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How does the assessor determine the value of my property?
Market or Sales Comparison Approach
This first method compares your property (known as the subject property) to others (comparables) that have sold recently. Before any sales can be used in this approach it must be determined if they are "arms length" or good, open market sales. ("Arms length" means that this property sale is the only connection between the buyer and seller; they are not family members, employer/employee, or linked in any other way.) As there may be outside factors that go into a sale price the assessor must analyze each sale very carefully. Other important valuation considerations are location, size, condition, quality, and time of sale.
The sales comparison approach is probably the assessment method that is used for most properties. It is the obvious choice for assessing housing tracts, strip malls, recreational properties located on the same lakeshore, and other sets of similar properties. The sales comparison approach is difficult to apply to custom-built (or older) homes in rural areas, farms, and other unique properties.
Income Approach
This property valuation method takes into consideration how much income your property would produce if it were rented, then determines -- through a capitalization formula -- what a prudent investor would typically pay for your property. To make this calculation the assessor must consider many things including current market rents, vacancy rates, operating expenses, taxes, insurance, maintenance costs, and the expected rate of return on investment.
Cost Approach (Replacement Cost New Less Depreciation or RCNLD)
This approach is based on the cost of replacing your property new, less depreciation. The assessor begins by estimating how much money it would take, with current costs of labor and material, to replace your property with one similar. In addition to the value of any improvements, the assessor must also separately estimate the value of your land as if it were vacant. Then, if your property is not new, the assessor must determine the amount your property has depreciated and adjust the assessment accordingly. As you can imagine, a properly documented cost-based assessment is a lot of work. As a result, it is generally the last choice for the assessor.
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