What is Fair Cash Value?
The Kentucky Constitution and the statutes define the fair cash value of property as “estimated at the price it would bring at a fair voluntary sale. In the valuation of real property for ad valorem tax purposes, the PVA is guided by court decisions and constitutional and statutory laws of full value and equity.
How does the PVA determine Fair Cash Value?
To arrive at fair cash value for a particular property, the PVA must know what similar properties are selling for, how much it would cost for replacement, the rent that it could earn, and other factors that influence value like current interest rates, location, supply and demand.
With these facts, the PVA has three methods to arrive at the property’s value. The first method, COMPARABLE SALES APPROACH, (CSM) involves comparing your property to similar properties that have sold recently. These sales must be analyzed carefully. Motivations of buyers and sellers may have been unusual, causing the selling price to be above or below Fair Cash Value. The different features of the sold properties must be compared to your property and its features, like the number of baths, square footage, lot size, garage structure, amenities, location, condition, quality and others.
The second method used to value your property, referred to as the COST APPROACH, is based on how much money it would cost at current material and labor prices, to replace your property with a similar structure. If your property is not new, the PVA must estimate how much your property has depreciated. The value of the land is added to the depreciated building value.
The third method is often called the INCOME APPROACH. This method takes into consideration what your property would produce in rental income. The PVA must estimate all the operating expenses, such as; taxes, insurance, maintenance costs, and the expected return most people desire on your type of property. The income approach method is not normally used in evaluating single family residents, but it is appropriate for use in assessing income producing property such as apartments, commercial buildings or farms.