September 18, 2021

Volume XI, Number 261

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What Colorado Commercial Property Owners Should Know About Property Valuation Approaches

Real property is valued at its actual value by county assessors for the purpose of assessing real property taxes. Colorado assessors generally use three approaches to determine market value — market, income, and cost.

Market Approach

Assessors use the market approach to determine property value by analyzing the sale price of comparable properties sold during the base period. They consider the property’s characteristics, including size, shape, classification, and zoning, when comparing properties. Only “like” properties should be used in determining the property’s value. If appropriate sales data is not available during the 18-month data collection period, the assessor is permitted to go back in six-month increments for up to five years to obtain comparable sales data.

Income Approach

The assessor uses the income approach to determine property value by analyzing operating income, expenses, and vacancy to ascertain the property’s net operating income. The assessor then divides the net operating income by the determined capitalization rate to establish the property’s value. The higher the net operating income and the lower the capitalization rate, the higher the property value will be. This approach is typically used for income generating properties to determine the financial return an investor could expect for the property. It is possible that an assessor may not have the correct rental rates, expense ratio, or vacancy rate.

Cost Approach

Using the cost approach, the assessor determines property value based on the anticipated or actual development and construction costs to build it. This approach is used in limited circumstances, such as for new construction. The assessor considers how much it would cost to rebuild or replace the property to determine the property’s value.

©2021 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XI, Number 74
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About this Author

Neil Oberfeld Real Estate Attorney Greenberg Traurig Denver, CO
Shareholder

Neil Oberfeld is Co-Chair of the National Leasing Practice and assists national and regional retailers, developers, institutional owners and investors in real estate and general business matters. Neil concentrates his practice on acquisition, development, leasing, finance and investment transactions, including retail, office and industrial real estate; joint venture and fund formation and investment; secured and commercial loan transactions; and property tax assessment.

Neil has wide-ranging experience in all phases of real estate development. Neil is also actively engaged in...

303-685-7414
Laurinda Frederick Real Estate Attorney Greenberg Traurig Denver, CO
Associate

Laurinda Frederick assists clients in virtually all aspects of transactional commercial real estate throughout the U.S. She concentrates her practice on acquisition, disposition, finance, development, and leasing of real estate including office, hospitality, industrial, and retail properties. Laurinda has represented wireless telecommunications companies in numerous real estate leasing matters, including due diligence, lease negotiation, and complex master agreements with private owners and municipalities. She also advises clients on Colorado property tax assessments and provides projected...

303-685-7422
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