Lately, many property tax appeals have revolved around “Dark Store Theory”. Is this really a scheme by property tax consultants to evade taxes? Definitely not.Read More
Where do property tax assessments go wrong? So many ways...
Valuators love adjustments. You see it all the time in appraisals - this street is 3.5% better than that street, this warehouse is 152 square feet bigger than the subject - you get the picture.
The problem is - do buyers really think of purchases this way? Look at the stack of cookies below. There could be a whole series of reasons why one is superior to another. The top one might dry out a little more. The one just below looks much thicker - more cookie for your money! The one on the bottom might be accidentally touched by people taking other cookies - a definite negative.
In reality though - if you like cookies, you would be happy with any of them. The tendency to make valuation look like quantum physics is real, but it is a mistake. Time an again valuators take some factor (especially financial metrics when dealing with complex properties) without asking the most important question: "Would any buyer or seller consider this?"
More and more I am finding that the most convincing expert isn't the one with the most initials after their name, or the one with the most complex model. It's the one whose approach makes sense.
You may have heard that municipalities are gradually eliminating the Vacant Unit Rebate and the Excess Land tax class. How will this affect your business?
Do you have chronically vacant space? Maybe portions of a plant which are no longer needed? Or unused, undeveloped land, excess to what you need? If you have received rebates or a lower tax rate in the past, your taxes might be going up.
This is the time to have your property assessment reviewed. These very issues can also affect the value of a property. In the past assessors would often reason that since the Vacant Unit and Excess Land program reduced the taxes, there was no reason to adjust the value. This was never a good argument - value and tax rebates are two entirely separate issues. With the changes coming in many municipalities, chronic vacancy now needs to be recognized for the valuation issue it is.
An important factor in challenging an incorrect assessment is timing. Deadlines to file appeals, rebate applications, and requests for reconsideration are generally absolute - in normal circumstances, once the date has passed, the opportunity is lost.
Assessment notices for the 2017 to 2020 property tax cycle are now out in Ontario. The deadline to challenge these values is coming up fast. Do you know if your property tax assessment is correct? If not, now is the time to get the gears in motion!
When can the "correct" assessment be the wrong assessment? When your competitors are assessed incorrectly.
If your property is assessed at 100% of its current value, but similar real property is assessed at significantly less than current value, this is an inequity. In Ontario, the property taxpayer is entitled to the lower of the correct or the equitable assessment.
While many taxpayers may feel they have a good idea of how much their property is worth, it can be very difficult for most to determine if their assessment is equitable. This type of analysis is part of every review I do.
Sometimes the value of a property is reduced not because there is anything deficient in the building itself, but because of factors external to the property. Imagine owning the very last wagon wheel factory - the plant might be highly efficient and very well maintained, but the market has gone away. Today the rise of portable computing devices has negatively impacted several industries. Increased globalization has resulted in a geographic shift in manufacturing. If an affected facility can't be easily re-purposed, then it likely should receive a reduction for external obsolescence. There are many other examples of how such external factors can reduce the value of a property - is your facility affected?
One of the most frequent issues identified in assessment appeals is functional obsolescence. In short, when the building you have is different from the building you should have, there is likely obsolescence. Has the use of your building changed since it was constructed? Is your building too big? Too small? Poorly laid out for your purpose? Do you have parts of the building that are unusable? Is your building taller or shorter than you need? The answers to these and other questions may indicate the presence of functional obsolescence.
Not every case of functional obsolescence looks like the picture below. In many cases the inefficiency is easy to miss - and may very well have been!
The simple premise of property tax assessments is that a property is to be valued at its market value. What would its value be in a sale between a willing buyer and a willing seller? MPAC uses mass appraisal techniques, which often miss local market factors.
This building below - is it located in a large city, or a small one? Or maybe a rural area? Is it zoned for redevelopment? Is there a nearby factory with a major contamination issue? How are nearby similar properties selling? All of these questions should affect the assessment.
Is your building showing signs of decay? Does the roof leak? Do you have many unnecessary windows that keep getting broken?
If there is evidence of wear and tear, ask yourself - when is the last time an assessor inspected the building?
In these times of financial restraint, capital budgets are often tight. Although your building might appear to be in good shape, deferred maintenance is a significant issue, which should be considered by the assessor.
MPAC has approximately 1500 employees, but this includes management, admin, and technology. This leaves well below 1500 actual assessors to value over 5 million properties. It is perhaps not surprising that data errors arise.
But the process the assessors use, especially for industrial type properties, is complicated, and it can be very difficult to find the errors. Every building, every change in height, age or construction, has dozens of separate data points in the assessor's records. I helped in the initial launch of MPAC's Automated Cost System ("ACS") - and I excel in finding how it has been misapplied.