Assessment or valuation in most of the states in the country is based on what’s referred to as “full and fair cash”. This principally refers to the amount of money a buyer would be willing to pay a seller in a free market. The duty of the tax assessor is to determine the full and fair cash value of the property and use it for determining the tax rate rather than try to create the value.
The mandate of the assessor is thus to discover and reflect the changes taking place in the market place and which can have significant impacts on the transaction involving the various properties. Below are some of the approaches adopted by assessors in coming up with the value of the various properties-:
With the market approach, the assessor determines the value of a property by reviewing the sales of similar properties in the same area. While following this approach, the assessor will consider only the sales of properties where both the seller and the buyer agreed on the final value without any undue pressure. This method is commonly adopted when the assessor needs to value farm properties and residential units.
Tax assessors can also adopt the cost approach to come up with the value of a property. With this approach, the assessor calculates the cost that would be needed to replace the structure with a similar one at the current time. Included in this approach is the cost of labor in the current market as well as the total cost of materials which would be used in the construction of a similar property.
If the structure is not a new one, the assessor will have to determine the depreciation rate from the time the structure was constructed, and the resulting value is added to the estimated value of the land to come up with the final value of the property. This approach is preferred when valuing utility properties as well as special purposes properties.
The third method which assessors use to come up with the value of properties is the income approach. With this approach, the assessor will evaluate the income potential of the property should it be rented or leased out. To get the final value using this approach, the assessor will have to consider factors such as maintenance costs, operating expenses, financing terms, insurance costs, as well as the amount of income which is to be expected upon renting or leasing the property.
Once the assessor is through with estimating the market value of the property, the next step is to calculate the assessment. The assessment will, however, vary from one state to another, with the majority of the states putting the assessment of the property at a uniform percentage of the market value.
For instance, if a property has a market value of $200,000 and it is located in a state or city which assesses at 20% of the market value, then the assessment for this property would be $40,000. The assessment will then be multiplied by the tax rate or the mill levy of that jurisdiction to determine the final tax bill.