Assess Your Tax Assessment

Are you a commercial real estate owner who is concerned about a higher-than-expected real estate tax bill? It may be time to review your real estate assessment.

As a real estate owner or investor, you know that property values directly impact real estate taxes, and those values are based on assessments. This means that the assessment process is a significant factor in determining the amount of taxes you pay each year to your state or municipality. Although each state and municipality may have unique nuances in their assessment process, the macro-level assessment process is similar. As a commercial real estate owner, it’s important to consider these questions and understand the assessment process to effectively manage your tax liabilities.

To provide some background, real estate is often valued using one of three commonly known methods:

  1. Direct Capitalization / Income Approach – under this approach market rent, capitalization and expenses are used in a calculation to derive a valuation
  2. Sales Comparison Approach – under this approach comparable market sales are used to determine valuation
  3. Cost Approach – this approach is commonly used for new buildings and are not yet producing income and value is determined based on cost

In many cases real property is assessed using general metrics that are applicable to a particular jurisdiction without much in depth knowledge on property specifics. Some property specific data such as vacancy rate, net leasable area, or other property characteristics could play a role in how the real property is valued. It is important to understand that general valuation metrics do not always accurately represent the value of each property – the one size fits all, rarely ever fits all.

It is always beneficial to analyze comparable sales or going market value to establish a baseline for what your property value may be. Then you can look at property specific items that could impact the assessed value of the property. Has there been a drastic change in vacancy rate percentages of the property in the near term? Is there an industry trend that is a contributor to such change? Has there been a locality specific impact that is driving the change? Have characteristics within the property changed which reduced the portion of the property that is available for lease? What were the contributing factors that lead to the decreased leasable area? These are just a few items to consider when analyzing your real property assessment.

If you haven’t had your property assessment reviewed by a professional advisor in the last few years, it might be beneficial to do so. There are advisory and consulting firms that specialize in property assessment review, consultation, or appeal services. These firms provide in-depth analysis and consultation for when it is appropriate to challenge an assessment and what steps to take throughout the process.

Our real estate clients frequently utilize appeal services to ensure that their assessments are accurate and equitable every year. If you have any inquiries or concerns, please do not hesitate to contact us.

By: Dustin Cutlip