Taxes and Assessments Flashcards
Assessed Value
A valuation placed upon property by a public officer or a board, as a basis for taxation. (by an assessor)
(NOT the same thing as Market Value)
Assessments
A charge against real estate made by a unit of government to cover a proportionate cost of an improvement such as a street or sewer.
(under the law, the assessed value as the legal assumption of validity)
Has to have a bearing toward Market Value
It’s illegal to assess a property based on the new purchase price! - Welcome Neighbor Policy
The assessment is made on the actual condition of the property NOT the highest and best use of potential value!
Purpose of Taxation
Real estate taxes are part of the municipal budget used to pay for Municipal Services such as:
- Police Department
- Fire Department
- Libraries
How Tax Rate is Determined
Municipality: 100,000 parcels (for example)
Municipal Budget Required: $10,000,000 (example)
Tax Rate: 100,000/$10,000,000 = 1%
Calculation of Real Estate Taxes
Equalization Rate Formula:
Equalization Rate = Total assessed value of municipality / Total market value of municipality
Example:
equalization rate: 1%
assessment: $1,000
assessed value : $1,000 / 1% = $100,000
Determine if your Real Estate is Over Assessed
market value ascertained by real estate appraiser x state equalization rate = appraised assessment
Actual assessment (as it appears on records) - appraised assessment (this is what assessment should be) = How much the assessment should be lowered
Assessing Unit
A city, county, town or village with the authority to value real property for purposes of taxation.
Special Assessment
An assessment made against a property to pay for a public improvement by which the assessed property is supposed to be especially benefited.
Assessment Ratio
aka the Equalization Rate
Why Do Assessments Differ?
- The assessments may be done by different people
- The equ. rate may have been set by different people
- Old construction v. new construction
- Assessor can’t get inside property to do a thorough assessment
It’s an APPROXIMATION
Approved Assessing Unit
A city or town which has been certified by the State Board of Real Property Tax Services to have completed a revaluation or an update in conformance with its rules and regulations.
Equalization
relationship between the Market Value & Assessed Value
Equalization Rate Formula:
Equalization Rate = Total assessed value of municipality / Total market value of municipality
Equalization rate is used to make market and assessed value equal. A conversion factor used to convert market value into assessed value
Market Value = assessment / equalization rate
Special Assessment Districts
A geographic area in which the market value of real estate is enhanced due to the influence of a public improvement and in which as tax is apportioned to recover the costs of the public improvement.
Assessment Review Board
An independent tribunal established to hear assessment appeals. Came about because of tax protests. Intermediate step to resolve court cases
Protesting Tax Assessments
-Grievance period where taxpayers can protest the assessed value on their real property (must be). If you don’t you wave your right forever!
It is required by law that people who protest taxes for other people must be licensed!!
Why Protest Taxes?
- Assessed value is too high
- Property is unequally assessed
Two types of real estate tax protests: residential and commercial
- You can protest the value of the property
- One can protest the taxes based on factual errors: building sq footage error, land sq footage error etc
-If the assessment is protested, the assessor has to prove it
Grievance Period
The period during which taxpayers may protest the assessed value placed on their real property
Ad Valorem Taxes
According to valuation.
properties are taxed based on its value
Agent Responsibilities
It is important that the real estate agent gets access to accurate property tax rates and assessments
Small Claims Assessment Review! (SCAR)
Two types of real estate tax protests: residential and commercial
- Can protest taxes based on a Factual Error (ex. building sq footage)
- If an assessment protest is not resolved through the assessment review committee it will end up in court
- Prove that your property is over assessed by showing the assessed value of comparable properties in your neighborhood
- Property owners should bring a recently completed appraisal
Residential Real Estate tax protests = SCAR
- Go in front of appointee
- You’ll present your evidence and person makes a decision
- no notes are kept
- written decision
- hearing dates with small claims hearing officer
- can only reduce 20% per year
- low-key hearings
Instituted so homeowner could get relief quickly
Levy
An assessment of tax.
Protesting Commercial Property Assessments
The commercial real estate tax protest is done more formal compared to a residential tax protest
-have to file a Tax Certiorari (writ for review)
- Commercial properties are assessed based on an INCOME approach not the sales approach (looks at what the property could rent for) rented by sq feet. (annually, but payable monthly)
- Commercial/Retail properties are rented on net leases (ex. Triple New Lease)
- Find comparable rentals
-The reserve replacement is always taken into consideration when doing an appraisal on a commercial property (heating, air conditioning etc)
Total cost to replace it / useful like of it
Protesting Commercial Property Assessments
The commercial real estate tax protest is done more formal compared to a residential tax protest
- have to file a Tax Certiorari (writ for review)
- Commercial properties are assessed based on an INCOME approach not the sales approach
Tax Certiorari
The legal process by which a property owner challenges the real estate tax assessment on a given property in attempt to reduce the property’s assessment and real estate taxes
(writ for review)
The court will decide what amicable evidence is or the weight of it
Income Approach to Value in Tax Certiorari Circumstances
- appraise property based on income approach to value
- sq ft x market rent/sq foot = potential gross income (then subtract less vacancy and collection loss (5%)
-you can only deduct the expenses necessary to generate rental income
Expenses: Professional fees, insurance, utilities, repairs and Maintenance, management @ 5% of EGI, leasing commissions @ 1% of EGI, Res. Replacement @ 1.5% of EGI, Miscellaneous = Total Expenses
Homestead
The home which is owned by and is the usual residence of the client along with all the surrounding land and any building on that land, provided the land is not separated from the home by an property owned by others.
Appropriation
A sum of money or total assets devoted to a special purpose.
Non-homestead
Real property that does not meet the definition of homestead. Non-homestead real property is generally counted as an asset; however, it is considered unavailable during the time the client make a reasonable effort to sell the property.
In Rem
A proceeding against the reality directly; as distinguished from a proceeding against a person. (Used in taking land from nonpayment of taxes, etc.)
-from not paying a lien for example
Every Assessment Roles
a Tax Status Date
If an assessor is going to change an assessment, generally speaking,….
the assessor must conduct a total assessment change for the entire assessing district
When an entire community is being re-assessed, Mass Appraisal Technique is employed
A Tax Bill is delivered by…
Receiver of Taxes
What may occur as a result of a stigma being associated with a property?
Market Resistance
Why might an appraiser take reserve replacements into account when assessing a commercial property…?
The value of the property may drop significantly one year due to a major repair expense
