Real Property Valuation
The Utah State Tax Commission defines real property as “the interests, benefits, and rights inherent in the ownership of real estate.” Real estate is defined as “an identified parcel or tract of land including improvements if any.” To find the value of any piece of property the assessor must first know what properties similar to it are selling for, what it would cost to replace it, how much it costs to operate and keep it in repair, and what rent it may earn. The three approaches to value are used in determining the value of the property: the cost approach, sales comparison approach, and the income approach.
- The cost approach measures the value of the property based upon the current cost to construct or replace, with allowances for age and condition as well as functional and economic obsolescence.
- The sales comparison approach is the most common approach. In the sales comparison approach, the appraiser compares the property being appraised to similar properties that have recently sold. The appraiser makes adjustments to the sale prices of the comparables for different variables including, but not limited to: location, size, quality, condition, and amenities. The sales must be carefully analyzed to determine if they were arms length transactions. An arm’s length transaction is defined as “a sale between a willing buyer and a willing seller that are unrelated and are not acting under duress, abnormal pressure, or undue influences, both seeking to maximize their positions from the transaction.”
- The income approach computes the value of property by capitalizing the income the property is capable of producing.