How Property Is Valued
Residential |
Industrial/Commercial
Residential
How Property is Valued
The Cook County’s Assessor’s Office is responsible for valuing the more than 1.3 million residential parcels in Cook County. Cook County is divided into three assessment districts (City, North and South). Each of the assessment districts is valued once every three years.
The Cook County Assessor’s Office uses a computer-assisted mass appraisal method to value residential properties. This computerized sales comparison model considers several different value components including, but not limited to, sales of comparable properties, land, location, building square footage, and construction type. These are some of the very same factors that would be considered by an appraiser seeking to value an individual property.
Residential properties are assessed as of January 1st of the current year, using three to five years of prior sales information. By using multiple sale years, this increases the stability of market value predictions.
Uniformity Between Properties
Our appraisal method reviews all the sales within a neighborhood and estimates a market value by assigning values to the individual building characteristics of sold properties. The market values of all properties (sold and unsold) are determined by using the value estimates. Adjustments are made for disparities discovered when comparing the building characteristics, thereby accounting for differences (like age, quality of construction, size, etc.) between properties. Any necessary final adjustments are made to ensure a fair and uniform assessment of all residential properties.
It is important to note that only properties located in the same neighborhood are compared to each other. Neighborhood codes define the geographic area within which home sales will be compared during the reassessment analysis. Neighborhood codes are determined primarily by differences in sale prices, housing stock and/or geographical factors. In order to create a neighborhood code, the listed factors are considered and field inspections are conducted for each township as it is reassessed. Analysts also meet with the township assessors to refine their neighborhood codes.
Innovative Procedures
A “teardown sale” is a property that is bought for the land, with the older (and typically smaller) home on it being demolished for new construction. Analysts will study sales over the last five years to see if they are the result of tear downs.
If a teardown sale is found, it is deleted from the sales comparison model and therefore will not influence the valuation of the larger homes. The new property would be valued using the new building’s characteristics and valued according to its new size and class. All home sales that have been purchased for teardown purposes will be excluded from the overall sales pool to ensure uniformity and fairness. However, removing these sales does not necessarily curb the assessment increases that might be seen for the smaller homes. When many smaller homes are being sold in an area, the valuation of these homes is determined primarily by the recent overall median sales trends and prices.
Homeowners are encouraged to review their property’s assessment in comparison to similar properties on the office’s Web site. Access the “Online Tool” icon, then click onto “Residential Property Search."
Industrial/Commercial
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Commercial and Industrial Property Valuation
The Cook County Assessor is required by law to assess one-third of the properties each year. In 2009, the City of Chicago will be reassessed.
The Classification of Properties
All properties in Cook County are classified for real estate tax purposes. The classification system was developed so that similar types of properties could be grouped together and valued using the same methods and units of measurement.
Classes of Income-Producing Properties
Commercial property is classified as Class 5A, industrial property is classified as Class 5B and apartment buildings over six units are Class 3 properties. Within these classifications, the properties are further defined by use (e.g. gas station, restaurant).
How Property is Valued
Valuation techniques have been developed for the different types of properties in Cook County. Physical features of buildings often indicate value. For example, apartments may be valued by number of units and unit mix while industrial properties are valued by amenities such as number of loading docks and the building size. For these reasons, the Cook County Assessor collects information on all of the properties assessed.
The Three Approaches to Value
Assessors throughout the country typically look at three approaches to estimate value to obtain a property’s value: the cost (replacement) approach, the income approach and the sales comparison (market) approach.
Cost Approach - is an estimate of value derived for property by determining the cost to construct the building(s) less the estimated depreciation of the property. The Cost Approach is most effective when valuing unique manufacturing properties as income and sales data may not be available for these owner occupied properties. Marshall & Swift™ cost calibration software is used to apply cost estimates to this type of property.
Income Approach – is an estimate of value based on the rental income generated by the property. This approach is often a very important indicator of property value for income-producing properties. The Cook County Assessor’s Office uses market estimates for income, expenses, and a rate of return for an investor (the capitalization rate) to determine value.
Sales Comparison Approach – is an estimate of value that compares the subject property to similar properties that have recently sold and have similar characteristics or indicators of value. Differences in location, physical characteristics, time of sale, physical condition, size, age and other market related conditions are adjustments that can be made to sale prices. This accounts for differences between comparable sold properties and the subject property. Extensive editing and adjustments are made before unsold similar properties are valued. Also, large commercial transactions are thoroughly analyzed because of the complexity of these types of sales.
Uniformity Between Properties
The Cook County Assessor uses a number of methods to ensure that similar properties are treated similarly:
GIS - Geographical Information System is the computer software that displays information regarding each parcel by neighborhood on the township maps. Using GIS, we can perform an analysis of sales prices and sales activity in a spatially displayed format. Economic trends are noted that allow for more uniform assessments. Pictures are an invaluable tool in determining the conditions of buildings and their surrounding neighborhoods.
Visiting Re-Assessed Neighborhoods - Analysts also drive through the township that is being re-assessed, looking for improvement discrepancies and other resources of value (rental signs, “for sale” signs, local newspapers). Historical data is then typically confirmed or adjusted.
Historical Data - Market data is gathered from historical financial records and industry resources such as CoStar, BOMA, Globe Street and Black’s Guide. When sales data is scarce, income market data is the most reliable indicator of value for income-producing property. However, visually similar investment properties can be quite different in their income-producing potential. Therefore, existing rental agreements, leasing structures and financing terms must be examined. Cook County’s income property ranges vary widely, reflecting the differences in economic vitality throughout the county. These variances also are reflected in zones within a township that analysts use as a parameter to ensure a consistent and uniform assessment. The zones - average, above average and below average - are developed based upon field observation and market income data.
Current Market Data - Market occupancy and vacancy rates are always included in our determination of market value. Vacancy rates are determined by property class and location. In Cook County, the vacancy rates are higher for depressed areas and areas with the poorer condition buildings. This reflects the problems that currently exist in the market.
