The valuation dartboard: how does the assessor value my real property?
The property's value can be estimated in three different ways, whichever is most appropriate for the property being assessed:
· the market or sales comparison method: sales of property similar to yours (e.g., age, condition, amenities, time of sale, size, location) are compared to each other and adjusted for differences, such as a garage, finished basement, more square footage. Most residential property is valued by using the market or sales comparison method, which is a similar approach to the way banks value property in considering the issuance of a mortgage.
· cost (or replacement) approach: estimates how much it would take, at current material and labor prices, to replace your property (structures), less depreciation, and adds the value of the land. This approach is useful for new and unique or highly specialized properties and when no sales of comparable properties exist.
· income method: estimates the projected income from property if you own the property and used it to provide you with an income, such as apartment house, a store, warehouse, shopping center or office building. The assessor considers such dollar factors as taxes, the return the property may earn, insurance, vacancy rates, operating expenses, maintenance costs, and the current interest rate charged for borrowing money.
A large majority of states appraise various classes or types of real estate using other approaches to value. For example, farmland or timberland may be valued on the basis of use or productivity. Business inventories may be assessed on the basis of company records, as may machinery and equipment.
Assessors may also use a blend of approaches to appraise property, as for example, land may be valued based on the sales approach and the dwelling using the cost approach.