Not All Bricks are Created Equal: How Functional Obsolescence Affects Property Taxes

Appraisal districts across Texas often use the cost approach to determine market value for property tax purposes. When valuing certain commercial properties via the cost approach, county appraisers frequently use cost-estimating services. These services enable appraisers to estimate the cost of the subject property’s improvements as if they were new, as well as determine the depreciation to apply to the subject.

Cost estimators can be a great resource and valuation tool, but the appraiser is likely to reach an incorrect value conclusion using estimates from one of these services without also incorporating proper analysis of functional obsolescence...

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RSK: The key here is a venue usually has to change every 20 years or so...even if it is a classic it needs to freshen up especially in the hospitality industry. If a tenant gets stuck with a landlord who does not keep up with his center because the lease lacks these provisions...it could be tough sledding. Even McDonalds keeps changing and refreshing their venue...