Consistency of approach and methodology
Our goal is to provide you with an accurate property assessment. Our process of valuing properties provides consistency between your property assessment, market conditions and those of other properties in similar neighborhoods. Your property assessment is determined by using ‘base date’ property sales, which are sales that have occurred six months on either side of a specific date (January 1st two years prior to the current assessment year) and the physical state of your property as of December 1, prior to the notices being mailed in January. This is referred to as the state date.
The ‘base date’ for the 2016 assessments is January 1, 2014 and the ‘state date’ is December 1, 2015.
Different approaches are used to reach Market Value
PVSC assessors collect and review data from a number of sources in order to arrive at market value. Depending on your type of property (residential, commercial, farmland etc.) the assessor may use a different approach to reach market value.
The Cost Approach is used to determine the assessed values of the following properties:
- commercial, industrial and institutional properties
- agricultural properties
- other non-residential properties
- residential properties (we use a market adjusted cost approach for all residential properties).
The Cost Approach is based on the assumption that an informed purchaser would pay no more for a property (land and buildings) than it would cost to buy a similar piece of land on which a building could be constructed with similar characteristics to the property to be purchased.
The assessor estimates the land value determined by analyzing sales of vacant land in the geographic area of the subject, and then adds the cost of replacing the building(s) less depreciation and other improvements.
Value of Land + Cost of Improvements (i.e. construction) – Depreciation = Total Value of Property
Once the costs of constructing the building have been determined, the assessor estimates a deduction for:
- Physical Depreciation – loss in value due to normal wear.
- Functional Depreciation – loss in value due to the structure’s inability to function effectively.
- External Depreciation – loss in value due to economic or location influences.
Costs must be adjusted to the date it is being valued, reflect market values in surrounding area, and include all indirect costs (ex: the developer’s or owner’s profits and the cost of financing during construction)
The Income Approach is generally applied when valuing investment properties such as:
- office buildings
- mobile home parks etc.
This approach is based on the assumption that the value of a property is directly related to the income it will generate over its economic lifetime.
When applying the income approach, net operating income is estimated by:
Potential Gross Income – Vacancy/Bad Debt = Effective Gross Income – Operating Expenses = Net Operating Income
The assessor determines the potential gross rental income the property could produce by analyzing rents paid for the subject property, as well as those paid for comparable properties located in the same geographic area. An allowance is then made for vacancy and collection loss (which varies depending on the type and location of property).
From effective gross income, operating expenses are deducted which determines the annual net operating income.
Based on expectations a typical investor would have for the property, the annual net income is converted to a capital value using a market-derived capitalization rate:
Value = Net Operating Income / Capitalization Rate
The assessor analyzes sales that occurred in the marketplace to determine what rate of return investors are seeking for the various types of properties. The capitalization rate increases proportionately with any risk.
Direct Comparison Approach
- Sales are reviewed and are deemed qualified or unqualified. Arms length transactions are deemed qualified and are used in the sales analysis. Non arms-length sales (e.g., within a family) are deemed unqualified and are not used in the sales analysis
- Primarily used for residential property
- Is most appropriate when the market is active and many properties with similar characteristics are selling