When a property in your commercial portfolio receives an assessment increase, there are probably a lot of questions that pop into your head.
The first and most important: “Should I appeal this or not?”
Unfortunately, there’s no “one-size-fits-all” approach to commercial property assessment appeals. A successful appeal could lower your property tax liability. But, depending on your unique situation, an appeal might not be worth the time and effort – and in some cases, it could even expose you to greater liability.
In this blog, you’ll learn several key factors to consider before making an appeal decision.
How Large Is Your Assessment Increase?
Here’s a simple rule of thumb: If your property assessment increases dramatically – it’s almost always best to appeal. To better grasp “dramatically,” think in terms of a property that’s assessed at $5 million increasing by another $500,000. With smaller assets, anything that increases by 20% or more should be a red flag.
If you significantly expanded square footage in the last year, the assessment increase may be accurate. If not, the assessing jurisdiction may have made a mistake. In any case, it’s certainly worth investigating and likely worth appealing.
On the other hand, if your assessment increase is less dramatic (say 10%), the decision to appeal is murkier. If you have a clear understanding of your property’s appraised value and keep clean personal property records, you’re able to compare jurisdiction data with your own records and make an informed decision.
How Much Documentation Do You Have?
If you want to appeal a property assessment, you need to have a basis for it – one that’s backed by the appropriate documentation. As you compile your data and determine your commercial property’s true value, be sure to consider:
- Submarket rentals. What are nearby commercial properties leasing for?
- Submarket sales. What are nearby commercial properties selling for?
- Submarket conditions. What neighborhood elements are affecting your property’s value?
In addition, there are other factors that may impact the assessed value, like property improvements and business conditions. If, for instance, you have a factory that isn’t running at capacity because of general economic conditions, you’ll want to show the documentation to support that.
Remember, once you open the discussion about the assessed value of your property, the taxing jurisdiction can come back with an even higher amount than they started with. So, make sure you have the documentation in place to vigorously support your numbers.
Do You Need An Appraisal?
Typically, the most straightforward way to determine your real property’s value is to engage a qualified appraiser. However, not all appraisals are worth your time and money. Property tax appraisals, specifically, are often highly involved and expensive, depending on your location and portfolio.
A property tax appraisal makes sense in the following scenarios:
- When it's required by law
- When the difference between the market indicators and the county value is significant
- When it’s cost beneficial, meaning the tax savings are greater than the appraisal cost and other costs incurred in the appeal process
- When it’s necessary for litigation, including mediation and settlement conferences, depositions and judge hearings
On the other hand, if the tax savings might be less than the cost of the appraisal or if the jurisdiction won’t give the appraisal any weight, it may be better to consult a broker for his opinion. Or, you could engage an appraiser for a preliminary opinion of value, and if their indication supports your theory, you can pay for a full appraisal.
Hard Choices, Important Results
The decision to appeal a commercial property assessment increase isn’t always easy, but it’s always important. Your appeal’s tax implications affect your bottom line, so the choice shouldn’t be taken lightly.
For the greatest success, arm yourself with the information you need to make the best decision, and consider working with a third-party expert to align data and ensure compliance with much less effort.
Get critical tips for challenging a commercial property assessment increase. Download Your Free Whitepaper, 5 Reasons You Should Challenge Your Current Commercial Property Tax Assessments.