The Fulton County Board of Assessors is charged with discovering, listing, and determining the fair market value (FMV) of all real estate and tangible personal property within the county. To determine the FMV, appraisal staff considers the three approaches to value. The availability and reliability of cost, market, income, and expense data is considered, to determine which approach is deemed to be appropriate for the subject property.
Cost Approach
The Cost Approach to value is based on the Principle of Substitution, in which a knowledgeable buyer would pay no more for a property than the cost of building an acceptable substitute with like utility. The Cost Approach seeks to determine the replacement cost new (RCN) of an improvement less depreciation plus the land value.
Cost Formula:
replacement cost new (RCN) – depreciation (D) + land value (L) = fair market value (FMV)
Market Approach
The Market or Sales Comparison Approach is based on the premise that the market value of a property is related to the prices of comparable properties recently sold. In the Market or Sales Comparison Approach, the appraiser considers market activity to estimate value by comparing the subject property to similar properties that have recently sold. This approach relies on the actions of buyers and sellers in the market.
Income Approach
The Income Approach to value is frequently referred to as capitalization of net income. All income capitalization methods, techniques, and procedures attempt to consider anticipated future benefits and estimate their present value. Income properties are bought and sold based on current market rents. The buyer of an investment property pays the price to receive future benefits which are the annual income stream generated by current market rents. Pursuant to O.C.G.A. 48-5-2, the Income Approach shall be considered in determining the fair market value of income-producing property when market income data is available.
The basic steps in the Income Approach are as follows:
- Estimate potential gross income
- Deduct for vacancy and collection loss
- Addition of miscellaneous income to determine the effective gross income
- Estimate operating expenses
- Deduct operating expenses from the effective gross income
- Deduct Reserves for replacement to get the net operating income
- Select the appropriate capitalization rate to be used
- Capitalize the net operating income into an estimated property value
- Deduct indicated value for associated personal property