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Commercial Property Valuation For Property Tax: When To Bring In The Experts

Posted by Carl Hoemke on Aug 6, 2019 10:59:11 AM

Commercial Property Valuation For Property Tax: When To Bring In The Experts

You’re probably aware of the availability of experts who offer commercial property valuation services, but you may not know when or if you need them (or what exactly they bring to the table). This article covers the most common reasons why companies enlist a valuation expert for property taxes, and how to know if you should consider hiring one.

When Commercial Property Valuation Expertise Is Helpful


With regard to property tax, there are essentially two situations in which hiring an independent valuation expert is a worthwhile exercise:

  1. When you don’t know the value of an asset. If it’s been a while since you purchased the property; if the market has experienced a change since your original purchase; or if you’ve made significant alterations to the property since you bought it, it can be difficult to know when an assessed value is too high. Or, you may have recently purchased a property as part of a larger transaction with many components, and while you may know the value of the property itself, you might not know the value of the non-taxable assets included in it (for example, if you know the value of a hotel property but not the value of the intangible assets included with the business). A valuation expert can help you understand the value of your property in more detail, and set the foundation for property tax assessments going forward.

  2. You have suspicions you’re being overassessed. Even if you believe you know the value of an asset, it’s wise to bring in an expert if you suspect you’re being overassessed. Experts have access to more data than you have surrounding the assessed values of properties around you, transactions that have occurred in the same geographic area, and how your own property’s assessed value stacks up.

What are some signs that might indicate you’re being overassessed?


The below key metrics can be used to help identify a possible over-assessment. (Check out these software tools in conjunction with the below.) If the numbers in the following areas seem unusual, it may be time to get an objective opinion about your property’s fair market value:

  • Assessed value rate of increase vs. inflation rate. If your property’s value increased over the previous year at a rate greater than the rate of inflation, it should be cause for further investigation. Let’s say your value is 10% higher than last year, but the inflation rate was 2%. Sometimes that indicates you’re being charged more for property taxes than you should be (the assessed value increased more than the actual fair market value). Other times, the disparity might be explainable—for instance, if there’s been a lot of economic growth in the region. If the former is the case, you may want to bring in an expert to define the property’s true market value.

  • Your assessed value vs. the assessed value of other, similar properties. Compare these values by looking at assessors’ websites to determine how other buildings (similar to yours in condition and type) in your surrounding area are being assessed, either on a per square foot basis or a total value basis. If your property’s value is not changing in uniformity with other, similar properties, enlist the help of a valuation expert to conduct an appraisal.

  • Change in revenue (for properties being leased) vs. change in valuation. If you charge rent for the use of your property, evaluate the change in revenue from last year to this year and compare it to the change in the assessed value. If the change in revenue went up by 10%, that might justify a similar change in market value. But if your rents have gone up 2% and the value went up 10%, that’s an indicator your property may be overassessed. An expert can help in this case as well.

What does an expert bring to the table?


As noted above, commercial property valuation experts often have access to data that property owners don’t, which makes them useful partners in ensuring you’re being taxed fairly. But there’s more to it than that.

Involving an independent expert in appeals gives you a better chance of being successful. (Tweet this!) As a property owner who’s actually paying the taxes, you could be viewed as biased by the board or assessor. In contrast, the conclusions of an expert who is known to be reputable and fair are likely to hold more weight. (Valuation analysts are subject to professional standards and codes of ethics to ensure their opinion is objective.) He or she is also usually able to produce and present more data to build a stronger case. And finally, many valuation experts have extensive experience presenting cases, making them better able to support their findings.

 

If you decide to hire a valuation expert for your commercial property valuation, you may need to do some research and networking to find the best person to represent you. Ask about their techniques and approaches, the length of time they’ve worked in the field, and the appraisals they’ve done in the past year. The success of the partnership ultimately depends on the expert’s ability to produce a thorough, accurate assessment that will stand up to scrutiny.

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Topics: Valuation