KRS 132.191: Valid valuation methods -- Minimum applicable appraisal standards --

Property valuation of multi -unit rental housing subject to government

restriction on use.

(1) The General Assembly recognizes that Section 172 of the Constitution of Kentucky

requires all property, not exempted from taxation by the Constitution, to be assessed

at one hundred percent (100%) of the fair cash value, estimated at the price the

property would bring at a fair voluntary sale, and that it is the responsibility of the

property valuation administrator to value property in accordance with the

Constitution.

(2) The General Assembly further recognizes that property valuation may be

determined using a variety of valid valuation methods, including but not limited to:

(a) A cost approach, which is a method of appraisal in which the estimated value

of the land is combined with the current depreciated reproduction or

replacement cost of improvements on the land;

(b) An income approach, which is a method of appraisal based on estimat ing the

present value of future benefits arising from the ownership of the property;

(c) A sales comparison approach, which is a method of appraisal based on a

comparison of the property with similar properties sold in the recent past;

(d) A subdivision de velopment approach, which is a method of appraisal of raw

land:

1. When subdivision and development are the highest and best use of the

parcel of raw land being appraised; and

2. When all direct and indirect costs and entrepreneurial incentives are

deducted from the estimated anticipated gross sales price of the finished

lots, and the resultant net sales proceeds are then discounted to present

value at a market -derived rate over the development and absorption

period; and

(e) The approaches listed in subsection (5) of this section for multi -unit rental

housing that is subject to government restriction on use.

(3) The valuation of a residential, commercial, or industrial tract development shall

meet the minimum applicable appraisal standards established by:

(a) The Kentucky Department of Revenue, as stated in its Guidelines for

Assessment of Vacant Lots, dated March 26, 2008; or

(b) The International Association of Assessing Officers.

(4) To be appraised using the subdivision dev elopment approach, a subdivision

development shall consist of five (5) or more units. The appraisal of the

development shall reflect deductions and discounts for:

(a) Holding costs, including interest and maintenance;

(b) Marketing costs, including commissions and advertising; and

(c) Entrepreneurial profit.

(5) (a) The property valuation of multi -unit rental housing that is subject to

government restriction on use may be determined:

1. a. Through an annual net operating income approach to value that

uses a ctual income and stabilized operating expenses that are

based on the actual history of the property, when available, and a

capitalization rate.

b. The methodology employed in the projection of income, expenses,

and capitalization rate used shall be consist ent with the Uniform

Standards of Professional Appraisal Practice.

c. The capitalization rate shall be:

i. Based on the risks associated with multi -unit rental housing

subject to government restriction on use, including

diminished ownership control; income generating potential;

liquidity; the condition of the property; the class of the

property; and the property's location and size;

ii. Equal to or greater than the capitalization rate used for

valuing multi -unit rental housing that is not subject to

government restriction on use; and

iii. In the range of fifty (50) to one hundred fifty (150) basis

points above the most recent quarterly survey of the national

average cap rates of multifamily properties published by

realtyrates.com or a successor organization.

d. The department shall publish the capitalization rate range for the

property valuation administrators to use on its website at the

beginning of each year; or

2. By adjusting the unrestricted market value of the multi -unit rental

housing, computed without regard to any government restriction on use

applicable to the multi -unit rental housing, based on the ratio of the

average annual rent of those units of the property that are subject to

government restriction on use to the average annual rent of comparab le

multi-unit rental housing that is not subject to government restriction on

use.

(b) Income tax credits received under Section 42 of the Internal Revenue Code or

from any state or federal program shall not be included in the methods used

under paragraph (a) of this subsection in determining the income attributable

to the multi-unit rental housing or in any separate intangible assessment.

(c) 1. The owner of multi-unit rental housing shall:

a. Notify the property valuation administrator if:

i. The property is subject to government restriction on use;

ii. The property is no longer subject to government restriction

on use; or

iii. A foreclosure action has been brought upon the property; and

b. File with the property valuation administrator, on a form

prescribed by the department, the information necessary for the

multi-unit rental housing to be valued based on the methods

described in paragraph (a) of this subsection.

2. The notification shall b e in writing and submitted to the property

valuation administrator within sixty (60) days of the date on which the

applicable circumstance listed in subparagraph 1.a.i., ii., or iii. of this

paragraph occurred.

3. An owner who fails to comply with this par agraph may be subject to

penalties in an amount not to exceed two hundred dollars ($200) as

determined by the department.

(d) The department shall promulgate administrative regulations in accordance

with KRS Chapter 13A to adopt forms, penalties, and proce dures to carry out

this subsection.