Table of Contents
The Property Assessment Process
Appealing an Assessment
Market Value to Assessment
What Types of Information Will I Need?
What Happens If I Don’t Provide Information?
What are the Grounds for Complaint?
Unlawful and Misclassified Assessments
What is the Correct Value to Claim?
The Administrative Review Process
On to Court
New York State law requires property assessments to be based on market value as of a specified time each year.
The first part, which is less than straightforward, is determining the relevant dates. Yes, dates plural. There is no single date that applies to every taxing jurisdiction throughout the state. For some properties there may be as many as four dates to be concerned about, all for the same assessment year. And we are still only discussing the assessment process, not the appeals process (treated later), which adds an entirely different set of calendar concerns.
Each town, village and city in New York has its own valuation date. In many (but by no means all) jurisdictions it is July 1 of the year preceding the assessment roll. For example, the valuation date for the 2012 assessment roll was July 1, 2011. When setting his or her 2012 assessment roll, the assessor must determine the property’s worth as of that date. But, the assessor must also consider the condition of the property on the “Taxable Status Date”, or TSD. This is usually a date much closer to the actual publication of the tentative assessment roll (such as March 1, 2012 in the above example).
To see how this works, imagine a home that is built over a period from August 1, 2011 to its completion on February 15, 2012. An accurate assessment would reflect the market value of the home as if it was completed as of the market conditions of July 1, 2011, even though the home did not physically exist on that date.
Confusing? Try adding the scenario in which the property is also located in a village that separately assesses property: in that case, the village assessment could be governed by an entirely different set of dates, for a total of four dates that govern the assessment of one property (and two assessments that may not be equal).
So, the first question we will always ask you is, “what is the location of the property?” Once we know this, we can look at the assessment and the property in relation to the relevant dates.
The second, and more obvious, function of the assessor is to determine market value. New York allows for the three common approaches to value recognized by appraisers. All may be employed concurrently, but in most cases one approach is distinctly superior to the others.
With this approach, the assessor attempts to predict what a property would sell for at arm’s length by looking at what similar properties have recently sold for. This approach is fraught with challenges and subjectivity, and is particularly unreliable in an economic downturn, in which sales are few and often occur under distressed conditions. The sales comparison approach is typically used when valuing single-family homes, vacant land, and farms.
The assessor arrives at a value by estimating the cost to build the existing structure and then depreciating that value based on the age and condition of the actual property. The assessor then adds a value for the land, which is determined using comparable land sales.
The cost approach is the least favored in New York, primarily because of the extreme degree of subjectivity in estimating depreciation, among other things. Courts have typically only allowed it as a reliable method where the other two approaches simply won’t work, such as for special purpose and utility properties (imagine trying to value a power generating facility), and even then courts have tried to avoid using cost.
The income approach is usually employed to value commercial property for which there is an actual stream of rental income or for which economic rent could be implied based on the market for the type and location of the property. Typical properties that are valued through an income approach include apartments, shopping centers, office buildings, and even golf courses. Vacancy and selected expenses are deducted from gross income and the net is capitalized based on the way that an investor might view the property.
While the income approach is perhaps the most common for commercial property, it is not without substantial flaws and subjectivity. Litigation often revolves around the determination of a capitalization rate, which is extraordinarily subjective, among many other issues found in a pro forma.
Although all of these approaches generally mimic the path most appraisers would use to determine market value for non-assessment purposes, there is a crucial difference in setting assessments in New York. With the exception of raw land, the assessor is required by law to value the property according to its condition and use on the taxable status date. This means that, effectively, the usual consideration of the property’s “highest and best use” in a standard appraisal is ignored. For example, a privately-owned golf and country club that sits on 200 acres of residentially-zoned land might be worth far more in the hands of a developer who could build and sell homes than in the hands of the club members who seek only to cover expenses. Yet, the assessor is required to ignore the economically more “productive” use and derive a market value based on the actual use.
Although computer assisted mass appraisal (known in the industry as “CAMA”) is permitted and even encouraged in New York State, its use is highly sporadic from one municipality to another. Many assessors lack the training or the staff to embark on a rigorous CAMA program that is utilized on a regular cycle consistent with the best practices suggested by both the International Association of Assessing Officers (“IAAO”) and the New York State Office of Real Property Tax Services (“ORPTS”).
A final comment on valuation and assessing: I have occasionally been asked, “can a property be assessed even if it has no market value?” And indeed, from time to time, as is often the case with horribly contaminated properties (such as Superfund sites), I have represented owners who have acquired the property for a negative purchase price, meaning the purchaser was paid to take the property due to the liability issues. While the real world value may be less than zero, in the sense that the property cannot be sold in the ordinary market, it must have some value, even if extremely nominal, for assessment purposes. As the court in People ex rel. N.Y. Stock Exch. Bldg. Co. v. Cantor, wrote back in 1927, “if the building…cannot be sold except under extraordinary circumstances, it is still the duty of the [Assessor] to determine its actual value from such material as the circumstances of the case afford.”
Estimating market value is not the final step in setting a tentative assessment. Because only about one-third of all of the thousands of New York assessing jurisdictions conduct a regular municipal-wide revaluation, many assessors must set their assessments at some fraction of their estimate of market value.
This is perhaps the single most confusing item of New York assessment practice. Issues of constitutional law abound here. I do not hope in this brief overview to make it straightforward, because it is not, but I will attempt to simplify the computations and provide a little commentary.
For those with an interest in the tortured history of fractional assessing in New York, a pivotal decision worth reading is Hellerstein v. Assessor of Town of Islip, 37 N.Y.2d 1 (1975), in which the highest court condemned assessing at anything less than 100% of market value. But, then again, maybe it’s not worth reading because in 1981, under the pressures of the real world to preserve the status quo, the Legislature effectively overruled Hellerstein by allowing assessors to assess property at a “uniform percentage of value”, i.e., something less than 100%, and absurdly wrote into the law that “existing assessment methods in effect” in 1981 “may continue”. This doesn’t necessarily mean that every single property will be at an exact fraction of value, but that’s the idea. The reality is that the courts consider “uniformity” to be a flexible term in the determination of assessments. See an enlightening discussion of the acceptability of “rough equality” in property taxation in Chasalow v. Board of Assessors, 176 A.D.2d 800(2d Dept. 1991).
There are a number of apparent conflicts in the overriding law (Real Property Tax Law § 305) that are beyond this summary. Suffice to say that the Legislature made so many accommodations to powerful municipalities (such as New York City) and to the status quo that the result is one of the most convoluted and inequitable tax systems in the United States. Every town, village and city in the State maintains its own level of assessment, which can range anywhere between 100% to less than 2%, and in most jurisdictions the ratio changes from year to year and can be the subject of expensive litigation.
While the Legislature got rid of the Hellerstein threat of a potentially pervasive system of illegal assessment (well, really it only did so by saying in a kind of Dr. Suess fashion that the things that were illegal yesterday are legal today), it tried to promote full market value assessment by providing a scheme for class-based tax rates for any municipality that did revalue. The carrot here: conduct a revaluation to 100% and the homeowners, i.e., the voters, will be permitted to shift their taxes to the business owners. Unfortunately, the system it provided under Article 19 of the RPTL (modified after being first struck down as unconstitutional itself in Foss v. City of Rochester, 65 N.Y.2d 247 (1985)) created an even more politicized and highly arbitrary tax system that is detrimental to commercial interests. This is the desultory system we live with today in New York.
So how does it actually work?
If the municipality assesses at 100% of market value, then the market value the assessor determined is equal to the assessment. (If the assessor says a home is worth $500,000, then the assessment becomes $500,000.) Simple enough.
However, if, say, the property is located in one of the majority of municipalities that assess on a fractional basis, the assessor must first determine his or her “level of assessment”, or, “LOA” for the assessment year. (The computation of this ratio, and the legal issues surrounding it, are well beyond this overview.) If, for example, the LOA is 73%, then all properties in the town should be assessed at 73% of what the assessor believes their market value to be. The ratio “73” in and of itself is somewhat arbitrary; the key is that 73% is applied evenhandedly to everyone in order to pass Constitutional muster. A home that would sell for $500,000 would then have an assessment of $365,000 ($500,000 x 0.73 = $365,000).
Looked at another way, if your assessment is $365,000, divide that figure by the LOA of 73% to see that the Assessor really thinks your home is worth $500,000 ($365,000 ÷ 0.73 = $500,000). Looked at still another way, if your home is truly worth $500,000 and your assessment is $390,000 (which is 78% of value), then your home is over-assessed if the LOA is only 73%. You are being deprived of your right to equal treatment under the law, and this would be a basis for a tax appeal.
In locations where the LOA is quite low, this fractional system can result in taxpayer confusion and a failure to take needed action. Let’s say you own the same property described above but your Assessor’s LOA happens to be only 17% instead of 73%. Your assessment is therefore only $85,000 ($500,000 x 0.17 = $85,000). Let’s also say that you just purchased your home for $250,000 and are not familiar with the mechanics of New York assessment. You might see your $85,000 assessment and conclude that you are vastly under-assessed, smile to yourself, and think it better to keep your mouth shut. Little do you suspect that you are being assessed as if your home is worth $500,000 and, based on your purchase price, you are over-assessed and should attempt to reduce your taxes by as much as 50% ($250,000 x 0.17 = $42,500).
Incidentally, just because your assessment is possibly much lower due to a low LOA, doesn’t mean your taxes are any lower. In fact, in some jurisdictions, such as towns in Westchester County, the LOAs are among the lowest in the state but the tax rates are among the highest. The tax, or “mill” rate, which is simply the town’s budget (and school, and county, etc.) divided by the total assessment value for the town, is applied to the resulting figure (in the examples above, $365,000 or $85,000) to produce your actual property tax. Reducing your assessment from whatever it is will then reduce your tax bill.
Also note that I have deliberately skipped right over any discussion of another ratio provided by the Legislature: the Residential Assessment Ratio, or RAR. The RAR is the source of still greater confusion and extreme illogic, and results in the disparate treatment of taxpayers and misleading information that appears on tax bills.
The assessment appeal process in much of New York State is notoriously lengthy and riddled with technicalities and procedural hurdles. This is particularly so for commercial properties, which will commonly sit in the court system – largely dormant until called – for seven or more years. I have seen thousands of cases on the court docket during my career that were more than a decade old and still unresolved. It is common for a property to have changed hands two or more times in the course of one appeal.
On rare occasions, a tax assessment may be negotiated in advance of a formal filing, but most of the time, owners must go through a formal appeal process that begins with administrative review.
Challenging an assessed value in the courtroom is far more likely to occur in New York State than most other parts of the country. Trials are rare, but the most cases are resolved under judicial supervision. However, every valuation appeal begins with an administrative review, either by a Board of Assessment Review (BAR) or a Tax Commission (such as in New York City or Nassau County). If you are not satisfied with the administrative determination, you may then proceed to court either through an attorney or, for a home that you own and reside in, “pro se” (representing yourself).
The administrative review process begins with the timely filing of a Complaint, more commonly referred to as a “grievance”. The Complaint is made on a standardized form (RP-524) that can be obtained from the Assessor’s office or through your attorney.
As with assessing valuation dates, which were discussed earlier, grievance deadlines vary widely across the state, and often even within the same county for each town, city, and village. Many filings periods occur between spring and early summer, but some occur in the fall or winter. Once you have advised us of the location of the property, we will let you know the applicable deadlines. Bear in mind, there is no reprieve from a missed filing deadline: if you are a day late, you must wait until next year and will lose the opportunity to challenge the current assessment forever.
Typically, and particularly outside of New York City, either at the time the grievance form is filed or shortly afterward, the Assessor’s Office will submit to the owner or representative a list of requests for information and sometimes a date on which to appear before the BAR. There is no set standard for these information requests. Very often, they are “boilerplate” demands for information that do not necessarily pertain to the subject property. For example, you may be requested to provide a rent roll even if it is not a rental property. Requests may also have little to do with the assessment and valuation of the property, and one should not be easily intimidated by a request that may have no valid basis, or a request that seeks information already in the possession of the municipality. Your attorney or professional tax advisor can generally advise on how best to respond.
For a commercial property, be prepared to provide the following types of information (to the extent applicable), at a minimum:
- Rental income and expense statements (or at least expense statements for a non-rental property) for the past three years;
- Rent rolls for the past three years (for a rental property);
- List of recent capital improvements and their cost;
- Copies of any leases;
- A description of any unusual or extraordinary factors that affect the value of the property;
- Any recent appraisals of the property.
- Recent contract of sale and closing statement, if applicable.
If an owner-occupied residential property, obtaining a standard-form residential appraisal will be extremely helpful; if the property has been listed for sale, provide a copy of the listing agreement, and if it has been recently purchased, a copy of the contract of sale and closing statement. Many other documents may be requested or relevant, but the above documents should be anticipated at a minimum.
However you and your representative choose to respond to a BAR request, you must respond. The greatest power the BAR holds is the power to dismiss your case (which may prevent further appeal to court) based on its determination that you “willfully” failed to appear and provide information. This doesn’t necessarily mean you must provide everything the BAR demands, but you must make a good faith effort to allow the BAR to review the valuation of your property within the fairly short time constraints provided.
The definition of “willful failure to appear” is regularly litigated. It is clear that if you provide the BAR with no response, or a very late response without a valid excuse, your case will be dismissed. In most cases, a physical appearance is not required unless requested by the BAR (for commercial properties a personal appearance rarely achieves much), but if such a request is made and you or your attorney are not available, this must be communicated in writing and a reprieve received from the BAR. Otherwise, you may find your case dismissed with no remedy.
Your administrative complaint may be based on one or several types of claims. It is usually best practice to allege any grounds for relief possible to cover all bases and ensure that you do not find that you missed an opportunity due to facts later discovered. Once your complaint is filed, it generally cannot be changed.
The most common grounds for complaint are that the assessment is unequal to others because it is assessed at a higher percentage of value, or that it is excessive by reason of overvaluation. These two types of claims are often confused and are somewhat interconnected. Other possible grounds are that the assessment is “illegal” or that the property has been misclassified.
The spectrum of issues and court decisions on any one of these types of claims is vast and well beyond the scope of this overview. What follows is a brief primer on the nature of each claim. Your attorney can best advise you as to which are the most appropriate claims to be alleged in a given matter.
A claim of inequality is generally most appropriate in a municipality that does not assess at full (100%) value. This accounts for the lion’s share of New York State jurisdictions, so inequality is a common type of claim. As discussed earlier, the law requires the Assessor to assess all property at a “uniform percentage of value”. If, after determining what you believe the fair market value of your property to be, you feel the ratio of your assessment to your market value is a higher ratio than the average municipal-wide ratio, this may indicate an unequal assessment.
Proving inequality can be challenging. Valuation, while subjective and debatable, is at least straightforward and familiar to most property owners. The ratio, on the other hand, is a measure of the relationship between the assessed value of all of the property on the roll as of a certain date to the true market value of all of the property on the roll as of that date. Needless to say, deriving a ratio is a hugely cumbersome and complex prospect that usually involves the use of a highly trained statistician as well as one or more experienced appraisers and the review and valuation of many sample properties.
Fortunately, there are a few substitutes that may prove useful enough to avoid the cost and time involved in preparing one’s own assessment ratio. The average percentage of value at which property is assessed may be proved by:
- The ratio stated by the assessor on the assessment roll itself;
- The equalization rate determined by the New York State Office of Real Property Tax Services for the assessment year and jurisdiction at issue;
- Statements that may have been made by the assessor or other municipal officials.
In some cases, the preparation of one’s own ratio study may still be warranted, but such situations are now rare.
In an unequal assessment claim, one must also provide a valuation of the subject property, and then apply the assessment ratio to that value; if the result is lower than your assessment, you have demonstrated that your property’s assessment is too high and should be reduced.
There are several types of claims of excessive assessment, but the most common is that the assessed valuation of your property is greater than the full market value of the property. This type of claim is usually made in a municipality that assesses at or close to 100% of market value. For example, your assessed value is $500,000 yet the true market value is only $450,000. In simplest terms, the New York State Constitution says that a property may not be assessed in excess of its value, so any assessment that, whether fractional or at 100%, exceeds what it might actually sell for, is excessive.
There are two other principal grounds upon which an assessment may be challenged. They are less common than the first two, and not as directly related to valuation and therefore only brief mention is made here.
Assessments that are “unlawful” may include taxable assessments for properties that should be wholly exempt, such as churches and colleges, or assessed property that lies outside the boundaries of the jurisdiction, or assessed by someone other than the assessor who lacks authority to assess. Another, fairly common form of illegal assessment (which is not mentioned in the standard grievance form) is selective reassessment, commonly referred to as “welcome, stranger” assessments, which typically result from an increase in an assessment based upon a purchase where other property owners were not treated similarly.
Misclassified realty occurs only in assessing units that maintain split homestead and non-homestead tax rates, and is the result of a property that was either designated in the wrong tax class or, where an allocation between portions of the parcel for homestead and non-homestead has been done incorrectly.
A common question confronting anyone who fills out a grievance form is “how much should I say my property is worth?” Often at the time of filing a complete an appraisal has not been completed, or other factors are unknown, such that one may in good faith believe that his assessment is too high but lack a precise estimate or supporting proof. Because a grievance cannot wait until these answers are obtained, and it is not acceptable to leave the claim space blank, one must decide upon some value.
Moreover, trying to be “fair” about this estimate can prove unwise. The law says that a claimant is limited to the grounds set forth in the original application (the grievance) to review the assessment and is bound by this amount. In other words, if your attempt to state what you believe to be a “reasonable” estimate of value later turns out to be too high, you will be unable to later claim a lower value if that’s what an appraisal shows down the road. You are stuck with your claim. At the same time, there is no penalty for claiming a low value, even one that is ludicrously low. It is done all the time by experienced practitioners who do not wish to risk impairment of their client’s claim.
To further demonstrate the point, I have on several occasions discovered, long after the grievance has been filed, factors such as environmental contamination that were previously unknown and that cause the value to be far less than even the lowest estimate imagined.
Much as I know that many assessors cringe – or will even take pot shots at me for the practice (one town official went so far as to rant to a news reporter about such a claim) – I protect my clients by claiming only the most nominal value unless instructed otherwise.
Once the grievance is filed, it goes before a local Board of Assessment Review (“BAR”), which considers the assessment and any proof of value over a period of months (or in Nassau County, over a year) and then renders a decision, which becomes the final assessment for the year unless further challenged in court. BARs in New York are typically composed of individuals in the community who have an interest and the spare time to hear and decide complaints. It is not uncommon for BAR members to lack any form of valuation or even real estate knowledge, and this presents a challenge for both the municipality and the appealing taxpayer.
For the municipality, there is the danger that BAR members may be too easily persuaded to lower assessments based on inadequate proof of valuation, thereby decimating the assessment roll and irrationally increasing tax rates. For the taxpayer who complains, a BAR may be so unwilling to tackle a question of valuation that, like a deer in the headlights, they take no action where a quick resolution could have occurred.
Particularly for commercial properties, in my experience, most BARs in New York State will take the safe route and do nothing but rubber stamp the assessor’s initial determination. The result is that more than 99% of all commercial grievances end up going to court, where they often remain for years despite every effort to reach a resolution.
If you don’t like BAR’s decision, you may file an appeal in court within 30 days. Particularly for commercial properties, this must be done by a lawyer. (A special “small claims review” or “SCAR” is available to owner-occupants of one-, two- or three-family dwellings used exclusively for residential purposes; in a SCAR case, one need not be represented by an attorney.)
Unlike a number of other states, New York does not have a specialized tax court or judges who are dedicated to property tax matters alone. Your judge, though well-meaning, may have completed a criminal trial this morning and be preparing for a slip and fall case in the afternoon. One would think that with some of the highest property taxes in the nation, and a diverse and complex range of real estate from Rochester to Buffalo to Syracuse to Albany to New York City, it might make good sense for the court system to allocate proper resources to achieve consistent, well-reasoned, thoughtful results, but one would be wrong. Rather, case books are overstuffed with inconsistent decisions focused primarily on highly technical procedural questions that are of little interest to anyone but those who are looking for a “gotcha” dismissal, and provide precious little guidance on meaningful, substantive questions of valuation methodology.
If that were not enough to drain the smile from your face, consider the typical court dockets in New York. It is commonplace to find that your three-year-old tax case is considered too green to be placed upon the court calendar because it is up against several thousand that are more than a decade old. Regardless of how obvious it is that your property is egregiously over-assessed, it is unlikely to raise any eyebrows until it is seasoned with several years of filings.
For all of the concerns just discussed, few law firms have the fortitude to take on property tax litigation on a regular basis, or make it their exclusive practice. It takes strong familiarity with court practices, court personnel, municipal officials across a broad spectrum, and an intangible ability to navigate cases along the fastest and most successful route possible, little of which is spelled out in any rulebook.