Real Estate Tax Appeals

There are a few ways to make money.  One is to raise income, and the other is to cut expenses.  Keep in mind that in real estate both income and expenses have a direct relationship to value.

Usually, real estate taxes are a big portion of the expenses.  In this economic climate of decreasing values in real estate, appealing your taxes maybe a way to unearth continued reduction of expenses.  While restating the obvious, this helps in more ways than one.  Not only are your expenses lower, the value of the property is higher.

Since this is a commercial or residential investment property either for sale or rent, it ultimately will be sold based on what the value, perceived or not, is to someone else.  With a lower tax bill, its value is more.  How much more is a topic for another article, but for argument’s sake, it can be worth your savings x 8%.  This is called a CAP rate.  In other words, if you save $1,000.00 annually, you have potentially increased the value by $8,000.00

A word of caution–cities, townships and municipalities are not going to make it easy for you.  Recently, I have seen them make it more difficult and more expensive for you to get your taxes reduced.  Remember, what is your gain in reduced expenses is their respective loss of income.

For residential 1-4-family units, you usually do not need full appraisals.  Comparable sales, possibly a Broker Price Opinion from a realtor and an income and expense statement you can put together yourself are usually the only requirements.  However, I have seen some of the Assessor Boards require a full appraisal, so be on the alert for this as a requirement.

On multi-units and/or commercial real estate, the Assessor Boards usually require full appraisals.  If an appraisal is required, the cost of such appraisal will depend on what type the municipality wants, the property involved, and of course, how well you can negotiate.

Of course, in some instances you can submit your own comparable sales, and depending on the property type and Assessor Board, even furnish your own income and expense statement.

If you do not wish to do the work yourself, there are companies and some law firms that specialize in real estate tax reduction appeals.  Usually, the standard deal is you do NOT give them anything up front, and they take 50% of the first year’s savings.

Depending on your skills and the marketplace, you might be able to negotiate the fee.  Again, you can do it yourself for free. .  I usually negotiate their fee to be net first year’s savings so the cost comes off the top.

You need to check with the particular tax assessor’s office to find out all the details.  Also, be aware of the deadlines.  Most of them have an appeal date once a year so you may or may not have time depending on when you wish to commence the appeal.

If you miss the yearly appeal deadline date, you will have to wait until the following year.  Be aware that some require your documentation to be submitted 30 days in advance of the appeal date.  You can also shop around for the cost of the appraisal.

Recently, my experience has been that municipalities are requiring appraisals to substantiate the lower values.  Some are also charging filing and other fees for the process.

In general, if real estate values have decreased by 35%, then your taxes should drop by the same percentage.  However, as I previously stated, be cautioned. I just received notice that the real estate taxes for one of our commercial properties are being increased $21,000.00 to $71,000 annually.

Needless to say, that was not a great piece of mail to receive, but my point is the cities are putting pressure on everyone to make the process of reducing your taxes as difficult and complicated as possible.  (Yes, we are appealing it and hope to settle on $50,000.00.)

I also just lost an appeal where the property was assessed at $1,300,000 and the appraisal valued the property for $750,000.00. We are appealing the appeal. So stay tuned. They need the revenue and don’t want to lose it.  If you follow the procedures and are prepared, you will see big savings.

It’s worth the paperwork and battle, hands down.

I advise you to review all of your real estate tax bills on an annual basis in order to make a proper determination of whether or not to proceed with an appeal.