The old adage that the only thing constant is change rings true for many commercial property owners — especially in relation to assessed values. It's not uncommon to see exponential increases when notices go out, even during years when a property underwent no noticeable upgrades.
Why do assessed values fluctuate from year to year? What factors influence these changes? And what can you, the property owner, do if you believe your assessment is out of range? The Lane team is here with some answers. In this blog post, our commercial real estate experts delve into the factors that impact your assessed values — and ways to ensure you're only paying what's fair.
How Do They Determine the Assessed Value of a Commercial Property?
Commercial property assessments serve as the foundation for calculating property taxes. They play a crucial role for local governments, generating revenue for public services such as schools, infrastructure and public safety. To determine the assessed value of your commercial property, appraising or taxing entities employ a complex process that takes various factors into account:
- Market Analysis: Assessors often begin by analyzing recent sales data of similar commercial properties in your area. This allows them to gauge the current market conditions and property values.
- Property Inspection: Assessors may visit your property to assess its physical condition, size and overall features. Any updates, renovations or additions will be noted during this inspection.
- Income Approach: For income-producing properties such as office buildings or rental properties, assessors may consider the income generated by the property. The higher the income, the higher the assessed value.
- Cost Approach: This approach estimates the cost to rebuild or replace the property minus depreciation. It's particularly useful for properties that do not generate income.
- Comparable Sales: Assessors compare your property to others in the area with similar characteristics, such as size, location and usage.
While the above factors can all play their role in determining your commercial property's assessed value, it's important to remember that county appraisal districts (CADs) are tasked with valuing each and every commercial property within their jurisdiction — each and every year.
Most of these entities turn to mass appraisal systems to speed the process along, essentially lumping all commercial properties of similar types, sizes, class and geographic locations together. While this does allow for expedient appraisals, more often than not it generates assessed values that don't accurately reflect a commercial property's physical characteristics and/or condition. For that reason, we recommend protesting your assessed value annually.
Factors Impacting Your Commercial Property Valuation
There are a number of issues that can contribute to changes in a commercial property valuation — some of which are within the property owner's control, and some which aren't. Here are a few common factors that come into play.
- Market Fluctuations: Changes in the local real estate market can significantly affect your property's assessed value. A booming market can lead to higher valuations, while a declining market may result in lower assessments.
- Changes to a Property's Condition: Any improvements made to your property, such as remodels, additions or renovations, can increase its assessed value. On a related note, damage or disrepair can move its assessed value in the opposite direction.
- Change in Property Usage: A shift in the property's main use, such as converting a warehouse into a retail space, can also impact the assessed value.
- Inaccurate Data: Errors in property records or inaccurate information provided to assessors can lead to incorrect assessments.
How to Fight Back Against High Property Taxes
If you believe your commercial property valuation to be an inaccurate, it's important to take action. At Lane, we recommend protesting your high property taxes on an annual basis to protect your bottom line. Here's a high-level look at the steps involved.
- Contact a Professional: The first (and arguably the most important) step when fighting high property taxes is to enlist the services of a property tax advocacy firm such as Lane. When you work with a seasoned professional, you have support from experts who specialize in navigating the appeals process, are familiar with complicated tax laws and can leverage long-held relationships with appraisal district officials. Those efforts combined help you build a stronger case — and improve your likelihood of successfully lowering your assessed values.
- Review Your Assessment: Carefully read through your assessment notice to ensure all details are accurate. Does your notice include the right name and address? Does the previous year's data match up? Clerical errors are rare, but they can happen. And when they do happen, they can have a substantial impact on payments.
- Gather Evidence: Collect information that supports your case and presents a clear picture of your commercial property's current state. Recent property appraisals, comparable sales data, repair estimates and photographic proof can all help clear up inaccuracies.
- File an Appeal: Submit an official appeal with your local taxing authority — and be sure to do so within the specified timeframe. As a general rule, you have until May 15, or 30 days following receipt of your notice, to get the appeal process started. Your property tax advocate can guide you through this process and represent your interests.
- Attend Hearings: Hearings play an important role in the process of protesting your high property taxes. Things typically begin with an informal hearing with a staff appraiser, which works much like mediation. Here, you'll present your case, the appraiser will present theirs and you'll (hopefully) come to an agreement that appeals to both parties. If no agreement is reached, you'll move on to a formal hearing in front of an appraisal review board (ARB), where both you and the staff appraiser will present your cases. If you're working with a property tax firm like Lane, they'll be able to attend such hearings on your behalf. This can be extremely helpful, as hearings can be time-consuming and stressful — and it's important to approach them adequately prepared.
- Pursue Arbitration or Litigation: If your formal hearing doesn't work out in your favor, your final option is to consider arbitration or litigation. Your specific path will depend on your commercial property and its value. As with hearings, your property tax firm can attend arbitration and litigation hearings on your behalf — and it's recommended that they do so in order to present your case in the best possible light.
Navigating your commercial properties' assessed values is easier with the right team by your side. If you have questions about any of the above, or if you're interested in learning how Lane can help you fight to lower your property taxes, feel free to reach out at any time. We'd love to help!