Tax Appeal Professionals: “Success is Appealing”

It feels pretty good coming off a large tax appeal victory with the King County Hearing Examiner that reduced our clients’ assessment by over $3,000,000 on large industrial manufacturing plant in the Georgetown neighborhood of Seattle. We figure our client had approximately $35,000 to $40,000 cut off his annual tax burden that year. He was very pleased with the outcome, as you can imagine.

Assessment appeals have become ever more prevalent since the fallout of the real estate market over the past two years. We have seen trends in the past, where the assessor valuations were considerably below market value, (some appraisers have claimed that 15% to 20% below market was the norm). The reason for this, however, was not due to some behind the scene political collusion.

Remember, the assessors’ task is to derive a market value for all real property in the county in order to distribute the tax obligation in a fair and consistent manner. They are not tasked with the responsibility of deriving tax levy rates- that is left up to the various taxing jurisdictions and their respective politicians.

As such, the reason for your tax assessment being generally low over the past eight years or so is largely attributable to the rapidly increasing market conditions. The assessors simply could not keep up with the rate of appreciation that was occurring. Alternatively, the recent rapid decline in the market did not warrant the assessor office enough time to reconcile their values in the other direction, and many properties are easily being over assessed by a comparable amount.

Commercial and residential property owners across the board, consequently, are potentially faced with increasing tax burdens- poor timing in light of the looming economic downturn. This is coming as quite a shock to many of our clients who are just now coming to grips with the hard reality that anticipated gains in home equity and/or the durability of commercial income streams have dissipated.

Like property owners, assessors too are caught it the wash of this turbulent market that has just gone from bubble to burst. They rely on a combination of historic sales evidence and anticipated future income benefits to determine a property’s value. During a typical long term trend of inclining or declining market conditions, it is relatively easy to find supporting data to derive credible valuations. However, when the direction of a market changes drastically, an information lag often exists that limits ones ability to perform a valid analysis.

This has contributed to one of the biggest valuation crises in decades, and will likely continue to occur until the market stabilizes in late 2010 and into 2011. Subsequently, your local assessors will potentially be missing their mark for some time to come.

The good news is that this uncertainty of information provides a great opportunity for debate. A seasoned real estate appraiser or consultant can be very effective in guiding an examiner to figure out the true market value of your property.

Sharing this experience

The typical experience begins when a potential client calls us to talk about the appeal process. In most cases, there has been a drastic change in their assessment and they want to talk to a professional about how best to proceed.

On an aside, we often hear of cases where the assessor has reduced the “improvement” value to essentially nothing, while sky-rocketing the “land” value. This can be a confusing and startling event for many property owners. Especially, when there is plenty of economic life remaining in their property. Yet, please be aware that this is a common practice in dense urban settings. It is the result of a highest and best use analysis performed by the assessor whereas they find the value of the underlying land as a redevelopment site outweighs the value contribution of the improvements.

When such circumstances are true, it is common practice of appraisers to value the property by taking the land value, plus the net present value of any income stream, less the future demolition costs. This is a typical thought process employed by the most probable purchaser- a developer or speculator. The assessor, to some extent, follows a similar methodology. If this happens to you, my advice is to ignore the value of the property, as improved, and focus all of you attention on arguing the land value. You may result in better outcomes by simplifying your attack on the comparable sales, versus trying to convince the assessor that their methodology is wrong.

On first conversation, we typically engage with the client to perform a preliminary data collection for the subject property, which includes a comparable property search. Following, we advise the client on whether we feel they have any significant claim for appeal. If substantial evidence is available, we would advise the client to engage me to perform an appraisal that will be used as evidence in the hearing. Simultaneously, the client would submit the appeal petition to begin the legal process with the Board of Equalization. Upon confirmation of a hearing date, the client can either present the appraisal findings him or herself, or hire us to present the findings.

One important aspect of the presentation, especially when working with commercial property, is that the details of each comparable can be very complex. For instance, the petitioner would benefit from understanding the nuances of ingress/egress, corner influences, traffic signals, access to transportation linkages, and overall property productivity analysis that includes dozens of other site and structural characteristics. Many of these items are often misunderstood by property owners, and the assessors themselves. Alternatively, presenting a clear understanding of these items and how they impact value can be very persuasive in front of an examiner.

The process for appeal

For a detailed discussion of how the appeal process works, please read the blog on our website titled How’s My Tax Assessed Value High in THIS Market?. The links may be expired, yet the overall discussion is still relevant today.

General outline of the process

1. Preliminary consultation to examine subject and market comparables
2. Submit appeal petition to the BOE
3. Prepare appraisal
4. Establish hearing date
5. Prepare for the hearing
6. Hearing
a. Location is typically in the county administrative building
b. Actual hearing protocol
i. Present opinion of value to examiner
1. Focus on sales comps and income characteristics
ii Assessors’ presentation of value
1.Not an appraisal, mostly statistical analysis and charts.
iii Rebuttal and closing