Three Tips for Success in Appealing Commercial Property Taxes – Due to the national drop in property values, cities are seeing a rise in commercial property tax appeals, and in turn are becoming more aggressive in defending themselves according to Capital Retail Group, a commercial real estate firm based in Washington, D.C.
Carefully reviewing and evaluating your real property assessment is important to determine if tax appeal proceedings should be initiated. If a commercial property owner thinks they should appeal, Capital Retail Group recommends the following tips:
Learn the Tax Appeal Process:
One of the keys for property owners is learning the language and process of property tax appeals. It can be complicated, but if the owner is willing to take the time they can save money.
In the District of Columbia, The Board of Real Property Assessments and Appeals is the second-level real property assessment and appeals process. Prior to filing with the Board of Real Property Assessments and Appeals, a First-Level Administrative Appeal must have been filed with the Office of Tax and Revenue – Assessor’s Office typically by April 1st of each year.
Understanding the Valuation Criteria:
Owners will want to know the valuation criteria in determining the value of their property. According to Robert Tack, CEO of Capital Retail Group, “Each taxing jurisdiction publishes a detailed report on the respective valuation approaches. For commercial properties the cost and income valuation methods are most common.”
The income approach is very common in the valuation of commercial property. Income valuation follows the generic formula of Market Value = NOI/Capitalization Rate, where NOI is the net operating income of the property and the Capitalization Rate is a market derived overall direct capitalization rate. When properly developed and calibrated, this approach is a reliable indicator of market value of income producing properties with in a mass-appraisal system.
The market-derived cost approach to the valuation of real estate follows the generic formula of Market Value = ((RCN LD) + land value), where RCN is Replacement Cost New of the improvements and LD means Less Depreciation. When properly developed and calibrated, this approach is a reliable indicator of value.
The owner is responsible for the burden of proof to support the targeted value. This means that appeal cases must be well-supported and documented to generate savings. Robert Tack of Capital Retail Group says “If the owner isn’t prepared with detailed documentation it will be hard to actively challenge their cities assessment. It pays to know what you are doing.”