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Am I over-assessed? If so, how did it get that way and how are assessments lowered?

The rule of thumb is that 1/3 of the properties are over-assessed, 1/3 are under-assessed and the remaining 1/3 are properly assessed. Why aren’t all properties assessed properly to begin with?

Even if there was a correctly-assessed tax roll to begin with, it would not stay that way. Tax rolls deteriorate over time due to disproportionate appreciation or depreciation.

According to NY State Law, assessments are supposed to be proportional to value. This means that if you live in a $200,000 house and I live in a $400,000 house my assessment (and hence my taxes) are supposed to be twice as much as yours — provided we live in the same districts and have the same exemption status.

It is the responsibility of the assessor’s office to finalize the tax rolls every year in order for property taxes to be derived. Each taxing district, such as school, Town, County etc. must finalize a budget. After that, the Receiver of Taxes is responsible for deriving tax rates which will be applied to every property assessment in order to charge each property owner its fair share.

Your assessment is key to how much you are charged, and it is the assessor’s job to make sure that assessments accurately reflect true market value.

In New York State, we have the Uniform Assessment law, which means that all property must be assessed at the same percentage of value. However, the actual percentage is not mandated and can be any percentage the assessor chooses. Technically, it’s not important what the percentage is; what’s important for fairness is that all property be assessed at the same percentage or at a “Uniform Percentage of Value.”

In a perfect world, assessments would be at 100% of value so that a $500,000 assessment would mean that your home was being assessed and taxed at a $500,000 market value. This would make things very easy to understand and certainly make this explanation very simple. However, it is very difficult to maintain assessment rolls at 100% of value because market values usually change every year. To maintain assessments at 100% would require that assessments be adjusted as the market values fluctuate.

Now this wouldn’t be such a daunting task if all properties appreciated or depreciated evenly (at the same percentage change). For instance, if it was determined that every property on a tax roll had appreciated 20%, all assessments could be adjusted 20% and all would be good. Unfortunately, that’s just not how it works. When the “market is up 20%,” that is an average and does not hold true across the board. Some neighborhoods might have appreciated 20% while others, in a different school district, might have only increased 5%. This would throw off the entire tax roll because now different properties are assessed at different percentages of value. This is the assessor’s dilemma.

So in order to correct for shifts in market value the assessor would have to maintain the tax roll by periodically re-assessing. The problem is that most assessing districts do not have the time, staff or budget to maintain the rolls adequately and correct these shifts in value. In addition, re-assessment creates much confusion for the taxpayers and can be a political nightmare for elected officials.

An interesting aspect of this is when values change, the assessor does not get to pick the fraction of assessment unless there is a re-assessment. Instead, the fraction of assessment in a sense picks them. It’s based on shifts in value and the actual fractions of assessment to value as measured on the tax roll.

Every year the actual fraction of assessment for each assessing district is measured by the New York State Office of Real Property Services (ORPS). It is their responsibility to measure the fraction of assessment in all assessing districts across the state for purposes of resolving property tax disputes and for other needs that require estimates of wealth for school aid, etc.

So every year the average fraction of assessment is measured by ORPS and issued to each assessment office. It is this fraction that enables a taxpayer to determine the actual market value that their assessment and property taxes imply. It is this value that we are actually protesting when we lower property taxes. Our expertise is essentially in the valuation of real estate and it is our job to prove that our client’s properties have been over valued and hence over charged.

Paul Henry
President
Tax Reduction Services

Very often I’m asked what it is exactly that we do at Tax Reduction Services. My answer invariably alludes to the fact that we are experts in the valuation of real estate.

According to New York State Real Property Tax Laws (RPTL), real estate is to be taxed proportionally to its value. This means that if your property is worth $200,000 and mine is worth $100,000 then you should be paying twice as much property tax as I do, provided we live in the same taxing districts (school, town, etc).

The key to all this is “worth”. Our mission is to determine and prove that certain properties are over-valued on the tax rolls which results in being over-charged for property taxes. A major hurdle in this process is the actual determination of value. Values can be very elusive at best. Valuation is not an exact science but there are numerous, accepted methodologies that are used to estimate market value.

The most accepted measure of value for property tax purposes is a recent sale. In accordance with NYS RPTL, the courts have determined that a recent arms length sale (a sale where no relationship exists between seller and buyer) is the best indicator of Market value for residential properties. There are other issues that might render a recent sale un-usable such as distress (as in foreclosure), divorce or an estate sale. Distress does not always mean that the recent sale was not market value, but it usually is sufficient for the courts to exclude it.

In the absence of a recent sale the determination of value becomes much more complicated and subjective. Our process requires that an estimate of market value be submitted in the form of an appraisal. There are several different methodologies that can be used to estimate value. For residential properties the courts have established that value be defined as the amount that a willing buyer would pay to a willing, un-distressed seller, in an arms length transaction.

The burden of proof is always on the petitioner. Therefore we must determine and substantiate an estimate of market value to achieve our mission and reduce a property tax. The accepted approach to valuation involves identifying comparable sales (comps) and making adjustments based on the differences between the comps and the subject property to derive an estimate of what a willing buyer might pay a willing seller on the open market.

It is the assessors’ job to produce a fair and equitable tax roll each year by establishing a value for every property so that it may be taxed proportionally. When a grievance is filed the assessor will either acknowledge that the property has been over-valued or more likely attempt to defend the assessment with their own estimate of market value based on recent sales and adjustments.

If you’ve ever tried to sell a property you know that different people will be willing to pay different amounts for the same property. Although there are accepted, empirical methods that are used to establish values there are many additional variables that effect what a buyer might be willing to pay which are not so measurable or predictable. These factors can create much variance between buyers.

The real estate market might be moving up or down. The economy might be on the upswing or down swing. The actual appearance of the exterior of the subject property (curb appeal) or the conditions at the neighbor’s house across the street, which might be temporary (such as an un-kept yard), might affect a buyer. The interior might be furnished or professionally staged as opposed to vacant and empty. How about the old “cookies in the oven” trick. These are a few of the variables that affect sales price which cannot really be factored into an appraisal.

This blog will explore all these kinds of factors that affect the value of real estate. It will deal with the micro-values of individual properties and the psychology of the buyers and sellers. It will dwell into the macro-economic issues that drive a real estate market up or down and the other factors and events relevant to market values and our livelihoods. From time to time there will be guest essays by experts in the field and much analysis of the actual trends, as they develop.

Stay tuned.

Paul Henry
President
Tax Reduction Services