ANALYSIS OF

COMMERCIAL
VALUATION
PRACTICE IN THE
COOK COUNTY
PROPERTY TAX
SYSTEM

Performed by:
Joshua Myers
David Cornell, MAI, CAE
Rick Rape, MAI, CAE
Josh Myers Valuation Solutions

12/11/2024

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 1
TABLE OF CONTENTS

Table of Contents........................................................................................................................................... 1

List of Figures ................................................................................................................................................ 4

List of Tables .................................................................................................................................................. 6

About Us ....................................................................................................................................................... 10

Executive Summary ..................................................................................................................................... 11

Background ................................................................................................................................................ 11
Summary of Our Observations and Recommendations ............................................................................ 11

Statistical Findings Summary..................................................................................................................... 17

Operational Review...................................................................................................................................... 20
1. Data Sources and Valuation Practices .................................................................................................. 20
Treatment of Real Estate Taxes for Ad Valorem Tax Purposes ............................................................ 21
Effective Tax Rate .................................................................................................................................. 22
Effective Tax Rate Calculation ............................................................................................................... 22
Effective Tax Rate Imputes .................................................................................................................... 23
Hypothetical Example — Gross Leases ................................................................................................ 23
Hypothetical Example — Proving the Logic ........................................................................................... 24
Treatment of Taxes Under Triple Net (NNN) Leases ............................................................................. 24
Treatment of Real Estate Taxes — Current Practices ........................................................................... 25
Historic Practice — CCAO ..................................................................................................................... 25
Current Practice — CCAO ..................................................................................................................... 26
Current Practice — CCBOR................................................................................................................... 27
Recommendations ................................................................................................................................. 27
2. Handling of Valuation Evidence ............................................................................................................. 32
Recommendations ................................................................................................................................. 33
3. Appeal Information from the CCAO ....................................................................................................... 33
Recommendations ................................................................................................................................. 34
4. Sale Validation and Price Adjustments .................................................................................................. 36
Recommendations ................................................................................................................................. 37

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 1
5. Potential for Regressivity ....................................................................................................................... 37
Recommendations ................................................................................................................................. 38

Detailed Statistical analysis ........................................................................................................................ 39

Purpose of a Ratio Study ........................................................................................................................... 39
Key Uses of Ratio Studies ......................................................................................................................... 40
Seven Steps in a Ratio Study .................................................................................................................... 40
Step 1: Define the Purpose, Scope, and Objectives .............................................................................. 40
Step 2: Design ....................................................................................................................................... 40
Step 3: Stratification ............................................................................................................................... 40
Step 4: Collection and Preparation of Market Data ................................................................................ 41
Step 5: Matching of Appraisal and Market Data .................................................................................... 41
Step 6: Statistical Analysis ..................................................................................................................... 41
Step 7: Evaluation and Use of Result .................................................................................................... 41
Statistical Background ............................................................................................................................... 41
Calculating a Sales Ratio ....................................................................................................................... 41
Outlier Handling ..................................................................................................................................... 42
Confidence Intervals .............................................................................................................................. 42
Statistical Hypothesis Testing ................................................................................................................ 43
Sale Price Time Trend Analysis ............................................................................................................. 43
Appraisal Level Statistics ....................................................................................................................... 43
Appraisal Uniformity Statistics ............................................................................................................... 44
Coefficient of Dispersion (COD) ......................................................................................................... 44
Coefficient of Price-Related Bias (PRB)............................................................................................. 46
Uniformity Test of Group Medians ..................................................................................................... 47
Selective Reappraisal ................................................................................................................................ 47
Current Ratio Study and Related Statistical Analysis ................................................................................ 48
Step 1: Define the Purpose, Scope, and Objectives .............................................................................. 48
Step 2: Design ....................................................................................................................................... 49
Outlier Handling ................................................................................................................................. 49
Statistical Hypothesis Testing ............................................................................................................ 50
Sale Price Time Trend Analysis ......................................................................................................... 50
Appraisal Level Statistics ................................................................................................................... 51
Appraisal Uniformity Statistics............................................................................................................ 51
Selective Reappraisal ........................................................................................................................ 51
Step 3: Stratification ............................................................................................................................... 51
Sample Representativeness .............................................................................................................. 52

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 2
Step 4: Collection and Preparation of Market Data ................................................................................ 52
Data Filters ......................................................................................................................................... 52
Step 5: Matching of Appraisal and Market Data .................................................................................... 53
Step 6: Statistical Analysis ..................................................................................................................... 54
Analysis of the Appeals Process ........................................................................................................ 54
Appeal Status Trends over the Three-Year Cycle ......................................................................... 54
Appeal Status for City Triad (2021) ................................................................................................ 58
Appeal Status for North Triad (2022) ............................................................................................. 62
Appeal Status for South Triad (2023) ............................................................................................. 66
Sales Ratio Analysis by Triad ............................................................................................................ 70
Summary Results by Triad ............................................................................................................. 70
City Triad ............................................................................................................................................ 80
North Triad ......................................................................................................................................... 84
Sales Ratio Analysis of the Appeals Process .................................................................................... 87
South Triad ..................................................................................................................................... 88
City Triad ........................................................................................................................................ 92
North Triad ..................................................................................................................................... 97
Step 7: Evaluation and Use of Result .................................................................................................. 101

References.................................................................................................................................................. 102

Appendix A ................................................................................................................................................. 103

Supporting Statistical Tables ................................................................................................................... 103

Resumes ..................................................................................................................................................... 115

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 3
LIST OF FIGURES

Figure 1. Using the "EAT" Triangle to Calculate the Effective Tax Rate ....................................................... 22
Figure 2: A Hypothetical Comparison of Two CODs: 15 and 25.................................................................... 45
Figure 3. A Hypothetical Comparison of Two PRBs: -0.02 and -0.12 ............................................................ 47
Figure 4. Map of the Cook County, IL............................................................................................................. 49
Figure 5. Assessor Appeal Results - North Triad Reassessment (2019).......................................................... 54
Figure 6. Assessor Appeal Results - City Triad Reassessment (2021) ............................................................ 55
Figure 7. Assessor Appeal Results - South Triad Reassessment (2020).......................................................... 56
Figure 8. Board Appeal Results - North Triad Reassessment (2019) .............................................................. 56
Figure 9. Board Appeal Results - South Triad Reassessment (2020) .............................................................. 57
Figure 10. Board Appeal Results - City of Triad Reassessment (2021) .......................................................... 57
Figure 11. Assessor Appeal Results by Use Group - City Triad Reassessment (2021)................................... 58
Figure 12. Assessor Appeal Results by Township - City Triad Reassessment (2021) .................................... 59
Figure 13. Assessor Appeal Results by Appraised Value Category - City Triad Reassessment (2021) ......... 59
Figure 14. Board Appeal Results by Group - City Triad Reassessment (2021) .............................................. 60
Figure 15. Board Appeal Results by Township - City Triad Reassessment (2021) ........................................ 60
Figure 16. Board Appeal Results by Appraised Value Category - City Triad Reassessment (2021) .............. 61
Figure 17. Assessor Appeal Results by Use Group - North Triad Reassessment (2022) ................................ 62
Figure 18. Assessor Appeal Results by Township - North Triad Reassessment (2022).................................. 62
Figure 19. Assessor Appeal Results by Township - North Triad Reassessment (2022).................................. 63
Figure 20. Assessor Appeal Results by Appraised Value Category - North Triad Reassessment (2022) ....... 63
Figure 21. Board Appeal Results by Use Group - North Triad Reassessment (2022)..................................... 64
Figure 22. Board Appeal Results by Township - North Triad Reassessment (2022) ...................................... 64
Figure 23. Board Appeal Results by Township - North Triad Reassessment (2022) ...................................... 65
Figure 24. Board Appeal Results by Appraised Value Category - North Triad Reassessment (2022) ........... 65
Figure 25. Assessor Appeal Results by Use Group - South Triad Reassessment (2023) ................................ 66
Figure 26. Assessor Appeal Results by Township - South Triad Reassessment (2023).................................. 66
Figure 27. Assessor Appeal Results by Township - South Triad Reassessment (2023).................................. 67
Figure 28. Assessor Appeal Results by Appraised Value Category - South Triad Reassessment (2023) ....... 67
Figure 29. Board Appeal Results by Use Group - South Triad Reassessment (2023)..................................... 68
Figure 30. Board Appeal Results by Township - South Triad Reassessment (2023) ...................................... 68
Figure 31. Board Appeal Results by Township - South Triad Reassessment (2023) ...................................... 69
Figure 32. Board Appeal Results by Appraised Value Category - South Triad Reassessment (2023) ........... 69
Figure 33. Median Sales Ratio - Overall by Triad/Year and Process Step ...................................................... 70
Figure 34. Coefficient of Dispersion - Overall by Triad/Year and Process Step ............................................. 72
Figure 35. Coefficient of Price-Related Bias - Overall by Triad/Year and Process Step ................................ 73
Figure 36. Median Sales Ratio by Value Quintile - Assessor Notice Step - South Triad (2020) .................... 73
Figure 37. Median Sales Ratio by Value Quintile - Assessor Certified Step - South Triad (2020) ................ 74
Figure 38. Median Sales Ratio by Value Quintile - Board Step - South Triad (2020) .................................... 74
Figure 39. Median Sales Ratio by Value Quintile - Assessor Notice Step - City Triad (2021) ...................... 75
Figure 40. Median Sales Ratio by Value Quintile - Assessor Certified Step - City Triad (2021) ................... 75

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 4
Figure 41. Median Sales Ratio by Value Quintile - Board Step - City Triad (2021)....................................... 76
Figure 42. Median Sales Ratio by Value Quintile - Assessor Notice Step - North Triad (2022) .................... 76
Figure 43. Median Sales Ratio by Value Quintile - Assessor Certified Step - North Triad (2022) ................ 77
Figure 44. Median Sales Ratio by Value Quintile - Board Step - North Triad (2022) .................................... 77
Figure 45. Median Sales Ratio Across Each Step - South Triad (2020) .......................................................... 78
Figure 46. Coefficient of Dispersion Across Each Step - South Triad (2020) ................................................ 79
Figure 47. Coefficient of Price-Related Bias Across Each Step - South Triad (2020) .................................... 80
Figure 48. Median Sales Ratio Across Each Step - City Triad (2021) ............................................................ 81
Figure 49. Coefficient of Dispersion Across Each Step - City Triad (2021) ................................................... 82
Figure 50. Coefficient of Price-Related Bias Across Each Step - City Triad (2021) ...................................... 83
Figure 51. Median Sales Ratio Across Each Step - North Triad (2022) .......................................................... 85
Figure 52. Coefficient of Dispersion Across Each Step - North Triad (2022) ................................................ 86
Figure 53. Coefficient of Price-Related Bias Across Each Step - North Triad (2022) .................................... 87
Figure 54. Change in Median Sales Ratio During Assessor Level Appeals - South Triad (2020) .................. 88
Figure 55. Change in Median Sales Ratio During Board Level Appeals - South Triad (2020) ...................... 88
Figure 56. Change in Coefficient of Dispersion During Assessor Level Appeals - South Triad (2020)......... 89
Figure 57. Change in Coefficient of Dispersion During Board Level Appeals - South Triad (2020) ............. 89
Figure 58. Change in Price-Related Bias During Assessor Level Appeals - South Triad (2020) ................... 90
Figure 59. Change in Price-Related Bias During Board Level Appeals - South Triad (2020) ........................ 90
Figure 60. Change in Median Sales Ratio During Assessor Level Appeals - City Triad (2021) .................... 92
Figure 61. Change in Median Sales Ratio During Board Level Appeals - City Triad (2021) ......................... 93
Figure 62. Change in Coefficient Dispersion During Assessor Level Appeals - City Triad (2021) ............... 93
Figure 63. Change in Coefficient Dispersion During Board Level Appeals - City Triad (2021) .................... 94
Figure 64. Change in Price-Related Bias During Assessor Level Appeals - City Triad (2021) ...................... 94
Figure 65. Change in Price-Related Bias During Board Level Appeals - City Triad (2021) .......................... 95
Figure 66. Change in Median Sales Ratio During Assessor Level Appeals - North Triad (2022) .................. 97
Figure 67. Change in Median Sales Ratio During Board Level Appeals - North Triad (2022) ...................... 97
Figure 68. Change in Coefficient of Dispersion During Assessor Level Appeals - North Triad (2022)......... 98
Figure 69. Change in Coefficient of Dispersion During Board Level Appeals - North Triad (2022) ............. 98
Figure 70. Change in Price-Related Bias During Assessor Level Appeals - North Triad (2022) ................... 99
Figure 71. Change in Price-Related Bias During Board Level Appeals - North Triad (2022) ........................ 99

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 5
LIST OF TABLES

Table 1. Important Data Sources Used by the CCAO and CCBOR ................................................................ 21
Table 2. Loaded Capitalization Rate Example ................................................................................................. 23
Table 3. Loaded Capitalization Rate: Proving the Logic ................................................................................. 24
Table 4. Evidence Presented to CCAO and CCBOR for Valuation ................................................................ 32
Table 5. IAAO Standard Ranges Part 1 for the COD by Type of Property ..................................................... 45
Table 6. IAAO Standard Ranges Part 2 for the COD by Type of Property ..................................................... 46
Table 7. Table of Sales Ratio Statistics for the South Triad (2020) ................................................................ 79
Table 8. Table of Sales Ratio Statistics for the City Triad (2021) ................................................................... 83
Table 9. Table of Sales Ratio Statistics for the North Triad (2022) ................................................................ 86
Table 10. P-Values for Tests of Hypothesis During Assessor Appeals in the South Triad (2020) ................. 91
Table 11. P-Values for Tests of Hypothesis During Board Appeals in the South Triad (2020) ...................... 91
Table 12. P-Values for Tests of Hypothesis During Assessor Appeals in the City Triad (2021) .................... 95
Table 13. P-Values for Tests of Hypothesis During Board Appeals in the City Triad (2021) ........................ 96
Table 14. P-Values for Tests of Hypothesis During Assessor Appeals in the North Triad (2022) ............... 100
Table 15. P-Values for Tests of Hypothesis During Board Appeals in the North Triad (2022) .................... 100
Table 16. Table of Sales Ratio Statistics ........................................................................................................ 103
Table 17. Table of Sales Ratio Statistics for the South Triad (2020) ............................................................ 104
Table 18. Table of Sales Ratio Statistics for the City Triad (2021) ............................................................... 105
Table 19. Table of Sales Ratio Statistics for the North Triad (2022) ............................................................ 106
Table 20. Table of Quintile Median Sales Ratio Statistics By Process Step for the South Triad (2020) ...... 107
Table 21. Table of Quintile Median Sales Ratio Statistics By Process Step for the City Triad (2021)......... 108
Table 22. Table of Quintile Median Sales Ratio Statistics By Process Step for the North Triad (2022) ...... 109
Table 23. Comparison in Changes in Sales Ratio Statistics During Assessor Appeals for the South Triad
(2020) ............................................................................................................................................................. 110
Table 24. Comparison in Changes in Sales Ratio Statistics During Board Appeals for the South Triad (2020)
........................................................................................................................................................................ 111
Table 25. Comparison in Changes in Sales Ratio Statistics During Assessor Appeals for the City Triad
(2021) ............................................................................................................................................................. 112
Table 26. Comparison in Changes in Sales Ratio Statistics During Board Appeals for the City Triad (2021)
........................................................................................................................................................................ 113
Table 27. Comparison in Changes in Sales Ratio Statistics During Assessor Appeals for the North Triad
(2022) ............................................................................................................................................................. 114
Table 28. Comparison in Changes in Sales Ratio Statistics During Board Appeals for the North Triad (2022)
........................................................................................................................................................................ 115

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 6
3326 Dodd Drive
Chesapeake, VA 23323
Office: 757-403-1719

December 11, 2024

The Honorable Toni Preckwinkle

President of the Cook County Board of Commissioners
118 N. Clark St., Room 537
Chicago, IL 60602

Dear President Preckwinkle:

Josh Myers Valuation Solutions was retained to conduct a comprehensive review of the Cook County
commercial valuation system. This project entailed an analysis of five specific statistical components and five
specific operational components. The statistical analysis evaluates the quality of the values coming from the
various steps of the commercial valuation process and the operational analysis provides recommendations
to improve that overall process. The scope of this project is outlined below.

Statistical Analysis
The following five key components were investigated as part of the statistical component of this project:

1. Differential Valuation and Appeal Rates. At each stage, are commercial properties valued differently
or granted appeals at different rates based on location, property value, property class, or any other
stratification?

2. Assessment for Accuracy. Do commercial properties tend to be under- or over-assessed with

respect to market value?

3. Assessment Level Comparison. How does the level of assessment compare between properties
valued by the CCAO and the CCBOR?

4. Non-Uniformity in Commercial Values. To what degree do commercial property values demonstrate

general non-uniformity and how, if at all, does this impact investors?

5. Regressivity Analysis. To what extent is regressivity present? How do the number of appeals and
the change of values at each stage affect the degree of regressivity? What impact does the degree of
regressivity have on commercial property owners?

This statistical analysis consists of an appeals analysis and a sales ratio study. All ratio studies were
conducted in accordance with the 2013 version of the International Association of Assessing Officers (IAAO)
Standard on Ratio Studies and accepted statistical practices. The ratio studies were carefully designed and
employed important analytical methods such as stratification and time adjustments. All statistical analyses,
including ratio studies, were designed to ensure robust and supportable recommendations.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 7
Operational Analysis
The operational component of this project included a study of the existing valuation methods, particularly for
high-value properties such as office buildings. We analyzed income capitalization methods used by the Cook
County Assessor’s Office (CCAO) and compared them with those employed by the Cook County Board of
Review (CCBOR). The Income capitalization methodology (as opposed to the cost approach and sales
comparison approaches) was given focus, as this is the methodology employed by market participants when
making valuation decisions. We also reviewed the current process for data collection and data maintenance,
evaluating the use of this data in developing reliable and consistent valuation models.

The scope of work, initially identified by the following five key components, evolved as new insights were
obtained. Each component, along with additional issues discovered during our studies, are addressed in this
report.

1. Data Sources and Valuation Practices. How do the data sources and valuation practices of the
CCAO and the CCBOR differ for commercial properties, and what impact do these differences have
on the overall assessment system? Specifically, how are capitalization rates determined by each
entity, and should loaded or unloaded capitalization rates be used? Are there aspects of the Illinois
State Property Tax Code that adversely affect commercial property valuation in Cook County or create
unnecessary conflicts with industry standards?

2. Handling of Valuation Evidence. How do the CCAO and the three CCBOR Commissioners handle
valuation and evidence presented by the property owner?

3. Appeal Information from the CCAO. What information does the CCAO provide the CCBOR, and
how does the CCBOR use this information? How effectively does this information communicate the
justification for the CCAO’s valuation to the CCBOR?

4. Sale Validation and Price Adjustments. How are commercial property sale prices adjusted for
various factors during the sales validation process for inclusion in valuation and sales ratio studies?
Are these adjustments being performed appropriately using a uniform set of guidelines?

5. Potential for Regressivity. What are the potential causes of any regressivity that exists at each
stage?

The goal of the operational review was to define the current state of the valuation process for commercial
properties, particularly multi-tenant properties, and to make recommendations based on best practices and
principles, either directly or indirectly derived from industry standards. Special attention was paid to the
differences in appraisal practices between the CCAO and CCBOR.

Acknowledgement
This best practices study was made possible by a thorough understanding of current practices at the CCAO
and CCBOR. We extend our gratitude to the analysts and managers of both offices, with whom we had
numerous meetings, both in person and via remote tools (Zoom and MS Teams).

The CCAO provided us with access to presentations on valuation issues, while the CCBOR allowed us to
observe actual hearings before three analysts, giving us first-hand insights into the CCBOR appeal process.
Both offices were consistently open and responsive to our many requests for data and documentation.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 8
We also thank the Cook County President’s Office for their continued support, insights, and guidance during
the project.

This report must be read in its entirety to completely understand our findings and recommendations. However,
an Executive Summary has been included to provide a concise overview of the conclusions and
recommendations, without delving into the detailed data and analyses.

Ultimately, this study recommends seventeen areas where the assessing procedures in Cook County could
be improved and more clearly understood by other stakeholders. Some of these recommendations have
already begun to be implemented by analysts at the CCAO through their own initiative, and we hope that this
trend toward improved practices will continue, benefiting all stakeholders.

Respectfully Submitted,

Joshua Myers

President

Josh Myers Valuation Solutions

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 9
ABOUT US

The team assembled by Josh Myers Valuation Solutions for this project includes Josh Myers, David Cornell,
and Rick Rape. Josh Myers holds a master’s degree in Statistics from the University of Virginia and has been
consulting in areas such as sales ratio studies and business process audits for over 11 years. Josh is also a
current member of the IAAO Research and Standards Committee. David Cornell holds the MAI and CAE
designations and is an IAAO Instructor. David is an experienced consultant with expertise in commercial
valuation practices. Rick Rape also holds the MAI and CAE designations. Rick is currently the Director of
Valuation for the Hillsborough County, FL Property Appraiser and spent 24 years serving as a special
magistrate in Florida hearing commercial assessment appeals. A detailed CV for each member of the Josh
Myers Valuation Solutions team can be found attached to this report.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 10
EXECUTIVE SUMMARY

Background
The Cook County Illinois Property Tax System involves processes over several stages. Initially, the Cook
County Assessor’s Office (CCAO) conducts the commercial valuation for all properties (this report focuses on
the assessment and appeal process for commercial properties). This is followed by an opportunity for
taxpayers to lodge an appeal at the CCAO level. Whether appealed at the CCAO level or not, property owners
(taxpayers and owners are used interchangeably in this report) have the right to appeal their valuations to the
Cook County Board of Review (CCBOR) and subsequently, to the State Property Tax Appeal Board (PTAB)
or Circuit Court. This analysis focuses solely on the practices of the CCAO and the CCBOR.

Concerns have been raised by stakeholders in these processes regarding the accuracy of mass valuations,
the number of appeals, the large number of appeals at the CCBOR level that result in reductions, and the
dynamics of the CCAO and CCBOR relationship.

The following is a summary of observations and general recommendations. Links in the following summary
allow the reader to quickly access the section of the report with the details and specific recommendations.

Summary of Our Observations and Recommendations

The statistical analysis is organized around five key statistical questions and includes an analysis of appeal
changes and two forms of a sales ratio study. One sales ratio study assesses the overall quality of the
appraised values at each valuation step (Assessor Notice, Assessor Certified, and Board of Review) for each
triad (South Triad - 2020, City Triad - 2021, and North Triad - 2022). Another sales ratio study specifically
evaluates the effect of the CCAO and CCBOR appeals processes on just those properties under appeal for
the same valuation steps and the same triads. This project analyzes the full appraised value of the property
before an assessment percentage is applied. All sales ratio studies are performed according to International
Association of Assessing Officers (IAAO) standards and a set of documented procedures.

In summary, the detailed statistical analysis in this report finds that the commercial values often do not meet
IAAO industry standards for appraisal level and uniformity. The level of general non-uniformity is usually
greater than the IAAO industry standard range across the three triads and the different property use groups.
At the same time, the values tend to be regressive but the levels of regressivity that exist are mostly within
allowable limits set in the IAAO industry standards. In two of the three triads measured (South – 2020 and
North – 2022), the final appraisal level after the completion of the CCBOR appeals step is lower than the
IAAO industry standard range of 90% to 110%, meaning that the property values on the whole tend to be too
far below their market value. The appeals analysis indicates that a large number of properties and an even
larger percentage of property value receive a reduction during either the CCAO or CCBOR appeal periods,

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 11
with CCBOR receiving appeals at a higher rate and also granting reductions at a higher rate than the CCAO.
This analysis indicates, however, that the two appeals processes do not always serve to improve the quality
of the commercial values on the whole.

It is worth noting that this statistical analysis is conducted using sales and valuation data that occurred during
the COVID-19 pandemic. It is not precisely known the degree to which the pandemic may have had an effect
on any of the analyses that were conducted. The importance of analyzing the most recent data, however,
outweighed any of these concerns when designing the statistical analysis.

The following list contains additional summarizations of the general findings for the statistical section. The
Statistical Findings Summary includes a complete set of these observations.

• Commercial properties tend to be valued at different levels of appraisal depending on the triad year
(relative to the triad-year’s effective valuation date) and property use group. This is a source of non-
uniformity present throughout all of this analysis.

• The rate at which commercial properties are appealed and the rate at which these properties are
granted value changes tends to vary by triad, township, appraised value range, and property use
group. The clearest and most consistent of these trends exists with respect to the appraised value
range, where high-valued properties are more likely to appeal than lower-valued properties and those
that appeal are more likely to receive a value change. This trend is present in both the CCAO and
CCBOR appeal periods, but its impact is more pronounced at the CCBOR at least partly due to the
higher appeal rates there.

• Considering the final set of commercial values after the CCBOR finishes its work, we found that the
commercial property values were under-valued with respect to market value in the South Triad (2020)
and the North Triad (2022) overall, with median sales ratios of 81.37% and 71.79%, respectively. This
constitutes a system-wide issue with valuing properties as a whole at the target percentage in these
triads. However, this same issue was not present with the City Triad (2021) because its median sales
ratio of 98.96% meets the IAAO industry standard and is very close to the 100% target. When
stratifying by property use group, this study finds this same general pattern by triad.

• The appraisal level after the CCBOR appeals period has been completed (Board step) is statistically
significantly less than after the CCAO appeals period has been completed (Assessor Certified step)
on an overall basis. In most cases, the appraisal level after the Board step decreases and moves
farther away from the IAAO industry standard range, sometimes greatly so. This same general trend
exists by property use group strata. The exception was in the City Triad (2021), where the final values
after the Board step were an improvement over the Assessor Certified step overall with regard to the
appraisal level. The CCBOR tends to reduce the appraisal level by more than the CCAO on the
properties that were actually under appeal.

• Commercial values in Cook County generally are more non-uniform than IAAO industry standards
permit. This non-uniformity in the valuation system is present across triads, steps in the valuation
process, and property use groups. The CCBOR appeals process does not generally improve
uniformity statistics by a statistically significant amount on properties under appeal. This degree of
non-uniformity (variability) could be masking other issues with the quality of the values and making it
more difficult to derive proper time (market condition) adjustments to sale prices used as a bedrock in
sales ratio studies. Reducing the non-uniformity of the sales ratios through the adoption of the
recommendations in this report would allow sales ratio studies to be more effective diagnostic tools in
the future. Property owners are undoubtedly being negatively impacted by the uncertainty that comes
along with this degree of non-uniformity.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 12
• Commercial valuations do tend to be somewhat regressive, but these levels are within allowable limits
set by IAAO industry standards.

The results of these analyses should impact decision-making. Both CCAO and CCBOR should view these
results through the lens of how each could learn and change to improve the quality of the value estimates at
their respective steps. These findings support the fact that recommendations are needed to improve
commercial valuation practices.

The operational analysis section of this report is organized around five key operational questions. With the
statistical analysis indicating that the commercial valuation system needs improvement, the operational
analysis seeks to identify which areas could be improved and recommendations for how to improve them.

The commercial valuation practices of the CCAO used to differ substantially from those employed by the
CCBOR, regarding the treatment of real estate taxes in the income capitalization approach. Further, the
methods more recently adopted by the CCAO have not been communicated effectively to the CCBOR. At
present the CCAO and CCBOR use methodologies regarding the treatment of real estate taxes that would
result in the same value conclusion, all other variables held constant.

While the CCAO and CCBOR use many of the same resources to identify market norms by property type and
location, the quantity of property-specific data supplied to the CCBOR is robust and includes actual income
and expense (I&E) data from each of the tens of thousands of commercial properties that are appealed each
year (overwhelmingly the valuation arguments before the CCBOR are based on the income capitalization
approach). In contrast, the CCAO receives far less I&E data. At present, whether presented to the CCAO or
the CCBOR, there is no robust, mutually query-able system for sharing the data between the two entities.
Given the number of appeals and adjustments to value at the CCBOR level, effectively both the CCAO and
CCBOR collectively set the values for commercial properties. Given these observations, shared data, along
with common valuation methodologies and perspectives, could significantly enhance the consistency of value
determinations by the CCAO and CCBOR, while still maintaining the independence of the two offices.

These and other related issues, along with our recommendations and the reasoning behind them, are covered
in each of the five sections of this report's operational analysis section. Our recommendations include
improvements that can be made to the policies, practices, and operations of the CCAO and CCBOR, as well
as improvements to the system as a whole that may rely on state policy changes or budgetary processes.
This executive summary links to each of these five sections, while providing a short summary of each section’s
content as well as a list of the recommendations made therein.

Section 1. Data Sources and Valuation Practices includes a discussion of data management, data sharing,
income model best practices and standardization, and income and expense data disclosure legislation.

Recommendations — Section 1: Data Sources and Valuation Practices

1. The CCAO should formally request copies of all appraisals submitted to the CCBOR.

2. The CCAO should formally request copies of all I&E data submitted to the CCBOR. Even
though the data can be up to a year old, this would be very helpful to CCAO.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 13
3. All I&E data should be entered into a centralized database, which should be accessible by the
CCAO and CCBOR. The database should also include property type, physical attributes, and
location data.

4. In addition to the third-party capitalization reports, the CCAO should conduct an annual
capitalization rate study. This study could be integrated with the sales validation
recommendations discussed later in this report. We would further recommend the annual
capitalization reports be a joint project between the CCAO and the CCBOR. This collaboration
can be achieved without compromising the agencies’ statutory independence.

5. The CCAO and the CCBOR should adopt a unified methodology for loading capitalization rates.

6. Adopt an Effective Tax Rate based approach to loading capitalization rates.

7. Both the CCAO and CCBOR should jointly develop a model to estimate the upcoming tax rate
for use in the Effective Tax Rate – Assessment Ratio – Tax Rate (EAT) formula. This approach
aligns with professional appraisal practices, which recognize that buyers consider future income
streams rather than relying solely on historical tax rates. Current data science staff would be
valuable in this effort.

8. CCAO should maximize the use of Enterprise Assessment and Tax by entering all relevant
data, including more detailed use codes such as “anchored retail,” “unanchored strip centers,”
“one-story suburban office,” and “multi-story office.” Explore the database's capabilities to
handle market sales, I&E data, and other relevant metrics.

9. Although the submission of I&E data is not mandated by law, the CCBOR frequently receives
substantial historical data. All historical I&E data should be entered into a centralized database,
which should be accessible to CCAO and CCBOR.

10. The CCAO should support efforts (which they are currently doing) to change the law to have
I&E data required.

Section 2. Handling of Valuation Evidence is tangentially related to Section 1 and emphasizes points made
therein about processes to share and manage data, but in particular evidence presented during appeals.

Recommendation — Sections 2: Handling of Valuation Evidence

1. The CCAO should formally request all valuation evidence submitted to the CCBOR.
Additionally, key pieces of evidence, notably I&E data, should be stored in a shared database
(as previously addressed in section 1. Data Sources and Valuation Practices).

Section 3. Appeal Information from the CCAO is in the context of what is provided by the CCAO to the CCBOR
for their review during the appeals process. At present there is substantially no participation by the CCAO in
the CCBOR appeal process, with the exception being some high profile, high-value properties.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 14
Recommendations in this section could go a long way to fostering a good relationship between the CCAO
and CCBOR, resulting in more uniform valuation methodologies, shared resources, and market perspectives.

Recommendations — Section 3: Appeal Information from the CCAO

1. The CCAO should prepare and submit “hearing packets” for all commercial appeals. These
packets should include methodology and supporting data used to calculate the assessed
values.

2. To streamline the process of creating “hearing packets” for commercial appeals, developing or
acquiring automated tools should be a priority in producing the hearing packets.

3. The CCAO should attend hearings and present their case at hearings before the CCBOR. They
should also address property-specific valuation issues.

4. CCAO and CCBOR analysts should meet regularly to discuss overall valuation methodologies
and market trends and share data. Shared educational opportunities offered by the two offices
could further the adoption of consistent methodologies and perspectives between the two
entities.

5. Both the CCBOR and CCAO should post key processes and policies on the internet for review
by all stakeholders and should keep them updated over time as changes occur. Those policies
and processes that relate to areas of valuation that tend to involve professional discretion and
judgement would be of greatest benefit.

Section 4. Sale Validation and Price Adjustments addresses the lack of a sale validation process but
recognizes the CCAO has begun this absolutely essential process. A lack of qualified sales negatively impacts
the ability of an entity to measure the quality of the set of value estimates. The lack of a proper sales validation
process certainly presented a challenge in developing the sales ratio study for this project and likely caused
some inflation in the levels of non-uniformity measured. Using the various important ratio study metrics that
are calculated using mass valuations and validated market sales could guide both bodies more effectively
toward a more accurate and defensible tax roll. Once again, sharing this sales validation data with the CCBOR
could further enhance the consistency with which the two entities view valuations and enhance the perceived
reliability of valuations by the CCAO.

Recommendation — Section 4: Sale Validation and Price Adjustment

1. The CCAO should establish a comprehensive sales validation procedure to review all
commercial sales according to best practice standards found in the IAAO Standard on the
validation and Adjustment of Sales. Additionally, the sales database and sales validation
process should be shared with the CCBOR, and the CCAO should communicate validated sales
to representatives from the Illinois Department of Revenue (IDOR).

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 15
Section 5 Potential for Regressivity. This project’s sales ratio study generally found that, on the whole,
appraised values were regressive but that the level of regressivity present was within acceptable limits found
in IAAO industry standards. Further, this project found that the appeals process, at both the CCAO and the
CCBOR, tended to add some regressivity but, again, this was not enough to fall outside of the range of IAAO
industry standards. Given the fact that our findings do not include levels of regressivity that do not meet IAAO
industry standards, we cannot comment on the degree to which regressivity may be impacting property
owners. The larger issue is certainly the level of non-uniformity present in the system.

Recommendation — Section 5: Potential for Regressivity

1. Both the CCAO and the CCBOR should regularly perform commercial ratio studies using a
consistent set of practices and statistical measures that are in keeping with the current IAAO
Standard on Ratio Studies. For CCAO, this should be an integral part of their mass valuation
process.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 16
STATISTICAL FINDINGS SUMMARY

The key findings of the statistical analysis are summarized as follows, organized according to the key project
questions for the statistical phase. This summary of findings is produced in more straightforward language
but depends on the key findings from the Detailed Statistical Analysis section of this report. These conclusions
are presented here instead of in that section in order to facilitate a better flow for this report.

Key Question: At each stage, are commercial properties being valued differently or granted appeals
at different rates based on location, property value, property class, or any other stratification?

Summary of Findings:

• Commercial properties tend to be valued at substantially different levels of appraisal depending on the
triad year (relative to the triad-year’s effective valuation date) and property use group. This is a source
of non-uniformity present throughout all of this analysis.

• The rate at which commercial properties are appealed and the rate at which these properties are
granted value changes tends to vary by triad, township, appraised value range, and property use
group. The clearest and most consistent of these trends exists with respect to the appraised value
range, where high-valued properties are more likely to appeal than lower-valued properties and those
that appeal are more likely to receive a value change. This trend is present in both CCAO and CCBOR
appeal periods but is more pronounced at the CCBOR at least partly due to the higher appeal rates
there. The effect of this is that a greater percentage of the total appraised value is under appeal than
the percentage of the total number of properties and that a greater percentage of the total appraised
value is being changed than the percentage of the total number of parcels being changed.

• There was a clear drop in the percentage of properties appealed with the CCAO in the South Triad
(2020) and the City Triad (2021) in comparison to the percentage appealed with the North Triad
(2019).

• A greater percentage of properties file appeals in year one of the three-year assessment cycle than
do in the two subsequent years. This is true for both CCAO and CCBOR appeals.

• A greater percentage of appeal properties receive a value change at the CCBOR in year one of the
three-year assessment cycle than do with the CCAO. But these numbers flip in years two and three.
In the second and third years of the assessment cycle, the CCAO grants a value change on a greater
percentage of incoming appeals than does the CCBOR. The raw numbers of appeals with a value
change remain higher for the CCBOR in years two and three simply because there are so many more
CCBOR appeals filed in those years in comparison to the number of CCAO appeals.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 17
Key Question: Do commercial properties tend to be under or over-assessed with respect to market
value?

Summary of Findings:

• Considering the final set of commercial values after the CCBOR finishes its work, we found that the
commercial property values were statistically significantly under-valued with respect to market value
in the South Triad (2020) and the North Triad (2022) overall, with median sales ratios of 81.37% and
71.79%, respectively. This constitutes a system-wide issue with valuing properties as a whole at the
target percentage in these triads. However, this same issue was not present with the City Triad (2021)
because its median sales ratio of 98.96% meets the IAAO industry standard and is very close to the
100% target.

• When stratifying by property use group, this study finds that this same general pattern by triad tends
to persist.

Key Question: How does the level of assessment compare between properties valued by both the
CCAO and the CCBOR?

Summary of Findings:

• The appraisal level after the CCBOR appeals period has been completed (Board step) is statistically
significantly less than after the CCAO appeals period has been completed (Assessor Certified step)
on an overall basis. In most cases, the appraisal level after the Board step decreases and moves
farther away from the IAAO industry standard range, sometimes greatly so. This same general trend
exists by property use group strata. The exception was in the City Triad (2021), where the final values
after the Board step were an improvement over the Assessor Certified step overall with regard to the
appraisal level.

• During their respective appeal periods, the CCBOR and the CCAO both tend to statistically
significantly lower the appraisal level for the group of properties that are appealed. This is not
surprising given the number of properties under appeal that are granted a reduction. The CCBOR,
however, tends to reduce the appraisal level by more than the CCAO on the properties that were
under appeal with each body.

Key Question: To what extent do commercial values exhibit general non-uniformity and in what ways,
if any, are investors impacted by this?

Summary of Findings:

• Commercial values in Cook County generally are more non-uniform than IAAO industry standards
permit, sometimes much more so.

• This non-uniformity in the valuation system is present across triads, steps in the valuation process,
and property use groups.

• Both the CCAO and CCBOR appeals processes do not usually result in a statistically significant
improvement in general appraisal uniformity (as measured by the COD) on properties under appeal.
This suggests that the CCBOR and CCAO appeals processes do not go a long way in improving the
general uniformity of commercial valuations.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 18
• This degree of non-uniformity (variability) could be masking other issues with the quality of the values
and making it more difficult to derive proper time (market condition) adjustments to sale prices used
as a bedrock in sales ratio studies. Reducing the non-uniformity of the sales ratios through the
adoption of the recommendations in this report would allow sales ratio studies to be more effective
diagnostic tools in the future.

• Property owners are undoubtedly being negatively impacted by the uncertainty that comes along with
this degree of non-uniformity.

Key Question: To what extent is regressivity present? How do the number of appeals and the change
of values at each stage affect the degree of regressivity? What effect does the degree of regressivity
have on property owners of commercial property?

Summary of Findings:

• Although commercial property values do tend to display some regressivity, the level of regressivity
present does not fall outside the range of IAAO industry standards. Therefore, there is generally no
statistical evidence of a broad issue with regressivity (or, more generally, vertical inequity) with
commercial property values in Cook County.

• The number of properties that file commercial appeals and then undergo a change in value is indeed
extraordinary. Both the CCAO appeals and the CCBOR appeals process do tend to produce appraised
values that are slightly more regressive than they were previously, but these differences are not
necessarily statistically significant and do not cause the values to fall outside of IAAO industry
standards.

• Given the fact that our findings do not include levels of regressivity that do not meet IAAO industry
standards, we cannot comment on the degree to which regressivity may be impacting property owners.
The larger issue is certainly the level of non-uniformity present in the system; this issue was addressed
elsewhere.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 19
OPERATIONAL REVIEW

We thoroughly address each of the five key components outlined in the original scope of work. We also
address any additional issues that presented themselves during our study.

1. Data Sources and Valuation Practices

How do the data sources and valuation practices of the CCAO and the CCBOR differ for commercial
properties, and what impact do these differences have on the overall assessment system? Specifically, how
are capitalization rates determined by each entity, and should loaded or unloaded capitalization rates be
used? Are there aspects of the Illinois State Property Tax Code that adversely affect commercial property
valuation in Cook County or create unnecessary conflicts with industry standards?

In the following table, we have identified important data sources used by the CCAO and CCBOR and how
they may differ. While the discussion of data quality and data management in this report is focused on Income
and Expense (I&E) data and appraisals, the general directives are reflected in the IAAO Standard on Mass
Appraisal of Real Property (2017), with emphasis on subsection 3, and the IAAO Standard on Data Quality
(2021).

Assessor’s Office Board of Review Notes

• Taxpayers may provide appraisals to • Almost all commercial • Both the CCAO and CCBOR desire
the CCAO but often do not. appeals to the CCBOR for these appraisals to meet accepted
Appraisals

include taxpayer appraisal standards. The CCBOR

appraisals in the filings. receives significantly more appraisals
than the CCAO. There is no
procedure in place to share these
appraisals with the CCAO.

• Submission appraisals are not • The CCBOR almost • The CCBOR typically has the most
Income and Expense

required by state statute. always receives three up-to-date actual I&E data.
years of actual I&E data.
• Owners might provide I&E data but • The CCAO often lacks the most up-
(I&E) Data

often do not. to-date I&E data mostly because it is

not required to be submitted to CCAO
• Opportunities to gather I&E data from by state law.
taxpayers have decreased
substantially in recent years due to
the decline in the number of appeals
with the CCAO.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 20
CCAO data sources include: CCBOR data sources • Similar data sources are used by the
include: CCBOR and the CCAO, but the
Capitalization
Rate Sources
• CoStar
CCBOR receives much more
• CoStar
• Appraisals appraisal-based data.
• Appraisals
• Market reports
• Market reports
• Market research
• Market research

• The CCAO uses an unconventional • The CCBOR uses a • The treatment of real estate taxes is
Treatment of
Real Estate

method. conventional loaded a complex process. Refer to the

capitalization rate. explanation below for why an
Taxes

effective tax rate should be used,

followed by our recommendations
regarding loaded and unloaded
capitalization rates.

Table 1. Important Data Sources Used by the CCAO and CCBOR

Treatment of Real Estate Taxes for Ad Valorem Tax Purposes

The purpose of ad valorem tax valuation is to determine fair and equitable assessments. Property taxes, as
a legitimate expense, should be included in the income approach to value. However, circular reasoning occurs
when applying a specific dollar amount as a line-item tax expense, since any change in the assessed value
will affect the amount of taxes due. As the International Association of Assessing Officers states:

“To avoid circularity, however, property taxes are accounted for in valuation for
assessment purposes by adjusting the capitalization rate.”1

To remedy this circular dilemma, the tax expense line item is removed which consequently overstates the
true NOI. To account for the omitted tax expense, the capitalization rate is increased, or “loaded,” by the
effective tax rate (ETR). Using the ETR instead of the actual tax amount in question results in a fair and
equitable valuation.

“When the income approach is used to determine the property value for tax purposes,
the practice of treating property taxes as an expense item is based on a preconceived
value and discredits the whole approach. Because taxes are often the largest single
expense, this practice leaves the final value conclusion subject to considerable error.
The problem can be resolved by developing an ETR and by including the rate in the
capitalization rate for the property being appraised.”2

1
Property Appraisal and Assessment Administration, the International Association of Assessing Officers, Chicago, Illinois, Page 258
2
Property Assessment Valuation, the International Association of Assessing Officers, Chicago, Illinois, Page 365

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 21
Effective Tax Rate

The ETR represents the property tax as a percentage of market value. It is calculated by multiplying the
nominal tax rate of the taxing jurisdiction by the assessment ratio. When the assessment ratio does not equal
100% of the market value, the ETR will differ from the nominal tax rate.

Effective Tax Rate Calculation

The ETR is the percentage of market value that represents the appropriate level of taxes for each property
within a jurisdiction. This is detailed in the following statement:

“To develop the ETR for any class of property in a jurisdiction, multiply the appropriate
level of assessment by the current tax rate expressed as a proper decimal. The value
conclusion resulting from the use of an ETR is not prejudiced by a predetermined value
judgment as it is when taxes are included as an expense item.”

Below is the “EAT” 3 triangle, which illustrates the calculation for the ETR.

Figure 1. Using the "EAT" Triangle to Calculate the Effective Tax Rate

As shown above, the ETR is calculated by multiplying the assessment ratio by the tax rate.

3
Property Assessment Valuation, the International Association of Assessing Officers, Chicago, Illinois, Page 357

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 22
Effective Tax Rate Imputes

As shown in the EAT triangle formula, the ETR is derived by multiplying the assessment ratio by the tax rate.
The final tax rate may be unknown for several reasons.

• Tax rates may be unavailable until preliminary budgets are finalized.

• Non-property tax revenues may fluctuate.

• Changes in the tax base, particularly during revaluation years when all properties are revalued can
impact the tax rate.

• Some challenges are common across counties, and they are not unique to Cook County. The industry
standard involves using the current tax rate when no changes are anticipated or projecting the tax rate
if it is unknown or expected to change.

Hypothetical Example — Gross Leases

The following example illustrates the application of this technique.

In the example table, the real estate taxes are excluded (the current property tax expense is unknown until
the value is established). Removing the property tax expense increases net operating income (NOI), but the
capitalization rate is also increased by “loading” the rate with the ETR percentage. Thus, the valuation
incorporates the effective tax rather than using the existing taxes.

This example demonstrates the flow of calculations through an income analysis.

Example Income Value (Loaded Cap Rate) Steps Notes

Income Total
Potential Rental Income $1,000,000
Vacancy (15%) $150,000
Rental Income $850,000 Step 1
Expenses
Real estate taxes are removed, because the taxes due are
Real Estate Taxes $0.00 Step 2
unknown.
Operating Expenses $ 75,000
Total Operating Expenses $ 75,000 Step 3 Does not include taxes
Net Operating Income $775,000 Step 4 NOI is "Overstated" because property taxes are not paid
Overall Rate (OAR) 9.0%
Tax Loading 2.00% Step 5 Rate is "Loaded"
OAR Loaded Rate 11.00% Step 6 This is a "Loaded Capitalization Rate"
Income Value $ 7,045,455 Step 7 NOI without property taxes / Loaded Capitization Rate

Table 2. Loaded Capitalization Rate Example

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 23
As shown, the real estate tax line item is $0 (Step 2), resulting in lower total operating expenses compared to
the property’s taxes (Step 3). With fewer expenses deducted from the net rental income, NOI is overstated
by the exclusion of property taxes (Step 4). The ETR (tax loading) in this example is 2% (Step 5), meaning
the annual taxes should be 2% of the market value. The NOI is divided by the loaded capitalization rate (Step
6) to determine the value (Step 7).

Hypothetical Example — Proving the Logic

The previous example resulted in a market value of $7,045,455. Since the market value of the property has
been determined, the correct real estate taxes can be calculated. The real estate taxes are calculated by
multiplying the market value ($7,045,455) by the ETR (2% or .02). This calculation results in a proper tax bill
of $140,909 ($7,045,455 x .02 = $140,909).

Income Value (Loaded Cap Rate) Steps Notes

Income Total
Potential Rental Income $1,000,000
Vacancy (15%) $150,000
Rental Income $850,000 Step 1
Expenses
Real Estate Taxes $ 140,909 Step 2 ($7,045,455 x .02)
Operating Expenses $ 75,000
Total Operating Expenses $ 215,909 Step 3 Includes taxes
Net Operating Income $634,091 Step 4 NOI includes tax expense
Overall Rate (OAR) 9.0%
Tax Loading 0.00% Step 5 Rate is "Un-Loaded"
OAR Loaded Rate 9.00% Step 6
Income Value $ 7,045,455 Step 7 Note: Values are identical
Table 3. Loaded Capitalization Rate: Proving the Logic

In this scenario, the correct real estate tax expense of $140,909 is included (Step 2) as the accurate real
estate tax amount. This adjustment increases the total expenses (Step 3) and decreases the NOI (Step 4).
Since the appropriate tax amount is included as an expense, there is no need to “load” the capitalization rate
with the ETR (Step 5).

The reduced NOI ($634,091 versus $775,000) is then divided by the unloaded capitalization rate (9%) which
is naturally lower compared with the loaded rate (11%). As expected, both methods result in identical values
($7,045,455).

Treatment of Taxes Under Triple Net (NNN) Leases

For properties leased on a triple net (NNN) basis, where tenants are responsible for paying property taxes
directly or indirectly through expense reimbursements, an ETR adjustment may not be needed unless there

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 24
are expectations of vacancy and collection losses. During the periods of vacancy, the property owner
becomes liable for taxes, thus necessitating a partial ETR adjustment.4

To calculate the partial ETR, multiply the vacancy and collection loss percentage by the ETR.5

V&C % x ETR = Partial ETR

Treatment of Real Estate Taxes — Current Practices

Sound assessing practices require consistency among agencies within the same county to ensure fairness
and equity, enhance understanding of property valuations, and build confidence in the property tax system.

Historic Practice — CCAO

The historical method of dealing with the issue of real estate taxes and the question of when to load the cap
rate can be summarized by citing excerpts (all italicized) from the CCAO website that address this issue, as
follows.

-----------------------

Assessor's Historical Policy and Practice - Using an Unloaded Cap Rate

• First Pass Assessment

When the Assessor initially sets values for income-producing properties in Cook County
(which the office refers to as “First Pass”), it applies prevailing expense ratios that include
property taxes, suited for each jurisdiction. The office also looks at actual taxes paid
historically. If the estimated value of a commercial property is rising substantially, one
can estimate the increase in tax that affects the expense ratio by considering how much
assessed value is projected to rise in that jurisdiction.

• Second Pass Assessment

When reviewing taxpayer-filed appeals (which the office refers to as “Second Pass”), the
Assessor uses an unloaded cap rate and considers all of the non-tax factors that come
into play during Second Pass.

The Assessor does not load the overall cap rate in any scenario. To properly account for the tax expenses in
a gross or modified gross lease, the total operating expense cost is inclusive of the real estate tax, so there
is no justification for loading the cap rate. In a NNN lease, operating expenses (including real estate taxes)
are passed through to the tenant. This means the expenses are 100 percent reimbursed and there is no
justification for loading the cap rate.

4
Alternatively, some assessing offices transform all leases to gross leases by “grossing up” all expenses passthroughs and
reimbursables and use the traditional “loaded” capitalization rate.
5
International Association of Assessing Officers, Course 112, Page 4-18

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 25
A gross lease accounts for a base rental rate plus some level of property operating expenses baked in. The
NNN lease assumes a lower base rent because the tenant also must pay the passed through triple net
reimbursements, which increases their total lease costs. As such, the amount paid in total by the tenant should
roughly equal out (under a NNN or modified gross lease) given similar properties.

Conclusion

The Assessor uses a market-derived unloaded capitalization rate, accounting for real estate taxes upfront,
rather than inflating the percentage used on the back end, to produce a present market value.

----------------------------------

The historical practice of not loading cap rates when faced with gross leases and modified gross leases was
not consistent with professional appraisal practices but has not been the focus of our study, as this practice
was not in place when current methodologies were explained to us during our various interviews with
representatives of the CCAO office. Meanwhile, we understand that the practice was ill received by analysts
at the CCBOR, particularly for properties featuring gross and modified gross leases (less so in net lease
situations). In those cases (involving most cases under review by the CCBOR) the CCBOR analysts viewed
assessments by the CCAO as inherently in error regarding that aspect of the valuation. This initial
predisposition could only act to encourage adjustments to the CCAO value determinations in order to correct
the perceived error.

Most importantly, the fact that the CCAO no longer uses this methodology did not appear to be known by the
CCBOR analysts at the time of our interviews. The improved communication between the CCAO and CCBOR
that this study’s recommendations strongly encourage should eliminate this miscommunication and lead to
consistent handling of the real estate tax expense along with when and how to load the cap rate.

Current Practice — CCAO

Initial assertions by external parties, notably staff from the CCBOR, indicated that the CCAO office does not
exclude real estate taxes as an expense but instead includes historical real estate taxes in expenses and
applies an unloaded capitalization rate to determine property value using the income approach. This
methodology was reportedly used for valuing properties, such as office buildings. However, subsequent
interviews with the CCAO’s appraisers revealed a different methodology.

The CCAO analysts employed a methodology wherein they:

1. initially removed taxes from expenses and then

2. applied a loaded capitalization rate to estimate the property’s value.

This methodology is consistent with professionally accepted appraisal practices when dealing with properties
that feature gross leases.

However, their unconventional practice involved:

1. using the resulting value indication to apply the ETR to estimate real estate taxes. They then

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 26
2. included these taxes in a separate income analysis and applied an unloaded capitalization rate.

While the methodology is unconventional, it ultimately yields the same value indication as the professionally
accepted appraisal practices of steps 1 and 2. The additional steps (3 and 4) are unnecessary once the value
is estimated using steps 1 and 2.6

We understand that this methodology was adopted within the past year, representing a departure from the
previous practice of using actual historical taxes and an unloaded capitalization rate. The implementation of
steps 3 and 4 is unconventional and may create confusion among appraisers and investors who are familiar
only with the established appraisal practices represented by steps 1 and 2. Furthermore, this methodology
has not been communicated to the CCBOR, which, based on recent interviews, continues to believe that the
CCAO office includes historical real estate taxes in expenses and applies an unloaded capitalization rate.

Note that the sales ratio study results are based on values from 2020, 2021, and 2022, all years before this
change in methodology by the CCAO.

Current Practice — CCBOR

The CCBOR uses the industry standard of:

1. removing taxes from expenses, and then

2. applying a loaded capitalization rate to estimate the property’s value.

Recommendations

Recommendation — Request a Copy of All Appraisals

Current Practice The CCAO does not currently request copies of all appraisals submitted to the
CCBOR.

Recommendation The CCAO should formally request copies of all appraisals submitted to the
CCBOR.

6
Notwithstanding any of the foregoing commentary and recommendations, we note that the CCAO web site (as of 7/17/2024) is still
promulgating information on the loading of capitalization rates that are not consistent with professional appraisal practices or the
methodology currently employed by the CCAO.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 27
Recommendation Enhanced Understanding: Acquire a more comprehensive view of the physical
Benefits attributes of the subject properties.
Market Insights: Gain valuable market insights from the appraisals.
Data Comparison: Compare the appraisal data with information contained in Cook
County’s CAMA records for consistency and accuracy.
Data Extraction: Extract critical subject and market data, to include rental rates,
market vacancy rates, and expense rates.
In-Depth Analysis: Garner unique property insights from detailed analyses
conducted by fee appraisers.

Recommendation — Request Income and Expense Information

Current Practice The CCAO typically receives I&E data for parcels under appeal to the CCAO
However, the CCAO does not receive copies of all I&E data submitted to the
CCBOR.

Recommendation The CCAO should formally request copies of all I&E data submitted to the CCBOR.
Even though the data can be up to a year old, this would be very helpful to CCAO.

Recommendation Enhanced Understanding: Gain a better understanding of properties subject to

Benefits appeal.
Data Utilization: Use the data to develop and refine income valuation models based
on property type, physical attributes, location, and other factors.
Improved Accuracy: Achieve more accurate appraisals through data-driving
modeling.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 28
Recommendation — Enter All Income and Expense Data Into a Database

Current Practice Minimal I&E data is entered into the centralized database. The CCAO is in the
process of developing this system.

Recommendation All I&E data should be entered into a centralized database, which should be
accessible by the CCAO and CCBOR. The database should also include property
type, physical attributes, and location data.

Recommendation Accurate Valuation Models: Develop highly accurate valuation models using
Benefits comprehensive property type, physical attributes, and location.
Enhanced Support for Appeals: Provide better data to support appeals with more
detailed and accurate information.
Data Uniformity: Ensure consistency in valuation conclusions by using shared data
between the CCAO and CCBOR.

Recommendation — Joint Internal Capitalization Rate Study

Current Practice The CCAO and CCBOR currently rely on third-party capitalization reports.

Recommendation In addition to the third-party capitalization reports, the CCAO should conduct an
annual capitalization rate study. This study could be integrated with the sales
validation recommendations discussed later in this report. We would further
recommend the annual capitalization reports be a joint project between the CCAO
and the CCBOR. This collaboration can be achieved without compromising the
agencies’ statutory independence.

Recommendation Enhanced Reliability: Improve the reliability of capitalization rates by extracting data
Benefits from market sales and supplementing rates derived from market/investor surveys.
Accurate Valuation Models: Accurate capitalization rates are essential for
developing reliable valuation models.
Benchmark for Valuations: Use the capitalization report as a matrix for developing
valuation models and as a benchmark for appeals before the CCBOR.
Increased Consistency: Collaboratively creating or sharing the study results will
enhance the consistency in capitalization rate between the CCAO and CCBOR.

Recommendation — Standardize Methodology for Loaded Capitalization Rates

Current Practice The CCAO and CCBOR currently use different methodologies for loading the
capitalization rates.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 29
Recommendation The CCAO and the CCBOR should adopt a unified methodology for loading
capitalization rates.

Recommendation Increased Public Confidence: Enhance public trust in the Cook County assessing
Benefits system.
Clarity for Market Participants: Reduce confusion among market participants by
aligning methodologies with professional appraisal practices, even if final value
indications might be accurate.
Create Consistency: Eliminate any ambiguity present at CCBOR when evaluating
CCAO values during appeals.

Recommendation — Use an ETR for Loaded Capitalization Rates

Current Practice Differences in methodology between the CCAO and the CCBOR have led to
significant confusion among stakeholders.

Recommendation Adopt an Effective Tax Rate-based approach to loading capitalization rates.

Recommendation Unified Process: Streamline the process for the CCBOR and CCAO, reducing
Benefits confusion and simplifying stakeholder understanding
Accuracy: Achieve more accurate valuation outcomes.
Industry Standard: Align with industry standards, making methodology more
understandable for a broad range of investors, including those from national and
international markets.
Enhanced Perception: Aligning methodologies with industry practices will address
assumptions of flawed valuations and improve the perception of CCAO values.

Recommendation — Estimate Tax Rates within the “EAT” Triangle Formula

Current Practice The CCAO traditionally uses some form of a three-year average of historical tax
rates when estimating the tax rate for the base capitalization rate. The CCBOR uses
the tax rate from the previous year.

Recommendation Both the CCAO and CCBOR should jointly develop a model to estimate the
upcoming tax rate for use in the Effective Tax Rate – Assessment Ratio – Tax Rate
(EAT) formula. This approach aligns with professional appraisal practices, which
recognize that buyers consider future income streams rather than relying solely on
historical tax rates. Data science staff would be valuable in this effort.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 30
Recommendation Accuracy: Ensure the appropriate ETR is used, especially during revaluation years
Benefits when the tax rates might fluctuate significantly.
Consistency: Align with decision-making models used by market participants and
adhere to professional appraisal practices.

Recommendation — Fully Utilize Enterprise Assessment and Tax for Data Entry
and Use Codes

Current Practice Currently, only some critical data is entered into the CAMA system, Enterprise
Assessment and Tax, by CCAO. Efforts are underway to improve this system.

Recommendation CCAO should maximize the use of Enterprise Assessment and Tax by entering all
relevant data, including more detailed use codes such as “anchored retail,”
“unanchored strip centers,” “one-story suburban office,” and “multi-story office.”
Explore the database's capabilities to handle market sales, I&E data, and other
relevant metrics.

Recommendation Efficiency: Fully utilizing Enterprise Assessment and Tax may lead to significant
Benefits time savings and reduce the need for alternative software solutions.
Enhanced Accuracy: More descriptive use codes will facilitate the creation of more
accurate valuation models for various real property sub-categories.
Data Sharing: CCBOR has access to Enterprise Assessment and Tax and so would
be able to see information stored there that supports the CCAO value estimate.

Recommendation — Enter all Historical Income and Expense Data into a

Centralized Database Shared with CCAO

Current Practice Income and Expense (I&E) data submitted to CCBOR is not regularly requested by
or made available to the CCAO.

Recommendation Although the submission of I&E data is not mandated by law, the CCBOR frequently
receives substantial historical data. All historical I&E data should be entered into a
centralized database, which should be accessible to CCAO and CCBOR.

Recommendation Enhanced Valuation Models: Facilitate the development of highly accurate

Benefits valuation models.
Improved Appeal Support: Provide superior data to support appeals.
Advanced Analytics: Enable advanced analytic capabilities
Detailed Valuation Stratification: Allow for greater stratification of valuation models.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 31
We did not discover any instances where the State Property Tax Code conflicted with industry standards
directly. However, there is currently no State requirement to submit current income and expense (I&E) data
to the CCAO. In valuing commercial property, it is essential to have the current and historical I&E data to
accurately value the property. Having the current and historical I&E data would assist in creating more
accurate assessment values.

Recommendation — Support Legislation Requiring Income and Expense Data

Current Practice There is no legal requirement to submit current I&E data to the CCAO.

Recommendation The CCAO should support efforts (which they are currently doing) to change the
law to have I&E data required.

Recommendation Having the current and historical I&E data would assist in creating more accurate
Benefits assessment values from the very beginning of the valuation process.
This could reduce the reliance on the appeals process to correct potential issues
that are based solely on estimated vs. actual income and expenses.

2. Handling of Valuation Evidence

How do the CCAO and the three CCBOR Commissioners handle valuation and evidence presented by the
property owner?

Assessor’s Office Board of Review Notes

• The CCAO receives taxpayer • The CCBOR receives taxpayer • The CCAO and the CCBOR receive
information. information. taxpayer information. However, the
CCBOR receives considerably more
information.

Table 4. Evidence Presented to CCAO and CCBOR for Valuation

The CCBOR, as an appellate body, typically receives extensive information, which includes the actual I&E
data and often an appraisal. Because it is not required by law and appeals to the CCAO are few, compared
to the CCBOR, the CCAO receives very limited data, notably little I&E data.

The CCBOR and the CCAO do not have a robust, jointly established process for retaining evidence in a
mutually query-able database. While not directly on point, the idea of collecting and reviewing this data is part
of the IAAO Standard on Mass Appraisal of Real Property (2017), notably Subsection 3.5. Principles of sound
data management are also found in the IAAO Standard on Data Quality (2021).

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 32
Recommendations

Recommendation — Share Valuation Evidence

Current Practice The CCBOR, as a hearing board, receives considerably more information than the
CCAO. Currently, minimal data is shared between the CCAO and CCBOR.

Recommendation The CCAO should formally request all valuation evidence submitted to the CCBOR.
Additionally, key pieces of evidence, notably I&E data, should be stored in a shared
database (as previously addressed in section 1. Data Sources and Valuation
Practices).

Recommendation Enhanced understanding: Obtain a more comprehensive understanding of the

Benefits subject properties.
Improved Accuracy: Achieve more accurate appraisals by leveraging a broader
data set.
Better Data for Valuation Models: Access improved data for developing more
reliable valuation models

3. Appeal Information from the CCAO

What information does the CCAO provide the CCBOR, and how does the CCBOR use this information? How
effectively does this information communicate the justification for the CCAO’s valuation to the CCBOR?

There is no significant ongoing participation by the CCAO in the CCBOR appellate process, but there certainly
should be (IAAO Standard on Assessment Appeal, 2016). It is a rare occurrence that the CCAO formally
requests an “intervenor” and provides evidence for consideration by the CCBOR. While the CCAO
promulgates the valuation models on their website, they do not provide all of the pertinent supporting data
and reasoning associated with these conclusions. In short, the CCAO does not provide the CCBOR with any
information in nearly all cases, but this question points to issues we have come to believe should be given
serious consideration, to wit, we offer the following.

The extensive use of the appellate system in Cook County effectively creates a second mass appraisal system
in the form of CCBOR appeals and results in new values for over ten thousand commercial parcels each year.
The system encourages appeals of the findings by the CCAO through actions that fall short of best practices.
In 2023, there were 21,347 appeals to CCAO and 59,742 appeals to CCBOR out of 95,594 total parcels.
More detailed statistics on the number of appeals, outcomes of those appeals, and how the final values
differed from the determination by the CCAO, can be found in the Statistical Component of this project,
presented after we discuss the commercial appraisal and appeals process.

One of the important observations in the statistical discussion is that the appellate process has not statistically
significantly served to improve the quality of the valuation roll consistently. Meanwhile, reductions to the

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 33
values determined by the CCAO are common and if not achieved at the CCBOR level, can be taken to the
Property Tax Appeal Board (PTAB) or to Circuit Court (CC), where there is typically a negotiated settlement
between the CCBOR and the taxpayer. Both CCAO and CCBOR report that they lack the staff to effectively
defend their determinations at their respective next levels. As discussed earlier, the CCAO very seldom offers
evidence at all, let alone enough evidence to allow the CCBOR to be more effective at the PTAB/CC level,
and CCBOR does not consistently offer a robust set of evidence at the next level.

Lastly, and while not directly on point for this section, we have explored how information flows from the
CCBOR to the CCAO and the public. Our various interviews revealed a lack of understanding by CCAO staff
of exactly what processes are used by CCBOR analysts. We were also interested in the level of consistency
among the CCBOR analysts. In short, a “two-way” street of information flow, especially as it relates to CCBOR
review processes and areas of valuation where it is typical for professional discretion to occur (e.g. atypical
vacancy) would increase transparency and build public trust in a system that essentially relies on two bodies
to establish many of the commercial property values.

When we were graciously allowed to observe the CCBOR hearings, we noted consistency among the
analysts, as they generally followed accepted professional appraisal practices, such as those promulgated by
the IAAO and Appraisal Institute. Meanwhile, we noted a lack of documentation of what the review process
consisted of and particulars on how common subjective issues were handled. For instance, how atypically
high vacancy, not consistent with overall market vacancy, was handled. If the CCBOR were to promulgate
their processes for review and provide insights into how some of the more subjective aspects of their valuation
methods (the handling of unusual vacancy issues is but one example) are handled, the CCAO and other
stakeholders would be better informed and better understand the CCBOR review processes. Indeed, after
reviewing this data, the CCAO could provide their feedback on the more subjective valuation issues and
perhaps the CCAO and CCBOR would arrive on the same page, further reducing the potential for adjustment
to CCAO assessments.

Recommendations

Recommendation — Create Informational Packets for Each Appeal

Current Practice The CCAO currently does not provide any information for consideration by the
CCBOR in most hearings.

Recommendation The CCAO should prepare and submit “hearing packets” for all commercial
appeals. These packets should include methodology and supporting data used to
calculate the assessed values.

Recommendation Enhanced clarity: Enable the CCBOR to understand the CCAO’s methodology and
Benefits analysis.
Reduced confusion: address confusion regarding valuation methodologies, notably
for multi-tenant properties involving gross leases.

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Recommendation — Develop Automated Tools to Produce Hearing Packets

Current Practice The CCAO does not typically provide information to the CCBOR for most hearings,
and creating such information manually is time-consuming.

Recommendation To streamline the process of creating “hearing packets” for commercial appeals,
developing or acquiring automated tools should be a priority in producing the
hearing packets.

Recommendation Significant Time Savings: Reduce the time required to prepare documentation.
Benefits
Increased Efficiency: Enable the handling of thousands of appeals more effectively
given staffing concerns.

Recommendation — CCAO Staff Should Attend Hearings and Defend Values

Before the CCBOR

Current Practice The CCAO does not attend hearings or provide information to the CCBOR.

Recommendation The CCAO should attend hearings and present their case at hearings before the
CCBOR. They should also address property-specific valuation issues.

Recommendation Reduced Appeal Rates: Lower the rate of appeals.

Benefits
Fewer Value Reductions: Result in fewer reductions in assessed values.
Increased Consistency: Promote valuation consistency between the CCAO and
CCBOR.

Recommendation —CCAO and CCBOR Staff Should Share Data, Methodologies,

and Valuation/Market Perspectives

Current Practice Currently, there is little communication and data sharing between the CCAO and
CCBOR.

Recommendation CCAO and CCBOR analysts should meet regularly to discuss overall valuation
methodologies and market trends and share data. Shared educational opportunities
offered by the two offices could further the adoption of consistent methodologies
and perspectives between the two entities.

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Recommendation Improved Understanding: Foster a better understanding of valuation methods and
Benefits market perspectives between the two entities.
Operational Efficiency: Avoid duplicate efforts through shared data.
Enhanced Consistency: Achieve greater valuation consistency between the two
agencies.

Recommendation — Post Updated Processes and Policies

Current Practice
The CCAO and CCBOR do not consistently promulgate updated versions of their
processes and policies for review by the respective offices and other stakeholders.

Recommendation
Both the CCBOR and CCAO should post key processes and policies on the internet
for review by all stakeholders and should keep them updated over time as changes
occur. Those policies and processes that relate to areas of valuation that tend to
involve professional discretion and judgement would be of greatest benefit.

Recommendation
A better understanding of how the two offices handle valuation and valuation review
Benefits
processes would highlight any differences, foster inter-office discussion, and quite
reasonably lead to consensus on issues involving professional discretion and
judgement. Increased transparency would also instill greater trust in the public for
both offices.

4. Sale Validation and Price Adjustments

How are commercial property sale prices adjusted for various factors during the sales validation process for
inclusion in valuation and sales ratio studies? Are these adjustments being performed appropriately using a
uniform set of guidelines?

Our interviews with representatives of the CCAO reveal that they have only recently begun to develop a
process to validate market sales, and this process is still in a nascent form. We strongly encourage the
development of a process to comprehensively validate and store market sales data according to the standards
laid out in the IAAO Standard on Verification and Adjustments of Sales (IAAO, 2020). Without validated market
sales to test valuations, the CCAO is unaware of the value of the many ratio study metrics that gauge the
level, uniformity, and reliability of assessments. Further, there is no doubt that the lack of a proper sales
validation process makes it difficult to measure true valuation performance and likely caused some inflation
in the levels of non-uniformity measured in the statistical portion of this review. This does not absolve an
assessing jurisdiction of responsibility, however, because, according to best practices, assessing jurisdictions
are responsible for determining the list of valid market transactions on which to measure the quality of the
values (IAAO, 2020). Also, without validated market sales, CCAO would not be armed with a complete list of
comparable market sales to use in value defense.

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A reliable comparable sales database could be shared with the CCBOR, further encouraging lines of
communication between the CCAO and the CCBOR. Noting that assessments are tested for consistency with
market prices would further bolster public confidence in the valuations by the CCAO.

Recommendations

Recommendation — Verify All Commercial Sales

Current Practice The CCAO currently lacks a systematic procedure for verifying all commercial
sales.

Recommendation The CCAO should establish a comprehensive sales validation procedure to review
all commercial sales according to best practice standards found in the IAAO
Standard on the validation and Adjustment of Sales. Additionally, the sales
database and sales validation process should be shared with the CCBOR, and the
CCAO should communicate validated sales to representatives from the Illinois
Department of Revenue (IDOR).

Recommendation Enhanced Valuation Accuracy: Improve the precision of valuation models.

Benefits
Improved Ratio Studies: Achieve more accurate ratio studies.
Eliminate Non-Market Sales: Exclude non-market sales from analyses.
Reliable Capitalization Reports: Create capitalization reports using only valid sales.
Support for Appeals: Ensure that only valid sales support a value during appeals.

5. Potential for Regressivity

What are the potential causes of any regressivity that exists at each stage?

This project’s sales ratio study found that appraised values were generally regressive but that the levels of
the regressivity present were within the IAAO industry standards found in the IAAO Standard on Ratio Studies
(IAAO 2013, p.19). Further, this project found that the appeals process, at both the CCAO and the CCBOR,
tended to add some regressivity but, again, not enough to fall outside of IAAO industry standards. Please see
the Statistical Analysis portion of this report for more details.

The amount of general non-uniformity (variability) present does make it more difficult to draw statistical
conclusions about the degree of regressivity (or, more broadly, vertical inequity) present. Improving overall
uniformity and implementing a proper sales validation process will in turn allow the degree of regressivity to
be measured more accurately and for statistical conclusions to be drawn more easily.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 37
Recommendations

Recommendation — Both the CCAO and CCBOR Should Regularly Perform

Commercial Ratio Studies According to IAAO Standards

Current Practice Neither the CCAO nor the CCBOR currently performs commercial sales ratio
studies, and neither office could share historical sales ratio studies that they
performed in the past.

Recommendation Both the CCAO and the CCBOR should regularly perform commercial ratio studies
using a consistent set of practices and statistical measures that are in keeping with
the current IAAO Standard on Ratio Studies. For CCAO, this should be an integral
part of their mass valuation process.

Recommendation Ratio studies are needed to evaluate the performance of mass valuation models
Benefits and are an important part of the mass valuation process.
Ratio studies provide an objective measure of mass valuation performance,
particularly when they evaluate appraised values against a set of agreed-upon
industry standards.
Ratio studies can be used to measure the impact of the appeals process.

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DETAILED STATISTICAL ANALYSIS

Purpose of a Ratio Study

The purpose of a sales ratio study is to evaluate assessment performance (IAAO 2013, p.7). A sales ratio is
the estimated value of a property divided by its sale price. For example, a sales ratio of 40% (or 0.40) means
that the appraised value is set to 40% of that of the sale price. The estimated value is sometimes called the
predicted price or the appraised value; this report may use these terms synonymously and interchangeably.
Sale prices, which are valid for analysis and otherwise recorded appropriately, are the “most objective
estimates of market value” and are used as the basis for evaluating assessment performance in a sales ratio
study (IAAO 2013, p.7). A set of well-collected, properly validated sales is a critically important part of a sales
ratio study. Ratio studies analyze a set of ratios to determine the degree to which groups of appraised (or
assessed) values accurately reflect market value. The IAAO Standard on Ratio Studies states the following
on page 7:

“There are two major aspects of appraisal accuracy: level and uniformity. Appraisal level
refers to the overall ratio of appraised values to market values. Level measurements
provide information about the degree to which goals or certain legal requirements are
met. Uniformity refers to the degree to which properties are appraised at equal
percentages of market value.”

Appraisal estimates of market value are typically not used in a ratio study instead of sale prices unless
validated sales are largely unavailable; even then, appraisal estimates of market value must be calculated
independently.

All value estimates, whether produced by the CCAO, the CCBOR, or an external appraiser, are inherently
subject to a degree of statistical error depending on several factors such as the accuracy of available property
data and the skill of the appraiser or model developer. The IAAO Standard on Ratio Studies sets professional
standards for appraisal level and uniformity that recognize there is some degree of imperfection in any set of
value estimates. Sales ratio studies can answer the question of whether a set of appraised value estimates
meets the acceptable standards as promulgated by the IAAO with respect to level and uniformity.

A population is the full set of properties defined by a set of criteria, and a sample is a subset of properties that
is drawn from a given population. For a sales ratio study, a sales sample is drawn from the population of all
properties by the fact that the properties in the sample are sold during the relevant period and meet all other
data constraints and filters. A foundational principle of ratio studies is that conclusions can be made about
the appraisal performance for the population of properties using the sales sample (IAAO 2013, pp.7-8), so
long as the sales sample has been appropriately collected, is free from statistically and practically significant
selective reappraisal, and is sufficiently representative of the population (IAAO 2013, p.11).

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Key Uses of Ratio Studies
The IAAO Standard on Ratio Studies lists the key uses of ratio studies as follows (Page 7):

• measurement and evaluation of the level and uniformity of mass appraisal models

• internal quality assurance and identification of appraisal priorities

• determination of whether administrative or statutory standards have been met

• determination of time trends

• adjustment of appraised values between reappraisals

Seven Steps in a Ratio Study

Ratio studies generally involve the seven basic steps listed below. (IAAO 2013, p. 8)

Step 1: Define the Purpose, Scope, and Objectives

Every well-constructed ratio study has an intended purpose, which is broadly defined according to the end
goal or key questions being posed to the researcher. The scope and objectives of the ratio study are then
defined accordingly.

Step 2: Design

The design of the ratio study is the methodologies by which the purpose, scope, and objectives of the ratio
study are investigated. The design includes the choice of analyses, statistical tests, and means of presenting
the results.

Step 3: Stratification

Stratification is the process of dividing the sale properties in the ratio study into two or more groups called
strata and then running the ratio study in each stratum as well as for the overall set of properties. Stratification
can be a useful tool to provide a more detailed picture of appraisal performance (IAAO 2013, p.9). In ratio
studies, a stratification framework should be derived according to several factors, including the goal of the
sales ratio study, the availability of appropriate variables to use as a basis for stratification, and the number
of sales in each proposed stratum.

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Step 4: Collection and Preparation of Market Data

It is important to accurately collect appropriate market data, such as sales, to use in a ratio study and to
prepare it for analysis. This includes the sales validation (sales validation) process where information about
the sale and the sale property are verified and a decision is made on whether a given sale is valid for analysis.
It also includes the preparation of all sales data in an appropriate format. Part of this process in a sales ratio
study is defining an appropriate sale date range, where all verified sales within the sale date range are
candidates for inclusion in the ratio study.

Step 5: Matching of Appraisal and Market Data

Once market data has been collected and prepared in a usable format, it must be appropriately matched with
appraisal data. This forms the basis for the ratio analysis because the ratios analyzed in the study are simply
the assessed (or appraised) value divided by the proxy for market value. In the case of a sales ratio study,
this proxy for market value is the validated sale price. Properties that are fundamentally different between the
sale date and the appraisal data are not matched appropriately and should be removed from the study.

Step 6: Statistical Analysis

The statistical analysis generates the key statistics evaluated in the ratio study. These analyses are defined
in the ratio study design according to the purpose, scope, and objectives of the study. The researcher has
the power to choose the most appropriate set of statistical analyses based on their experience, knowledge of
relevant standards, and statistical knowledge.

Step 7: Evaluation and Use of Result

The key statistics generated from the statistical analysis must be interpreted and evaluated, with the end goal
of fashioning them into a usable set of results.

Statistical Background

Calculating a Sales Ratio

A sales ratio study is an analysis of sales ratios. A sales ratio is calculated by taking an appraised (or
assessed) value and dividing it by the sale price of a valid sale transaction. Consider the following example:

• An office building has an assessed value of $1,000,000 as of the assessment date.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 41
• The same office building has a verified and validated sale price of $4,000,000 during the sale date
range included in the study. Assume that no time adjustment to the sale price is appropriate in this
case.

• The sales ratio is equal to $1,000,000 / $4,000,000 = 0.25 or 25%.

• This means that the assessed value is set to 25% of the sale price in this instance.

All sales ratios included in the study are aggregated for stratification and statistical analysis. The sales ratios
for multiple parcel sales are calculated in the same way except that the assessed values for all of the parcels
in the sale are added together to form an aggregated assessed value for the sale.

Outlier Handling

Outliers have unusual values that are far from the center of the distribution and could occur for a variety of
reasons. According to the IAAO Standard on Ratio Studies on page 13:

“The validity of ratio study statistics used to make inferences about population
parameters could be compromised by the presence of outliers that distort the statistics
computed from the sample.”

Therefore, outliers must be dealt with appropriately in a sales ratio study. It is often best practice to first
investigate outliers, if possible, in case they are a result of data that can be corrected, such as an inaccurately
recorded sale price. If outliers are unable to be corrected, they are then candidates for removal using an
accepted statistical procedure in accordance with the size removal restrictions outlined in the IAAO Standard
on Ratio Studies7. Sales ratio outliers are sales ratios with unusually small or large values which could distort
certain measures like the Coefficient of Dispersion (COD).

Confidence Intervals

The primary concern of ratio studies is to make conclusions about the population of properties based on a
sample. Because not all properties sell in a given period, all properties that do sell make up a sales sample
of the population of properties. Point estimate statistics calculated from a sales sample inherently contain
sampling error, defined as the type of error resulting solely from the sampling process (IAAO 2013, p.43). For
example, if 100 samples are drawn from a given population of properties, then 100-point estimate statistics
will be calculated. The difference between the 100-point estimate statistics is explained by sampling error.

Confidence intervals account for sampling error and thus serve as a measure of the precision for the
calculated point estimate statistic as an estimate of the unknown population parameter with a given degree
of confidence. For example, if the point estimate of the median sales ratio is 99% and the 90% confidence
interval for the unknown population median sales ratio is 94% to 104%, then the best estimate of the unknown
population median ratio is 99% and that it can be said with 90% confidence that the population median sales
ratio is in the range of 94% to 104%.

7
This procedure is found in Appendix B of the IAAO Standard on Ratio Studies.

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Statistical Hypothesis Testing

Statistical hypothesis testing is used to make conclusions about a population based on a sample. Confidence
intervals can also be used to conduct statistical hypothesis testing. Conclusions about the population of
properties, including non-compliance with IAAO Standards, cannot be made without using statistical
hypothesis testing to account for sampling error (IAAO 2013, p.15). If the confidence interval overlaps a
standard range, then that statistic is said to have met the standard, regardless of the value of the statistic’s
point estimate (IAAO 2013, pp.34-35). A variety of statistical tests can be employed depending on the design
of the ratio study.

Sale Price Time Trend Analysis

Sale price time trends measure sale price fluctuations over a given date range. There are a variety of methods
available to measure sale price trends and certain methods are preferred in certain contexts. Time
adjustments can be derived from sale price time trend models as a multiplicative factor to adjust each sale to
the estimated market value as of a given date.

Appraisal Level Statistics

Ratio studies typically include measures of appraisal level and appraisal uniformity. The appraisal level is a
measure of central tendency for the distribution of sales ratios. Depending on the purpose for which the study
is being made, different measures of appraisal level may be used such as the median ratio or the weighted
mean ratio. The IAAO Standard on Ratio Studies states that the mean ratio is generally not the preferred
measure of the appraisal level (IAAO 2013, p. 28).

• The median sales ratio is the middle value of the sales ratios sorted in increasing order, if the number
of sales ratios is odd, or the average of the two middle sales ratios, if the number of sales ratios is
even. The median is resistant to the effect of sales ratio outliers (IAAO 2013, p.13). According to the
IAAO Standard on Ratio Studies, “the median is the generally preferred measure of central tendency
for direct equalization, monitoring of appraisal performance, or evaluation of the need for a reappraisal”
(IAAO 2013, p.27).

• The weighted mean sales ratio is the mean ratio weighted by the sale price. This is sometimes called
the aggregate ratio and can be calculated by dividing the sum of the appraised (assessed) values by
the sum of the sale prices. Larger sale prices will have a greater effect on the value of the weighted
mean than smaller sale prices. For example, a $5,000,000 sale will have ten times the weight of a
$500,000 sale in the calculation of the weighted mean. Unlike the median, the weighted mean is not
resistant to either sales ratio outliers or large value outliers. Large sale price value outliers can distort
the weighted mean (IAAO 2013, p.28). In medium to large-sized samples, wide confidence intervals
for the weighted mean may be indicative of the effect that only a few larger-valued sales have on the
value of this statistic.

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Appraisal Uniformity Statistics

Appraisal uniformity is a measure of the variability of the ratio distribution. Ratio studies are usually concerned
with a general measure of overall variability, like the Coefficient of Dispersion (COD), and a measure of
variability that specifically measures vertical inequity, like the Coefficient of Price-Related Bias (PRB).

Coefficient of Dispersion (COD)

The Coefficient of Dispersion (COD) is a general measure of appraisal variability. It is equal to the average
absolute deviation of the sales ratios from the median sales ratio divided by the median sales ratio and is
calculated as follows: (IAAO 2013, p. 13)

Calculate the median sales ratio

• Subtract the median sales ratio from each ratio
• Take the absolute value of the calculated differences
• Sum the absolute differences
• Divide by the number of ratios to obtain the average absolute deviation
• Divide by the median sales ratio
• Multiply by 100

The COD is based on the median and is therefore not resistant to the effect of ratio outliers. The COD provides
a general measure of how tightly the sales ratios are distributed around the median sales ratio. The lower the
COD, the more tightly the sales ratios are distributed around the median sales ratio. Conversely, the higher
the COD, the more spread out the sales ratios are around the median sales ratio.

Figure 2 provides a useful visualization of the COD where two hypothetical sales ratio distributions with
different CODs are superimposed. The density lines show how the sales ratios fall in a distribution around the
median of the sales ratios. The COD is a measure of this variability. Notice how the sales ratio distribution
with a COD of 15 is more tightly distributed around the median sales ratio and the sales ratio distribution with
a COD of 25 is more spread out. This means that the lower the COD, the more tightly distributed the sales
ratios are around the median sales ratio and so the more accurate the appraised (assessed) values are.

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Figure 2: A Hypothetical Comparison of Two CODs: 15 and 25

The IAAO Standard on Ratio Studies has promulgated standard ranges for the COD based on the type of
property. There are two different tables of acceptable standard ranges (found on p.17 and p. 34 of the
Standard, respectively) and both are shown in Tables 3 and 4 for context. Demonstrating the predictive error
inherent in the assessment process, the lower end of each acceptable range is 5% and this is thought to be
the best COD achievable in most circumstances assuming the assessment process has been conducted
properly (IAAO 2013, p.19).

Table 5. IAAO Standard Ranges Part 1 for the COD by Type of Property

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Table 6. IAAO Standard Ranges Part 2 for the COD by Type of Property

Coefficient of Price-Related Bias (PRB)

The Coefficient of Price-Related Bias (PRB) is a measure of market-value vertical inequity and is based on
regressing the percent difference between the sales ratios and the median sales ratio versus the log base 2
of a market value proxy. Market-value vertical inequity is when properties with different market values have
different levels of appraisal. The PRB gives an indication of whether the vertical inequity, if any, is generally
in a regressive (favoring higher-valued properties) or progressive (favoring lower-valued properties) direction
by its sign. If the PRB is negative, the vertical inequity is regressive; if the PRB is positive, the vertical inequity
is progressive.

The PRB is generally statistically superior to the Price-Related Differential (PRD), an alternative statistic used
to measure vertical inequity, chiefly because it is usually less biased toward regressivity. The PRD is based
on the weighted mean and therefore suffers from problems when there are large value outliers; the PRB also
suffers from this same problem but to a lesser extent. The PRD is also more biased toward regressivity in
cases when the sale price is a less reliable indicator of market value; this can happen in inefficient markets
or when the sales validation process has not been conducted properly. The IAAO Standard on Ratio Studies
says, “The coefficient of price-related bias (PRB) provides a more meaningful and easily interpreted index of
price-related bias than the PRD” (IAAO 2013, p.14). Therefore, the PRB is used in this analysis rather than
the PRD. Assuming the straight-line relationship holds, the PRB can be interpreted as the percentage by
which sales ratios rise (if the PRB is positive) or fall (if the PRB is negative) as the appraised values double
(e.g. a PRB coefficient of 0.04 means that as appraised values double the sales ratios increase by 4%,
indicating progressive vertical inequity).

The IAAO Standard on Ratio Studies states that the PRB standard range is -0.10 to 0.10 and that values
outside of this range constitute unacceptable vertical inequities (IAAO 2013, p.36). IAAO also gives general
guidance that values of the PRB should fall within the range of -0.05 to 0.05 (IAAO 2013, p.36).

Figure 3 provides a useful visualization of the PRB where two hypothetical sales ratio distributions with
different PRBs are shown side by side. Here, the percent change between the sales ratios and the median
sales ratio is plotted against the market value proxy of the property. This is the typical PRB setup, except that
the market value is expressed in a monetary scale instead of the log scale for ease of understanding. The
two PRBs show varying degrees of regressive bias, with one being mildly regressive but within acceptable
limits (PRB = -0.02) and the other being more regressive and outside acceptable limits (PRB = -0.12). The

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 46
PRB fitted line is displayed for both cases. The PRB fitted line is almost flat in the case where the PRB = -
0.02 but is noticeably steeper and more regressive in the case where the PRB = -0.12. As the PRB becomes
increasingly regressive, note that lower-valued properties are being appraised at a greater and greater
percentage of their market value than higher-valued properties.

Figure 3. A Hypothetical Comparison of Two PRBs: -0.02 and -0.12

Uniformity Test of Group Medians

The IAAO Standard on Ratio Studies also presents another test of uniformity based on a comparison of group
appraisal levels to the overall appraisal level. Groups could be determined based on geographic region,
property use, or some other category. Under this test, if an estimate of the group appraisal level is statistically
significantly greater than the appraisal level plus 5% or statistically significantly less than the appraisal level
minus 5%, then the conclusion is that there is a lack of uniformity (IAAO 2013, p. 18-19).

This test can also be applied specifically in the context of vertical equity through the creation of value groups
(calculated by first sorting the sales by a market value proxy, such as the average of the appraised value and
the sale price, and then creating groups of sales through the use of cut points), calculating the median for
each value group, and then performing the proper statistical test for each value group.

Selective Reappraisal
Selective reappraisal occurs when sold and unsold parcels are appraised differently. When practically
significant and statistically significant selective reappraisal is present, inferences about the population of
properties made from the sales ratio study sample will not be accurate (IAAO 2013, p.59). To properly design
a test for selective reappraisal, it is important to first identify a sale date range that could have been subject
to selective reappraisal, if present.

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Current Ratio Study and Related Statistical Analysis
This section describes the current project in terms of the seven basic steps of creating a sales ratio study.

Step 1: Define the Purpose, Scope, and Objectives

The CCAO completes a reassessment for one triad each year. In 2020, it was the South Triad; in 2021, it was
the City Triad; in 2022, it was the North Triad, and so on. The CCAO and the CCBOR each have an appeals
period for the entire County each year, regardless of which triad is being reassessed. This project's purpose
is to conduct an independent sales ratio study and other associated statistical analyses to investigate the
quality of the commercial values at each of these steps for each triad and to otherwise answer each of the
key project questions.

This sales ratio study is designed and oriented around this purpose in the following way. The appeals process
is investigated using the three most recent triad years that have had their full three appeal year cycles
completed (2019 – North Triad, 2020 – South Triad, and 2021 – City Triad). This allows one to see how
appeal activity changes for commercial property at the CCAO and the CCBOR levels across each of the three
years after a triad is reassessed (the intervening years between reassessments in a triad). In addition, the
appeals process is explored more in-depth for the first year in the cycle for the three most recently completed
triad-years (City Triad – 2021, North Triad – 2022, and South Triad – 2023). This allows one to have a greater
understanding of the initial appeal rates for different types of properties.

The overall quality of the full-market commercial values is measured using a sales ratio study at each of the
three steps in the process (the initial values on the assessment notice from the CCAO, the certified values
after the CCAO appeals period, and the final set of values after the CCBOR appeals period) for the three
most recently completed triads with adequate sales available (South Triad in 2020, City Triad in 2021, and
North Triad in 2022). This allows for a fair comparison of the commercial values across each step in each
triad to the market value as of January 1 of each triad year. For each triad measured, sales from the next
calendar year after the triad’s effective reassessment date through 12/31/2023, the last date available, are
used. For the South Triad in 2020, this means that sales from 01/01/2021 through 12/31/2023 are used in the
sales ratio study; for the City Triad in 2021, sales from 01/01/2022 through 12/31/2023 are used in the sales
ratio study; for the North Triad in 2022, sales from 01/01/2023 through 12/31/2023 are used in the sales ratio
study. Smaller sales datasets were used in the City and North Triads to report more recent results; these
samples were still sufficient in size.

It is worth noting that this statistical analysis is conducted using sales and valuation data that occurred during
the COVID-19 pandemic. It is not precisely known the degree to which the pandemic may have had an effect
on any of the analyses that were conducted. The importance of analyzing the most recent data, however,
outweighed any of these concerns when designing the statistical analysis.

This report also conducts a more direct analysis of the effect of the two appeals processes. In contrast to the
overall analysis, this analysis seeks to understand how the appeals processes conducted by the CCAO and
the CCBOR affect the quality of only those values that were appealed. This analysis uses the same triad and
sale date ranges as the overall analysis.

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Figure 4. Map of the Cook County, IL

Step 2: Design

Recall that the design of the ratio study is the set of methodologies by which the purpose, scope, and
objectives of the ratio study are investigated. This design includes the choice of analyses, statistical tests,
and means of presenting the results. This study is performed according to the precepts laid out in the IAAO
Standard on Ratio Studies (2013). However, this section describes key elements of the design of this sales
ratio study that are worth noting.

Outlier Handling
Sales ratio outliers were trimmed according to a 1.0 x IQR procedure with a log transformation of the sales
ratios used to better achieve distributional symmetry, as recommended in the IAAO Standard on Ratio Studies
(IAAO 2013)8. This less conservative threshold of 1.0 is justified in this case because of the lack of a proper
sales validation process in Cook County for the three triad years being studied. The IAAO Standard on the
validation and Adjustment of Sales says, “In general, the completeness and accuracy of sales data are best
confirmed by requesting the particulars of a sale from parties to the sale” (IAAO 2020, p. This study uses the
PTAX-203 Form (Illinois Real Estate Transfer Declaration) information in an attempt to get an approximate
list of sales valid for analysis. However, the CCAO performed no sales validation process for commercial

8
This procedure is found in Appendix B of the IAAO Standard on Ratio Studies. It takes the natural log of the sales ratios, finds the
interquartile range (IQR) of the resulting logged ratios, multiplies that IQR by 1.0, and then adds that quantity to the third quartile to
achieve the upper trimming bound and then subtracts that same quantity to the first quartile to achieve the lower trimming bound.
Sales ratios below the lower trimming bound or above the upper trimming bound are then eliminated (or trimmed) from the study.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 49
properties in any of the years being measured. Given the lack of a sales validation process, which undoubtedly
resulted in a lower quality set of sales available for this analysis, the IAAO Standard on Ratio Studies allows
for this less conservative trimming threshold to be used when it says that “Trim limits should be developed in
consideration of the extent of sales validation” (IAAO 2013, p. 54). Using this less conservative threshold still
typically resulted in less than 10% of the sales ratios being trimmed, which is within the IAAO standard of 5-
10% for large samples and 10-20% for small samples (IAAO 2013, p. 54).

Sales ratio outliers are trimmed by property use group in the primary stratification scheme. Value outliers are
likewise trimmed according to a 3.0 x IQR procedure with a log transformation. It is prudent to use more
conservative thresholds for trimming value outliers than for ratio outliers.

Statistical Hypothesis Testing

All conclusions made in this sales ratio study, including determinations of whether measures meet IAAO
industry standards, are made using statistical hypothesis testing so that inferences about the given population
can be made. All confidence intervals used in this analysis are 90% two-sided intervals, and all statistical
hypothesis tests are stated informally and are done at the alpha = 5% level; p-values may not be stated when
concluding non-compliance with an IAAO standard so long as they are less than 5% (0.05). The appropriate
90% confidence interval bound yields the correct comparison value for a one-sided statistical test because
the bounds of a 90% confidence interval are equivalent to the bounds of an upper and lower 95% one-sided
confidence interval (IAAO 2013, p.18). Confidence intervals for the median sales ratio, the Coefficient of
Dispersion, and the Coefficient of Price-Related Bias are calculated using a formula. The confidence interval
for the median sales ratio is based on the binomial distribution for samples of size greater than 30 and on the
procedure outlined for small samples in the IAAO Standard on Ratio Studies9 for samples of size less than or
equal to 30. The confidence interval for the Coefficient of Dispersion is based on the formula developed by
Bonet-Seier (Bonett-Seier, 2006). The confidence interval for the Coefficient of Price-Related Bias is directly
derived from simple linear regression. P-values listed as zero should technically be understood as p < 0.0001.

Permutation tests are statistical tests based on resampling methods. Permutation tests are used to test
hypotheses surrounding the median ratio and Coefficient of Dispersion. Permutation tests are used because
no parametric test for these measures exists.

Sale Price Time Trend Analysis

Sale price time trend models are fit by triad in this sales ratio study using the inverse sales ratio method,
where the sale price divided by the appraised value is regressed against some function of the month of sale.
The appraised value used in this method is the notice value from the year before the start of the sales range.
For example, for the South Triad (2020), the trend is fit using sales from 01/01/2020 through 12/31/2023 and
appraised values from 2019. This was done to rule out the effect of any selective reappraisal on the calculation
of the time trend. In this study, one sale price time trend is fit for all commercial properties in each triad given
the variability present in the inverse sales ratios. Final time trends were based on generalized additive models.

In developing the time trends, this analysis removes outliers through a process of fitting an initial approximate
trend model with the outliers included, using this initial trend model to calculate an initial time-adjusted sale
price through which outliers are identified, then a final trend model is calculated without those outliers and
used to calculate the final set of time-adjusted sale prices. This is done to eliminate outliers appropriately
where the inverse sales ratio statistically varies with time. Outliers were dealt with using the “1.5 x IQR
procedure” with the log correction.

9
This procedure is found in Appendix C of the IAAO Standard on Ratio Studies.

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Appraisal Level Statistics
The median is the most appropriate measure of appraisal level to use in this case because it is the best
measure for monitoring appraisal performance. The standard used for the appraisal level is 90% to 110%
(IAAO 2013, pp. 34-35) of the estimate of fair market value. The IAAO Standard on Ratio Studies recommends
this standard range for several reasons, including potential inflation or deflation during reappraisal cycles that
extend beyond one year, the potential lack of available resources, and other limiting conditions “that may
constrain the degree of accuracy that is possible and cost-effective within an assessment jurisdiction” (IAAO
2013, pp.18,33-34). If an estimate of the appraisal level is not found to be statistically significantly outside of
this range, then it will be concluded that this estimate of the assessment level falls in an acceptable range
around the 100% target level.

Appraisal Uniformity Statistics

The IAAO standard range used for the COD in this report is 5% to 20% for all strata because while Cook
County is a very large jurisdiction with an active market, it also has a certain degree of heterogeneity (IAAO
2013, p.34). An argument for a 5% to 15% standard could be made but ultimately the more conservative
range seemed more reasonable given the complexity of the situation.

The Uniformity Test of Group Medians is used to investigate vertical inequity utilizing market value quintiles
(a comparison of group medians for five market value groups – the lowest 20% of the market values up
through the highest 20% of the market values). This test is more data-intensive, so it is not run by property
use group strata.

Selective Reappraisal
This study does not explicitly test for selective reappraisal because it uses a future selection of sales (sales
from January 1 of the next calendar year after the effective date of each triad’s reassessment through
December 31, 2023) which by definition could not have been selectively reappraised. After all, they were
largely not known about at the time that values were set at each of the different steps in the valuation process.
It was important to use sales from this future period because a single-property appeals process that involves
such a large percentage of commercial properties could result in statistically and practically significant levels
of selective reappraisal by its very nature and it was important to use a common set of sales to analyze each
of the three steps in the valuation process for comparison purposes.

Step 3: Stratification

In this sales ratio study, sales are stratified for the calculation of the sales ratio statistics by property use group
(Industrial/Warehouse, Office, Retail, and Other Commercial). The appeals analysis is stratified by property
use group, township, and appraised value range (less than 50k, between 50k and 200k, between 200k and
500k, between 500k and 1mil, between 1mil and 5mil, and greater than 5mil).

The property use designations were estimated by the CCAO’s data science team as of one point in time in
the past and do not come from the Tyler Enterprise Assessment and Tax computer database system (the
master record) used by the CCAO at the time of the sale. Rather, it emanates from legacy income model
spreadsheets. The CCAO acknowledges that these property uses are only approximately accurate but were
provided at our request to give us the best data available. The CCAO has only recently started a process to
properly collect this data and record it in their computer database system. The property use yields important
information and a judgement was made to use this data as a stratifying mechanism in this analysis. Some
effort was taken to verify that this data is mostly in line with existing property class data.

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Sample Representativeness
Sample representativeness means that the properties in the sales sample used for the sales ratio study are
sufficiently representative of the properties in the population. In this case, an appropriate analysis of sample
representativeness was not believed to be prudent because of the quality of the property use data available,
the most natural variable to use to test for sample representativeness. If the sample is found to be statistically
unrepresentative, which is often the case in large samples like this, re-weighting or re-sampling the current
dataset would be chosen as the remedial measure. We believe it would have been too reliant on imperfect
property use data to use it as the basis for adopting such a remedial measure in addition to already using it
to stratify the analysis. Besides, stratifying the analysis by property use group partially eliminates the sample
representativeness concern in and of itself.

Step 4: Collection and Preparation of Market Data

Sales, valuation, CCAO appeals, and property-level data were first formally requested from the CCAO in late
April 2024. The CCAO quickly delivered all requested data and likewise responded to several follow-up
requests. Appeals data was requested from the CCBOR in early May 2024 and was received in late June
2024.

The data that was delivered was well-composed but unfortunately was still less than ideal. The CCAO
provided property class data but this was often non-specific to the actual use of the property. Property use
code data was not available but was later imputed by the CCAO for most of the properties through looking at
legacy income valuation spreadsheets, as previously described. No sales validation work was performed by
the CCAO but the CCAO did provide the sales data as recorded on the PTAX-203 form that we used to arrive
at a set of sales for analysis. The net consideration from the PTAX-203 form was used as the sale price in
the sales ratio study10. Data filters were applied to remove sales from the analysis if they met any of the
conditions of an invalid sale or had inconsistent data listed on the form. The end goal was to get the best set
of sales for this analysis given the less-than-ideal data circumstances.

Data Filters
As discussed, data filters are applied to produce a sales sample that is appropriate for analysis. Properties
that meet the following criteria are excluded from the study:

• Properties that do not have a commercial property class (meaning, their property class prefix is
something other than 5, 6, 7, or 8).

• Properties whose notice property class prefix, certified property class prefix, and board-level property
class prefix do not match (properties that changed incentive status at some point during that year’s
valuation process).

• Properties that do not have a property use code imputed by the CCAO from legacy income model
spreadsheets.

Sales that meet the following criteria are excluded from the study:

• Sales that are not Warranty or Trustee Deeds.

10
The net consideration is the consideration minus any personal property or business value indicated on the PTAX-203 form.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 52
• Sales of properties that were not advertised publicly.

• Sales of properties that did not have both a current and intended use of either Office, Retail,
Commercial, or Industrial (meaning, not codes F, G, H, or I).

• Sales of properties with a significant physical change to the building since January 1 of the previous
year.

• Sales that were the fulfillment of an installment contract or sales that were under contract in the
calendar year before the sale.

• Sales between related individuals or corporate affiliates.

• Sales that transferred less than 100% interest.

• Sales that were court-ordered.

• Sales that were in lieu of foreclosure.

• Sales of Condemnation

• Short Sales

• Auction Sales

• Sales where the buyer or seller is a financial institution or a government agency.

• Sales where the buyer was exercising an option to purchase.

• Sales involving the simultaneous trade of property

• Leaseback Sales

• Sales where the number of properties listed on the form in Box 2 is not equal to the number of PINs
listed in Box 3 (potentially inconsistent multi-parcel sales).

• Sales with a sale price of less than $1,000.

Due to the sheer size of the dataset and the number of stratification schemes being employed, summary
statistics are not reported for the sales sample. Final sample sizes for each stratum before and after outlier
trimming are reported in tabular format throughout the forthcoming analysis.

Step 5: Matching of Appraisal and Market Data

The matching of appraisal and market data was handled as thoroughly as possible given the paucity of time-
of-sale information and the lack of a proper sales validation process conducted by the CCAO. Sales were
eliminated from the sample unless the current and intended use matched the PTAX-203 form. Due to the data
limitations present, a more thorough matching exercise could not be performed.

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Step 6: Statistical Analysis

The statistical analysis is broken down into sections according to the flow of logic and the priorities identified
in the study’s purpose, scope, and objectives. First, we present an analysis of the appeals process that sets
the stage for subsequent sales ratio study analyses; the analysis of the appeals process uses all properties,
not just the sales. Key findings are given on an ongoing basis along with the results.

Analysis of the Appeals Process

This analysis of the appeals process breaks down appeals by status (appealed – changed, appealed – no
change, and not appealed) by both levels (CCAO or CCBOR) and Triad (South, City, and North Triads).
Appeals are examined on an overall basis by year for each of the last completed three-year appeal cycles for
each triad (three-year cycles starting in 2019, 2020, and 2021) and they are examined for each of the last
three completed triad appeal years (City Triad – 2021, North Triad – 2022, and City Triad – 2023) across a
range of strata (appraised value range, property use group, and township).

Note that when this analysis examines the rate at which appeals result in a value change, it usually does not
assess whether such an action is justified or not, even at a group level; instead, such an analysis is typically
just recounting what occurred. Appeal rates are important from a systemic point of view in and of themselves
and because they tie into one or more of the key project questions. Future research should focus more on
the appeals process and delve more into other questions surrounding the nature of these appeals.

Appeal Status Trends over the Three-Year Cycle

Figures 5 – 7 illustrate the status of property appeals with the CCAO and how those appeal statuses change
across the three-year cycle.

Figure 5. Assessor Appeal Results - North Triad Reassessment (2019)

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Figure 6. Assessor Appeal Results - City Triad Reassessment (2021)

Key Findings:

• Properties tend to appeal to the CCAO at higher rates in the first year of the three-year cycle when
the reassessment has just been completed. Appeal rates tend to decline in each of the next two years.

• In the South Triad (2020) and the City Triad (2021), the majority of commercial properties did not
appeal to the CCAO in the first year of the cycle. However, in the North Triad (2019), a majority of
commercial properties did appeal but most of them did not receive a change. There was a noticeable
drop in the percentage of properties that were appealed to the CCAO after 2019.

• After 2019, the CCAO was more likely to change the value for appeal properties in the first year than
they were in the two subsequent years.

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Figure 7. Assessor Appeal Results - South Triad Reassessment (2020)

Figures 8 - 10 illustrate the status of property appeals with the CCBOR and how those appeal statuses
change across the three-year cycle.

Figure 8. Board Appeal Results - North Triad Reassessment (2019)

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Figure 9. Board Appeal Results - South Triad Reassessment (2020)

Figure 10. Board Appeal Results - City of Triad Reassessment (2021)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 57
Key Findings:

• Properties tend to appeal to the Board at higher rates in the first year of the three-year cycle when the
reassessment has just been completed. Appeal rates tend to decline in each of the next two years.

• Properties appeal to the Board at much higher rates than to the CCAO.

• In the first year, the vast majority of properties file an appeal to the Board and most of those receive
a value change (71% in the North, 58% in the South, and 43% in the City).

• In the second and third years, the Board makes a value change on a much lower percentage of appeal
properties than they do in the first year.

Appeal Status for City Triad (2021)

Figures 11 - 13 illustrate the status of property appeals with the CCAO for the City Triad (2021) by property
use group, township, and appraised value range strata.

Figure 11. Assessor Appeal Results by Use Group - City Triad Reassessment (2021)

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Figure 12. Assessor Appeal Results by Township - City Triad Reassessment (2021)

Figure 13. Assessor Appeal Results by Appraised Value Category - City Triad Reassessment (2021)

Key Findings:

• While appeal rates are fairly constant across the different property use group categories, appeals are
granted a value change by the CCAO at a lower rate for Industrial / Warehouse properties than for
other property use groups.

• Property owners in North Chicago Township and Rogers Park Township filed appeals with the CCAO
at much higher rates than the other townships. The CCAO granted value changes during appeals at
much higher rates in North Chicago and South Chicago Townships than in the other townships.

• As appraised value increases, not only does the appeal rate tend to increase but also the percentage
of appealed properties with a value change tends to increase. The CCAO made a value change in the

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 59
majority of appealed properties with an appraised value of over 1 million dollars. The majority of all
properties with an appraised value over 5 million dollars received a value change.

Figures 14 - 16 illustrate the status of property appeals with the CCBOR for the City Triad (2021) by property
use group, township, and appraised value range strata.

Figure 14. Board Appeal Results by Group - City Triad Reassessment (2021)

Figure 15. Board Appeal Results by Township - City Triad Reassessment (2021)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 60
Figure 16. Board Appeal Results by Appraised Value Category - City Triad Reassessment (2021)

Key Findings:

• In contrast to the CCAO appeals period, Industrial / Warehouse property appeals are granted a value
change by the CCBOR at a higher rate than for other property use groups. Forthcoming ratio study
results show that Industrial / Warehouse properties tend to be over-valued by the CCAO in this triad-
year and that the CCBOR’s value changes brought these valuations closer to the standard range.

• Property owners in North Chicago, South Chicago, and Lake View Townships filed appeals with the
CCBOR at higher rates than the other townships. The CCBOR granted value changes during appeals
at higher rates in North Chicago and West Chicago Townships than in the other townships. The
majority of all properties in North Chicago Township (56%) saw a value change by the CCBOR.

• The same trends exist with the CCBOR as do with the CCAO with respect to appeal rates by appraised
value category, except that they are even more pronounced. As appraised value increases, not only
does the appeal rate tend to increase but also the percentage of appealed properties with a value
change tends to increase. The appeal rates in Cook County are astounding in general, but the
treatment of high-value properties stands out. We find that 97% of all properties with an appraised
value greater than 5 million dollars in the City Triad appealed to the CCBOR and 88% of all properties
in that category received a value change by the CCBOR.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 61
Appeal Status for North Triad (2022)
Figures 17 - 20 illustrate the status of property appeals with the CCAO for the North Triad (2022) by property
use group, township, and appraised value range strata.

Figure 17. Assessor Appeal Results by Use Group - North Triad Reassessment (2022)

Figure 18. Assessor Appeal Results by Township - North Triad Reassessment (2022)

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Figure 19. Assessor Appeal Results by Township - North Triad Reassessment (2022)

Figure 20. Assessor Appeal Results by Appraised Value Category - North Triad Reassessment (2022)

Key Findings:

• While appeal rates are fairly constant across the different property use group categories, appeals are
granted a value change by the CCAO at the lowest rate for Industrial and Warehouse properties and
the highest rate for Retail properties.

• Appeal rates to the CCAO are relatively constant across the North Triad (2022) townships, with all of
the appeal rates falling in a range approximately 11 percentage points wide. The CCAO tended to
grant value changes during appeals at relatively similar rates across all the townships, with the lowest
such rate being Hanover Township.

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• As appraised value increases, the appeal rate tends to increase and, in contrast to the City Triad just
discussed, the percentage of appealed properties with a value change does not have a strong
relationship with the appraised value of the property.

Figures 21 - 24 illustrate the status of property appeals with the CCBOR for the North Triad (2022) by property
use group, township, and appraised value range strata.

Figure 21. Board Appeal Results by Use Group - North Triad Reassessment (2022)

Figure 22. Board Appeal Results by Township - North Triad Reassessment (2022)

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Figure 23. Board Appeal Results by Township - North Triad Reassessment (2022)

Figure 24. Board Appeal Results by Appraised Value Category - North Triad Reassessment (2022)

Key Findings:

• The breakdown of CCBOR appeal period statuses in the North Triad (2022) is relatively constant
across the property use groups.

• As was the case in the CCAO appeal periods, a lower percentage of property owners in Hanover
township filed an appeal than in the other townships, and those that filed an appeal were granted a
value change at a lower rate. In 8 of the 13 townships, more than 50% of all properties saw a value
change by the CCBOR.

• The same trends exist with the CCBOR in the North Triad (2022) as they do in the City Triad (2021)
with respect to appeal rates by appraised value category. As appraised value increases, not only does

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the appeal rate tend to increase but also the percentage of appealed properties with a value change
tends to increase.

Appeal Status for South Triad (2023)

Figures 28 - 28 30 illustrate the status of property appeals with the CCAO for the South Triad (2023) by
property use group, township, and appraised value range strata.

Figure 25. Assessor Appeal Results by Use Group - South Triad Reassessment (2023)

Figure 26. Assessor Appeal Results by Township - South Triad Reassessment (2023)

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Figure 27. Assessor Appeal Results by Township - South Triad Reassessment (2023)

Figure 28. Assessor Appeal Results by Appraised Value Category - South Triad Reassessment (2023)

Key Findings:

• CCAO appeal rates and statuses are fairly constant across the different property use group categories
for the South Triad (2023).

• CCAO appeal rates by township range from 35% (Rich Township) to 56% (Oak Park Township). Oak
Park Township had the highest percentage of properties with a value change from CCAO appeals and
Calumet Township had the highest percentage of appeal properties with a value change from CCAO
appeals.

• As appraised value increases, not only does the appeal rate tend to increase but also the percentage
of appealed properties with a value change tends to increase.

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Figures 31 - 34 illustrate the status of property appeals with the CCBOR for the South Triad (2023) by property
use group, township, and appraised value range strata.

Figure 29. Board Appeal Results by Use Group - South Triad Reassessment (2023)

Figure 30. Board Appeal Results by Township - South Triad Reassessment (2023)

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Figure 31. Board Appeal Results by Township - South Triad Reassessment (2023)

Figure 32. Board Appeal Results by Appraised Value Category - South Triad Reassessment (2023)

Key Findings:

• Industrial / Warehouse properties tend to file CCBOR appeals at a higher rate in the South Triad
(2023) and those that appeal tend to be granted value changes at a higher rate than other property
use groups.

• There is some heterogeneity in CCBOR appeal status by Township in the South Triad (2023), with
different mixes of appeal statuses across the 17 townships. For example, 44% of properties in Calumet
Township did not file a Board appeal. In contrast, 16% of properties in Palos Township did not file a
Board appeal and also more than half (57%) of the properties in Palos Township received a value
change as a result of a Board appeal.

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• The same trends exist with the CCBOR in the South Triad (2023) as they do in the City Triad (2021)
and the North Triad (2022) with respect to appeal rates by appraised value category. As appraised
value increases, not only does the appeal rate tend to increase but also the percentage of appealed
properties with a value change tends to increase.

Sales Ratio Analysis by Triad

The purpose of this primary sales ratio analysis is to gather whether the quality of the commercial valuation
roll at each of the process steps meets industry standards. These results are first reported for each triad-year
(South Triad – 2020, City Triad – 2021, and North Triad – 2022) as a whole and then when stratified by
property use group.

Summary Results by Triad

This section examines overall results by triad and process step.

--Appraisal Level

Figure 33. Median Sales Ratio - Overall by Triad/Year and Process Step

Key Findings:

• The Assessor Notice values in the City Triad (2021) did not meet the IAAO standard for the appraisal
level of 90% to 110%, with a median sales ratio of 118.28%. The Assessor Notice values meet the
IAAO industry standard of 90% to 110% for the South Triad (2020) and the North Triad (2022).

• In the South Triad (2020) and the City Triad (2021), the median sales ratios from the Assessor Certified
step were an improvement over the Assessor Notice step (108.67% to 100.52% and 118.28% to
112.76%, respectively). However, the median sales ratio for the North Triad (2022) no longer meets

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 70
the IAAO industry standard during the Assessor Certified step when considering the confidence
interval (86.63% to 80.25%).

• The median sales ratios for the Assessor Notice step for each triad (108.67%, 118.28%, and 86.63%,
respectively) are statistically significantly different from each other. The same is true for the Assessor
Certified step for each triad (100.52%, 112.76%, and 80.25%, respectively). The same is also true for
the Board step for each triad (81.37%, 98.96%, and 71.79%, respectively). This results in non-
uniformity based solely on the triad/year of reassessment. This stacks on top of the general non-
uniformity that we see present within the same Triad at various levels.

• In each Triad, the CCAO appeals process and the CCBOR appeals process both result in a noticeable
change to the median sales ratio in their respective steps. The change in the appraisal level from the
Assessor Certified step to the Board step is greater than that of the Assessor Notice step to the
Assessor Certified step. This is not surprising given the results of the appeals analysis.

• The CCBOR appeals process results in a set of commercial property values that have undergone a
dramatic and statistically significant reduction in the appraisal level over the Assessor Certified values.

• In the South Triad (2020), this caused the median sales ratio to move from meeting IAAO industry
standards (100.52%) to not meeting them (81.37%).

• In the City Triad (2021), although the median sales ratio using the Assessor Certified values did meet
the IAAO industry standard when considering its confidence interval (112.76%), the median sales ratio
noticeably improved after the CCBOR step (98.96%).

• In the North Triad (2022), the median sales ratio drops from 80.25% in the Assessor Certified step
(already not meeting the IAAO industry standard) to 71.79% in the Board of Review step (still not
meeting the standard but even farther outside the range).

• Given the facts that higher-valued properties tend to be appealed more often than lower-valued
properties to the CCBOR and that appeals for higher-valued properties tend to be granted a value
change more often, it is important to compare the weighted mean sales ratios to see how much the
CCBOR appeal period impacts an estimate of the total percentage of the tax base that is being
appraised. In each Triad, the weighted mean sales ratio gets worse when moving from the Assessor
Certified to the Board of Review step. These results are found in the Appendix A table entitled, “Table
of Sales Ratio Statistics.”

• For the South Triad (2020), the weighted mean drops from 100.74% in the Assessor Certified step to
75.92% in the Board step. For the City Triad (2021), the weighted mean drops from 108.01% in the
Assessor Certified step to 90.19% in the Board step. For the North Triad (2022), the weighted mean
drops from 97.59% in the Assessor Certified step to 73.59% in the Board step.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 71
--Appraisal Uniformity

Figure 34. Coefficient of Dispersion - Overall by Triad/Year and Process Step

Key Findings:

• The overall level of general appraisal uniformity, as measured by the Coefficient of Dispersion (COD),
is out of range for each step inside of each Triad. The IAAO standard range of 5% to 20% is not met
by any of the valuation steps inside any of the triads investigated.

• It is this degree of non-uniformity, not the sample size, which is the primary driver of the wide
confidence intervals seen throughout this report. In many instances, this lack of uniformity negatively
affects our ability to draw statistical conclusions. Specific issues could be masked by this degree of
non-uniformity and rendered undetectable. This lack of uniformity also adds more uncertainty into the
process of deriving time (market condition) adjustments.

• The COD for the Assessor Certified step is lower than in the Assessor Notice step in two of the three
triads (South and City Triads), but these differences are not statistically significant (p-values of 0.2875
and 0.1013, respectively).

• The COD for the Board of Review step is lower than in the Assessor Certified step in two of the three
triads (City and North Triads), and these differences are statistically significant (p-values of 0.0209
and 0.0204, respectively).

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Figure 35. Coefficient of Price-Related Bias - Overall by Triad/Year and Process Step

Figure 36. Median Sales Ratio by Value Quintile - Assessor Notice Step - South Triad (2020)

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Figure 37. Median Sales Ratio by Value Quintile - Assessor Certified Step - South Triad (2020)

Figure 38. Median Sales Ratio by Value Quintile - Board Step - South Triad (2020)

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Figure 39. Median Sales Ratio by Value Quintile - Assessor Notice Step - City Triad (2021)

Figure 40. Median Sales Ratio by Value Quintile - Assessor Certified Step - City Triad (2021)

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Figure 41. Median Sales Ratio by Value Quintile - Board Step - City Triad (2021)

Figure 42. Median Sales Ratio by Value Quintile - Assessor Notice Step - North Triad (2022)

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Figure 43. Median Sales Ratio by Value Quintile - Assessor Certified Step - North Triad (2022)

Figure 44. Median Sales Ratio by Value Quintile - Board Step - North Triad (2022)

Key Findings:

• In investigating the presence of vertical inequity using the Coefficient of Price-Related Bias (PRB) and
Quintile Median Test, we find that the IAAO industry standards are met and that the degree of
regressivity present is within range for all steps in each triad. The values after the Board of Review
step in the City Triad (2021) do not meet the IAAO recommended range for the PRB (-0.09).

• The values from the Board step tend to be more regressive than the previous steps in each Triad year
(although maybe not by a statistically significant amount), even though they still meet IAAO industry
standards.

Results for South Triad by Property Use

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This section analyzes appraisal level and appraisal uniformity for the South Triad (2020) by property use
group.

--Appraisal Level

Figure 45. Median Sales Ratio Across Each Step - South Triad (2020)

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--Appraisal Uniformity

Figure 46. Coefficient of Dispersion Across Each Step - South Triad (2020)

Table 7. Table of Sales Ratio Statistics for the South Triad (2020)

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Figure 47. Coefficient of Price-Related Bias Across Each Step - South Triad (2020)

Key Findings:

• The median sales ratios decline for each property use group as they move across the three steps.
The median sales ratio in the Board step is statistically significantly less than that of the Assessor
Certified step for each property use group.

• The median sales ratio for Office properties in the Assessor Notice step is statistically significantly
above the IAAO standard range (126.16%) and the median sales ratios for Industrial / Warehouse
properties and Other Commercial properties are statistically significantly below the IAAO standard
range (66.73% and 77.22%, respectively).

• The Coefficient of Dispersion does not meet the IAAO industry standard for all property use groups
across all valuation steps, except for Office properties in the Assessor Certified step (23.31%).

• The Assessor Notice and Board steps have at least one property use group that does not pass the
Median Uniformity Test, providing another indication of extensive appraisal non-uniformity.

• There is no statistically significant evidence that the level of vertical inequity present does not meet
the IAAO industry standards across any of the property use groups in any of the valuation steps. The
PRB coefficients are also not statistically significantly outside of the IAAO recommended range.

City Triad
This section analyzes appraisal level and appraisal uniformity for the City Triad (2021).

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 80
--Appraisal Level

Figure 48. Median Sales Ratio Across Each Step - City Triad (2021)

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--Appraisal Uniformity

Figure 49. Coefficient of Dispersion Across Each Step - City Triad (2021)

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Table 8. Table of Sales Ratio Statistics for the City Triad (2021)

Figure 50. Coefficient of Price-Related Bias Across Each Step - City Triad (2021)

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Key Findings:

• The median sales ratios decline for each property use group as they move across the three valuation
steps. The median sales ratios tend to improve in the second and third valuation steps for all property
use groups except Other Commercial properties. In this Triad, the appeals periods improved the
overall appraisal level for each property use group.

• The median sales ratio for Industrial / Warehouse properties in the Assessor Notice and Assessor
Certified steps is statistically significantly above the IAAO standard range (182.27% and 147.39%,
respectively), as is the median sales ratio for Retail properties in the Assessor Notice step (122.42%).

• The Coefficient of Dispersion (COD) is outside of the IAAO standard range for all property use groups
across all valuation steps. The Board step did statistically significantly improve the COD for Industrial
/ Warehouse properties where the COD in the two Assessor steps was higher than any of the other
property use groups.

• The Assessor Notice and Assessor Certified steps have at least one property use group that does not
pass the Median Uniformity Test, providing another indication of extensive appraisal non-uniformity.

• There is no statistically significant evidence that the level of vertical inequity present does not meet
the IAAO industry standards across any of the property use groups in any of the valuation steps. Retail
properties in the Assessor Certified and Board steps have a Coefficient of Price-Related Bias (PRB)
that is outside of the IAAO recommended range.

North Triad
This section analyzes appraisal level and appraisal uniformity for the North Triad (2022).

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 84
--Appraisal Level

Figure 51. Median Sales Ratio Across Each Step - North Triad (2022)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 85
--Appraisal Uniformity

Figure 52. Coefficient of Dispersion Across Each Step - North Triad (2022)

Table 9. Table of Sales Ratio Statistics for the North Triad (2022)

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Figure 53. Coefficient of Price-Related Bias Across Each Step - North Triad (2022)

Key Findings:

• The median sales ratios tend to decline for each property use group as they move across the three
valuation steps. The median sales ratios tend to move farther out of range, per IAAO industry
standards, in the second and third valuation steps for all property use groups, although the difference
may not be statistically significant.

• The median sales ratio for Industrial / Warehouse properties in all three valuation steps is statistically
significantly below the IAAO standard range (80.60%, 75.77%%, and 66.46%, respectively), as is the
median sales ratio for Other Commercial properties in the Board step (72.75%).

• The Coefficient of Dispersion (COD) does not meet the IAAO industry standard for all property use
groups across all valuation steps, except Industrial / Warehouse properties. The Board step does tend
to improve the COD for all property use groups over the Assessor Certified step, however these
differences are slight and may not be statistically significant.

• All three valuation steps have at least one property use group that does not pass the Median Uniformity
Test, providing another indication of extensive appraisal non-uniformity.

• There is no statistically significant evidence that the level of vertical inequity present does not meet
the IAAO industry standards across any of the property use groups in any of the valuation steps. The
PRB coefficients are also not statistically significantly outside of the IAAO recommended range.

Sales Ratio Analysis of the Appeals Process

The previous sales ratio analysis compares the commercial valuation roll, regardless of appeal status, to
industry standards. In contrast, this analysis seeks to ascertain the effect that the appeals process has on the

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 87
group of properties that were appealed. Recall that our previous analysis found that a large number of
properties file an appeal with the Assessor and an even larger number file an appeal with the CCBOR. With
this many properties appealing, it is important to analyze the appeal properties separately from the non-appeal
properties to differentiate the effect of the appeal process from that of the standard assessment process.

South Triad

--Appraisal Level

Figure 54. Change in Median Sales Ratio During Assessor Level Appeals - South Triad (2020)

Figure 55. Change in Median Sales Ratio During Board Level Appeals - South Triad (2020)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 88
--Appraisal Uniformity

Figure 56. Change in Coefficient of Dispersion During Assessor Level Appeals - South Triad (2020)

Figure 57. Change in Coefficient of Dispersion During Board Level Appeals - South Triad (2020)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 89
Figure 58. Change in Price-Related Bias During Assessor Level Appeals - South Triad (2020)

Figure 59. Change in Price-Related Bias During Board Level Appeals - South Triad (2020)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 90
--Tests of Hypotheses

Table 10. P-Values for Tests of Hypothesis During Assessor Appeals in the South Triad (2020)

Table 11. P-Values for Tests of Hypothesis During Board Appeals in the South Triad (2020)

Key Findings:

• The median sales ratio for the Assessor Notice values in the South Triad (2020) that were appealed
to the Assessor is 110.68% vs. 106.22% for those that were not appealed. This difference, however,
is not statistically significant (p = 0.2583). Therefore, we cannot conclude that the CCAO appeal
properties are over-appraised with respect to non-appeal properties overall. This test was also not
statistically significant in each of the property use group strata.

• The median sales ratio for the Assessor Certified values in the South Triad (2020) that were appealed
to the Board is 102.85% vs. 95.65% for those that were not appealed. This difference, however, is not
statistically significant (p = 0.0814). Therefore, we cannot conclude that the CCBOR appeal properties
are over-appraised with respect to non-appeal properties overall. This test was also not statistically
significant in each of the property use group strata except for Industrial / Warehouse properties
(111.32% vs. 53.61%; p = 0.0004).

• The median sales ratio for properties appealed to the Assessor in the South Triad (2020) dropped
from 110.68% to 99.53%, a statistically significant difference (p = 0.0268). However, this test was not

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 91
statistically significant in any of the property use group strata except for Office properties (128.10%
vs. 105.13%; p = 0.0089). The Assessor appeals period tended to improve the appraisal level for those
properties appealed by moving them closer to the target of 100%.

• The median sales ratio for properties appealed to the Board in the South Triad (2020) dropped from
102.85% to 79.23%, a statistically significant difference (p < 0.0001). This is more than two times the
drop that occurred during the CCAO appeals period. This test was also statistically significant for each
of the property use group strata. The CCBOR appeals period tended to move the appraisal level
farther away from the IAAO standard range.

• Appraisal Uniformity, as measured by the Coefficient of Dispersion (COD), does not statistically
improve during the Assessor appeal process overall (34.37% vs. 33.35%; p = 0.3629) or in any of the
property use groups.

• Appraisal Uniformity, as measured by the Coefficient of Dispersion (COD), does not statistically
improve during the CCBOR appeal process overall (33.66% vs. 35.82%; p = 0.8264) or in any of the
property use groups.

• The Coefficient of Price-Related Bias (PRB) overall point estimate slightly improves for Assessor
appeal properties (-0.03 to -0.02) and slightly worsens for Board appeal properties (-0.03 to -0.05).
Statistical testing, however, is not done for vertical inequity because the variability present in the sales
ratios has greatly decreased statistical power. Therefore, formal conclusions are not drawn in this
instance.

City Triad

--Appraisal Level

Figure 60. Change in Median Sales Ratio During Assessor Level Appeals - City Triad (2021)

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Figure 61. Change in Median Sales Ratio During Board Level Appeals - City Triad (2021)

--Appraisal Uniformity

Figure 62. Change in Coefficient Dispersion During Assessor Level Appeals - City Triad (2021)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 93
Figure 63. Change in Coefficient Dispersion During Board Level Appeals - City Triad (2021)

Figure 64. Change in Price-Related Bias During Assessor Level Appeals - City Triad (2021)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 94
Figure 65. Change in Price-Related Bias During Board Level Appeals - City Triad (2021)

--Tests of Hypotheses

Table 12. P-Values for Tests of Hypothesis During Assessor Appeals in the City Triad (2021)

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Table 13. P-Values for Tests of Hypothesis During Board Appeals in the City Triad (2021)

Key Findings:

• The median sales ratio for the Assessor Notice values in the City Triad (2021) that were appealed to
the Assessor is 124.82% vs. 116.50% for those that were not appealed. This difference, however, is
not statistically significant (p = 0.2140). Therefore, we cannot conclude that the CCAO appeal
properties are over-appraised with respect to non-appeal properties overall. This test was also not
statistically significant in each of the property use group strata.

• The median sales ratio for the Assessor Certified values in the City Triad (2021) that were appealed
to the Board is 113.01% vs. 112.36% for those that were not appealed. This difference, however, is
not statistically significant (p = 0.4338). Therefore, we cannot conclude that the CCBOR appeal
properties are over-appraised with respect to non-appeal properties overall. This test was also not
statistically significant in each of the property use group strata.

• The median sales ratio for properties appealed to the Assessor in the City Triad (2021) dropped from
124.82% to 106.86%, a statistically significant difference (p = 0.0050). This test was also statistically
significant for Other Commercial properties (111.85% vs. 91.68%; p = 0.0481) and Retail Properties
(122.42% vs. 103.16%; p = 0.0196). The Assessor appeals period tended to improve the appraisal
level for those properties appealed by moving them closer to the target of 100%.

• The median sales ratio for properties appealed to the Board in the City Triad (2021) dropped from
113.01% to 96.15%, a statistically significant difference (p = 0.0008). This test was also statistically
significant for each of the property use group strata, except for Other Commercial properties. In this
case, the CCBOR appeals period tended to improve the appraisal level for those properties appealed
by moving them closer to the target of 100%.

• Appraisal Uniformity, as measured by the Coefficient of Dispersion (COD), does not statistically
improve during the Assessor appeal process overall (36.74% vs. 33.93%; p = 0.2265) or in any of the
property use groups.

• Appraisal Uniformity, as measured by the Coefficient of Dispersion (COD), does statistically improve
during the CCBOR appeal process overall (39.51% vs. 32.11%; p = 0.0125) but this test is not
statistically significant in any of the property use groups individually.

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• The Coefficient of Price-Related Bias (PRB) overall point estimate very slightly improves for Assessor
appeal properties (-0.01 to 0.00) and slightly worsens for Board appeal properties (-0.03 to -0.05).
Statistical testing, however, is not done for vertical inequity because of the variability present in the
sales ratios.

North Triad

--Appraisal Level

Figure 66. Change in Median Sales Ratio During Assessor Level Appeals - North Triad (2022)

Figure 67. Change in Median Sales Ratio During Board Level Appeals - North Triad (2022)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 97
--Appraisal Uniformity

Figure 68. Change in Coefficient of Dispersion During Assessor Level Appeals - North Triad (2022)

Figure 69. Change in Coefficient of Dispersion During Board Level Appeals - North Triad (2022)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 98
Figure 70. Change in Price-Related Bias During Assessor Level Appeals - North Triad (2022)

Figure 71. Change in Price-Related Bias During Board Level Appeals - North Triad (2022)

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 99
--Tests of Hypotheses

Table 14. P-Values for Tests of Hypothesis During Assessor Appeals in the North Triad (2022)

Table 15. P-Values for Tests of Hypothesis During Board Appeals in the North Triad (2022)

Key Findings:

• The median sales ratio for the Assessor Notice values in the North Triad (2022) that were appealed
to the Assessor is 92.81% vs. 77.37% for those that were not appealed. This difference is statistically
significant (p = 0.0075). Therefore, we can conclude that the CCAO appeal properties are over-
appraised with respect to non-appeal properties overall. In terms of property use group, however, this
test was only statistically significant for Retail properties (98.30% vs. 63.74%; p < 0.0001).

• The median sales ratio for the Assessor Certified values in the North Triad (2022) that were appealed
to the Board is 87.28% vs. 59.00% for those that were not appealed. This difference is statistically
significant (p < 0.0001). Therefore, we can conclude that the CCBOR appeal properties are over-
appraised with respect to non-appeal properties overall. This test was also statistically significant in
Industrial / Warehouse (80.58% vs. 50.09%; p < 0.0001) and Office (106.04% vs. 60.17%; p < 0.0001)
property use group strata.

• The median sales ratio for properties appealed to the Assessor in the North Triad (2022) dropped from
92.81% to 83.49%, but this is not a statistically significant difference (p = 0.0858). This test was not

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 100
statistically significant for the four property use group strata either. The Assessor appeals period
tended to move the appraisal level point estimates farther away from the IAAO standard range.

• The median sales ratio for properties appealed to the Board in the North Triad (2022) dropped from
87.28% to 72.63%, a statistically significant difference (p = 0.0018). This test was also statistically
significant for Industrial / Warehouse properties (80.58% vs. 69.78%; p = 0.0021) but not the other
property use group strata. The CCBOR appeals period tended to move the appraisal level farther
away from the IAAO standard range.

• Appraisal Uniformity, as measured by the Coefficient of Dispersion (COD), does not statistically
improve during the Assessor appeal process overall (27.99% vs. 30.20%; p = 0.6648) or in any of the
property use groups.

• Appraisal Uniformity, as measured by the Coefficient of Dispersion (COD), also does not statistically
improve during the CCBOR appeal process overall (34.90% vs. 27.85%; p = 0.0736) or in any of the
property use groups.

• The Coefficient of Price-Related Bias (PRB) overall point estimate is made very slightly worse for
Assessor appeal properties (-0.04 to -0.05) and slightly better for Board appeal properties (0.04 to -
0.02). Both point estimates became more regressive. Statistical testing, however, is not done for
vertical inequity because the variability present in the sales ratios has greatly decreased statistical
power. Therefore, formal conclusions are not drawn in this instance.

Step 7: Evaluation and Use of Result

The key findings of the statistical analysis are summarized in the main body of the report (see “Statistical
Analysis Summary”) rather than here, and they are organized according to the key project questions for the
statistical phase. This is done to improve the flow of the report for the reader.

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 101
REFERENCES

International Association of Assessing Officers. (2013). Standard on Ratio Studies. Kansas City, MO.

International Association of Assessing Officers. (2020). Standard on Verification and Adjustment of Sales.
Kansas City, MO.

Bonett and Seier. Biometrical Journal 48 (2006). Confidence Interval for a Coefficient of Dispersion in
Nonnormal Distributions.

International Association of Assessing Officers. (2016). Standard on Assessment Appeal. Kansas City, MO

International Association of Assessing Officers. (2017). Standard on Mass Appraisal of Real Property. Kansas
City, MO

International Association of Assessing Officers. (2023). Standard on Communications and Outreach. Kansas
City, MO

International Association of Assessing Officers. (2021). Standard on Data Quality. Kansas City, MO

Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 102
APPENDIX A

Supporting Statistical Tables

Table 16. Table of Sales Ratio Statistics

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Table 17. Table of Sales Ratio Statistics for the South Triad (2020)

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Table 18. Table of Sales Ratio Statistics for the City Triad (2021)

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Table 19. Table of Sales Ratio Statistics for the North Triad (2022)

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Table 20. Table of Quintile Median Sales Ratio Statistics By Process Step for the South Triad (2020)

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Table 21. Table of Quintile Median Sales Ratio Statistics By Process Step for the City Triad (2021)

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Table 22. Table of Quintile Median Sales Ratio Statistics By Process Step for the North Triad (2022)

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Table 23. Comparison in Changes in Sales Ratio Statistics During Assessor Appeals for the South Triad
(2020)

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Table 24. Comparison in Changes in Sales Ratio Statistics During Board Appeals for the South Triad (2020)

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Table 25. Comparison in Changes in Sales Ratio Statistics During Assessor Appeals for the City Triad
(2021)

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Table 26. Comparison in Changes in Sales Ratio Statistics During Board Appeals for the City Triad (2021)

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Table 27. Comparison in Changes in Sales Ratio Statistics During Assessor Appeals for the North Triad
(2022)

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Table 28. Comparison in Changes in Sales Ratio Statistics During Board Appeals for the North Triad (2022)

RESUMES

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Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 119
Analysis of the Commercial Valuation Practices in the Cook County Property Tax System | 120
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