Reassessments, or revaluations, of entire jurisdictions can be an effective tool to ensure fair assessments for property owners. Revaluations examine the characteristics and economics of each individual property in the context of current market factors. Generally, a municipality cannot increase the assessment of a property unless there is a physical improvement or a change in use unless there is a revaluation. If a revaluation is not being performed, a property assessed and taxed as if it were worth $5 million, but then sells for $25 million, will nonetheless retain its $5 million assessment. This can result in taxable assessments that do not directly correspond to a property’s true value.
There are reasons why assessments become so inaccurate and inequitable over time, with similarly situated properties carrying different tax burdens. Some of these owners successfully challenge and reduce their assessment, while their counterparts don’t challenge their assessment and shoulder a larger piece of the tax burden. Unequal burdens can even occur where both owners challenge their assessments but do so in different years. A challenge in a poor economic environment may be drastically different than a challenge coming in rosier economic times. Challenges made during a recession will benefit from deflated sales numbers and poor market indicators to strengthen their case for a large reduction, whereas challenges in a better market may result in much smaller reductions.
These inequities are most easily seen by homeowners comparing tax burdens with their neighbors. However, while commercial property owners are typically more sophisticated and utilize the grievance process, discrepancies for commercial properties can still occur as markets change rapidly. A thriving market sector may remain significantly undervalued, forcing other sectors to disproportionately shoulder the tax burden. An area experiencing a complete revitalization, without a revaluation, will remain assessed at its current value even after rents have skyrocketed.
Revaluation of entire areas is an enormous undertaking. Many assessing jurisdictions on Long Island will go years between revaluations. Before a lawsuit forced Nassau County to perform a revaluation in 2003, the County had not performed a revaluation since 1986. Similarly, Suffolk County towns had not performed a revaluation for over a decade before Southampton performed a revaluation in 2004 in response to selective reassessment lawsuits. The cost of performing a revaluation and keeping it current, the fact some owners still pay a disproportionate share post-revaluation, and the political fallout from winners and losers from the revaluation, results in many towns foregoing revaluation entirely.
When a revaluation occurs, each and every property must be equitably and accurately evaluated; a daunting undertaking for even the most experienced appraisers. In jurisdictions with many parcels on their assessment roll, each parcel requires in depth analysis and up-to-date and current data to arrive at a correct value. Even the process of inventorying an entire town is monumental when considering that inventory must include partially constructed buildings, buildings undergoing renovations, or simply vacant buildings. This is before even performing additional diligence to find if the property is suffering from contamination or a form of obsolescence that can’t be discovered without thorough analysis.
Revaluation requires examining individual market trends globally, but also requires drilling down to particular hamlets and villages that may be bucking a trend or leading the curve in that larger market. E-commerce impacting retail properties or telework capabilities affecting the office market is not just a consideration for the overall market but must be examined at the granular level.
Even the concept of market value is a term of art within the real property tax law, different than how a “real world” investor may define market value. The laws governing tax certiorari have been put in place to ensure consistent and equal treatment of property owners. The law also dictates that the property must be examined as of taxable status date and not include speculative appreciation. This frequently results in an assessment that may appear low, but, when analyzing the property for that given year, is entirely accurate.
Revaluations can certainly solve some problems, but their efficacy varies. Residential properties tend to have a closer range of value and, while not all areas will be valued precisely, the margin for error is smaller. On the other hand, revaluation of commercial properties is much more prone to error. Commercial property revaluations require significant time, resources, and proper diligence, but they also require assessors that approach their conclusions with open minds and seek consensus before digging in their heels in and exacerbating the very conflict they sought to avoid.
Brad Cronin, Esq., and Sean Cronin, Esq., are partners at Cronin & Cronin Law Firm, PLLC, Mineola, N.Y