There are essentially four elements in developing a strategy to minimize property taxes: The law, dates and timing, risk and reward, and a professional team. As in many aspects of real estate, there are practical considerations and then there are details to be addressed by specialists. Here are some points to consider in your strategy development: 1. The law that governs property taxation can vary greatly among states, and practical knowledge of tax law is not confined to simply how frequently jurisdictions reassess, but also to how, and what, is being taxed? In certain states, for instance, property is assessed…

The value of property is influenced by demographic fluctuations. Thus, when property owners receive their tax assessment each year, it is essential that they and their tax professionals carefully examine demographic changes in the markets where their properties are located. Estimated demographics are available at any time, but the end of a census provides a unique opportunity to mine for demographic gold. What’s Important about Demographics? A high-end shopping mall in a metropolitan statistical area (MSA) with a decreasing population is a prime candidate for a valuation reduction. The property owner’s ability to sustain sales is declining along with the…

In states recognized for their fair property tax systems, five characteristics account for their being called fair. 1. The tax appraisal process is separate from tax levy and collection. Giving an appraisal district sole responsibility for assessing tax values removes valuation from political influence. It also promotes transparency, because a single value is established on a property for use by all taxing units. 2. All properties are treated the same and all values are set by an easily understood standard. The valuation of property based on 100 percent of market value each year accomplishes both of these goals. It is…

Appraisers can choose from three approaches to determine what a buyer would pay for a commercial property. But which approach is the most appropriate method of valuation?  The cost approach assumes that buyers will pay no more for a property than it would cost them to build an equal substitute. The appraiser calculates the cost to build the property and subtracts physical, economic, and functional depreciation.  Appraisers prefer this approach for newer properties that lack an operating history. The cost approach is also preferred for unique or specialty properties because no comparable properties may exist.  The income approach assumes that…

In ad valorem tax disputes, commercial property owners and their tax counsel often are so focused on rent rolls, occupancy, capitalization rates and other big-picture considerations that they overlook special conditions affecting value. There is “ore to be mined” in less obvious areas, however.  Here are five factors to consider in making sure a tax protest covers all the bases.  1. Subsurface Conditions. Geology can weigh heavily in determining fair market value. Common examples include old mining activity, limestone formations and sinkholes, earthquake events, flood plains and periodic flooding. The property owner may already have information along these lines, and…

The recession has left its mark on the budgets of state and local governments nationwide. Revenue shortfalls have forced states to slash their budgets and, oftentimes, withdraw state aid pledged to local governments. Cities, towns and school districts are now forced to raise property taxes, their main (and sometimes only) revenue source. Struggling with escalating tax burdens, taxpayers cry out to their elected representatives to put a lid on the always rising local property tax and support property tax cap initiatives. The tax cap is an old device that’s found new life in these hard times. At the forefront of…

It may seem odd to be thinking about commercial property tax appeals in January. Yet now is the best time to begin, particularly in Texas, which has an annual reassessment cycle and where the system works quickly and rewards those who prepare early. No matter where you are, however, advance preparation will usually pay off. First compare your 2010 value to what you think the fair market value should be. This will give you an idea of what to expect for 2011. Review appraisal district records and determine whether assessors are using the income, cost, or sales comparison approach to…

A recurring challenge to prevent over-assessment of commercial property is to separate true real estate value from business value. True real estate value is assessable for property taxation, while business value is not.   Commercial property owners who conduct businesses on their property must be vigilant to ensure that the assessor is not capturing the value of their business operations in the guise of assessing their real estate. This can occur if the assessor assesses the property under an income approach and includes the owner’s business income in his or her computations, claiming that this income is attributable to the real…

Assessors in many jurisdictions value hotels based upon comparable sales of similar properties on a per-room basis, resulting in overstated taxable value and unfair tax bills.   In valuing a hotel on a per-room basis, assessors turn a blind eye to the personal property within those rooms. Items like the bed, television, chairs and other personal items are reflected in sales prices, but are not part of the real estate.  Not limited to guest rooms, personal property extends to dining room furniture, computers, lobby furniture and the like. In many jurisdictions, these items are separately assessed as personal property. When personal…

As municipalities reassess real estate within their jurisdictions, those counties and cities which are required to rely upon market value, as opposed to formulaic or historic cost based approaches, have a major problem.  The lack of transactions in the late 2007-late 2009 time frame means that appraisers’ jobs will be far more complicated.  How to estimate market rent when there are a few tenants signing leases?  Is there a way to determine market-based capitalization rates when there are few sales from which rates can be derived?  How to calculate band of investment capitalization rates when mortgage financing is so difficult…