Overview - Step 3: Market & Cost Research

The goal of revaluation is to estimate "fair market value" for all residential, commercial, industrial and agricultural properties within the county.  In doing this, assessors analyze local building costs, property sales, rental information, and other valuation factors to arrive at individual new valuations.

Property valuation analysts conduct a number of studies to gain an understanding of the market dynamics at work in the county. The process begins with collecting and verifying sales price and date for all property sales within an approximate three-year period. Sales that are not "arms length" or are non-representative are noted and set aside. Valid sales are analyzed and mathematical models of market activity are created and tested to establish their effectiveness for estimating the value of similar unsold properties. This is referred to as the "direct market comparison method" of estimating probable selling price. It is more commonly called the "comp sales" method. For each residence that is valued, up to five recent sales of similar properties are considered as part of the estimation process. It is the preferred method as long as similar property sales are available.

The second method used for estimating market value is called the "income approach". With this method the income and expense stream of a property is examined from investor's point of view. The goal is to achieve a market value estimate by estimating what an informed investor would pay for the income stream associated with a particular piece of real estate. The income approach is applied to commercial properties such as apartments, restaurants, shopping plazas and the like.

The third method for estimating probable selling price is to consider how much it would cost to provide a replacement building of similar condition and utility. Local construction costs are analyzed along with land sales to develop what is called the "replacement cost" method. The idea is that if land value is added to what it would cost to replace the building, a rational estimate of market value can be obtained. Again, a mathematical model of this process is developed and calibrated to market activity in Fayette County. The so-called "cost approach" is usually a backup or reference computed for all classes of property. It is used when neither the direct market comparison nor the income approaches are considered reliable for a given property.