The Fulton County Tax Assessors and the Cost Approach

Posted by Daniel Jones on Jan 15, 2020 12:09:00 PM

Like all tax assessors across the State of Georgia, the Fulton County tax assessors use three traditional appraisal methodologies, namely, sales comparison approach, income approach, and cost approach. Of these three approaches, the cost approach has several variations, as discussed below. 

Cost-based methods can be used for the assessment of both standalone assets and a group of assets. Emphasis must be made that regardless of the cost method variation used in the property assessment, every cost-based analysis starts by estimating the reproduction cost new or replacement cost of the property. 

Fulton County Tax Assessors-2

Consistent Use of One Type

Keep in mind that there are several differences between the two cost bases – reproduction cost and replacement cost - used by tax assessors. The property appraiser must distinguish between the two types, choose one to use in the analysis, and consistently use it throughout the analysis. 

The choice between one of these two cost bases depends on several factors. Reproduction cost new is traditionally considered as the starting point for the application of the cost approach. But replacement cost new is now commonly used instead as the required data is easier and faster to obtain, as well as allow for less complexity in the depreciation analysis. 

Replacement cost new is also more commonly used in limited-market facilities, such as industrial buildings and processing plants. Reproduction cost new is usually used in an estimate of market value if and when the subject property can actually be replaced by another property with identical qualities, particularly in terms of materials, design and workmanship.

Reproduction Cost Approach

The Fulton County tax assessors will less likely use the reproduction cost approach because of its limited usefulness. This is because it’s neither possible nor desirable to duplicate the subject property for several reasons, such as the lack of similar materials and trade skills, even the property’s functional obsolescence.  This is especially true for older property since an exact replica will unlikely be found.

Replacement Cost Approach

The replacement cost refers to the cost of replacing an existing property with a property possessing equivalent use as of a determined date. This is considered as the most meaningful basis in the cost approach particularly in terms of the principle of substitution. After all, a similar property with equivalent utility, as opposed to an exact replica, can be found more easily. 

In this approach, the elements of the subject property that cannot be clearly included in a substitute property will be excluded from the estimated replacement cost. A buyer, for example, will not look for an identical new property but instead will look for a property with the same or similar use. This can be achieved by considering several factors including but not limited to the cost of acquisition for each property, their age, and their remaining expected lives, as well as the expected costs of operation in comparison to the property being replaced.  

Are you confused about these terms and their uses? You should get professional advice from Fair Assessments, LLC so as to be able to understand these terms as used by the Fulton County tax assessors in their assessments.

Topics: fulton county tax assessors

property tax appeals

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