Assessor: Understanding Approaches to Value
The first step to the market approach is to find properties that are comparable to the subject property that have recently sold. Local conditions specific to the subject property are then considered. In order to adjust for local conditions, the Assessor also uses sales ratio studies to determine the general level of assessment in a community. This method is usually considered the most important in determining the value of residential property. It is the first approach used to determine value in the State of Iowa.
The second approach to value is the cost approach, which is an estimate of what it would cost at current construction prices to replace a property with one similar to it. In the event the improvement is not new and the Assessor must use this approach, appropriate amounts of depreciation and obsolescence are deducted from replacement value. The value of the land is then added to arrive at an estimate of total property value.
The income approach is the third method used if the property produces income. If the property is an income producing property, it 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 or inaccurate information can seriously affect the final estimate of value. The Assessor may mail out Income and Expense statements to income-producing property owners to gain information regarding current rent and lease information, vacancy, and operating expenses. This information will always remain confidential.