I’ve been asked by a lot of people about property tax values. Many people tell me they are shocked at the increases they are seeing both in their residential property and commercial property. They’ve asked me to share my thoughts on whether they should do anything about these higher numbers.
Mecklenburg County recently completed a revaluation of area values, and county staff have given estimates of an average 44 percent increase in residential properties and an average 77 percent increase in commercial properties. Depending on what happens to local tax rates, the increase could create problems for some owners.
The county tax rate will be set in July. Perhaps the rate will drop by 20%. If the county plans to set a rate that would be revenue neutral it would equate to a 25% drop. Word on the street is that the county’s rate would be a six “something”. Right now the county’s tax rate is .8232 per $100 of value, so setting a rate at “six something” would make it roughly a 20% drop.
What happens if you appeal? There is an informal review where an appraiser looks at the value and makes a change if determined to be warranted. You might ask, what do I have to lose – I will just appeal! That is not sound reasoning, as you will be warned on the county’s website. Your taxes could go up if the county discovers that they overlooked something during your appeal. This happened to yours truly back in 2011 during the last county-wide assessment. I knew that the county made a mistake in my favor, but they caught another mistake that went against me that I was not aware of, which resulted in a nominal increase.
You will recall that there were a number of problems in 2011 and how the county conducted the revaluation. In hindsight, the county now knows that it is an art to assign value to commercial assets and that they can’t just let a computer algorithm crank out values. There needs to be human eyes evaluating the information on hand to make sure tricky determinants of value, such as the building’s net operating income (“NOI”), are carefully evaluated.
For now, let me share some tips from my friend and fellow Counselor of Real Estate (“CRE”) member David Pawlowski, owner and president of Tax Advantage Property Services, LLC in Charlotte.
He shared that he looks for the following when a client is considering an appeal:
- What is the historical vacancy of the building? Remember that the most important method of valuation is the income approach. However, tax assessors do not have the benefit of the rent roll from the building. They have to make assumptions about the building’s income and they may be wrong.
- What is the market capitalization rate (“cap rate”)? The valuation constants that the industry uses (called cap rates) fluctuate and vary based upon product types. Did the tax assessor get it right?
- Is the county’s property information correct? This is the information that is available to everyone. This information is remarkably accurate, but it can be wrong from time to time resulting in a dramatic change in your tax value.
When calculating values, the county has three methods: cost of replacing the asset, comparable values, and the “income approach”. David says that by law the assessor must give heavier weight to the income approach. It is important to note the assessor doesn’t have access to the rent roll (the building’s true income), so it is no surprise that values determined by this approach are often wrong. As an example, the tax assessor must take a look at a class A office building and use class A average market rates, while in reality most tenants are long-term tenants who signed after the economic downturn and are paying half those rates. This is where a tax appeal expert can provide valuable information. This is tricky, and the reputation of the assessor is very important to make a successful appeal.
Also, note that May 20, 2019 is the appeal deadline.
The county has done a better job this time around. They applied more correct rent. Last year, the system spit out numbers via computer, this time humans were more involved. But an appeal still could be worth looking into.
In all, if pursuing an appeal, it is recommended that you work with someone who has a good relationship with the assessor. Relationships matter in real estate – and in taxes.
Cardinal has many friends who work with appeals, such as David. Call me and I can help you find the right person who can advise you on what’s best for your situation.