How to Hire a Tax Appeal Consultant to Challenge an Assessment
If you think your local tax assessor may have overvalued your site, it may be a good idea to hire a company that specializes in appealing real estate tax assessments. While you can take basic steps on your own to check the fairness of a tax assessment, you'll need a tax appeal specialist to challenge an assessment successfully. Appealing an assessment helps you comply with HUD rules, and if you win, you can save your site a considerable amount of money [Handbook 4350.1, par. 23-5].
In one case, an assisted site in Indiana was able to successfully challenge its real property tax assessment. The site claimed that its tax assessment should be reduced to reflect a loss in the site's property value because of various economic factors. Both the tax assessor and the tax appeals board refused to reduce the site's tax assessment. And the site challenged their determinations in court.
The site claimed that certain factors contributed to a significant loss in its value, including:
Its contract rents (imposed by HUD) weren't enough to offset its operating expenses;
The site was in an undesirable location, contributing to lower obtainable rent, higher expenses, and higher vacancy rates;
The site couldn't find eligible families who met HUD occupancy rules to lease its four-bedroom units; and
The site couldn't cover the cost of repairs because HUD rules barred it from collecting damages greater than the amount of residents' security deposits.
The site supported these claims with detailed evidence showing how the assessment should be calculated. The tax assessor and appeals board argued that the site was getting a “double benefit” because it got both low-income housing tax credits and contract rents that are higher than nonassisted market rents. But they didn't offer any statistical evidence to support their claims or to refute the site's claims. The court ended up agreeing with the site. It found that, even with the tax incentives and contract rents, the site suffered a significant loss in property value [Hometowne Associates v. Maley, December 2005].
The best way to get information about a tax appeal consultant is to ask the right questions at the beginning of your selection process. Your inquiry should focus on the consultant's success in appealing tax assessments for sites like yours in your area, says management expert Charles Durnin. The consultant his management company hired to appeal an assessment at an assisted site was able to convince a court that the assessor had overvalued the site. As a result, in one instance, the court reduced the assessment by 30 percent.
You should ask your questions in a letter you send to prospective tax consultants when you request their proposals for handling your business. To help you select a consultant, we'll tell you what questions to ask and what information to give in that letter. We'll also tell you how to evaluate consultants' responses and what follow-up questions to ask. To help, we'll give you a Model Letter: Request Proposal from Prospective Tax Appeal Consultant.
Benefits of Hiring Consultant
When tax assessors overvalue assisted sites, they mistakenly assume that an assisted site's value is similar to that of nonsubsidized sites in the area. They assess an assisted site as though it had the income and marketability of a nonsubsidized site, even though HUD regulations limit rental income and hold down its sale value.
HUD also recognizes that assisted sites are often overvalued. It requires you to review each tax assessment and, if appropriate, file an appeal [Handbook 4350.1, par. 23-5]. Filing an assessment appeal is a prerequisite for getting HUD's approval for a rent increase to cover a tax hike.
But it's very tough to convince a local tax authority or a court that an assessor made a mistake, says Durnin. While you may be certain that your site has been overvalued based on what you know about property values in your area, you may not have the expertise needed to prove that an assessor made a mistake.
That's why you need help from a tax appeal consultant whose staff is trained in property valuation. When a consultant takes on an assignment, it first comes up with its own value for the property by performing an appraisal. Then it makes the case on your behalf to the local tax authority that the assessed value for your site is too high. For instance, the consultant could argue that the “comparable properties” used in the tax authority's assessment really weren't similar to your site.
If you end up suing the tax authority because it refuses to change its assessment, the consultant can give you technical support in court and provide one of its employees to testify as an “expert witness.”
Information to Give Consultant
A tax appeal consultant needs some basic information about your site before it can prepare a proposal to handle an appeal. This information should include:
Number of units and a breakdown by unit size;
Assisted housing program under which it's operated; and
Amount of tax bill and assessed value.
It's also a good idea to tell the consultant if there are other assisted housing sites in your area. The consultant can compare the assessed values of these sites as part of its research.
You should ask the consultant to tell you the qualifications of its principals—that is, the people who own and manage the company—and the staffers who will do the research and analysis that lays the groundwork for your appeal.
People who specialize in property valuation can earn a certification called an “MAI” or “member of appraisal institute” from the American Institute of Real Estate Appraisers, says Durnin. This certification shows that they're qualified, and you should be looking for a consultant where each principal has an MAI.
The company's staffers should have backgrounds in real estate finance. For example, they may have previously worked for a bank or real estate firm. Also look for individuals who have a broker's license or who say they're working on earning an MAI.
Check Prior Experience
You should ask the consultant to detail its experience handling real estate tax appeals in your locale during the past five years. Ask about its experience with tax appeals for sites that operate under the same housing program as your site. You want a consultant that knows how your site's assisted housing program operates and has experience convincing an appeals board or court that the program limits a site's value.
But you may not be able to find a consultant whose experience matches your situation exactly. So check for a consultant that has experience with your type of assisted housing site in other locales or with other types of assisted sites in your locale. For example, you may find a consultant that has a high success rate with your type of assisted site in another part of your state.
It's also useful to find out about expert witness experience because during your case it may be necessary for an expert to testify and challenge the method the tax authority used to put a value on your site. If a consultant already employs someone who can handle this, it can avoid bringing in an outside expert, saving time and money in the long run.
Ask About Law Firm Relationship
Some tax appeal consultants have a longstanding relationship with a law firm. If you end up suing the local tax authority to get your assessment reduced, this law firm is in the best position to represent you in court since the law firm advises the consultant on legal issues and helps the consultant put together its case. Therefore, it's a good idea to get information up front about the law firm the consultant likes to work with, says Durnin. When asking for information about the law firm, look for a tax litigator who has experience winning cases in your local court.
Request Fee Breakdown and Timetable
You should ask the consultant to detail its fees for both the basic site appraisal services and the submission of an initial appeal to the tax authority. Also, ask about its fees for expert testimony if you're forced to sue the tax authority.
Evaluate fees in light of what the consultant told you about its qualifications and experience. A low fee may indicate that an inexperienced consultant is eager to get your business to be able to build a reputation in your area. Try to make sure that you won't sacrifice quality if you hire a consultant that is offering bargain rates. If a consultant's fees are out of line with fees quoted by other consultants, ask the consultant why. And take the same steps to evaluate the law firm's fees.
Check Professional Standing
If the tax appeal consultant or the law firm it works with has gotten into trouble because of professional misconduct or mismanaging a housing site, that could undercut its influence with an appeals board or court. So it's important to find this out ahead of time. Ask if either the firm or its key employees have been subject to administrative actions or proceedings by agencies overseeing their industries.
If the consultant, law firm, or key employees were involved in any misconduct, go back to the consultant and ask why this won't harm the outcome of your case. Don't hire consultants or law firms if you think their professional standing is questionable.
Charles Durnin Jr.: Senior Vice President, Interstate Realty Management Co., 3 E. Stow Rd., Ste. 100, Marlton, NJ 08053; www.irmmanagement.com.
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