Taxes may be a certainty, but when it comes to property tax, the amount of taxes owed is not. That’s because commercial properties can be appraised in different ways, depending on who’s doing the appraising: an assessor or a fee appraiser. It’s important to know the differences in these commercial property appraisal methods so you’re better prepared to advocate for a fair assessment—and the appropriate amount of taxes owed.
Commercial Property Appraisal Methods: Assessor Vs. Fee Appraiser
For property tax purposes, tax jurisdictions employ assessors to value commercial properties located within that particular area. Assessors may have thousands or even tens of thousands of properties to assess in what’s usually a fairly short period of time. To accomplish that task, they use “mass appraisal” techniques. In a very general sense, that involves complex calculations based on certain statistical parameters related to a building’s main attributes—square footage, location, visual condition (though they aren’t always inspecting them fully), etc.—and the average sale prices for similar properties in the area.
Most assessors do their best to approximate fair market value, but their value estimates may not always be as precise as they could be. The statistical method is intended to essentially predict a fair market value transaction price. But there are often errors in the calculations, or specific reasons why your building may not fit in with the “average” statistical sampling. For example, assessors may assume that most buildings have a similar level of modernization when it comes to technology infrastructure, but this might always not be the case. Outdated cabling, hidden deferred maintenance, power supply limitations, and other infrastructure elements could devalue the property, greatly impacting the resulting valuation.
A fee appraiser, on the other hand, is usually hired by a business specifically to produce a detailed commercial property appraisal estimate, called a “fee appraisal.”
A fee appraiser generates an estimate by physically inspecting the property, examining it, and measuring it. They’ll compare your building to other, similar buildings with similar situations—similar size, condition, location, functionality (such as single-story vs multi-story, or single tenant vs multiple tenants), and financial history. Such thorough analysis allows them to give a more precise determination of a property’s value, including a detailed report of how the estimate was made.
In property tax, precision is key. Advanced property tax software can improve the accuracy of your recordkeeping and process data faster than your team can manually. Schedule a demo to see it in action.
How To Ensure An Accurate Commercial Property Valuation
If you suspect your commercial property has been overassessed by a tax assessor, it’s worth looking into, simply because assessors’ estimates are almost always lacking in precision. Consider, too, the geographic area where the property is located. Assessors working in a large, economically active area (such as where we’re located, in Dallas County) have access to a great deal of data on previous commercial property transactions, all of which will improve the accuracy of their estimates. But if you’re located in a smaller area or have a unique building or asset, it may get lumped into a statistical category that isn’t totally appropriate. If that’s the case, it’s entirely possible you’re not being assessed properly.
To ensure the lack of precision isn’t going against you, the first step is to do your own determination of value on the property. (See the four commercial property valuation methods in this article for guidance.) If those calculations indicate that the property is overassessed, take the next step of hiring an appraiser and getting a full fee appraisal. And finally, the appeals process is in place for a reason—you can always present your findings to the assessor and ask for an adjusted valuation amount. Chances are good that, if you’ve done your homework, your pitch will be a success.