The DeKalb County property tax authorities, particularly the Tax Assessor, are required by law to appraise real and tangible personal property at their fair market values. For this reason, three approaches are used in the appraisal although typically only one will be selected. This depends on the availability and quality of market data resources. The approach to value that is considered most reliable for the property type and market area will be given most weight in the value estimate.
Cost Approach
This is the common approach used on residential (i.e., non-income earning) property. All of the data gathered, such as building characteristics, restrictions on use, and zoning information, on the subject property will be entered into the Computer-Assisted Mass Appraisal (CAMA) system. An estimate of the cost, in today’s dollars, to replace the existing improvements with new improvements is generated. An estimate of the accrued depreciation of the subject property is deducted from this “replacement cost new”. To this an estimate of the land value is added, and the total is the appraised value.
In the mass appraisal process the value generated by the cost approach is often adjusted based on sales in the neighborhood. The cost values of properties that have sold are compared to their sale prices and judgements are made about the quality and level of assessments in the neighborhood. The goal of the DeKalb County property tax assessor: To ensure that the appraised values are within acceptable value ranges based on market activity.
The cost approach is popular because most of the information necessary to generating fair market values can be readily obtained and it is relatively easy to automate. But it can also be highly subjective, primarily because the estimated accrued depreciation on older properties creates a wide margin of error.
Market Sales Comparison Approach
The sales comparison approach uses comparable sales to estimate the value of the subject property. When a fee appraiser (such as a bank appraiser) creates a sale comparison approach they adjust the sales prices to give an indication of what they would have sold for if they were just like the subject. The adjusted sale prices are the reconciled into a single value estimate.
This would be a very difficult and hard to automate approach to use on every property in the county. As a result the sales comparison approach is rarely used in mass appraisal. As previously stated the sales in a neighborhood or market area are generally used to adjust cost approach values so that the values are closer to a fair market value estimate. Sales can also be used to check the accuracy of values generate by the income approach.
Income Approach
This approach uses the net operating income of an income-generating property to determine its fair market value. Income and expense data will be analyzed in arriving at the net income that will be capitalized into an appraised value. Capitalization rates are taken from comparable sales and they can be estimated using other data from the market.
The income approach has application because market data is usually easily accessible for many types of income-generating property. Many county assessors will survey commercial property owners seeking out rental rates and expense ratios. There are also publications that gather this information.
Since most CAMA systems are not equipped with the sophisticated ability to reconcile a single value estimate from several approaches, the DeKalb County property tax appraiser usually chooses one approach. The choice is made based on the credence placed on the appropriateness and sufficiency of the data gathered for analysis.
You can question the appropriateness of the appraised value based on the approach used for its determination. For example, if your property was valued using the income approach you can argue the rental rate, expense ratio, and capitalization rate. Your basis for appeal will usually be value and uniformity although you have to discuss these matters with your tax advisor.
