The East Lansing Assessor's Office is currently reviewing the valuation of all residential rental properties in preparation for 2019 assessments. The purpose of the review is to assess these properties as uniformly and accurately as possible.
The Assessor's Office has created an Online Rental Survey for the owners of residential rental properties to complete as part of the review. The data collected from the survey will be used to establish market rents for these income-producing properties. The market rents will then be used in estimating the properties’ values for 2019 assessments. No property owner is obligated to respond to the survey or provide the requested information. However, the greater the number of survey responses, the more accurate and equitable assessments will be for 2019. Last year, approximately 150 surveys were completed.
The rental survey is intended to ensure that the Assessor's Office has accurate and current rental and vacancy information to use in valuing residential rental properties for 2019 assessments. The overall goal is to achieve accurate assessments and to ensure that similarly situated properties are assessed equitably. Specifically, the Assessor's Office wants to monitor any impact caused by new housing developments on vacancy rates or rental rates so that those factors can be reflected in 2019 assessments.
About the Assessments
There are three generally accepted approaches used to estimate a property's value: the cost approach, the income approach and the sales comparison approach. In Michigan, assessors are required to consider the cost approach to value property. Under this approach, an estimate of the land value is added to an estimate of the depreciated value of any building on the land to arrive at an estimate for the property's total value.
Where appropriate, assessors can also use the income approach or the sales comparison approach to value properties. One variation of the sales comparison approach involves analyzing the income associated with sold rental properties and applying the results of the analysis to similar properties which have not recently sold. The following formula is used:
Sale Price ÷ Annual Income = Gross Rent Multiplier
The gross rent multiplier conclusions can then be applied to properties’ market rents to arrive at estimates of market value:
Annual Market Rent x Gross Rent Multiplier = Market Value Estimate
This valuation method converts the income stream associated with a property into an estimate of market value. For residential rental property, it is desirable to perform this variation of the sales comparison approach in addition to performing the cost approach. The reason for this is that a prospective purchaser of an income-producing rental property will likely consider the income generating potential of the property before buying it. In other words, market participants (buyers and sellers) typically consider the income potential of a residential rental property as they consider how much that property is worth to them. Since the job of an assessor is to estimate the market value of property, it is wise for assessors to consider the market from the same perspective as market participants, where possible.
Please direct questions and inquiries to Deputy City Assessor Cathy Groce at (517) 319-6819