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Are You Over Paying Your Property Taxes?

A real estate appraisal can be used for many purposes. One important reason that comes to mind this time of year is having an appraisal completed on your industrial, commercial, or income-producing real estate for property tax purposes. Many property owners are not aware that an accurate appraisal of real estate may provide significant cost savings for a business owner.

Taxpayers should review the equitability of their property tax assessment. The fairness of property taxes is related to the Fair Market Value (FMV) placed on the property by the County assessor. The FMV multiplied by a percentage factor known as the Equalization Ratio equals the assessed value; the tax rate applied to the assessed value yields the tax on the property. The tax rates levied by the County, Locality, or School District are not negotiable, but the assessed values of the property can be.

Are you overpaying?

Taxpayers should review the equitability of their property tax assessment. The fairness of property taxes is related to the Fair Market Value (FMV) placed on the property by the County assessor. The FMV multiplied by a percentage factor known as the Equalization Ratio equals the assessed value; the tax rate applied to the assessed value yields the tax on the property. The tax rates levied by the County, Locality, or School District are not negotiable, but the assessed values of the property can be.

Many property owners are unaware that they may be paying higher property taxes than they should due to the incorrect assessment of Fair Market Value. Furthermore, many assessments are significantly old, in some cases nearly 20 years, and are not as reflective of current market values. Property owners who do not review their assessment in comparison with market trends will find that they may be over paying taxes due to a poor assessment.

In many states, county assessments are conducted by specific procedures. Typically, counties utilize mass appraisals to determine the FMV of parcels in their county at a given point in time. A Mass Appraisal is the process of valuing a group of properties as of a given date, using standard methods, employing common data, and using statistical testing. Since the average county assessment office is responsible for the proper assessment of thousands of properties, mass appraisal is the only viable way to complete the counties’ appraisals in a reasonable amount of time. In addition, the costs of conducting the mass appraisals is significant, and hence, these are done infrequently and in some cases not for several decades.

However, there are several issues with mass appraisals. Mass appraisals do not take into consideration the unique characteristics of different properties that may cause them to be worth more or less than the county’s assessed value. The accuracy of a mass appraisal is based on the appraiser’s ability to keep all of the pertinent information (market data, cost factors, depreciation schedules, land values, etc.) complete and up-to-date.

In the case of commercial, income-producing, or industrial property, the Income Approach should be considered to determine value. Appraisers will try to use available income data which is not always accurate or up-to-date. When this happens, the sales comparison approach is considered, but if there are not enough comparable sales, this approach cannot be used. This leaves the cost approach which is a valid approach, but the results may not be as representative of the income approach which is the preferred method for valuating income-producing properties.

Providing support

An independent real estate appraisal can provide the proof a property owner needs to ask the county assessor for a review of property taxes in an informal meeting, or can be used as evidence for a formal property tax appeal. Elizabeth (Betsy) Dupuis, a residential and commercial real estate attorney for Babst Calland, State College, and a Licensed Title Agent, explains it this way:

“An appraisal is necessary for tax appeals unless you have a property transfer and a bona fide sale. Every county is different on how they view the same and many will still require an appraisal to confirm that the transfer was at fair market value. In our county, they will often accept the sale price as sufficient evidence of value for residential properties but not for commercial properties (there’s too many other ways, beyond purchase price such as the income approach, to determine value of commercial space). You can file the tax appeal without an appraisal but the Board of Assessment (which in most counties are made of up appraisers) will request an appraisal to confirm your “claim” as to value and certainly a court of law will require one too (if you appeal from the Board of Assessment).”

The fairness of property taxes is usually a value issue; business owners should look at the County’s assessment of FMV on the property. Not every reassessment will result in cost-savings, but if the assessed FMV is higher than the value of your property via a market data analysis, contact an appraiser. Don’t continue to pay more than your fair share!

Allyson O'Malley

About the Author

Allyson joined EAC Valuations full-time in September 2013. Prior to accepting a full-time position, she often assisted EAC in a freelance capacity in the area of marketing. She is currently completing the required training and classes to be a Pennsylvania Certified General Appraiser.

 

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