Property Taxes: Things to Remember

By Randolph T. Mason, CCIM, SIOR, Partner, Commercial Realty Specialists: How is the value of a property determined if it has not gone to market yet?

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Local Property assessors are in the business of generating revenue for their local municipality. Period. Local property tax amounts are generally calculated based upon the value of the property. Here’s a question for you? How is the value of the property determined if it is purchased off market and never actually goes on the market, which would create a competitive purchasing environment?

I’ve heard of situations where the local assessor taxed the buyer a significantly higher amount based upon the assessor’s own appraisal, because the property had been purchased by the current tenant/occupant from the landlord, it had never gone to market. The way I heard it went was as follows: The tenants wanted to buy their own facility, so they began looking around in the market and then decided to approach their current landlord to see if they would be willing to sell. The seller was interested in selling and subsequently sold the property to the tenant. Fairly straightforward. Except, a year or so later, the new buyer (past tenant/occupant) received the tax bill based upon a value that was significantly higher than the amount for which they purchased the property. The assessor’s rationale was that because the property never hit the market, this in fact could have been a sweetheart deal for the buyer, which would impact the properties tax base.

The buyers originally had the property appraised by their bank, which showed the price paid was fair. However, the assessor felt the comparables that the bank’s appraiser used were in a wider radius than what the assessor used and therefor did not accept the bank’s appraisal.

The moral of the story is that a buyer risks reassessment based upon an assessor’s appraisal should the property never have gone on the market. The new buyer might be pleased that he or she has paid significantly less than what the market value was. However, the drawback might be that now he or she needs to pay more in property taxes.