How is the price related differential (PRD) determined?

The price related differential (PRD) is a key metric used in assessing the equity of property taxation and evaluating appraisal practices. It helps in determining the extent to which the assessed values of properties are related to their selling prices. The formula for PRD is calculated by dividing the mean ratio of property assessments to sales prices by the aggregate ratio of property assessments to sales prices.

In this context, the mean ratio is the average of the individual ratios of assessed values to sales prices for each property, providing a representative measure for the overall assessment practices. Conversely, the aggregate ratio sums all assessed values and sales prices before calculating the ratio, offering a different perspective that can reflect systemic issues.

By using the mean ratio in the numerator and the aggregate ratio in the denominator, the PRD effectively identifies disparities in how different property types or price ranges are assessed, allowing assessors to recognize biases or iniquities in property valuation. A PRD value of 1 indicates a perfect relationship, while values greater than or less than 1 can signify over- or under-assessment.

Other approaches mentioned, such as utilizing median or sales ratios, do not directly apply to the PRD calculation, emphasizing that it specifically hinges on the mean and aggregate ratios to provide accurate insights