Ax the Tax: Reducing Your Property Valuation

The following outline summarizes the presentation that we made at the 2011 Texas Self Storage Association Trade Show in Austin this summer.  Though the presentation was directed to self-storage owners, the information is applicable to nearly all commercial properties.

This will give a very simplified summation of the appeal process including who is involved, the appraisal process, common assessor flaws, and the taxpayer’s remedies.

Players and Their Roles

Appraisal District – responsible for appraising all taxable property at its January 1 market value.  Does not assess taxes on properties.

Tax Collector – responsible for assessing and collecting taxes based on certified appraised values multiplied by tax rates of local jurisdictions.

Property Owner – responsible for understanding appraisal, assessment, remedies, and deadlines for remedies.

Know Your Property

Appraisal records may have inaccuracies which lead to incorrect assessments, to include:

– number of units / square footage

– unit mix

– amenities

– usable building and land area

The Appraisal

Cost Approach – most commonly used for new construction.  Considers replacement costs new of improvements, applies depreciation, and add back market value of land.

Flaws –  If improvements are not accurately identified and classified, then impossible to come up with accurate valuation. Rarely reflects market value.

Sales Comparison Approach – often leads to aggressive valuations.  Compares sale prices of similar properties, making adjustments for differences, to derive at value for subject.

Flaws – Sales comparables often not confirmed, so accuracy of data is questionable.  Assessors typically provide gross sale price range, often not making adjustments for differences in comparison to subject property.  Artificially low cap rates due to non-realty factors included in purchase.  Prices may be inflated due to projections that do not materialize, nor reflect value as of date of sale.

Income Approach – capitalization of net income stream to determine value.   Typically most accurate, but not with mass appraisal.

Flaws – CAD/Assessor estimates market data to include rents, vacancy, expenses, and cap rate.  CAD rarely accounts for all rental concessions.  Subject actual income and expense factors may vary dramatically from CAD model/estimates.  Cap rates used to derive value often artificially low.

Appeal Steps

– Discuss your assessment with the appraisal district to see if correction can be made to assessment based on your evidence of value.

– File appeal and once again present errors in county assessment as well as your evidence to appraiser.  If satisfactory adjustment is not granted, present your case to the Appraisal Review Board for determination of value.

– If desired, defensible valuation not granted at review board, file binding arbitration or lawsuit.

Obviously this is a very simplified outline, and each property has unique issues affecting it and its assessment.  Please feel free to contact us to discuss a more detailed game plan on how we can pursue tax savings for your properties.