In today’s post I want to wrap up my discussion of what are the three main real estate valuation styles or approaches used in the current market. The third style, the cost approach, is more commonly used for valuating new properties. Use of real estate comps is key when working with this style because the property does not have a long purchase history.
The cost approach is not typically used at property tax protest hearings except for new buildings. Appraisal districts often use the cost approach for properties up to two or three years old. After that, they typically use either the sales comparison approach or income approach depending on the type of property. The appraisal district will apply the cost approach for a new property by adding the market value of the land (typically the purchase price) to the construction costs for the building. In addition, they may add an allowance for soft costs and for entrepreneurial profit. If the sum of land and construction cost exceeds the appraisal district’s assessed value, it is unlikely they will reduce the assessed value in the property tax hearing. However, if the sum of land and construction cost is less than the appraisal district’s initial assessed value, providing this information at the hearing will likely generate a reduction in your assessed value and property taxes.
Taking whichever of these three real estate valuation approaches applies to your property and using it to your advantage will only give you positive profits in the end! Remember using your InvestorCompsOnline account gives you access to the most current real estate comps to do your valuation research. I hope this information helps you further your business and I wish you much success!