Property taxes are the largest expense outside of debt service for income producing properties. Many property owners generally accept their assessed property valuations without questioning its comparison to true market value as of the lien date. In this current economic environment more property owners need to take a close look to see what they can do to reduce their property tax exposure. This is especially true now with all states, cities and counties experiencing additional stress on their budgets due to significant drops in tax revenue. Local taxing authorities will now be under more pressure to raise revenue.
One of the most common factors causing a decline in property valuation is economic duress. Some of the market factors causing this are:
Lower effective rental rates
Increased vacancy
Increased operating expenses
Rising capitalization rates
Increased competition
Any decline in a property’s Net Operating Income performance could indicate a form of economic duress.
Most assessor offices are understaffed and do not have the resources to complete detailed valuations, most rely on mass appraisal techniques. These techniques utilize general assumptions and often have significant errors and omissions. It is important to keep in mind that the filing of a formal appeal does not relieve the property owner from paying the current taxes.
Key Property Tax Dates: In California the County Assessment Appeals Formal Filing periods are from July 2 to either September 15 or November 30 depending on the county.
If the taxpayer does not file an appeal by the deadline date they lose any opportunity to reduce the property taxes for that year. Depending on the number of appeals filed the Clerk of the Assessment Appeal Board (AAB) will schedule a hearing. The Revenue and Taxation Code requires the AAB to hear cases and render a decision within two years from the appeal filing. This is the only time constraint legally placed upon the counties. During declining real estate markets the number of appeals filed increases and it is not unusual for counties to take 18 months or more before cases are heard.
At the AAB the assessor’s opinion of value is presumed to be correct. The appraiser or assessor’s representative will present their case to sustain the current assessed value. The burden of proof is on the taxpayer or their representative to substantiate their opinion of true market value as of the lien date and demonstrate weakness in the assessor’s case. It is not enough to demonstrate that the current assessment is erroneous. You must determine an opinion of value and be able to support the value under questioning from the assessor and the AAB.
Common reasons why appeals are denied by the AAB include:
Inadequate or irrelevant information
Lack of knowledge of the AAB rules and regulations
Insufficient market knowledge and experience
Lack of knowledge or experience to highlight deficiencies in assessor’s evidence
Ironstone Group’s property tax valuation team reviews assessments and prepare initial property valuations of fair market value for all of our client’s properties. If the property taxes appear to be excessive we file an appeal.