In the State of Michigan, the Assessor is tasked with appraising every piece of real and personal property in their respective jurisdiction each year. The only efficient way to do this is to employ a mass appraisal technique called the Cost Approach to Value. Is this the best way? It’s the only way, and I’ll explain why it leaves room for debating value.

LAND VALUE + BUILDING VALUE, DOES THIS ADD UP?

Your Assessment is made up of many moving parts. At its most basic, land value is determined, and then improvement or building value is determined. Depreciation is accounted for and some additional factors are applied to localize the improvement costs that are taken from a cost manual. This formula for the Cost Approach to Value is what the Assessor relies on to support the value of your property.

THE MANUAL & ACCURACY

The Manual utilized by Assessors is adopted by the State Tax Commission and contains many rates for many types of construction and occupancy. The rates are broken down further by class and quality of construction. Both components can greatly influence your property value. New manuals are only adopted every so often, so factors are applied to account for the time that has passed since adoption. Beyond this, building costs aren’t the same in every part of the State. To compensate for the difference each County applies a County Multiplier to localize the costs out of the manual. Does this sound complicated? That’s because it is man! 

VALUE BASED IN REALITY

Costs rarely translate to value (check out this interesting article for more on this). What this means is, Market Value is truly dictated by what a potential buyer will pay you right now for your property. For income producing properties, this can be based on a properties ability to command income. For non-income producing properties, a potential buyer will only pay you what the cost would be to acquire a similar substitute property. 

For these reasons, there is always room to take a close look at the accuracy of the Cost Approach to Value. You need to understand your parcel better than anyone, and communicate any difference of opinion in the most convincing way possible to only pay your fair share of taxes.