Is Your Real Property Over Assessed?

Whether it’s a small claims review of a single family home or a nuclear power plant, the basic valuation issue is the same: what is the fair market value? Indeed, Article XVI, Section 2 of the New York State Constitution prohibits assessments from exceeding full market value.

the concept of market value has many dimensions. For example, the Uniform Standards of Professional Appraisal Practice (“USPAP”) deftnes the term as follows:

a type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition of the term identifed by the appraiser as applicable in an appraisal.

 

In addition, not all municipalities value properties at full, or 100%, market value. For a variety of reasons, these jurisdictions may assess properties at a fraction of full market value. the ratio of assessed value to full market value is known as the “equalization rate.”

A basic method of ascertaining market value is well known to anyone who has ever purchased or sold a home: comparable sales. If there is a measurable market for the type of property at issue (sometimes called the “subject” property), appraisers will look to sales of comparable properties in attempting to value the subject. Adjustments are then made for factors such as location and sale conditions.

If the real property produces income such as rents (as opposed to income purely from business operations not dependent on realty), a second approach to valuation may be used: the capitalization of income method. Essentially, this methodology rests on the principle that income from real property can determine market value using, among other data, costs and a capitalization rate. Where both a market (comparable sales) and income approach are used in an appraisal, the results of each will then be reconciled into an overall estimate of value. Although the approaches differ somewhat in their methods, they share in common the fact that the higher a property’s expected net income, the greater will be the price expected from a prospective purchaser.

Unique, “specialty” properties (for which there are no comparable sales and which do not generate income) may be measured a third way: the cost method. Essentially, this approach evaluates how much it would cost today to reconstruct the subject property. this methodology tends to result in higher values than the market and income approaches, and is less favored by appraisers and courts.

Overvaluation is not the only basis on which an assessment may be challenged. Other theories include illegality (e.g., where a property is assessed as taxable when it is entitled to at least a partial exemption); misclassification (in assessing units that distinguish between homestead and non-homestead properties); and inequality (where a property is assessed at a higher percentage of full value than other comparable properties).

Again, a taxpayer wishing to pursue one or more of these theories in court must be sure to include them, in the first instance, in the administrative grievance complaint. Also, many property owners have achieved reductions in their assessments by presenting comparable sales or other data to their assessor or Board of Assessment Review. However, the fact that your neighbor’s home may be underassessed does not, by itself, entitle you to a reduction. the relevant issue, again, is whether your property is assessed at market value.

In defending assessment challenges, municipalities and school districts have many factors to consider. For example, it is frequently in their interests to seek opportunities to resolve tax certiorari cases early in the process, meaning within the first year or two of the litigation. this can reduce the payment of refunds in cases where property is overvalued, and dismissals can be achieved by attorneys experienced in the specialized procedure that governs tax certiorari actions.

though they both depend on revenue from property taxes, school districts and assessing jurisdictions can have differing interests. For example, school districts usually receive the greatest percentage of tax revenue and may be less willing to resolve cases by paying refunds. By contrast, municipalities, frequently desire to preserve their tax base in future years. Of course, municipalities control key parts of the assessment process while school districts, who are significantly affected by the outcome of tax certiorari disputes, often must take affirmative steps (such as intervening in litigation) to ensure that their interests are represented. Municipalities and school districts who communicate effectively can work together productively toward their shared goal of defending the assessment base. John Refermat is ready to answer your questions and work with you. Please contact him at (585) 324-5762.