What is Market Value?
Market value is defined as the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
- Buyer and seller are typically motivated;
- Both parties are well informed or well advised and both acting in what they consider their own best interest;
- A reasonable time is allowed for exposure in the open market;
- Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
- The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.*
How is Market Value Estimated?
To estimate the market value of your property the Assessor generally uses three approaches:
- MARKET APPROACH is to find properties that are comparable to yours which have sold recently. Local conditions peculiar to your property are taken into consideration. The Assessor also uses sales ratio studies to determine the general level of assessment in a community in order to adjust for local conditions. This method is usually considered the most important in determining the value of residential property.
- COST APPROACH is an estimate of how many dollars at current labor and material prices it would take to replace your property with one similar to it. In the event the improvement is not new appropriate amounts for depreciation and obsolescence would be deducted from replacement value. The value of the land then would be added to arrive at the total estimate of value.
- INCOME APPROACH is used if your property produces income such as an apartment or office building. In that case, your property could be valued according to its ability to produce income under prudent management; in other words, what another investor would give for a property in order to gain its income. The income approach is the most complex of the three approaches because of the research information and analysis necessary for an accurate estimate of value. This method requires thorough knowledge of local and national financial conditions, as well as any developmental trends in the area of the subject property being appraised since errors of inaccurate information can seriously effect the final estimate of value.
Why do Values Change?
State law requires that all real property be reassessed every two years. The current law requires the reassessment to occur in odd numbered years. Changes in market value as indicated by research, sales ratio studies and analysis of local conditions, as well as economic trends both in and outside the construction industry, are used in determining your assessment.
*"The Dictionary of Real Estate Appraisal," 3rd Edition, Appraisal Institute, 1993, p. 140.