Q: When would a financial institution be able to use a tax assessment valuation (TAV) in the development of an evaluation?
A: A financial institution could use a TAV as a component in the development of an evaluation when it demonstrates a valid correlation between the TAV and the market value of the property by:
• Determining and documenting how the tax jurisdiction calculates the TAV and how frequently property revaluations occur;
• Performing an analysis to determine the relationship between the TAV and market values for properties within a tax jurisdiction; and
• Testing and documenting how TAVs correlate to market value based on contemporaneous sales at the time of assessment and revalidating whether the correlation remains stable as of the effective date of the evaluation.
A TAV with a valid correlation analysis could be used, along with other supporting information appropriate to the type of transaction, to prepare an evaluation and develop a market value conclusion. A TAV is not, in and of itself, an alternative to an evaluation. As with all evaluations, transactions that rely heavily on a TAV as part of the evaluation process should describe and document the method(s) the financial institution used to confirm the property's actual physical condition and the extent to which an inspection was performed.
Financial institutions should establish policies and procedures that specify the supplemental information that is required to develop an evaluation supported by a TAV.41 A financial institution should be able to demonstrate that such an evaluation provides a credible market value conclusion and supports the financial institution’s decision to enter into a transaction.
41 See Valuation Guidelines, Appendix B.