Monday, March 31, 2014 is the deadline to file a Complaint Against the Valuation of Real Property (“Tax Complaint”) with your county Auditor. Filing a Tax Complaint can save a property owner thousands of dollars in real estate taxes if the value of their property has been affected due to changed circumstances. Have you recently purchased real property? Have property values in your neighborhood decreased due to foreclosures or other factors? Do you own commercial property that has experienced increased vacancies, or other concessions that significantly lowered your property’s income stream? If you answered “yes” to any of these questions, filing a Tax Complaint with your county’s Auditor may be appropriate.
In Ohio, real estate taxes are assessed in arrears, meaning that property owners will pay the real estate taxes assessed in 2013 during the year 2014. Property owners have until March 31, 2014 to file a Tax Complaint against the real estate paid during tax year 2013. Property owners who fail to file a Tax Complaint prior to the deadline lose the ability to challenge the real estate taxes paid for the year 2013.
Under Ohio law and Department of Taxation rules, real property in all counties is reappraised every six years and property values are updated in the third year following each sexennial reappraisal. The reappraisal involves the physical inspection of all parcels in a county, and occurs in the years leading up to the effective reappraisal year. By contract, an update is a statistical analysis of property values to ensure the values are equitably distributed based on comparable sales. In either event, it is likely that your taxes will increase. In Franklin County, the last sexennial reappraisal of property values occurred in 2011. Tax year 2014 is an update year in Franklin County meaning that any Auditor changes would first be reflected in the first tax bill coming due during 2015. A complete listing of reappraisal and update years for every Ohio County can be found here.
The current assessed value of your real property is publicly available on the Auditor’s website in your respective county. The property taxes you pay each year are based on the Auditor’s determination of the fair market value of your property. “Fair market value” in this context means the most probable purchase price an interest in real property is likely to bring in a competitive market. In many instances, the Auditor’s periodic estimation of fair market value is higher than the true fair market value of a parcel of real property that is affected by changed circumstances. Filing a Tax Complaint provides property owners a mechanism to challenge the Auditor’s estimation of the value of real property, and potentially lower their annual real estate taxes.
Determining Fair Market Value of Your Property
If you recently purchased or sold real property, the best indication of the fair market value of your property is the sale price. In many cases, the Auditor will accept the purchase price paid as the fair market value and revise the assessed value of your property accordingly. This assumes that the purchase price was based on an “arm’s length transaction” between disinterested parties of similar bargaining power. If you believe that the value of your property is not accurately reflected with the Auditor based on a reason other than a recent sale, then you may need to hire an independent Appraiser to determine the value of your property, especially in the case of commercial property.
Appraisers primarily use three methods to determine the value of real property: the Sales Comparison Approach; the Cost Approach; and the Income Capitalization Approach. Under the Sales Comparison Approach, a parcel is compared against recent sales of similarly improved parcels in the same geographic area. The Sales Comparison approach best applies to valuing residential housing with no more than three residential units. An appraiser compares your property to the selling prices of properties of comparable size, location, and with similar improvements. If the properties are dissimilar, the Auditor will not accept the comparison as an indicator of your property’s fair market value. A qualified appraiser will make adjustments based on disparities between properties to arrive at an accurate value under the Sales Comparison Approach.
The Cost Approach estimates the fair market value of the property based upon the cost to replace all buildings and improvements on the property, deducting depreciation or other loss in value, and adding the estimated value of the land on which the building and improvements are located. This approach is best for newer construction, as well as in locations where the Sales Comparison approach is precluded by a lack of comparable properties in the area.
Finally, the Income Capitalization Approach determines the fair market value of real property based upon the property’s ability to produce an income stream. The appraised value is determined by such factors as vacancies, debt service, and the owner’s return on investment. This approach primarily evaluates commercial properties.
Whichever valuation method is appropriate for you, an experienced and qualified appraiser should conduct the appraisal. An appraisal’s cost will vary based upon the property type involved, the appraiser’s experience, among other factors.
Before firing off a tax complaint to the county auditor, property owners should also be aware of a few pitfalls. First, the application must be filled out properly, if not perfectly. Tax Complaints can be dismissed on the slightest technicality. Incomplete or incorrect owner’s name? Dismissed! Fill-in the incorrect parcel number? Dismissed! Sometimes even forgetting to “check” the correct box on the form can result in dismissal. If your Tax Complaint is dismissed, you lose the opportunity to challenge the real estate taxes for the tax year filed, resulting in your taxes remaining at their current assessed value.
Second, strict evidentiary rules govern who is permitted to testify as to the value of the real property. For example, if the person who performed an appraisal is not present at the hearing, hearsay rules may disqualify the appraisal as evidence.
Property owners should be aware that in many cases the local school board files a Counter-Complaint to contest your revised property valuation. In fact, the law requires the Board of Revision to notify the local school board if the property owner seeks a decrease in value of $50,000 or more. An attorney will represent the school board, and you can be sure that they will be looking to dismiss your Tax Complaint based on the technicalities addressed above.
Given the various pitfalls it is highly advisable that property owners contact an attorney prior to filing a Tax Complaint on their own. If you have any questions, please call our offices at 614-344-4800.