What Type of Property Is Assessed?
All real property commonly known as real estate is assessed. Real property is defined as land and any permanent structures attached to it. An assessment is a valuation (appraisal) of the property for ad valorem (town) tax purposes.
Who Makes Property Assessments?
Listers are unique to Vermont. The primary responsibility of the lister is to determine the fair market value of your property. They strive to provide all property owners with fair and accurate assessments. Towns will either have elected listers, an independently hired assessor, or a combination of both.
How Property Is Assessed
Generally speaking, property is to be appraised at its fair market value. Fair market value is defined as the price which the property will bring in the market when offered for sale and purchased by another, taking into consideration all the elements of the availability of the property, its use both potential and prospective, any functional deficiencies, and all other elements such as age and condition which combine to give property a market value.
Determining Fair Market Value
There are three approaches to determining the fair market value of a property:
- Cost Approach - The cost approach is a real estate valuation method that surmises that the price a buyer should pay for a piece of property should equal the cost to build an equivalent building. In cost approach appraisal, the market price for the property is equal to the cost of land, plus cost of construction, less depreciation.
- Market Data Approach - This approach uses the sales of properties similar to the subject property. These sales are analyzed, and the sale prices adjusted to account for differences in the sold properties to the subject property to determine the fair market value.
- Income Approach - This method is most often used in the appraisal of income producing properties: commercial, industrial, and rental properties. To do this, the income stream is analyzed in terms of quantity, quality, and duration. To conduct an income approach appraisal on an apartment building, for instance, you would need:
- potential gross income from the market
- vacancy rate and collection loss from the market
- operating expenses
- capitalization rate
Expenses are deducted from gross income. The resulting net operating income is capitalized to determine value.
In theory, if all three approaches are used to appraise any given parcel, it will result in a similar value. Once the lister or assessor has determined the fair market value, an assessment is calculated using the fair market value and the town or city’s level of assessment. However, not all three approaches are applicable or reliable for all properties.