Property Tax Appeals and Financial Opportunities

Albert F. Chanese, MAI, R/W-AC, CTA

New Jersey Realty Advisory Group, LLC333 State Street

Perth Amboy, NJ 08861(732) 853-0271

Presented byUrban Land Institute North

Jersey

The Appraisal ProcessDate of Value

October 1st of preceding tax yearFee Simple Basis

• Market Rent – existing leases may or may not matter• Market Expenses – unless proof can be introduced as to why a

property operates at levels above or below market parameters• The fee simple estate is defined as follows:

• Absolute ownership unencumbered by any other interest or estate subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.

Detailed Market Analysis Your own work, not national studies

Site DataConfiguration of the site (restrictions,

easements, setbacks, etc.)Wetlands, waterways

Setback requirementsFlood zonesAccess to site, Parking Ratios, Truck Access

and StorageZoning restriction, changes in zoning

Improvement DataType of Property

Office Retail Industrial Apartment

Age, Condition, Current Use Is the building functionally obsolete Is the building economically obsolete

Make sure the size is correctValue what’s there

Highest and Best UseThe Heart and Sole of the AppraisalAs VacantAs Improved

Physically PossibleLegally PermissibleFinancially FeasibleMaximally Productive

The Cost ApproachRarely used in tax courtCould be used for special use propertiesSupport the land valueSupport the cost estimatesSupport the depreciation

Sales Comparison ApproachEasiest Approach to Use (but not always)

Make sure they are similar in locationSimilar in use, age and designRecent Sales as possible

Support for Adjustments Inspect Comps Verify with a good source.

Tax Court does have problems with employing a market approach on income property

Income ApproachMost relied upon in Tax Court

Direct Cap (No discounted cash flows)Stabilized occupancy (Support)Market Rent (Support)Stabilized ExpensesSupport Cap Rate with Market Data

National surveys are not enough Derive from sales when possible Interview investors and bankers

File Chapter 91’s

Overview of the Valuation Philosophy of the Tax Court

• Properties must be valued in a uniform matter – N.J. Const. art. VIII, sec 1 (1947); 2nd-Roc-Jersey Assocs. v. Town of Morristown, 158 N.J. 581 (1999).• Properties must be valued in a manner that is consistent

with market behavior on a stabilized basis.• Properties must be valued on a stabilized basis

• Hyper occupancy or vacancy cannot be considered in the valuation.

• Valuations must comply with the definition of market value

Definition of Market Value• The most probable price which a property should bring in a

competitive and open market under all conditions requisite to fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:• buyer and seller are typically motivated;• both parties are well-informed or well-advised, and acting in what

they consider their best interests;• a reasonable time is allowed for exposure in the open market;• payment is made in terms of cash in United States dollars or in

terms of financial arrangements comparable thereto; and• the price represents the normal consideration for the property

sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Helpful HintsDon’t wait until last minute to hire an

appraiserHire an experienced, knowledgeable

appraiserTell the appraiser everything there is to know

about the property (Good and Bad)Let the appraiser in on the negotiationsConsider County Tax Board

Albert F. Chanese, MAI

New Jersey Realty Advisory Group, LLC

333 State StreetPerth Amboy, NJ 08863

(732) – 853-0271