What are the appraisal methods?
Market Approach - The market approach is the most direct method of appraisal. Sales of similar properties are compared to subject properties to establish a value estimate.
Market value is the most probable price expressed in terms of money that a property would bring if exposed for sale in the open market in an arm’s length transaction between a willing seller and a willing buyer, both of whom are knowledgeable concerning all the uses to which the property is
adapted and for which it is capable of being used.
Cost Approach- The cost approach estimates the material and labor costs to replace a building with a similar one. If the building is not new, the appraiser must consider its age and how much it has depreciated over time.
Income Approach- The income approach may be considered for income producing properties. This method considers the landlord’s income and operating expenses, and the financial return most people would expect from a given type of investment property.
What is Time Adjustment?
39-1-104 (10.2) (a) (d) CRS Establishes the reappraisal cycle/data gathering period/appraisal date and concludes…,”Said level of value shall be adjusted to the final day of the data gathering period.”
For 2011, the gathering period is 01/01/09 through 06/30/10. In effect, this changes all raw sale prices
prior to 06/30/10, to reflect the market value as of that date.
For 2013, the gathering period is 01/01/11 through 06/30/12. In effect, this changes all raw sale prices prior to 06/30/12, to reflect the market value as of that date.
TIME ADJUSMTENT METHODOLOGY
When price levels are changing significantly, sales prices must be adjusted for time.
Separate time adjustment factors, by type of property and geographic area, may be necessary as rates of change in real estate prices often vary with these factors.
Most appraisal organizations, such as the Appraisal Institute (Institute) and the International Association of Assessing Officers (IAAO), recognize the need for time adjustment (trending) of sales prices to the date of appraisal.
Determination of market adjustments for time involves the consideration of the four basic techniques of time trend analysis:
Resale Analysis: the advantage of this technique is that it minimizes quality and location adjustments; however, characteristic changes between sales must be accounted for. The disadvantage of this method is the limited number of these types of sales.
Paired Sales Analysis: This is a reliable method in areas where homes have minimal differences. This method works well in condominium complexes.
Multiple Regression Analysis: This is a reliable tool for evaluation of the influence of several independent factors, such as property characteristics or time, on a dependent variable such as sale price.
Sales Ratio Analysis: This reliable technique is efficient in that it inherently allows for large sample size. It does not require adjustment to the sales, in that it implicitly considers such factors by expressing sale price to assessed value, which should already reflect all relevant physical and location factors.