Still Time To Appeal Commercial Assessments

May 5, 2008
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GRAND RAPIDS — It seems that commercial and industrial property owners are generally unaware of the fact that under a recent change in the law, they still have until the end of this month to appeal their property assessments.

What commercial and industrial property owners may not know is that they no longer have to go before their local Board of Review to make their case for a lower assessment. Under a new law that went into effect in the 2007 tax year, commercial and industrial property owners can file an appeal directly to the Michigan Tax Tribunal. But the deadline for appeals for this year is May 31, so they have to get going.

The law firm of McShane & Bowie believes 75 percent of commercial and industrial properties in Michigan are over-assessed and that many of their owners could successfully appeal.

“What’s different now compared with three years ago is that the values of commercial and industrial properties have declined but the assessments are continuing to go up,” said Bill Bowie, a tax appeal attorney and partner in McShane & Bowie. “Whereas your property may have been over-assessed by only a small percentage in the past, it may now be over-assessed by 20 to 25 percent.”

Every year assessors are responsible for determining the value of properties but they don’t really go out and look closely at the values of properties to determine whether they have gone down in value, noted Bowie. He said assessors normally do a percentage increase over the prior year without even reflecting on whether or not the increase is appropriate for all properties in that class or whether it’s appropriate for a particular piece of property.

But Michigan’s economy has been in a weakened condition for the last few years and that condition has translated into declining property values, Bowie pointed out. Because of the sheer number of properties assessors have to deal with, they usually don’t focus on an individual property unless the property owner personally brings it to their attention, he said.

“Over the last few years, rental rates have gone down in the market and vacancies have gone up, and when those two things happen, the value of the property goes down,” Bowie remarked.

Bowie said the types of properties that are typically overvalued are rental properties that have excessive vacancies, which in his experience have included apartment houses, office buildings, retail space, motels and hotels, golf courses and industrial buildings. It takes time for the owner of a vacant rental property to find a tenant. The owner often has to pay a leasing commission to land a tenant and pay for some improvements to the property, as well. Those are the kinds of properties that have the best prospects for winning appeals.

“All of those costs make a difference on what the value of the property is,” Bowie remarked. “If the potential rental rate has gone down by 20 percent, that’s going to reduce the value of the property, too.”

To determine whether a commercial or industrial property might be over-assessed, Bowie will evaluate information such as: the price the client paid for the property; how long he has owned it; what liens, if any, might be filed against it; and the current rental rates and operating expenses the property is generating. His firm does an analysis of what it thinks the range of the value would be compared to what the assessment is on the property, and if the assessment is too high, it recommends the client appeal to the Michigan Tax Tribunal.

The petition, which is akin to a lawsuit, has to be served on certain defendants, such as the assessing authority, the local school district and the county bureau of equalization, Bowie observed. Since there are strict requirements that have to be met in an appeal, most people use attorneys rather than attempt it on their own, he said. The taxing authority has 30 days to file an answer.

“Then we typically attempt to sit down with the taxing authority, present our case and see if we can negotiate a settlement as to what the assessment should be,” Bowie said. “If we’re successful, the client receives the benefit of a lower assessment this year. And because Proposal A limits annual assessment increases to no more than 5 percent or to the cost of living — whichever is the lesser of the two — then the client gets that benefit year in and year out until they sell the property.”

Bowie thinks a lot of people don’t pay close enough attention to their real estate taxes and, as a result, are actually paying more than they have to. 

“When you get the assessment notice, it’s not a tax bill; it’s just a notice that says your assessment has gone up. If you wait until the tax bill comes, it’s too late for this year, so you have to wait until next year. Unfortunately, you can’t go back and deal with previous years: You can only deal with the current year and forward.”

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