Under the cost approach the assessor values the land based on the sales comparison approach of comparable vacant lots in the area. The assessor then values the reproduction cost of the improvements based on current local prices of labor and materials. Physical deterioration, functional obsolescence and economic obsolescence are then deducted.
The assessor then adjusts the value by an economic condition factor to try to bring the cost value in line with what properties are selling for in a particular area. While ideally each property would be individually evaluated each year, such an effort would require significant effort and resources.
To streamline the assessment process, assessors use mass appraisal to value properties. This means that once all of the relevant data in the initial assessment has been taken into consideration, the assessor generally relies on market studies for several years thereafter to adjust the true cash value (and thus the AV) of the property from year-to-year.
Private appraisers, on the other hand, usually use the sales comparison approach and/or the income approach to valuing commercial or industrial property. The cost approach might be used simply as a check on accuracy. This means that sometimes the appraisal that a company might have in its files (say, from a recent refinancing) reaches a very different valuation result from the assessment.
The good news is that the Tax Tribunal usually adopts the sales comparison approach, the income approach or a combination of the two. For this reason, once the assessment is appealed to the Tax Tribunal the assessor will often retain a private appraiser to complete a sales and/or income-based appraisal.
So, if you have a recent appraisal that reaches a valuation conclusion that is substantially different from your assessment, you might want to give serious thought to making an appeal. An appeal is not inexpensive. The filing fee can be $600 and you will probably have to pay for a lawyer and a new appraisal (since the Tax Tribunal typically does not accept the “summary” form of appraisal done for lenders).
But, since Proposal A provides a cap on taxable value, reducing your 2011 SEV to a level below the current taxable value could reduce your company’s property taxes for many years to come. You could look at it as an annuity.
Finally, you may have heard that the Tax Tribunal is backlogged and that cases may take years to go to trial. At present, that is true. However, Governor Snyder recently signed an executive order to streamline procedures and add more personnel to the Tribunal, which should mean that the backlog will slowly recede.
Christian E. Meyer is an attorney with Warner Norcross & Judd. Reach him at (616) 752-2423 or [email protected].
David R. Whitfield is an attorney with Warner Norcross & Judd. Reach him at (616) 752-2745 or [email protected].
