ADVANCED COMPUTER ASSISTED MASS APPRAISAL BUSI 444 COURSE WORKBOOK Certificate Program in Real Property Assessment Diploma Program in Urban Land Economics University of British Columbia

R2B44409

Acknowledgements The Real Estate Division gratefully acknowledges the generous financial support of the Real Estate Foundation of British Columbia and the Appraisal Institute of Canada. The Real Estate Division also wishes to acknowledges the contributions of the following persons who acted as our authors, editors, and reviewers: C C C C C C C C C C C C C C C C C

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Jack Anslow, BA, Dip(ULE), RI Bill Levis, BSc, MEd, RI John Peebles, AACI, PApp Jason Guilford, CAE Richard Ward, PhD, CAE Keith Potter, PhD Mike Warwa, Lindsay Skelly, and Greg Berger [Accurate Assessment Group, Ltd. www.aag-gis.com] Narendra Budhia, BA, MA(Econ) John Bridal, BComm, MEd, RI Alex Messina, BCom Ian Saxon, BCom Anna-Marie Allander, BSEcon Megan Paris-Griffiths, BA Dan Ray, BA Justin Omichinski Michelle Hamlyn Providers of data: C BC Assessment C Municipal Property Assessment Corporation (MPAC) C City of Regina, Assessment C Nova Scotia Assessment Services The many individuals and organizations in addition to the above who took part in focus groups and offered valuable insights on the design of this course.

© Copyright 2009 by the UBC Real Estate Division, Sauder School of Business, The University of British Columbia. Printed in Canada. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced, transcribed, modified, distributed, republished, or used in any form or by any means – graphic, electronic, or mechanical, including photocopying, recording, taping, web distribution, or used in any information storage and retrieval system – without the prior written permission of the publisher. For permission to use material from this text or product, contact UBC Real Estate Division at [email protected] or 1-604-822-2227.

UBC Real Estate Division 202 - 2053 Main Mall Vancouver, B.C. Canada V6T 1Z2 Tel: (604) 822-2227 or 1-877-775-7733 Fax: (604) 822-1900 Web: www.realestate.ubc.ca TO ALL STUDENTS: Welcome to BUSI 444: Advanced Computer Assisted Mass Appraisal! In this course, you will study the theories and principles underlying this area and then apply them in assignments that show you how these theories and principles operate in the real world. I hope that you find this blend of theory and practice to be both intellectually stimulating as well as helpful to you in your career. Now, some specifics about the course and its operation. The Foreword section of this Course Workbook outlines policies and procedures specific to your course and then the balance of the workbook contains the course's assignments. I strongly recommend that you take the time to read the Foreword section, as this outlines the learning objectives for this course, the work requirements, how you will be evaluated, and other important information. Note that this supplements the detailed information in the Student Handbook, which is also strongly recommended reading for both new and continuing Real Estate Division students. These two documents together will give students a clear understanding of all of the particulars regarding this course and the program as a whole. I would like to emphasize that a significant component of this course is focussed on the use of the Internet, in particular the BUSI 444 Course Resources webpage, found on the Real Estate Division's website at www.realestate.ubc.ca. This webpage is the virtual meeting place for you and your fellow students and you will be expected to visit the course discussion forum often to discuss course issues. The Course Resources page also offers numerous course tools and additional learning resources that will help you through your course – you should visit your Course Resources page as soon as possible! Finally, I wish to emphasize that the UBC Real Estate Division has an ongoing commitment to providing the highest quality educational offerings possible. We always welcome any feedback, be it suggestions on new courses or programs, or on how we can improve our existing courses and programs. I would invite you to send us an email at [email protected] if you have any suggestions for this course or for the program in general. I hope that you enjoy this course and wish you success, both for the upcoming term and in further studies with the UBC Real Estate Division. Yours truly,

André Gravelle Director Diploma and Certificate Programs

TABLE OF CONTENTS FOREWORD - Introduction to BUSI 444 Lessons and Assignments . . . . . . . . . . . . . . . . PURPOSE AND SCOPE OF THE COURSE . . . . . . . . . . . . . . . . . . . . . . . . . . . PREREQUISITES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Academic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Technical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USE OF THE COURSE RESOURCES WEBPAGE . . . . . . . . . . . . . . . . . . . . . . . USE OF THE COURSE WORKBOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EVALUATION METHODS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multiple Choice Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Case Study Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TUTORIAL ASSISTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PRE-COURSE ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Foreword.1 Foreword.1 Foreword.2 Foreword.2 Foreword.2 Foreword.3 Foreword.3 Foreword.4 Foreword.4 Foreword.5 Foreword.5 Foreword.6 Foreword.7

LESSON NO. 1 - Review of Statistical Software and Valuation Modeling Basics . . . . . . . . . . . . . . . 1.1 LESSON NO. 2 - Data Screening - Preparing Data for Modeling . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 LESSON NO. 3 - Land Valuation Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 LESSON NO. 4 - Cost-Based Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 LESSON NO. 5 - Sales-Based Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 LESSON NO. 6 - Advanced Sales-Based Modeling - Non-Linear Regression . . . . . . . . . . . . . . . . . 6.1 LESSON NO. 7 - Income-Based Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 LESSON NO. 8 - Integrating Geographic Information Systems and CAMA . . . . . . . . . . . . . . . . . . 8.1 LESSON NO. 9 - Neural Network Applications in Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 LESSON NO. 10 - The Canadian CAMA Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 PROJECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Projects.1 Project 1: Modeling Land Value and Cost Case Study . . . . . . . . . . . . . . . . . . . . . . . Projects.4 Project 2: Sales-Based Modeling Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . Projects.13 Project 3: Income Modeling Case Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Projects.17 GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Glossary.1 AFTERWORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Afterword.1 The Case Study Examination: PASW/SPSS in a Practical Context . . . . . . . . . . . . . Afterword.1 End of Course Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Afterword.1

FOREWORD Introduction to BUSI 444 Lessons and Assignments

Purpose and Scope of the Course The Advanced Computer Assisted Mass Appraisal course BUSI 444 is intended to give the real estate practitioner student a working knowledge of computer-assisted mass appraisal principles and practices. This course is unique in that it presents a hands-on approach to computer assisted mass appraisal techniques. Students will use a personal computer and statistical software to develop models designed to improve the consistency and quality of real property assessments. The material is intended to be introductory in nature; it is important to keep in mind that study of this course by itself does not certify the reader as a qualified mass appraisal model builder. However, the course should give the student a solid foundation in mass appraisal which can be further enriched by real-world practice. Note that this course has been adopted by several jurisdictions as meeting their entry level employment requirements and it also meets the educational course requirements for professional accreditation in several appraisal and assessment organizations. After reading the text and proceeding through the Course Workbook, the student should have a basic understanding of computer-assisted mass appraisal and the techniques involved in designing effective mass appraisal models. Listed below are general objectives for what a student should learn from this course. After completing the course, the student should be able to: 1. Explain the importance of mass appraisal in real property tax assessment and discuss the practical application of computer-assisted modeling techniques. 2. List and apply the statistical measures and techniques which form the basis for mass appraisal. 3. Explain the general structure of mass appraisal models and be able to discuss the strengths and weaknesses of the various model types available. 4. Describe methods for appraising land value using statistical modeling. 5. Discuss the theory underlying the cost approach to value in terms of how this method is employed in property tax assessment. 6. Develop a mass appraisal model based on the cost approach to value. 7. Discuss the theory underlying the sales comparison approach to value in terms of how this method is employed in property tax assessment. 8. Develop a mass appraisal model based on the sales comparison approach to value. 9. Specify and calibrate additive multiple regression analysis (AMRA) models and multiplicative multiple regression analysis (MMRA) models. 10. Develop a simple mass appraisal model based on non-linear regression techniques. 11. Discuss the theory underlying the income approach to value and know how to develop a mass appraisal model based on the income approach. 12. Test the performance of mass appraisal models in terms of accuracy and equity, by applying ratio studies. 13. Explain how statistical testing procedures can be used in mass appraisal performance evaluation. 14. Discuss geographic information systems (GIS) applications related to computer-assisted mass appraisal (CAMA) and explain the evolution towards CAMA/GIS integration. 15. Discuss how neural networks can serve as an alternative to regression modeling, and develop a simple neural networks model.

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Foreword

Prerequisites Academic Advanced computer assisted mass appraisal builds on the concepts covered in the pre-requisite BUSI 344 course, "Statistical and Computer Applications in Valuation". Students who have not competed BUSI 344 typically have great difficulty with BUSI 444. Students must also have a solid understanding of appraisal and statistics fundamentals, so completion of BUSI 121 and BUSI 330, or the equivalents, is recommended prior to attempting BUSI 444. As well, familiarity with real estate property assessment principles and practices would be an asset, so completion of BUSI 443 or an equivalent is also recommended. If you need a refresher on statistics, you may wish to visit the"Online Readings" section of the BUSI 444 Course Resources webpage, where you will find a PDF (Adobe Acrobat) introduction to the statistics used in this course. If you would like to read ahead, you may wish to download this file. You may find other helpful resources in the "Websites of Interest" section of your Course Resources webpage, which provides links to statistics resources online. Alternatively, you may wish to visit your local bookstore for a reference book on statistics. Technical C

There are no financial calculations required in this course, so a business calculator is not required S in general, a simple mathematical calculator will suffice. However, a calculator that can complete statistical functions may be helpful. The Real Estate Division uses the Hewlett Packard (HP) 10BII calculator, which can be purchased from the "Online Bookstore". To familiarize yourself with the HP 10BII, you may want to review the "Introduction to the Hewlett-Packard (HP) 10BII Calculator" supplement, available for download from the "Online Readings" section of your Course Resources webpage.

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Internet access. Internet access is required in all Real Estate Division courses, as without this you will not have access to the many resources on the BUSI 444 Course Resources webpage. Aspects of this course, such as additional readings and other supplements, are available exclusively online. All of your assignments are to be submitted online. In addition, it is expected that all students regularly contribute to the BUSI 444 online discussion forum during this term.

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Use of statistical software. Several lessons in this course will require the use of a statistical software program. The Real Estate Division recommends the PASW/SPSS program – we have used PASW/SPSS Version 17.0 in producing the examples in this workbook (other versions produce similar results). Please note that this software is not included as a part of the course materials and must be purchased separately – see www.realestate.ubc.ca/software for more information1. While the use of this program will be introduced as a part of the course, a working familiarity with PASW/SPSS is required before starting the lessons. For instructions on installing and running this program, you may wish to view the PASW/SPSS Orientation documents found in the "Pre-Reading" section of the course's "Online Readings" webpage.

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The Real Estate Division "Online Bookstore" provides more information on the software required for the course and prices: www.realestate.ubc.ca/software. Students may also use PASW/SPSS versions older than v.17.0 or the alternative program NCSS. However, in both cases it is the student's responsibility to reconcile the equivalent commands for their program. Supplements with alternative instructions are provided on the course website where possible.

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Introduction to BUSI 444 Lessons and Assignments

Software Updates PASW/SPSS frequently updates the current version of their software. In past updates, the new version of the software has worked perfectly with the current version used in the course materials. While there have been some minor operational of functional differences in the software, students can usually easily adapt to any changes in the updated version of the software. Should a major change occur, a Course Bulletin will be issued.

Use of the Course Resources Webpage The BUSI 444 Course Resources webpage is found on the Real Estate Division's website www.realestate.ubc.ca. There are many course tools and learning resources on this page which you will find useful in your course. The ability to develop and communicate your ideas in a clear, concise, persuasive, and tactful manner is a key skill that you will require in your professional career. To enhance this skill, you are expected to actively participate in this class. It is expected that you will: C C

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be an active participant in the course discussion forum; be prepared and on-time for the scheduled discussion topics (discussion questions are listed in some lessons). This requires you to complete the required readings and keep up-to-date on current events affecting the industry by reading the newspaper and business magazines, as well as exploring the Internet; and make at least one contribution, in terms of an insightful comment or question, to each class discussion in the discussion forum.

It is also appreciated if you share with your classmates any interesting resources you may come across during your studies, such as newspaper articles or websites. Examples of real-life applications of course concepts will make the course more relevant and practical for you and your classmates.

Use of the Course Workbook This Course Workbook is organized into a series of lessons which cover various aspects of statistical analysis and computer applications in real estate. The lessons are organized into several common sections: (1) (2) (3) (4) (5) (6)

the Assigned Readings are specified; additional Recommended Readings are specified; the Learning Objectives for the lesson are outlined; Instructor's Comments are provided; Review and Discussion Questions are introduced; and an Assignment for the lesson is presented.

This workbook is designed to help you through the course by making the lesson objectives explicit, by identifying the required and supplementary reading, and providing you with the course assignments. The assigned readings are all provided to you as a part of the course materials, within this workbook or on the course website under "Online Readings". You will find that the "Instructor's Comments" section is the major

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Foreword component of the workbook. This section will guide you through the topics, emphasizing important concepts, providing illustrations to highlight key points, and linking the content to a real estate context. These sections are the distance education equivalent of a classroom lecture – in preparing these sections, we have asked our subject experts to write down what they would say if they were teaching the topic in person and to keep their writing as accessible and practically-focused as possible. You will also notice that there are a number of suggested readings in each lesson. These readings are optional and are recommended to provide you with further information on a topic, such as additional illustrations, examples, clarifications, case studies, or perhaps an alternative viewpoint to supplement the assigned readings. Wherever possible, these readings are provided under "Online Readings" on the course webpage. Otherwise, the readings are not provided as a part of the course and interested students must find these readings on their own. The assignments at the end of each lesson and the projects at the end of this workbook are to be completed as homework. See the "Evaluation Methods" section later in this Foreword for more information. Each lesson also provides supplementary review and discussion questions. These are provided to illustrate lesson concepts and as practice problems to help you study for the final examination. They also serve as discussion topics for you and your fellow students on the course discussion forum. See the "Use of the Course Resources webpage" section in this Foreword for more information.

Evaluation Methods Your grade in this course will be based upon the work you have done during the course and on a final examination. Your final grade will be determined as follows: Multiple Choice Assignments Projects/Written Assignments: No. 1 No. 2 No. 3 Final Examination Total

10% (in total) 20% 20% 10% 40% 100%

In order to pass the course, you must obtain a minimum grade of 50% on the exam, and a minimum overall course grade of 60%. Multiple Choice Assignments The assignments are intended to reinforce what you have read in the Course Workbook and give you practice in applying the difficult concepts presented. There are weekly multiple choice assignments provided to offer you a means of self-assessment during your course and to help you stay motivated to keep up with your course work. UBC Real Estate Division courses operate on a fixed schedule, as opposed to self-study, in an effort to help motivate students to stay on track and complete the course. In distance education courses, procrastination can lead to falling farther and farther behind, to the point where completion becomes impossible. Our policy is that we do not have academic penalties for late assignments and projects, but we do have late fees instead. These are intended to be a motivator for students to stay up with the course schedule and help to compensate for the added inconvenience of the marker not receiving projects all together on their due date. In all courses, we allow

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Introduction to BUSI 444 Lessons and Assignments four late assignments or projects with no fee charged. These are intended to be a buffer for situations such as work or family pressures causing you to miss one or two deadlines. Beyond these, there is a $15 late charge per assignment or project submitted late. This policy is explained clearly in the Real Estate Division Student Handbook, which you were sent with your course materials. The multiple choice assignments will count for 10% towards your final course grade. The assignment due dates are listed in the "Important Dates and Deadlines: Course Schedule" document on your BUSI 444 Course Resources webpage. The schedule lists due dates for assignments, projects, and the final exam. This schedule is intended to be a time management aid, to help you get through the great amount of course materials in the time allotted. The course may seem overwhelming at the moment, but with the aid of the assignment schedule, you will soon find that it has been designed to be broken down into manageable "bite-sized" components. Projects In this course you will be required to prepare and submit three written project assignments. The projects are designed to be practical exercises encouraging you to apply the concepts covered in this course. The projects are intended to synthesize your understanding of the course content, presenting you with challenging, stimulating, and thought-provoking work. These projects are also worth a significant portion of your final course grade. The projects for this course are included in this workbook after Lesson No. 10. Below is a summary of the projects to be submitted in this course: Project 1: Modeling Land Value and Cost Case Study Project 2: Sales-Based Modeling Case Study Project 3: Income Modeling Case Study Projects are to be submitted to your course tutor by email (see "Tutorial Assistance" below). The project due dates can be found on the Course Resources webpage under "Important Dates and Deadlines". Because the projects are in-depth and time-consuming, it is recommended you look at these projects well before the due dates in order to determine how much time you personally think you may need to complete the projects. Also, you should note that Projects 1 and 2 will form the basis for the Case Study Examination that ends this course. See the following section for more information. The course marker will provide grading comments on your Projects so that you can make corrections to them prior to starting the examination. Case Study Examination At the end of this course, students must complete a take-home Case Study Examination. The Case Study will count towards 40% of your final grade.2 The Case Study materials will be posted to the course website after the final assignment due date. As noted above, Projects 1 and 2 will form the foundation of the examination. The deadlines for the Case Study Examination can be found on the BUSI 444 Course Resources webpage. To be eligible to write the Case Study Examination, all assignments must be submitted no later than the deadline shown on the course schedule. If you have any outstanding assignments after this date, you will be automatically withdrawn from the course.

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Students in intensive or classroom offerings of this course may have a different proportion of their final grade based on their Case Study submission.

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Foreword Students who have submitted all of the assignments and projects, and who successfully complete the Case Study will have met all of the requirements for BUSI 444 and will receive credit towards the Certificate in Real Property Assessment or Diploma in Urban Land Economics (required minimum is a grade of 50% or higher on the Case Study Examination AND a grade of 60% overall). These students may also meet demonstration report requirements towards professional certification from the International Association of Assessing Officers (IAAO), the Institute of Municipal Assessors (IMA), the Appraisal Institute of Canada (AIC), and other organizations. If a student writing the Case Study is unable to meet the submission deadline (due to business pressures or other good cause), they may apply for a deadline extension of up to four weeks. A request for an extension must be in writing and must be received by the Real Estate Division before the original Case Study submission deadline. All submissions which are not received by the original deadline are subject to a $50 late examination fee. This fee must be included with all late case study submissions. A case study that is received after the maximum four week deadline extension will result in a failing grade and the student having to repeat the course. Students who complete the Case Study and do not receive a passing grade, are permitted to resubmit their Case Study twice. The fee for each resubmission is $250. If both resubmissions receive a failing grade, then the student must repeat the entire course. As above, the student must meet the specified deadlines, or they will receive a failing grade and have to repeat the course. The maximum grade that can be awarded on a resubmission is 70%. Students who complete the BUSI 444 course via institutions other than UBC will need to have their Case Study Examination reviewed by UBC IF they are seeking demonstration report credit from professional associations (students just seeking course credit require no further review). The review fee is $100. The student is required to submit the graded report, as this review is only to confirm the mark awarded by the non-UBC instructor. Should the Case Study Exam not pass the review, the student may revise and resubmit their exam, but this is subject to the standard exam resubmission fee of $250.

Tutorial Assistance This course has a designated external tutor who can provide you assistance throughout this course and will be the marker for your assignments and project. You can find your tutor's name and contact details on the BUSI 444 Course Resources webpage, under "Tutorial Assistance". It is preferred that you contact the tutor by email – the tutor's email address is provided on the course webpage. Please try to contact the tutor well in advance of the assignment or project due dates so that you will be sure to receive the assistance you need before the assignment or project is due. If your question is of a general nature, you may wish to submit it to the course discussion forum first, to see if your fellow students can help you. Please see your Student Handbook for instructions on how to optimize your use of the tutorial services in this course.

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Introduction to BUSI 444 Lessons and Assignments

Pre-Course Assignment Once you have finished reading your Student Handbook and the Foreword section in this Course Workbook, you should carry out the activities outlined below. Please note that this will not count for marks towards your course grade, but is intended only to get you started in your course and to help you to meet your classmates. 1.

Send your course tutor an email to indicate that you have received your course materials and are proceeding through them. You can take this opportunity to ask any questions you may have before starting this course. The tutor's email address is provided on the course webpage.

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Students in past courses have told us that they sometimes felt remote from their fellow students. To start things off on a more personal note, we ask that all students in this class post a short biography about themselves to the course discussion forum. This way, in our future discussions in this course, we will all know a bit more about each other and this will help us understand each other's points of view. Plus, it is a nice opportunity for getting to know new people, both for professional reasons and out of personal interest. Log on to the BUSI 444 discussion forum and post a paragraph or two outlining why you are taking the course and program, plus any personal information you would like to share (e.g., what your job is, personal interests, hobbies, link to your personal webpage, etc.). The course discussion forum is found on your Course Resources webpage on the Real Estate Division's website: www.realestate.ubc.ca. ” Biography posted.

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Sign up for your student contact list on the Course Resources page. This is another way that you will be able to establish contact with your fellow students, allowing you to communicate with each other by phone or email. In addition, if you wish, you can have your name added to the Real Estate Division's contact list which is provided to prospective employers and professional groups. ” Signed up for student contact list.

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Acquaint yourself with the other helpful and informative course tools and learning resources available on your Course Resources webpage: ” ” ” ” ” ” ” ”

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Checked the online Announcements for the program as a whole. Printed any Bulletins from the Course Resources webpage and noted changes in your workbook. Printed the course schedule from the Course Resources webpage ("Important Dates & Deadlines"). Read through the Frequently Asked Questions. Checked out the Online Readings webpage, as well as Links to Websites of Interest. Visited the Student Café – an informal place to chat with students in other courses and programs. Obtained your UBC Library card and checked out the many online library resources available. Reviewed the online assignment submission webpage and your course history online.

Ensure that you own or have access to the software needed for this course (PASW/SPSS). This software can be purchased from the Real Estate Division's "Online Bookstore": ” Reviewed the "Orientation" documents for PASW/SPSS, found in "Online Readings". ” Installed the software on your personal computer. ” Downloaded the database files from "Online Readings".

Now you are ready to proceed with your course. We hope that you enjoy the upcoming term and find your course work informative, thought provoking, and challenging.

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