ATLANTA (MARCH 14, 2013) -- Companies and individuals thinking about filing a property tax appeal for 2013 are in luck.

After working with a lot of different people in the property tax consulting business I’ve come to the conclusion that the best people to do this type of work are those that are former tax assessor employees. Having a solid understanding of the mass appraisal process that the tax assessors use is a great advantage when you are working with tax assessment personnel and trying to negotiate a lower value. Being able to relate to the County assessment staff, understanding what their job is, understanding the parameters that they need to work within, and what you can and cannot do if you want to keep their trust is vital.

 I can’t say that I’ve worked for every board of tax assessors in the world but I have worked for two different counties both Fulton County, Georgia, and Prince William County, Virginia, so you could say I know the property tax assessments, and appeals process inside and out. Having been the commercial appraiser manager for Fulton County, Georgia Board of Tax Assessors provides insight into the regular day-to-day operations there.  When I walk into county tax assessment departments and can talk to the county appraiser and let them know that I used to do exactly what they do, that develops instant rapport.

The DeKalb County property appraiser is known as the Chief Appraiser for the DeKalb County Board of Tax Assessors (BTA). Click here for a DeKalb County property appraiser. Together, the BTA and Chief Appraiser administer the functions of the DeKalb County tax assessment office. The tax assessment office is responsible for valuing all of the real estate and taxable personal property for the purposes of taxation. This is also known as ad valorem tax, where ad valorem is Latin for “according to value.”

The Fulton County property appraiser is the chief appraiser that works for the Fulton County Board of Tax Assessors. In the state of Florida the tax assessor is often called the property appraiser so there may be some confusion in terminology. If you're looking for a real estate appraiser that works in Fulton County, Georgia see Atlanta Real Property Advisors.

The Fulton County chief appraiser is hired by the Fulton County Board of Tax Assessors to administer the tax assessment department. The chief appraiser has several deputy chief appraisers working for him or her to help with the management of this large department. The staff consists of residential appraisers, commercial appraisers, personal property appraisers, geographic information systems personnel, and administrative staff.

I have been appealing property tax assessments for ten years now. One thing I am sure of about a property tax appeal is you never know what you are going to get. Market value is in the eye of the beholder, and every beholder has an opinion. 

An appraisal is an opinion of value. Hire two licensed appraisers to value your real estate and they will both inspect your property inside and out. They will scour the market for the most recent, comparable sales. They will agonize over the reconciliation of the data to select the most likely price you property will bring in the open market. You will most likely get two different value opinions. 

In the Income Approach, the deductions from gross income are typical and reasonable operating expenses, and taxes are considered typical and reasonable expense items. However, for tax assessment purposes, the taxes are not known. The values are being established so that the tax rate can be calculated for the current year. If the assessor is establishing a value for 2013 and is doing it at the beginning of the year, the tax rate is typically not known yet. If they are to include a tax component in the Income Approach as an operating expense, then they would have to use the prior year’s tax amount. Because the Income Approach and resulting value is going to have an impact on the current year’s tax rate, last year’s tax would affect the new tax rate. As a result there is a circular argument against using last year’s tax in the Income Approach.

Instead of including property tax as an expense item, the tax assessors add their effective tax rate to the appropriate capitalization rate for a particular property type in a particular market area. This gives a property tax component influence on the final value, but it’s not used as an operating expense and it’s not used as an actual number, such as the prior year’s tax amount. The loaded capitalization rate is then applied to all net income produced by the property, which, in turn, produces a value estimate.

Direct capitalization is used to convert a single year's income into a value estimate. The income is converted by a capitalization rate. Capitalization rates can be determined in a variety of ways, but the best way is to derive them from market transactions of similar properties. The overall capitalization rate is determined by dividing a single year's net operating income (NOI) by the sale price of the comparable property. From an adequate sample of market transactions an appropriate capitalization rate can be reconciled and used to estimate the value of similar properties. 

If you have a 10 year old community retail center in "Eastside Neighorhood" then ideally you will use sales of retail centers in this neighborhood, that are similar in age, quality, size, etc. You must be certain that the sale comparables used have net operating income calculated in the same way as the subject NOI. Any financing that affected the sale prices of the comparables requires adjustment, as do nonmarket rents. The objective is to compare apples to apples, because a small change in capitalization rate can result in a big difference in the value estimate.

Net operating income (NOI) is defined by the Appraisal Institute as "the actual or anticipated net income remaining after all operating expenses are deducted from from effective gross income, but before mortgage debt service and book depreciation are deducted."

Effective gross income (EGI) is "the anticipated income from all operations of the real property adjusted for vacancy and collection losses. This adjustment covers losses incurred due to unoccupied space, turnover, and nonpayment of rent by tenants." This definition refers to market estimates of gross income adjusted for market vacancy and market collection losses. Your actual income may be very different from the "market."

When appealing your property tax assessment for an income producing property there are some expense items that you should not include in your income approach to value. The Appraisal Institute defines operating expenses as the periodic expenditures necessary to maintain the real property and continue the production of the effective gross income. Operating expenses can be fixed expenses that do not vary with occupancy, or variable, which generally vary with the level of occupancy or the extent of services provided. They include management charges, leasing commissions, utilities, heat and air conditioning, general payroll, cleaning, maintenance and repair of structure, decorating, grounds and parking area maintenance, security, supplies, rubbish removal and exterminating.  

There are non-operating expenses that you might be tempted to use in your income approach but the tax assessor will throw them out, or tell the board of equalization that you are including non-operating expenses. Some of these non-operating expenses are expenses that the IRS allows on your tax return, which causes some confusion.

It's springtime in Atlanta! Oh wait, it's in the 60s with thunderstorms and a tornado watch and it's only January 30! Such is life in the capital of the new South. If you don't like the weather just wait a little while. There will be a similar tornado watch this spring as the tax assessors begin to send out tax assessment notices to every real property owner in the state of Georgia.

Last year the Cobb County Tax Assessor created quite a storm when they sent out huge increases on commercial properties. Many of the unsuspecting commercial property owners were dumbfounded at the taxable value increases they saw, considering they were still struggling to keep tenants in their buildings and competing with other struggling property owners for new tenants. Even though some of their values were, honestly, a little low, they couldn't believe that with the same net operating income as the previous year their taxable value could be 50% to 100% higher.