OAR 150-308-0280
Measuring Functional Obsolescence in Industrial Property

(1)

The procedure for estimating functional obsolescence for industrial property in the reproduction cost approach is as follows:

(a)

The total functional obsolescence equals:

(A)

The physically depreciated reproduction cost of the property with a deficiency requiring a substitution or modernization, or a superadequacy, less

(B)

The physically depreciated cost of the replacement property with a deficiency requiring a substitution or modernization, or a superadequacy, plus

(C)

The cost to cure or the value of the loss (if less).

(b)

For an industrial property with a deficiency requiring an addition follow the same steps as listed in subsection (1)(a), except step (A) equals zero.

(c)

The result of (1)(a) equals the total functional obsolescence deduction in the reproduction cost approach attributable to the property with a deficiency or superadequacy.

(d)

In specific situations, the procedure in subsection (1) can be simplified:

(A)

For curable functional obsolescence caused by a deficiency requiring a substitution or modernization, or a superadequacy, functional obsolescence equals the physically depreciated reproduction cost of the property with a deficiency or superadequacy plus the excess cost to cure.

(B)

For curable functional obsolescence caused by a deficiency requiring an addition, functional obsolescence equals the excess cost to cure.

(e)

For purposes of measuring functional obsolescence, the property with a deficiency or superadequacy in subsection (1) of this rule can be the entire subject property or one or more portions of the property that are being analyzed for the existence of functional obsolescence. If the entire property has multiple deficiencies or superadequacies, multiple applications of the procedure in subsection (1) of this rule may be required to measure the total functional obsolescence.

(f)

Some methods of measuring depreciation may capture more than just physical depreciation. The depreciation measured may include elements of functional and external obsolescence.

(A)

If in subsection (1)(a)(A) an age-life method is used to estimate the total depreciation of the property with a deficiency or superadequacy, no additional functional obsolescence should be deducted from the depreciated reproduction cost of the individual assets.

(B)

If in subsection (1)(a)(A) the selling price of used equipment is used to estimate the depreciation of the property with a deficiency or superadequacy, no additional functional obsolescence should be deducted from the depreciated reproduction cost of the individual assets.

(C)

In situations where all functional obsolescence of individual assets is fully captured by the depreciation method used, there may be additional functional obsolescence due to the assemblage of the individual assets into the layout of the property. Functional obsolescence due to layout can be accurately measured using the procedures described in subsection (1) of this rule. However, care must be taken to avoid double counting the functional obsolescence.

(2)

The deduction for functional obsolescence in the replacement cost approach equals the cost to cure or the value of the loss (if less).

(a)

When using the procedure in subsection (1)(a) of this rule to estimate the deduction for functional obsolescence in the replacement cost approach, steps (A) and (B) must equal zero ($0).

(b)

When using consistent estimates of reproduction and replacement cost new, physical depreciation, and functional and external obsolescence, the market value indicator from replacement cost approach must equal the market value indicator from the reproduction cost approach. (see example 3)

(3)

Definitions:

(a)

The reproduction cost approach is an appraisal method for estimating market value of the subject property. The formula for this method is:
Market Value equals the Reproduction Cost New less physical depreciation less functional obsolescence less external obsolescence.

(A)

The reproduction cost new is the cost to construct a new replica of the subject property as of the appraisal date using the same materials, design, layout, quality of workmanship and embodying the deficiencies and superadequacies of the subject property.

(B)

The appraisal approach where the appraiser estimates the depreciation based on the selling prices of used equipment is a reproduction cost approach when the used prices utilized in the appraisal are for pieces of equipment that are replicas of the subject equipment. The formula for this method is: Market Value equals the Reproduction Cost New less the depreciation from used equipment prices less the functional and external obsolescence not captured in the used equipment prices.

(C)

The appraisal approach where the appraiser estimates the depreciation using an age-life method is a reproduction cost approach when the starting point is the reproduction cost new. The formula for this method is: Market Value equals the Reproduction Cost New less the depreciation from an age-life analysis less the functional and external obsolescence not captured in the age-life analysis.

(b)

The replacement cost approach is an appraisal method for estimating the market value of the subject property as of the appraisal date. The formula for this method is:
Market Value equals the Replacement Cost New less physical depreciation less the cost to cure (or the value of the loss, if less) less external obsolescence. The replacement cost new is the cost, as of the appraisal date, to construct a property having equivalent utility to the subject property but built with the most cost-effective materials, design, and layout. The most cost effective materials, design, and layout is that combination of investment (cash out-flows) and the present value of anticipated after tax net income (cash in-flows) that produces the highest net present value.

(c)

Functional Obsolescence is a loss in market value of a subject property when there is a reasonable feasibility of a typical prospective purchaser acquiring, without undue delay, a replacement property possessing an equivalent utility but is more cost-effective in terms of design, materials, or equipment. Functional obsolescence exists only by a comparison between the subject and the replacement property. There is no loss in value due to functional obsolescence unless the physically depreciated reproduction cost of the subject property minus the physically depreciated replacement cost of the replacement property plus the cost to cure (or value of the loss, if less) is greater than zero.

(A)

Functional obsolescence due to a deficiency requiring a substitution or modernization is caused by an asset present in the subject property that is substandard compared to the replacement property.

(B)

Functional obsolescence due to a deficiency requiring an addition is caused by a component that is missing from the subject property that is present in the replacement property

(C)

Functional obsolescence due to a superadequacy is caused by an asset present in the subject property that is not present in the replacement property and does not contribute to value an amount equal to its cost.

(d)

The physically depreciated reproduction cost of the property with a deficiency or superadequacy is the cost, as of the appraisal date, to construct a new replica of that property using the same materials, design, layout, quality of workmanship and embodying the deficiencies and superadequacies of that property less the amount of physical depreciation due to physical deterioration associated with wear and tear, the impact of the elements, and aging.

(e)

The physically depreciated cost of the replacement property is the cost, as of the appraisal date, to construct a new property with the equivalent utility to the property with the deficiency or superadequacy using the most cost effective materials, design, and layout less the appropriate physical depreciation.

(A)

For curable functional obsolescence, the appropriate percent of physical depreciation for the replacement property in subsection (1)(a)(B) is equal to the percent of physical depreciation of the replacement property included in the cost to cure in subsection (1)(a)(C) and (3)(h)(A). For example, if curable functional obsolescence is cured by purchasing and installing a new machine, the replacement property is also new (zero depreciation). (See example 3) However, if curable functional obsolescence is cured by purchasing and installing a used machine that is 70% physically depreciated, the replacement property also must be 70% depreciated. (See example 4)

(B)

For incurable functional obsolescence, the appropriate percentage of physical depreciation for the replacement property in subsection (1)(a)(B) is the same percentage of physical depreciation as the percentage of physical depreciation of the property with a deficiency or superadequacy, as it exists in the uncured condition.

(f)

Functional obsolescence is incurable if the cost to cure is greater than the value of the loss.

(g)

Functional obsolescence is curable if the cost to cure is less than the value of the loss.

(A)

To be considered curable, it must be physically possible, legally permissible, and financially feasible to cure the functional obsolescence.

(B)

If curing functional obsolescence is required to allow the existing assets to continue to function at their highest and best use and the requirements of subsection (3)(g)(A) are met, the obsolescence is curable even if the cost to cure is greater than the value of the loss. (See Example 6)

(h)

The cost to cure equals the net cash out-flow anticipated to be necessary to eliminate the deficiency or superadequacy. This equals:

(A)

The physically depreciated replacement cost of the replacement property, plus

(B)

The retrofitting cost associated with installing the replacement property in the subject property, plus

(C)

The cost to remove the property with a deficiency or superadequacy; less

(D)

The salvage value of the property with a deficiency or superadequacy.
(i)
The excess cost to cure recognizes that installing an asset in an existing property may cost more than installing the same asset when a property is constructed new on the appraisal date. The excess cost to cure equals:

(A)

The retrofitting cost associated with installing the replacement property in the subject property; plus

(B)

The cost to remove the property with a deficiency or superadequacy; less

(C)

The salvage value of the property with a deficiency or superadequacy.

(j)

Retrofitting cost is the cost as of the appraisal date to install an asset in the subject property less the cost as of the appraisal date to install the same asset as part of new construction.

(k)

The value of the loss equals the present value of the after-tax loss in anticipated income from the continuing operation of the property with a deficiency or superadequacy compared to the projected operation of the replacement property. For industrial plants, this loss in income is often the result of excess operating costs due to inefficiencies in the subject plant compared to the subject property when cured of the functional obsolescence. The present value includes factors for the time period that the plant will continue to incur the loss in income and an appropriate discount rate. See OAR 150-308-0250 (Derivation of Capital Structure and Discount Rates for Valuing Industrial Properties and Department-Assessed Properties) for the appropriate method of calculating the discount rate.

(4)

Examples (Assume zero external obsolescence for all examples):

(a)

Example 1: An example of incurable functional obsolescence due to a deficiency requiring a substitution or modernization. [Example not included, see ED. Note.]

(b)

Example 2. An example of incurable functional obsolescence due to a superadequacy. [Example not included, see ED. Note.]

(c)

Example 3: An example of curable functional obsolescence due to a deficiency requiring and addition. [Example not included, see ED. Note.]

(d)

Example 4: An example of curable functional obsolescence due to a deficiency requiring a substitution. [Example not included, see ED. Note.]

(e)

Example 5: An example of a deficiency in the subject plant that does not indicate the presence of functional obsolescence. [Example not included, see ED. Note.]

(f)

Example 6: An example of curable functional obsolescence due to a deficiency requiring an addition. [Example not included, see ED. Note.]
[ED. NOTE: To view attachments referenced in rule text, click here to view rule.]

Source: Rule 150-308-0280 — Measuring Functional Obsolescence in Industrial Property, https://secure.­sos.­state.­or.­us/oard/view.­action?ruleNumber=150-308-0280.

150–308–0010
Continuing Education Requirements for Registered Appraisers, Waiver of those Requirements, and Revocation of Registrations 150–308–0020
Revocation of Appraiser Registration 150–308–0030
Appraiser Trainee Program 150–308–0040
Standards for Imposition, Waiver, and Reduction of Penalty on Utilities and Designated Companies Assessed by the Department. Imposition of Penalty for Failure to File a Timely or Complete Return 150–308–0050
Continuing Education Requirements for Assessors 150–308–0060
Continuing Education Requirement for Appraisal Managers in County Assessment Offices 150–308–0070
Qualifications of Managerial Employees of the Assessor’s Office 150–308–0080
Taxable Personal Property Whose Temporary Situs Is in the State of Oregon 150–308–0090
Billboards as Real Property 150–308–0100
Determining Maximum Assessed Value when the Property Class is Changed 150–308–0110
Reduction of Maximum Assessed Value (MAV) for Property Destroyed or Damaged by Fire or Act of God 150–308–0120
Reduction of Maximum Assessed Value (MAV) When a Building is Demolished or Removed 150–308–0130
Definitions 150–308–0140
Computation of Changed Property Ratio for Centrally Assessed Property 150–308–0150
Net Capitalized Additions 150–308–0160
Minor Construction 150–308–0170
Establishing a Changed Property Ratio 150–308–0180
Definition of Affected 150–308–0190
Subdivided and Partitioned Property MAV 150–308–0200
Rezoned Property — Calculating Maximum Assessed Value (MAV) 150–308–0210
Omitted Property—Allocating Maximum Assessed Value (MAV) 150–308–0220
Exemption, Partial Exemption or Special Assessment Disqualification — Allocating MAV 150–308–0230
Calculation of Maximum Assessed Value (MAV) for Lot Line Adjustments 150–308–0240
Real Property Valuation for Tax Purposes 150–308–0245
Partial Exemptions and Special Assessments of Land 150–308–0250
Derivation of Capital Structure and Discount Rates for Valuing Industrial Properties and Department-Assessed Properties 150–308–0260
Industrial Property Valuation for Tax Purposes 150–308–0270
Valuation of Contaminated Property 150–308–0280
Measuring Functional Obsolescence in Industrial Property 150–308–0290
Effective Tax Rate 150–308–0300
Valuation Review of State-appraised Industrial Property. 150–308–0310
Real Market Value and Property Classification as Part of Assessment Roll 150–308–0320
Property With Multiple Leases Assessed as One Parcel 150–308–0330
Contents of Assessment Roll for Condominiums 150–308–0340
Printout or Microfiche Required When Assessment and Tax Rolls do not Constitute a Written Record 150–308–0350
Filing Requirements for Certain Delayed Annexations by Cities 150–308–0355
Filing Requirements for Boundary Changes 150–308–0360
Appraisals of Real Property by Registered Appraisers 150–308–0370
Determining Taxable Value for Assessment Charges on Property Exempt from Taxation 150–308–0380
Appraisal of Real Property 150–308–0390
Agricultural Land Devoted to Agricultural Purposes 150–308–0400
Stipulation Procedures 150–308–0410
Cancellation of Personal Property Assessments 150–308–0420
Exemption of Watercraft Undergoing Repairs 150–308–0430
Valuation of New Construction 150–308–0440
Confidentiality — Returns of Taxable Property 150–308–0450
Industrial Property Returns — Incomplete Returns and Late Filing Penalties 150–308–0470
County Contractors Having Access to Confidential Records 150–308–0480
Confidentiality of Property Tax Information for Centrally Assessed Companies 150–308–0490
Appraisal and Valuation of Industrial Plants 150–308–0500
Confidentiality of Industrial Plant Information 150–308–0510
Definition of Destroyed or Damaged 150–308–0520
Valuation of Nonprofit Homes for the Elderly 150–308–0530
Defining “Communication Services” 150–308–0540
Assessment of Properties of Designated Utilities and Companies by Department of Revenue 150–308–0550
Property Used for Guide Service 150–308–0560
Confidentiality of Appraisals of Designated Utilities and Companies by Department of Revenue 150–308–0570
Computation of Changed Property Ratio for Centrally Assessed Property 150–308–0580
Allocation of Mobile Aircraft Property Value 150–308–0585
Procedure for Determining Oregon Property Value for Private Railroad Car Companies 150–308–0590
Allocation of Centrally Assessed Electric Company Property Value 150–308–0595
Allocation of Centrally Assessed Gas Distribution Company Property Value 150–308–0600
Allocation of Centrally Assessed Pipeline Company Property Value 150–308–0605
Allocation of Centrally Assessed Railroad Company Property Value 150–308–0610
Allocation of Centrally Assessed Communication Company Property Value 150–308–0615
Allocation of Centrally Assessed Water Transportation Company Property Value 150–308–0660
Unit Valuation of Centrally Assessed Properties 150–308–0670
Contents of the Utility Assessment Roll 150–308–0680
Contents of Department’s Journal 150–308–0690
Centrally Assessed Property — Appraisal Guidelines 150–308–0695
Removal of Certain Elected Exempt Property from Correlated System Real Market Value of Centrally Assessed Property 150–308–0700
Qualification of Property for Special Assessment as Government Restricted Multiunit Rental Housing 150–308–0710
Application and Election Process for Government Restricted Multiunit Rental Housing 150–308–0720
Special Assessment of Government Restricted Multiunit Rental Housing Property 150–308–0730
Special Assessment Disqualification Process 150–308–0740
Process for Voluntary Disqualification from Special Assessment Program and Subsequent Application 150–308–0750
Payment of Taxes on Manufactured Structure That Allows Change from Real Property to Personal Property Status 150–308–0760
Manufactured Structure Classified as Real or Personal Property 150–308–0770
Real and Personal Manufactured Dwellings to be Assessed in Like Manner 150–308–1010
Farm Use Definitions, Inactivity Due to Illness, and Description of Lands in Non-Exclusive Farm Use 150–308–1020
Disposal by donation to a local food bank or school 150–308–1030
Assessment of Farmlands Within Exclusive Farm Use (EFU) Zones 150–308–1040
Assessment of Farmlands Outside of Exclusive Farm Use (EFU) Zones 150–308–1050
Gross Income Requirement 150–308–1060
Wasteland 150–308–1070
Acquired Land as Part of Farming Unit 150–308–1080
Valuation of Certain Agricultural Land to Reflect Value for Farm Use Only 150–308–1090
Calculation of MSAV When SAV Soil Classification is Changed 150–308–1100
Disqualification of Exclusive Farm Use Farmland 150–308–1110
Disqualification of Non-Exclusive Farm Use (Non-EFU) Farmland 150–308–1120
Definition of Specially Assessed Homesites 150–308–1130
Application for Specially Assessed Homesite 150–308–1140
Qualified Specially Assessed Homesite Valuation 150–308–1150
Ratio Calculation for Open Space Lands 150–308–1500
Additional Tax Calculation and When to Impose Additional Tax 150–308–1510
No Additional Tax 150–308–1520
Deferred Additional Tax (ORS 308A.706) 150–308–1530
Disqualification Notification Procedures
Last Updated

Jun. 8, 2021

Rule 150-308-0280’s source at or​.us