This is a loaded question, and volumes can be written detailing the subject. In brief, assessing is a system of checks and balances involving the local unit Assessor and Board of Review, County Equalization and the Board of Commissioners, and State Equalization and the State Tax Commission. Beginning at the local level, the Assessor must assess property at 50% of True Cash Value. In order to first estimate value, Assessors have several approaches at their disposal, including the Sales Comparison, Income, and Cost Approach. Underlying each approach is the principle of substitution, which states that a property’s value is related to the cost it would require to obtain a substitute property with equal desirability. The Cost Approach, which involves mass appraisal, is most widely used, but all three should be applied, with consideration to property type. Real property—that is, property that includes the land along with improvements, and which is not personal property—is appraised using the state’s approved Assessor’s Manual. The manual contains costs and rates that are tied to area and building quality (Class). An appraiser inventories a property’s improvements, totals their value, and then applies a series of adjustments to the manual costs. These include: 1) a local county multiplier, provided by the state and aimed to adjust costs to the current local market, 2) an Economic Condition Factor (ECF), which the assessing officer calculates and derives based on sales of similar properties and which aims to adjust for the local market, and 3) depreciation, which takes into account the decrease in value of an improvement for any reason. To reach True Cash Value, the appraiser adds this adjusted total to the total attributable to the land and its improvements. (Land rates are established locally through a process of vacant land sales studies, which take into account land use using appropriate units of comparison.) To attain the Assessed Value (AV), the appraiser takes 50% of the True Cash Value.
Note: Equalization will also perform parallel vacant land sales studies and ECF studies, on a countywide scale, in order to independently value its sample parcels for the Equalization Studies.
Since the passage of Proposal A in 1994, Assessed Value is no longer used in computing taxes; instead, Taxable Value (TV) is now used. While Assessed Value is directly related to the local market, and could theoretically skyrocket by double digits year by year, Taxable Value is tied to and limited by the national rate of inflation, as reflected in the Consumer Price Index (CPI). Furthermore, Proposal A has limited the annual increase in Taxable Value to no more than 5%, with certain qualifications. The accurate determination of Assessed Value remains essential: In the first year following a property transfer in which there is a change in ownership resulting in a change in beneficial use, the property will “uncap” and its Taxable Value will reset to the generally higher State Equalized (Assessed) Value for that year only. Each June, Equalization reports the county’s total taxable value of all property to the state, according to MCL 211.27d.