New Construction
March 2007
Properties with improvements regularly change over a period of time as a result of use, market conditions, and decisions made by property owners. One identifiable event that triggers change in properties is new construction. The type of work completed by or for a property owner usually has an effect on the effective life of an improvement as well as a property’s valuation for tax purposes. The assessor is required by law to review all new construction and carefully evaluate the contribution that either an agent of production or a new component part contributes to the total property. In assessing new construction, the assessor understands and recognizes that certain repairs and replacements are undertaken to maintain the structural value of a property while extensive improvements or additions generally cause an increase in market value.
What type of new construction will increase the market value of a property?
An unimproved parcel of land that has a building, house, or site improvements constructed on it will have an increase in market value. All additions and added components such as a deck, an enclosed porch, a bedroom, basement finish, a three piece bathroom, a fireplace, or a central air-conditioner will also increase a property’s market value. Remodeling projects that involve extensive replacement and renovation are often reflected in an increase in the market value, too. This valuation adjustment is typically attributable to a difference in the quality of the improvement, a decrease in the amount of physical and/or functional depreciation, or a change in both quality and depreciation. Some of these improvements include: a total kitchen or bathroom renovation; replacing a 60 amp electrical service with a 100 or 200 amp electrical service; replacing existing windows and siding with energy-efficient windows and maintenance free siding and veneer; repairing structural deterioration of long lived items (i.e. cracked exterior walls, sagging floors, or a settling foundation); converting the heating plant from an older, obsolete heating type to a modern heating system; or repairing and replacing deferred maintenance when the assessor has accelerated the depreciation of the improvement to reflect the atypical loss in value of some short lived items.
What type of new construction will not increase the market value of a property?
Most routine repairs, maintenance, and replacements are not considered to be new construction and do not constitute a value increase for tax purposes. This work is deemed ordinary or general because it is dictated by normal wear and tear caused by the forces of nature, use, time, and neglect. Some examples of changes that are considered to be regular maintenance include: repairing the roof, soffit, or fascia of a structure; replacing shingles; repairing windows; painting the interior or exterior of a building; caulking or repairing siding; repairing or replacing outlets, switches, and light fixtures; repairing a heating plant; replacing the existing heat plant with a heat plant providing the same type of heat; or replacing floor coverings. In short, when the item being repaired or replaced is a short lived component having a life span that is shorter than the basic structure, there is no increase in the market value of the property if the work is recognized as general routine maintenance.
How does an assessor identify when a property has new construction?
The assessor identifies the presence of new construction by routinely canvassing neighborhoods for changes in properties each year. In addition to this procedure, building permits issued by local or county authorities are used to locate new construction in the area. These activities are performed in conjunction with the quintile review to ensure that all taxable property is discovered, listed, valued, and classified for the current year’s assessment.
When is new construction assessed to the property owner? How does the assessor value a partially completed building, structural addition, or remodeling project?
The construction of a new building, a structural addition to an existing building, or the remodeling of an improvement is valued by the assessor at its market value according to the extent of its completion as of the assessment date, January 2nd. A construction checklist is used by the assessor to identify the phases of construction that have been satisfied on or near the assessment date. Based upon an estimate of the percentage of completion, the property’s physical value is adjusted to obtain its actual value in a partially completed state. Any unfinished new construction is then reviewed during the next assessment cycle and added to the property assessment if completed prior to January 2nd.
Will the assessor regularly call on the property if the new construction has not been completed?
Yes, the assessor is required by law to annually review all properties that have been or are in the process of being remodeled or improved with a new building, a component, or a structural addition. Sometimes, this work may occur over two or more years requiring the assessor to review the progress of the new construction each year until its completion. As a general practice, a property that has unfinished new construction is flagged in the computer aided mass appraisal database for further review and a call back report is generated each assessment cycle to ensure its timely inspection.