What's Next: Fighting And Winning Property Tax Appeals

Column for What’s Next website FIGHTING AND WINNING PROPERTY TAX APPEALS

By Mark Levine Most people look at their property tax bill as being etched in stone. Instead, look at it as being written in pencil.

The real estate tax bill you receive in the mail is your local government’s wishful opening bid in a negotiation. Treat it as such, and you’ll be able to simultaneously cut your expenses and boost the value of your home.

Local governments are under increasing pressure to increase revenues as the states and Federal government tighten their belts. The two primary ways local governments can raise money are sales and property taxes. It’s very tough politically to raise sales taxes since they’re so ubiquitous. Raising property taxes, while still unpopular, has advantages. First, the bill only comes once or twice a year. Second, most homeowners don’t even see the bill since their mortgage holder pays their taxes for them. Third, and most importantly, you can increase revenues from property taxes without actually needing to raise rates. That’s because property taxes are calculated by multiplying the tax rate by the assessed value of a piece of property.

The term assessed value can mean almost anything, depending on local practices and ordinances. It could mean current market value, 70% of market value, or even something as bizarre as 1938 replacement cost. The assessment itself could be based on anything from a thorough interior and exterior inspection to a cursory glance at a document recording a sale, again, depending on local practice and policy.

This subjective and frequently murky calculation has as much influence over property tax revenues as the actual tax rate. By ordering the local tax assessor’s office to be more aggressive in estimating the value of property, a municipality can substantially raise revenues. Let’s say a community has a local property tax rate of 1.5%, the national average. A home that’s assessed for $100,000 would owe a tax bill of $1,500. If the assessment was suddenly deemed to be undervalued and was increased to say, $120,000, to better reflect its market value, the homeowner would owe taxes of $1,800. That’s a twenty percent increase in tax revenue without any change in the tax rate itself. A neat trick, and one that’s increasingly being practiced by cities, towns and villages across the country.

Municipalities love an excuse to reassess property values. The most obvious is a sale. In communities that assess properties at 100% of market value (called ad valorem assessment) any time a property changes hands it’s an opportunity to boost the assessment and as a result, revenues. Readily apparent renovations are just as opportune. Adding space, amenities, or improving the overall physical condition of the property are all considered grounds for increasing an assessment. So, any time there’s a request for a building permit, an inspection, or there are plans filed, there’s also an opportunity for the municipality to reassess the property to perhaps reflect an increased value.

The increased aggressiveness of municipalities has led to an upswing in the number of homeowners who are successfully appealing their tax bills. While nationally the percentage of homeowners launching appeals is still low, between three to five percent, many states are seeing record numbers of cases. New Jersey and Oregon are just two of a handful of states that have had their tax appeal cases double each year for the past five years. What’s surprising is that more people aren’t doing it.

Since the entire property tax process, from assessment to collection, is done at the local level, a homeowner only need deal with a bureaucratic step ladder. The process is as citizen–friendly as small claims court so it’s usually okay to skip the lawyer. Nationwide, more than 50% of homeowners who do appeal their property tax bills succeed in getting a reduction. In some states the percentage is as high as 75%. In New York’s Nassau County alone, taxpayers receive more than $100 million in property tax refunds annually. In Illinois, the average successful appeal results in a $300 to $400 cut in taxes.

Not only will a successful appeal put money back in your pocket, but it will probably increase the salability and price of your home. Faced with two comparable homes which would you find more attractive, the one with a $4,000 annual tax invoice or the one with only a $2,500 yearly bill? Wouldn’t you be willing to pay a bit more for that $1,500 a year savings? Besides being profitable and usually successful, tax appeals are often easy and inexpensive.

If you own, or have contracted to buy a property, you can appeal its assessment. (So can your designated agent or heirs.) There are three basic grounds for appealing your assessment: errors, inequality, or illegality.

Errors: Assessors and the support staff in an assessment department are all too human. A surprising number of tax records contain miscalculations, clerical errors, and even omissions. A house that’s actually only 1,500 square feet could be recorded on the tax roll as being 1,700 square feet because someone hit the wrong key. Or you could still be paying taxes on a garage you knocked down three years ago because the report your contractor filed on the demolition got chewed up by the assessor’s fax machine.

Inequality: Fairness is what counts in property taxes. If homes are supposed to be assessed at 75% of current market value, and yours is assessed for 85% of what it’s currently worth, you’re not being treated fairly. If your home is assessed at a higher value than other properties comparable to yours, you’re not being treated fairly.i And if you just bought your home for $150,000 and find it’s assessed for $180,000, you’re certainly not be treated fairly.

Illegality: Assessment rules must be followed to the letter. Any time an assessment is not made in the manner legally required, it’s grounds for appeal. Your property might be classified improperly, or the assessor could have used the wrong formula in coming up with his or her number. In either case, or any other technical case of error, you’ve excellent grounds for a successful appeal.

Don’t assume that a recent drop in real estate prices should automatically be followed by a drop in tax assessments, warns Richard Fromewick, an attorney with the Mineola, NY-based firm of Meyer Suozzi English & Klein who’s an expert in tax certiorari (the legal name for the assessment appeals process). Assessment committees, particularly in those municipalities that use 100% assessment, usually only look at values in three-to-four-year cycles. Remember: their primary concern is fairness; they’re not overly concerned with price declines as long as everyone’s home is dropping equally.

If, after receiving your tax bill, you believe you have grounds to appeal your assessment, your first step should be to call the assessor’s office and ask two key questions: when the appeals period is, and what is the process. If you’re in an area with multiple taxing authorities, say a county and a village, Fromewick advises you call both to see if you need to go through two separate appeals procedures.

Generally there is only a short period of time each year—often three to six weeks at the end of the calendar year—when tentative annual tax rolls are published and are open for appeal. After that period the assessments are, except in rare cases, final. Procrastinate and you’ll be out of luck for a year.

Most communities have well established “small claims” procedures in place for residential assessment appeals.

These generally involve an informal meeting with the assessment department, followed, if necessary, by a hearing in front of appeals officers. Usually there’s a nonrefundable filing fee of between $5 and $25.

If you’ve found an obvious error in your assessment, present your evidence and it will often be corrected by the assessor at the initial meeting, eliminating the need for even a hearing.

On the other hand, if you’re appealing on the grounds of illegality, you may be better off hiring a lawyer who’s better equipped to handle technical arguments, according to attorney Roger Cohen, a real estate specialist with Warshaw Burstein Cohen Schlesinger & Kuh of New York City. You can get the names of attorneys who specialize in tax certiorari from real estate brokers, your personal attorney, or the local bar association. Cohen adds that fees are usually on a contingency basis. You’ll pay a flat fee up front for the lawyer’s costs, often about $100, followed by a charge of anywhere between 25 to 50 percent of the first year’s savings. If they lose the case you’re only out the up-front fee.ii If you have the time and don’t mind doing some research, you should be able to handle an appeal based on inequality yourself. Explain your case to the assessor at your initial meeting and ask exactly what kind of evidence you should bring to the hearing to document your argument. Don’t be afraid of tipping your hand. This isn’t an adversarial procedure. Assessors aren’t like IRS tax examiners, and hearing officers, while placing the burden of proof on the homeowner, are only looking to be fair.

The success of your argument in front of the hearing board rests with your evidence, not your eloquence. Forget the oratory and concentrate on research. According to Richard Fromewick, if your home is assessed for more than you recently paid for it, bring copies of the purchase documents to prove the selling price. If your assessment has been increased by more than the cost of a recent renovation, bring along proof documenting your costs, and offer

your own judgment of how much the work added to your home’s value. If your home is assessed for more than similar homes, or those similar homes have recently had reductions in their assessments, bring copies of the tax records of those comparable properties, and offer an opinion as to what your home’s assessed value should be.

These records can be obtained by going over the property rolls at the assessor’s office. Don’t rely on letters from real estate brokers or even appraisals. Hearing boards want to make their own independent analysis.

Don’t be surprised if the hearings officers offer a compromise settlement, somewhere between the original assessment and your proposed reduction. If you aren’t willing to compromise, or receive a negative judgment, you are free to appeal. However, that would need to take place in a judicial setting and, according to Roger Cohen, you’d probably be wise to hire an attorney. Be a gracious negotiator by accepting your partial victory. Just make sure to check your tax bill again the next year.iii Sidebar IT’S THE ASSESSMENT THAT COUNTS Need proof that it’s assessments rather than tax rates that count when it comes to property taxes? Just take a look at this chart, listing the U.S. cities with the top ten highest property tax rates.

Newark, NJ, may have the highest tax rate in the country, 4.02 percent, but when that’s coupled with an assessment level of only 17.6 percent, the taxes on a property with a market value of $100,000 come out to a miniscule $707.52. Portland, ME, on the other hand, has a significantly lower rate, 2.46 percent, but its 100 percent assessment policy would lead to a tax bill of $2,460 on that same $100,000 property. But even that pales next to another New England city: Manchester, NH, which is proof of what happens when you couple a high tax rate, 3.48 percent, with a high assessment rate, 113 percent. That adds up to an annual tax bill of $3,932.40.

City

Tax Rate Per $100

Assess Level

Total Taxes on

of Assessed Value

% of Market Value

$100k property

1. Newark, NJ

4.02%

17.6%

$707.52

2. Bridgeport, CT

3.96%

58.6%

$2,320.56

3. Manchester, NH

3.48%

113%

$3,932.40

4. Milwaukee, WI

3.32%

94.9%

$3,150.68

5. Providence, RI

3.04%

100%

$3,040.00

6. Des Moines, IA

3.95%

68%

$2,686.00

7. Detroit, MI

2.76%

46.9%

$1,294.44

8. Philadelphia, PA

2.64%

32%

$844.80

9. Houston, TX

2.61%

100%

$2,610.00

10. Portland, ME

2.46%

100%

$2,460.00

i

There’s one important exception: California. Thanks to the famous Proposition 13 which became state law in 1978, assessments cannot rise

more than 2 percent per year. However, when a home is sold, it can be reassessed at its true market value. That means two comparable homes can have dramatically different tax bills, based solely on when they most recently changed ownership. ii

There’s nothing automatically wrong with law firms that solicit tax appeals business through direct mail offers. Often they charge less and are

more successful than firms with less volume. Still, you need to be careful. Just because you received a letter doesn’t mean you’re probably over assessed. Check the comparables yourself before sending in your check. iii

Some municipalities permit annual appeals while other don’t allow an appeal the first year following a previously successful appeal.