Most residential properties are appraised by the market approach. In this approach, the value is determined by comparing similar properties of the same type and class which have sold recently in the same neighborhood, taking into consideration factors that may affect value, such as location, condition, size, etc. Recent sales in your neighborhood are a key factor in what your assessment will be. Sale types can vary, e.g, valid or invalid, and also play a role in determining the assessed value.
A valid sale is also referred to as an arms-length transaction. In short, an arms-length sale refers to a sale between a willing seller and a willing buyer. Each time a property sells the Assessor’s Office mails a questionnaire to the buyer asking questions about the sale to help determine if the sale was valid or invalid. The majority of sales in the City are considered arms-length sales. Some examples of sales that would not be considered arms-length include:
- Bank foreclosures
- Sales between family members
Most commercial properties are appraised utilizing the income approach, which capitalizes the property’s income into an estimate of value. The income approach looks at the ability of the property to earn income through rents while considering operating expenses and allowing for vacancy and other losses. The resulting net operating income is capitalized at an appropriate rate to achieve a fair market value estimate. Market sales of commercial properties are also used to help determine the final assessed value.