Appraisal - Determining Actual Value
Determining actual value, which is an estimate of market value, is accomplished by an appraisal. Market value is the most probable monetary price a property would bring if placed for sale in the open market in a transaction between a willing seller and willing buyer. The assessor is required to equitably value all property in the county according to the current Colorado statutes.
Real property is reappraised by the assessor's office every odd-numbered year. The value determined by the assessor for the year of reappraisal is generally used again in the intervening year. The actual value of real property is based on its value on the appraisal date, which is June 30 of the year prior to the reappraisal year; however, the property is valued in the condition it was in, and for the use of the property, on January 1 of the current year.
The three approaches for appraising property are the market approach, the cost approach and the income approach. To appraise property, the assessor and his/her staff must review information gathered on individual properties, know what similar properties are selling for and how much it would cost for replacement.
Other factors that influence value may be location, availability of services and rental rates. All the information used must be from the two-year period preceding the appraisal date.
The market approach is the most direct method of appraisal using sales of like properties to determine actual value. The Colorado Constitution requires the assessor to use this approach for residential property and not the cost or income approach even if the residential property is income-producing.
The cost approach estimates the material and labor costs to replace a building with a similar one. If the building is not new, the appraiser must consider its age and how much it has depreciated over time.
The income approach may be considered for income-producing properties such as stores, office buildings and warehouses. This method considers the landlord's income and operating expenses and the financial return most people would expect from a given type of investment property.
Uniformity and Assessment Level Requirements
After properties have been appraised, the values are analyzed to ensure accurate and equitable assessments.
Colorado law requires all assessors to value property using market conditions as of the specified appraisal date and within certain uniformity standards. This provides equity in distribution of state school funding, local tax burden and assessments that cross county lines.
To ensure uniform standards are being followed by the assessor, an independent auditor, contracted by the Legislative Council, conducts an annual study of all property in each county. Findings of the annual study are reported to the State Board of Equalization each year.