Indiana’s system of market value-in-use was established based on legislative changes that went into effect in 2002. This new system replaced the old assessment practice of only reassessing every 10 years. Annual adjustment or “trending” is now performed each year in order to try to keep property values consistent with what the local real estate markets will sustain. But what is the difference between what Indiana considers market value in-use and actual market value and how do they relate?
Let’s start first with Market Value since that is what most people are familiar with. Market value is generally accepted to be the most probable price which a property would bring in a sale between a willing buyer and seller under arms-length conditions, in an open market with adequate market exposure and reasonable marketing time. Market value, or MV as we will refer to it from now on, is sometimes considered a properties value in exchange. In simplest terms, how much is someone willing to spend to acquire the property. If you list your apartment building on the market for 120 days, asking $2,000,000, receive a few offers in that time frame, and eventually sell for $1,800,000, that final value would be the MV.
Market value in-use (MVIU) is slightly different in definition but, at least in Indiana, very similar in application. MVIU is the value for a specific property for a specific use. In other words, it is the value of the property based on its utility to its current owner or similar owner for its particular use. The MVIU could be considered the price that would induce the owner to sell and the buyer to buy a property and continue using it at its current use. If we’re talking about a residential property, the MVIU should be reflective of the fact that it is a property someone lives at rather than a commercial location for example. In another example, lets say you own an office building that you then sell in an arms-length transaction and it continues to be used as an office building afterward. In this case, the sales value would be indicative of the MVIU as well as the MV.
In markets where sales do not represent the utility to the owner, the MVIU will not be equal to the MV. As an example, in the case of special use properties, the utility to its owner may sometimes be higher than their sales price. Another case would be a market where owners are motivated by non-market factors. Take an operational farm at the edge of urban sprawl and commercial development, for example. The market would call for more commercial development here rather than farming and thus, a higher market value of the land. However, agricultural land is traditionally valued very low from an assessment standpoint and should continue to be as long as it remains agricultural in nature.
If all of this sounds confusing, you are probably in the majority. Innovative Property Tax Solutions is a full service property tax consulting firm that specializes in navigating this confusion for you. Our team of expert Level III Certified Assessor/Appraisers have many years of experience and training with property assessment analysis and appeal representation.