Neighborhood Economic Condition Factor (ECF)

Assessors in Michigan are required by state law to annually assess all properties within their jurisdiction as they exist on December 31 at 50% of true cash value.  In most cases, we use the cost approach method of appraisal as it is the most suitable for mass appraisal, allowing us to determine a general estimate of value for a large number of properties.  From the State Tax Commission Guide to Basic Assessing, “The cost approach estimates the value of a property by summing (adding) the estimated value of the land and the estimated cost (less depreciation) of the improvements. The economic principle of substitution is fundamental to the cost approach. A prudent buyer will not pay more for a property than it will cost to build a similar property.”

To account for differences in values between neighborhoods, we analyze sales to extract a multiplier known as the neighborhood’s Economic Condition Factor (ECF).  This is done by listing all the sales for the subject neighborhood occurring during a specific study time period (April 1, 2019-March 31, 2021 for 2022 values - refer to STC Bulletin 17 of 2021).  The estimated land value is subtracted from the sale price, leaving a residual building value.  We then divide the residual building value by the cost (less depreciation) of the building utilizing construction costs from the Michigan Assessor’s Manual.   The resulting multiplier is applied against the cost (less depreciation) of the buildings in that neighborhood to determine their current estimated true cash value.  Individual building values can further be adjusted for things like functional obsolescence and abnormal physical characteristics.