Assessor's Office,  MS-22
614 Division St, Port Orchard, WA 98366
Phone:(360)337-7160  Fax:(360)337-4874
 

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Commercial Property
Frequently Asked Questions

What is commercial real property?
For assessment purposes, commercial property has a highest-and-best use other than a house, duplex, or residential condominium. Some examples are:

  • Retail, office, light industrial, multifamily housing

  • Mobile home park (but not a mobile home)

  • Condominium slip, airplane hanger (a boathouse is personal property)

  • Tax exempt facilities like a school, church, government building

  • Water system, cell site, espresso stand site (an espresso stand building is personal property)

  • Marina, golf course

How do you appraise commercial property?
Of the three appraisal approaches to value Ė cost, sales, and income, we believe that the
income capitalization approach is best for most commercial buildings. Most investors rely on the income approach when analyzing investment property. Also, itís the most efficient and reliable approach for us to model. And itís easy for taxpayers and assessors to discuss the valuation of a property in terms of the income approach.

What are the components of the income approach?

Potential gross income (PGI) Annual income at market rents and 100% occupancy
Vacancy and collection loss Percent of PGI lost due to vacancies and bad debt
Effective gross income (EGI) Annual rent actually collected
Operating expenses Percent of EGI used for administration, repairs, utilities, insurance, and property taxes
Net operating income (NOI) Annual income remaining after operating expenses are paid
Capitalization rate The ratio of NOI to value or sale price

What does the income approach look like?
An example of a value estimate by the income approach:

  Model Coefficient Model Calculation
Building type Restaurant  
Comparison unit Square feet  
Building size 2,500  
Estimated rent per square foot $10  
Potential gross income $25,000  
Vacancy and collection loss 5%  -$1,250
Effective gross income   $23,750
Operating expenses  20%  -$4,750
Net operating income   $19,000
Capitalized value 8% $237,500

What if I donít rent out my building?
We calibrate our models using market rates. In other words, we analyze a sample of rent, vacancy, and expenses rates from leased properties and select typical market rates for our models. Whether you produce rental income or not, we use the same model.

How do you deal with excess land?
Excess land doesnít directly contribute to the income stream. So we estimate its value and add it to the income approach.

Do you use the income approach on all commercial buildings?
We model the income approach for most all commercial properties in Kitsap County. But some properties, like a golf course, donít lend themselves to the income approach because we donít have access to enough market data to calibrate an income approach model. And other times we use the sales comparison approach Ė on convenience stores with gas for example Ė if we have sufficient sales of similar properties.

Do you do an income approach for all of the buildings in the county every year?  A single-property appraisal is very time intensive and expensive, therefore not feasible for assessment work. Thatís why we use mass appraisal techniques.

What are the steps in mass appraisal?

  1. verify property characteristics

  2. collect market data

  3. analyze data

  4. specify model

  5. calibrate model

  6. test results

  7. review assessments

How often do you update your income models?
The county is divided into six inspection areas. We inspect one area per year to gather income, expense, and vacancy information, analyze sales to determine the rate of return (capitalization rate) investors are seeking, and recalibrate all of the models in that area. You can view a complete explanation of our recent model recalibrations on our Commercial Property page.

Why does my value change annually?
Your assessment may change as a result of a value update. Every year we compare sale prices to assessments. If assessments are significantly different from sale prices, we will apply a value update factor to that group of properties in order to bring the assessments closer to sales prices.

What are the references for your assessment work?

  • Property Appraisal and Assessment Administration, International Association of Assessing Officers

  • Mass Appraisal of Real Property, Robert J. Gloudemans

  • Title 84 Revised Code of Washington

  • Title 458 Washington Administrative Code

Last Updated: 
August 14, 2014
Commercial Valuation Model Information
Commercial Sales - 5 yrs
Commercial Income Survey Form
Sample Commercial Income Survey Form
Commercial Neighborhood Map
Neighborhood Descriptions
Income Model Property Types
Definition of Terms
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