As with the appraisal of other property for local tax purposes, the three accepted approaches to value (income, sales comparison, and replacement cost less depreciation) are applicable to the valuation of billboard structures.
The sales comparison approach requires verifiable accurate sales information of individual billboards. Outdoor advertising structures are generally sold in bulk, and the transfers include ongoing concern and host agreements. These transfers typically are not recorded on filed deeds; therefore, it may be difficult to obtain information on the sale of billboards. When information becomes available, an allocation of the sales price for billboard structures may be necessary.
The income approach requires net operating income/economic rent to be capitalized into a value for a specific property. While the income from a ground lease may be capitalized into a value, the income realized from the sale of advertising space is business income that is subject to other taxes in North Carolina. If the income approach is used, economic rent must be applied. Therefore, careful consideration and accurate income analysis must be made or the income approach will not yield reliable results.
Due to the many difficulties inherent in the appraisal of billboards when applying the sales comparison and the income approach to value, our office recommends that for assessment purposes in North Carolina, these structures should be appraised using the cost approach to value with billboards being treated as personal property. The cost approach provides an efficient methodology to uniformly value billboard structures. The replacement cost less depreciation avoids the complicated allocation process and other issues associated with the income and market approaches. The data contained in this manual is based on information extracted from material costs, labor, and other integral components of billboard construction. The valuation of each sign will be determined by calculating the replacement cost new (RCN) and then deducting depreciation based on an effective age depreciation schedule. The effective age schedule is provided to assist appraisers in estimating loss in value due to physical depreciation, functional and economic obsolescence. As a result of the revision process for 2009, the billboard depreciation schedule has been calculated based on billboards showing little, if any depreciation, and in most cases, appreciating over time. The depreciation schedule is based on a 25-year life for wooden structures and a 50-year life for steel structures. It is recommended that the depreciation not be lowered more than 40 percent remaining good as long as the structure is continuing to produce a viable income stream.
For the vast majority of billboards, no negative or positive adjustment is appropriate for physical condition. As long as a billboard structure can support a sign face, the physical condition most likely has little effect on the income stream, and therefore the physical condition may not be particularly important. Only the worst structures and perhaps the very best billboards will fall outside of the recommended schedules.
