March 31, 2011 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 in real estate taxes if the value of their property has been affected due to a change in circumstances. Have you recently purchased real property? Have property values in your neighborhood decreased due to foreclosures or other factors? Are you the owner of commercial property that has experienced increased vacancies, or other concessions that significantly lowered your property’s income stream? If the answer is yes to any of these questions, it may be appropriate to file a Tax Complaint with your county’s Auditor.
In Ohio, real estate taxes are assessed in arrears, meaning that property owners will pay the real estate taxes assessed in 2010 during the year 2011. Property owners have until March 31, 2011 to file a Tax Complaint against the real estate taxes coming due from 2010. Property owners that fail to file a Tax Complaint prior to March 31, 2011 will lose the ability to challenge the real estate taxes paid for the year 2010.
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 due to a change in circumstances affecting the value. Filing a Tax Complaint provides property owners with a mechanism to challenge the Auditor’s estimation of the value of real property, and potentially lower their annual real estate taxes.
If you recently purchased real property, the best indication of the fair market value of your property is the purchase price you paid. 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 is assuming that the purchase price was based on an “arm’s length transaction” between 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.
In determining the value of real property, Appraisers use three main valuation methods: the Sales Comparison Approach; the Cost Approach; and the Income Capitalization Approach. First, 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 is most applicable to valuation of residential housing containing no more than three residential units. An appraiser would compare your property to the selling prices of properties of similar size, location, and with similar improvements. If the properties are dissimilar, the Auditor will not accept their comparison for a determination of the fair market value of your property. 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 involves estimating 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 most applicable to newer construction, and 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 a stream of income. Such factors as vacancies, debt service, and the owner’s return on investment are analyzed to arrive at the appraised value. This approach is primarily used to evaluate commercial properties.
Whatever valuation method is appropriate for you, the appraisal should be conducted by an experienced and qualified appraiser. The cost of an appraisal will vary based upon the type of property involved, the experience of the appraiser and other factors. Property owners also should be aware of a few pitfalls before firing off a Tax Complaint to the Auditor.
First, the application must be properly, if not perfectly, filled out. Tax Complaints can be dismissed on the slightest technicality. Incomplete or incorrect owner’s name? Dismissed! Type or write in the wrong parcel number? Dismissed! Sometimes even forgetting to “check” the correct box on the form? Dismissed! If your Tax Complaint is dismissed, you will lose the opportunity to challenge the real estate taxes for the year filed, and you will continue to pay taxes at the current assessed value.
Second, there are strict evidentiary rules regarding who is permitted to testify as to the value of the real property. For example, if the person that performed an appraisal is not present at the hearing, then the appraisal may not be allowed into evidence because of hearsay rules.
Finally, in some counties, if the property is owned by a corporate entity, only certain individuals (a licensed attorney being one of them) can file the Tax Complaint and present testimony at a hearing. In Franklin County, the Board of Revision has experienced such an increase in the volume of Tax Complaints (up 245% since 2007) that it has not finished hearing all the Tax Complaints filed for the 2009 tax year. It is better to file early and get an earlier hearing date. The sooner you obtain a decision, the sooner you can revise budgets accordingly.
Property owners should be aware that in many cases the local school board will file a Counter-Complaint to contest your valuation of the property. In fact, the Board of Revision is required by law to notify the local school board if the valuation of the property reduced by $50,000 or more. The school board will be represented by an attorney, and you can be sure they will be looking to dismiss your Tax Complaint based on the technicalities addressed above.
Reducing your property taxes to reflect the current market value of your property is certainly a growing trend among property owners in Ohio. 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 614-233-6622.