How Does Michigan Determine the Fair Market Value of Property?
In Michigan, the fair market value---often called "true cash value"---refers to the probable selling price of a property, given a fair market with a willing and informed buyer and a willing seller. From home sales to property taxes, the fair market value is determined in one of three manners.
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Sales Comparison
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The most common method of determining fair market value is the sales comparison approach. The selling prices of comparable properties (considering features, age, and wear and tear for instance) in similar locations are analyzed. Factors such as seller reluctance, over-eager sellers or an unusual economic influence in a given area must also be considered to attain a true fair market value.
Replacement Cost
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Fair market value is sometimes evaluated on the basis of replacement cost. The assessment considers how much it would cost, given the current labor and material costs, to replace the building with one just like it. Depreciation, damage and property location value are factored in to the fair market value.
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Income Generation
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Fair market value is often used to set asking prices in realty. Sometimes, fair market value is determined by the ability to generate income, such as production or rent. Other factors that influence income generation, such as operating costs, are also considered.
Uses
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Fair market value is used widely, from setting the asking price for a property for sale to right-of-way purchases by the Michigan Department of Transportation (MDOT); MDOT uses assessments to determine the price offered to homeowners when land is needed to build roads. Most importantly, Michigan property taxes are assessed as 50 percent of the fair market value and subject to adjustment yearly according to economic conditions.
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