Coefficient Of Dispersion
The coefficient of dispersion is how municipalities can determine differences between the assessed values of properties in an area or neighborhood. It gives a broader look at the state of the market, and a way to evaluate how consistent the appraisal of the properties is. The definition of the coefficient of dispersion that is used exclusively in dealing with market values and properties is a measure of how much values of a particular variable vary around the mean or median. The end value is represented in percentage from the median.
The Coefficient of Dispersion’s formula:
COD = coefficient of dispersion
N = number of properties in the sample
EPi = appraised value of ith property
SPi = sale value of ith property
∑ = summation of all the values in the group
How to Calculate the Coefficient of Dispersion?
After that insane formula, we understand if homeowners want to stay clear of it, but there are reasons why any homeowner would want to use it. If, for example, you’re house was appraised at a value that is higher than you expect, and the same happened to other neighbors, you can figure out if this is a trend in the area to increase taxes or just the increase of the market value in the area.
Example:
John investigated and managed to find the appraised value of 7 properties around him as well as the actual price for those properties.
|
Appraised Value |
Sales Price |
|
359,000 |
370,000 |
|
362,000 |
373,000 |
|
347,000 |
358,000 |
|
329,000 |
340,000 |
|
384,000 |
396,000 |
|
372,000 |
386,000 |
|
395,000 |
396,000 |
Now, John finds out the median appraised value by adding all the appraised values, then dividing it by seven properties ($362,000) and does the same to the median sale price ($373,000). With these values, he can start using the formula.
The median appraised value divided by the median sale value is 0.9729.
John returns to his table to discover the EPi/SPi for each property because the ∑ requires him to discover that value independently for each before he subtracts 0.9729 (the median EPi/SPi) from each:
|
Appraised Value |
Sales Price |
EPi/SPi |
|
359,000 |
370,000 |
0.9702 |
|
362,000 |
373,000 |
0.9705 |
|
347,000 |
358,000 |
0.9692 |
|
329,000 |
340,000 |
0.9676 |
|
384,000 |
396,000 |
0.9696 |
|
372,000 |
386,000 |
0.9637 |
|
395,000 |
396,000 |
0.9974 |
With that out of the way, John needs to subtract 0.9729 from each value. Here he considered negative values positive:
|
Appraised Value |
Sales Price |
EPi/SPi |
EPi/SPi-0.9729 |
|
359,000 |
370,000 |
0.9702 |
0.0027 |
|
362,000 |
373,000 |
0.9705 |
0.0024 |
|
347,000 |
358,000 |
0.9692 |
0.0037 |
|
329,000 |
340,000 |
0.9676 |
0.0053 |
|
384,000 |
396,000 |
0.9696 |
0.0033 |
|
372,000 |
386,000 |
0.9637 |
0.0092 |
|
395,000 |
396,000 |
0.9974 |
0.0245 |
Now that he has all the data necessary, John can work the formula:
The coefficient of dispersion is a complex formula but the example above tells us that the average difference the houses have from the median of the assessed sales ratio is 0.75%.
Popular Real Estate Terms
The definition of restraint on alienation is a limitation on the right to convey or transfer owned real estate to another party. This restriction on conveying property has an effect that ...
Derogative term describing a high-pressure telemarketing office where sales personnel often use extremely exaggerated claims as well as intense sales practices to convince targets clients ...
Investment made rationally and intelligently as would be expected by a professional person. A reasonable degree of safety and return are expected. A example is an office building with 99% ...
Tax concept whereby income not actually received is considered to be constructively received by a taxpayer and thus must be reported. An example is a bond interest coupon. The interest is ...
Process by which a lessee rents his apartment to another. ...
The equity in property because of work in it by the buyer or holder which directly increases its value. ...
Market condition in which sellers exceed buyers, thereby causing prices to fall. In real estate, declining markets may result from unfavorable business conditions and high interest rates. ...
Enumeration of the consideration given by each party to a contract which in some cases must be in written form to be enforceable. For example, the statute of frauds requires that all ...
Assets owned by an individual as part of his or her estate except for land and everything attached to the land. Personal property may be either tangible, having physical substance such as ...
Comments for Coefficient Of Dispersion
COD example unclear
Jan 15, 2023 09:18:18Hello. Let us shed some light on this.
Someone wants to find out the appraised value of several properties around them. and the sale price is higher. Then they discover the median appraised value ($362,000). They add all the appraised values of all the properties and divide them by the number of properties. And later does the same with the median sale price ($373,000) The median appraised value divided by the median sale value is around 0.9. Then, they calculate that the average difference between houses and the median is 0.75.
Jan 20, 2023 09:22:24Have a question or comment?
We're here to help.