How we Value

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 reviewing and analyzing property sales to capture a snapshot of the real estate market as of January 1, one year prior to the current year (called the base date). PVSC also takes into consideration the physical state of  your property as of December 1, just prior to the notices being mailed in January (called the state date).

The base date for 2022 assessments is January 1, 2021 and the state date is December 1, 2021.

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 the type of property (residential, commercial, farmland etc.) the assessor may use a different approach to reach market value. 

Cost Approach

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(s) 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) 

Income Approach

The Income Approach is generally applied when valuing investment properties such as:

  • Apartments.
  • Office buildings.
  • Hotels.
  • 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

The Direct Comparison Approach is primarily used for residential properties, and is most appropriate when the market is active and many properties with similar characteristics are selling.

In this approach, sales are reviewed and are deemed to be qualified or unqualified. "Arm's length" transactions are deemed qualified and are used in the sales analysis. "Non-arm's length" sales (e.g., within a family) are deemed unqualified and are not used in the sales analysis.