappraisers often use assessed value as a market value proxy. The results of this study indicated that an assessed value treatment did influence nonappraiser market value judgments. The nonappraiser response was symmetrical with a low/high assessed value treatment pulling the group’s central tendency downward/upward. However, the difference between the nonappraiser control and low treatment group means were not statistically different.

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In previous studies, expert appraisers, when faced with a valuation problem in an unfamiliar geographic market, have demonstrated reference point anchoring behaviours, utilizing both sanctioned and unsanctioned reference points. Despite the strong anchoring tendencies found in prior studies and the nonappraiser findings in this present study, expert appraisers did not depart from normative theory and training and did not exhibit anchoring behaviours on an assessed value reference point. The central tendencies of two treatment groups receiving information indicating either a low or high assessed value were statistically no different from the mean of a control group not receiving assessed value information. Expert appraisers likely realized the inappropriateness of assessed value as a reliable market value proxy and did not depart from normative training. Furthermore, a low/high assessed value will result in a low/high property tax burden and subsequently may influence a property’s value. Recognizing that the differences were not statistically significant, this may provide insight into the direction of the expert treatment group means where the low assessed value group was greater than the high assessed value treatment group (M [M ). lt ht Ancillary to the primary research hypotheses presented in this study, it is interesting to examine the differences in expert and nonappraiser responses by experimental group. All three differences between expert and nonappraiser groups means (expert M versus c nonappraiser M , expert M versus nonappraiser M , and expert M versus nonappraiser c lt lt ht M ) were statistically significant at the 5% confidence level (using both parametric and ht non-parametric t-tests). Because the nonappraiser treatment groups were influenced by the reference points, the control groups represent the purest comparison between experts (M óUS$90 464) and nonappraisers (M óUS$85 338). With the mean of US$85 029 c c for the five comparable sales used in the valuation case, it does appear that the nonappraisers, not presented with the assessed value treatment, tended to use an averaging strategy. With a range of US$89 753 to US$91 054, the expert treatment groups were consistently near the expert control group mean and above the mean of the comparable sales.

6. Conclusion Although the usual caveats of clinical studies apply, the results of this study extend understanding of reference point usage in valuation judgment. This study revisits the comparative investigation into the differences between expert and nonappraiser use of heuristic behaviours pioneered, but confounded, by Northcraft and Neale. These findings seem to indicate that expert appraisers need some content validity before using a reference point as a valuation anchor and make distinctions among unsanctioned anchors that are plausibly informative (such as a pending sale price or expert valuation opinion of another) and unsanctioned anchors that are fundamentally inappropriate. For experts who understand that assessed values are flawed market value indications, assessed values lack the content validity as legitimate anchors. For nonappraisers who do not understand that assessed values are flawed market value indicators, assessed values have content validity that makes them attractive anchors. In addition to the contributions to the decision-making valuation literature, these findings should be of interest to real estate practitioners and investment managers who may use assessed values or assessment based price indices as market value proxies.


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Finally, an argument for generalized assessment techniques such as assessment banding used in the UK might be made if further research finds that US experts give little relevance to US assessed values.

Acknowledgements Four anonymous referees made numerous constructive comments that have improved the article. The authors would also like to thank the 97 study participants for their time and efforts.

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