Overview: Residential Appraisal Process
The Thurston County Assessor’s Office is responsible for appraising a variety of property types including residential, agricultural, commercial and industrial, and personal property used for commercial business purposes.
With more than 126,000 real and personal property parcels in Thurston County, a “mass appraisal” approach is used to annually value property. Mass appraisal employs techniques to value a large number of properties as of a given date, using standard procedures and statistical testing. Standard procedures are used for collecting property data, analyzing data, and reporting the results. Computer programs apply standard land rates, building costs, and depreciation factors by neighborhood, style and grade of construction, and building condition.
Statistical methods are used in both producing value estimates and testing appraisal results. Fairness and equity is maintained by comparing the appraised values to actual sale prices on a neighborhood-by-neighborhood basis.
Statutory Requirements for Property Assessments
Title 84 of the Revised Code of Washington (RCW 84), Washington Administrative Code, Title 458 (WAC 458), and Washington State Courts have established the legal parameters for the revaluation and assessment of real property.
- Property is to be appraised at 100 percent of its true and fair value in money, according to its highest and best use. RCW 84.40.030; Bitney v. Morgan (1974) 84 Wash.2d 9
- Fair market value or true value is the amount that a willing and unobligated buyer is willing to pay a willing and unobligated seller. Clarkson v. Williams (1969) 76 Wash.2d 617
- Physical inspections of real property must be performed at least once every six years. RCW 84.41.041
Steps Used in the Valuation Process
Each year 1/6 of the county is physically inspected by a state accredited appraiser. A visual site inspection is made of each parcel to determine whether building and land characteristics on file with the Assessor have changed since the previous inspection cycle. For instance, buildings are observed to verify the existing construction quality and features, their current condition, and whether additions or additional square footage has been added to the structures. Features that affect land are also noted and updated: Wetlands or unbuildable areas are identified, steep or irregular topography are noted, and views are observed to confirm their continued existence.
Annual Revaluation of Property
Each year property is revalued to approximate market value as of January 1 as mandated by Washington State laws. Three generally recognized valuation methods in individual property appraisal and mass appraisal are the cost, sales comparison, and income approaches. The income approach is not generally used in appraising residential properties.
Thurston County employs a market-calibrated cost approach to value property. The cost model is a mathematical formula that expresses the property value and indicates that the value of the property is equal to the value of the land plus the depreciated cost of the improvements. Any structures or buildings attached to land are referred to as improvements to the property.
Cost Approach Steps
The general mechanics of this approach combines technology with good judgment:
- Determine Land Values.
Vacant land sales are verified and then used to establish base land rates for various parts of the county. Land values are brought up to date annually by either updating the base land rates or by trending the rates applied to the neighborhood. The county is broken into 11 market areas or regions for valuation purposes. Base rates vary between regions because of supply and demand factors. There may be a greater demand, for example, for land that is closer to an urbanized area, where public sewer and water is available. This could have the effect of driving up the value of land. On the supply side, there is more vacant land available in the rural areas, and this may have the effect of holding down land values.
Land value is measured in a number of ways. For smaller city lots, land is typically valued by the site or by the square foot. Currently, site values are most commonly established for parcels under 2.5 acres. Larger tracts of land are generally valued by the acre. Waterfront is typically valued by the front foot.
Land sales are also studied to determine the effect of various land characteristics on value. An outstanding view of the Puget Sound or Mount Rainier may increase the value of the land, while steep topography, poor access, or wetlands may reduce the value. Adjustments for these land influences are developed in conjunction with the base land rates.
- Determine Replacement Cost New of Buildings.
The next component of the cost approach is the replacement cost of the improvements. To estimate current market values, a database with current construction costs is maintained. Cost tables are adjusted annually to reflect year-to-year increases in the cost of building materials and labor.
A set of cost rates is obtained from a nationally recognized valuation service that produces cost per square foot rates for different styles and qualities of construction. The rates are further broken down by various building components, such as main and upper floor living areas, basements, garages, porches, and other accessory improvements.
A comparison is made between published rates to actual construction costs, which are reflected in the sale prices of new homes. In this way, rates for each building component are adjusted up or down to reflect local market conditions. The component costs are then added together to produce an estimate of the total replacement cost new of the improvements.
- Determine Depreciation of Buildings.
Since not all buildings are new, depreciation is applied to the replacement cost new value estimate of the buildings. Depreciation is typically viewed as the loss in value due to physical deterioration of the structures over time. This can change over time depending on the level of maintenance and upkeep performed by homeowners.
Depreciation is measured in the market place by comparing sales prices of used homes with the new replacement cost for the structures. The difference between these two values reflects the “loss in value” due to depreciation. In other words, all things being equal, buyers will generally pay more for a new home rather than a used home.
For each effective age, the average depreciation rate can be determined from the sale prices of residential property. The graph above reflects this relationship. It indicates that for the first fifteen to twenty years of effective age, residential improvements depreciate approximately half a percent per year. As an example, eight years of age on the graph corresponds to 4.0% depreciation. The rate of depreciation slowly tapers off, as the house gets older because property owners begin to remodel and make repairs that slow down or reverse the rate of physical deterioration.
The line drawn through the points on the graph is used to produce the depreciation table to the right. The table of depreciation rates is then loaded into the mass appraisal system and applied to the replacement cost of the improvements. Because the construction costs increase faster than the rate of depreciation, generally property values increase over time.
- Apply Neighborhood Adjustment. (Influences)
The last step in this process is to place the final neighborhood adjustments on both the land and improvement values. Location is the most important factor in determining property value, and this last step allows us to make this final adjustment based on neighborhood influences.
Again, sales are used for this purpose. On a neighborhood-by-neighborhood basis, recent sales are compared to the property values that have been produced. Percentage adjustments are applied to the land, buildings, or both to zero-in on market value.