Illinois Department of Revenue Real Property Sales Ratio Study

This article attempts to give a detailed explanation based on the 2008 assessment year.

It is important to understand that the IDOR (Illinois Department of Revenue) maintains functional control over the assessment process by utilizing a sale ratio study.  With this study the IDOR calculates a tentative multiplier each year.  This multiplier or factor is used to force assessment up or down depending upon the result.  Since the 2000 decade when the real estate market continued to appreciate through 2006. Manhattan’s multiplier was between seven to eight percent each year during this period forcing assessments higher.  A sales ratio is the prior year assessment divided by the current sale price.  The sale ratio measures a property's assessment percent of "Market Value" or in other words a property's level of assessment.  Example: Parcel xyz prior year assessment is 100,000 and it sold this year for $325,000, therefore the sales ratio is .3077 (100,000/325,000).   According to state law assessments should be thirty three and one third percent of “Market Value” or .3333.  I will refer back to these numbers a little later in this explanation.

Now back to the Illinois Department of Revenue Sales Ratio Study this explanation is based on the 2008 assessment year.  The IDOR Sale Ratio Study uses a three year average of three sets of three years of median sales ratio to calculate the tentative multiplier each year.  So for the 2008 tentative multiplier the sale years in the study were 2007, 2006, 2005, in one set then 2006, 2005, 2004 in the next set and finally 2005, 2004, 2003.  So each year the sales from the year just ended enter into the study and the oldest year drops out.  The Chief County Assessment Officer screens the sales so that only “Market Value” sales and sales with prior year full assessments only enters into the IDOR Sales Ratio Study.  Please see www.willcountysoa.com FAQ for a definition of these terms. 

The rational to conduct the study like this is so the economics of a single year does not have a great influence on the study results.  As an example prior to 2007 when the housing market was appreciating sometimes twenty to thirty percent but Manhattan was receiving a seven to eight percent tentative factor to increase assessments.  Assessment increases each year in combination with the mathematics of the sale ratio study helped to level off assessment increases at that level.  The fluctuations in the housing market from one year to another did not significantly impact the sale ratio results.  By the same conclusion only one year 2007 of lower sale prices will not have a great impact on the 2008 Sales Ratio Study.  Once again the prior assessment increases and the lower sale prices did help to yield a lower 2008 tentative factor as stated above.

The last time there were lower sustained stable tentative multiplier from the IDOR Sales Ratio Study was from 1995 through 1999.   The news seems to report the housing slump will continue through 2009.  If this is the case I predict that the tentative multiplier will continue to decrease for the 2009 and 2010 assessment years.  Smaller assessment increases usually translate into smaller increases in the tax bill amount.  This would be dependent upon tax rate changes.  The IDOR Sales Ratio Study can yield a negative result to force assessments downward so the total assessed value would actually decrease.  It would be dependent on how long the housing slump last and how low sellers are willing to drop the sale price of their real estate.  It is important to note that a forced lower total assessed value in a township will not translate into lower real estate taxes.  To better understand this statement see additional information link again and read topic on relationship of levy, tax rate, and assessed value.

Referring back to the example in the second paragraph where one example of a sale ratio was calculated to be .3077.  Let us assume this was the three year average median result of the IDOR Sales Ratio Study to understand how the tentative multiplier is calculated.  The IDOR tentative multiplier is the factor necessary to raise the three year average median sale ratio to .3333.  It is calculated by dividing the state mandated assessment level by the three year average median result from the sales ratio study (.3333 divided by .3077 equals 1.0832) a little more than eight percent for this hypothetical example.  When the tentative multiplier is positive it forces an increase in assessed values.  When the tax rate is stable or increases this will increase the tax bill amount.  When the tax rate decreases it will offset some degree of a tax bill increase even when the assessment is increased.

The three year average median sale ratio calculated from the IDOR Sales Ratio Study is considered to be a reflection of the entire assessment jurisdiction.  So the total assessed value must increase or decrease dependent upon the IDOR tentative multiplier.  This does not mean each residential parcel will receive the same increase or decrease.  It is the assessor’s job to equalize assessments within their jurisdiction by applying varying amounts of assessment changes to maintain equity according to state law.  Once the assessor’s re-assessment of the jurisdiction is complete the Chief County Assessment Officer will check to see if the assessor’s assessment changes were enough to satisfy the IDOR tentative multiplier.  When the local assessor assessment changes are less then the required increase or decrease to satisfy the IDOR tentative factor the Chief County Assessment Officer will apply a township multiplier across all parcels to make up any deficiency.  This process is called equalization and is used to prevent unequal sharing of a tax burden when a taxing body’s property tax revenue is split between different townships.  The new IDOR tentative multiplier for each year is given to the assessors at an annual December meeting held by the Chief County Assessment Officer.