Opinion ID: 3218859
Heading Depth: 2
Heading Rank: 1

Heading: Real Market Value and Appraisal

Text: The real market value of property is the starting point for determining the amount of property tax. See ORS 308.232 (unless property is exempt from ad valorem taxation, it should “be valued at 100 percent of its real market value”).2 “Real market value” is defined as essentially what a hypothetical buyer would pay to a hypothetical seller in an arm’s length transaction. See ORS 308.205(1) (defining real market value); 3 Hewlett-Packard Co. v. Benton County Assessor, 357 Or 598, 602, 356 P3d 70 (2015).4 The real market value is derived from the “highest and best use” of the property, because the highest sale price would come from a buyer who intended to use the property in the most profitable way.5 2 Unless otherwise noted, all references to statutes or rules are to the versions in effect on the assessment date for this particular property: January 1, 2008. 3 ORS 308.205(1) provides: “Real market value of all property, real and personal, means the amount in cash that could reasonably be expected to be paid by an informed buyer to an informed seller, each acting without compulsion in an arm’s-length transaction occurring as of the assessment date for the tax year.” 4 Hewlett-Packard Co. dealt with industrial property and relied on different regulations. Nevertheless, the regulations applicable here show that the same general principles apply. 5 “Highest and best use” means “the reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, and financially 826 Dept. of Rev. v. River’s Edge Investments, LLC
The real market value of property, however, is not necessarily the assessed value that goes on the tax roll. That qualification derives from Measure 50, a constitutional amendment enacted in 1997 (codified as Article XI, section 11, of the Oregon Constitution), and its enabling legislation. In sum, Measure 50 caps property taxes: The assessed value of the property will be the lesser of the real market value or what is called the “maximum assessed value.” See Or Const, Art XI, § 11(1) (describing calculation of maximum assessed value); 6 ORS 308.146(2).7 The maximum assessed value generally is designed to keep the assessed property value from increasing more than three percent per year. See Or Const, Art XI, § 11(1)(b); ORS 308.146(1). For purposes of determining compliance with Measure 50, “property” means “[a]ll property included within a single property tax account[.]” ORS 308.142(1)(a). A property tax account is an administrative division of feasible, and that results in the highest value. See The Appraisal of Real Estate, 12th edition (2001).” OAR 150-308.205-(A)(1)(e). The “highest and best use” of real property is an integral part of determining its real market value. See OAR 150-308.205-(A)(2)(i): “Determining highest and best use for the unit of property is necessary for establishing real market value. This determination of highest and best use may include, among others, all possible uses that might result from retaining, altering or ceasing the integrated nature of the unit of property.” 6 The relevant part of Article XI, section 11, provides: “(1)(a) For the tax year beginning July 1, 1997, each unit of property in this state shall have a maximum assessed value for ad valorem property tax purposes that does not exceed the property’s real market value for the tax year beginning July 1, 1995, reduced by 10 percent. “(b) For tax years beginning after July 1, 1997, the property’s maximum assessed value shall not increase by more than three percent from the previous tax year.” 7 ORS 308.146 provides in part: “(1) The maximum assessed value of property shall equal 103 percent of the property’s assessed value from the prior year or 100 percent of the property’s maximum assessed value from the prior year, whichever is greater. “(2) Except as provided in subsections (3) and (4) of this section, the assessed value of property to which this section applies shall equal the lesser of: “(a) The property’s maximum assessed value; or “(b) The property’s real market value.” Cite as 359 Or 822 (2016) 827 property. ORS 308.142(2) (also for purposes of complying with Measure 50, the term “property tax account” means “the administrative division of property for purposes of listing on the assessment roll”).
To determine the real market value of property, appraisers generally consider three different approaches to valuation: cost, income, and comparable sales. OAR 150-308.205-(A)(2)(a) (requiring the consideration of cost, income, or sales comparison approaches); 8 Hewlett-Packard Co., 357 Or at 603. The cost approach estimates value from the cost that would be needed to construct a similar property; the income approach estimates value from the income that the property could be expected to generate; and the comparable sales approach estimates value from the prices paid for similar properties. See id. An appraiser must consider all three approaches, even if the appraiser ultimately cannot use one or more of them in developing the appraisal. OAR 150-308.205- (A)(2)(a) (recognizing that some approaches cannot be applied to a particular property, but “each [approach] must be investigated for its merit”); see Hewlett-Packard Co., 357 Or at 603. When an appraiser uses more than one approach, the resulting values suggested by each approach may not be identical. The appraiser then must reconcile those value indications into a single, final value. Id.; see also Appraisal Institute, The Appraisal of Real Estate 65 (12th ed 2001) (“The final analytical step in the valuation process is the reconciliation of the value indications derived into a single dollar figure or a range into which the value will most likely fall. The nature of reconciliation depends on the appraisal problem, the approaches that have been used, and the reliability of the value indications derived.”). 8 OAR 150-308.205-(A)(2)(a) provides: “For the valuation of real property all three approaches—sales comparison approach, cost approach, and income approach—must be considered. For a particular property, it may be that all three approaches cannot be applied, however, each must be investigated for its merit in each specific appraisal.” 828 Dept. of Rev. v. River’s Edge Investments, LLC
In some cases, a property has no immediate market value. In that circumstance, the real market value is determined based on just compensation. See ORS 308.205(2)(c) (“If the property has no immediate market value, its real market value is the amount of money that would justly compensate the owner for loss of the property.”). The department has implemented that statute through its “especial property” rule, OAR 150-308.205-(A)(3). See STC Submarine, Inc. v. Dept. of Rev., 320 Or 589, 595, 890 P2d 1370 (1995) (so noting). Under the especial property rule, an appraiser does not need to use the comparable sales approach, because there are no comparable sales. Instead, real market value is determined by estimating just compensation through the cost approach and/or the income approach. The rule provides: “Valuation of Especial Property: Especial property is property specially designed, equipped, and used for a specific operation or use that is beneficial to only one particular user. This may occur because the especial property is part of a larger total operation or because of the specific nature of the operation or use. In either case, the improvement’s usefulness is designed without concern for marketability. Because a general market for the property does not exist, the property has no apparent immediate market value. Real market value must be determined by estimating just compensation for loss to the owner of the unit of property through either the cost or income approaches, whichever is applicable, or a combination of both.” OAR 150-308.205-(A)(3).