Fighting city hall: the angst over property tax assessments: when the tax man commeth, appeals are sure to follow independent owners say an educated owner is an empowered owner.

Sure as death and taxes are inevitable, so are tax assessment appeals--so much so that they're an annual ritual for many independent rental owners. Regardless of their companies' sizes, the questions are the same: "Do I pay?" and "Do I challenge?"

"Typically, we challenge them all," a resolved John Raper said matter-of-factly.

Raper is President of Austin-Texas-based-Central Properties, a 40-year-old family-owned business that owns and manages nine Class C properties of 271 apartments, duplexes and single-family houses. Raper, Past Chair of the Texas Apartment Association's Independent Rental Owners Committee, said he simply has Ray--that's Ray Head, Partner at Morrison and Head LP, an Austin-based tax consulting firm specializing in assessment appeals--manage his appeals.

An Austin native, Past NM Director and Past Austin Apartment Association President, Head is the logical professional to handle Central Properties' tax assessment challenges, Raper said. He said Head's experience is equaled by his knowledge of the Austin real estate market, and those are the keys to getting his assessments reduced, albeit not the ace in the hole.

"If I owned these properties myself, I would probably challenge the assessments myself, but because I represent my family, including two brothers, a sister and Mom and Dad, it's better that there's a third party representing us," Raper said. "I might overlook something or say something that might sway the tax assessor in the wrong direction. I don't want to take that chance because we pay much too much more than our fair share. I'd rather have Ray do it because he does it full time, every day."

Though Head's firm collects the information from Raper and represents the family at hearings and throughout the appeals process, Raper is still responsible for gathering rent rolls, the back taxes that were paid, occupancy rates and property improvements, as well as what's surrounding the properties that might detract from the value.

"In one case, we have a junk yard that was once a service station, and the view of it isn't that good," Raper said. "So, we take pictures to show how we think it devalues our property.

"If we only owned 10 units," Raper said, "it would behoove me to do it on my own. But if you want to get it right and stand a chance to have taxes lowered you have to have all your ducks in a row. You can't go empty handed. You need documentation to justify your case."

FEAR OF RETALIATION 

Challenging property tax assessments isn't anything new to apartment owners who believe their local taxing authority has wrongly assessed their property.

In recent economies, increasing real estate appreciation, rising property tax assessments and high vacancy rates have put the financial pinch on apartment owners as local governments--those that set the property tax rate--seek to replace dwindling federal and state revenues by raising property taxes in their respective jurisdictions. It is property owners like Raper who can be hit hard because their properties are older and the choice can be between deferring maintenance and raising rents to absorb the cost of a higher assessment.

For apartment owners, an unfair assessment increase can be a no-win situation. Some say they risk raising the ire of the local taxing authority if they challenge--and win--their appeal. Their assessment, and property taxes, may be reduced, but it can come with a price. Fearful of retaliation--a bigger tax bite--the next year, they make sure they've assembled a solid case in their favor.

Their fear isn't unfounded. The reality is that property taxes are a major source of revenue for local municipalities, which is a good reason for a local taxing authority to look for ways to fill government coffers. Another reality, according to many independent rental owners, is that many of the individuals who rule on assessment appeals--whether they are compensated or not--just aren't qualified to make well-informed decisions about property values.

For apartment owners with portfolios of properties in different municipalities who want to challenge their assessments, because property tax assessments are within the purview of a local taxing authority, it becomes especially complicated, time consuming and frustrating. Different tax rates across adjacent local jurisdictions, different application forms and different people serving on assessment boards add up to time and money, whether owners opt to challenge the assessment themselves or hire a tax advisor to do it.

"Most of our apartment clients have an ongoing need to ensure that their property taxes are managed and minimized each year," said Head, who represents several independent rental owners.

"What [Raper] faces is not uncommon in the [Austin] market place. Sales of [communities] have ramped up in the past 24 months compared with two to three years ago," Head said. "Many taxing authorities will place valuations of properties on comparable sales. So when you have a large number of sales and reported purchase prices far in excess of assessed value, it creates a situation where appraisal authorities believe they undervalued property. So, they reappraise at a higher rate and taxes increase dramatically. We are fighting and trying to minimize the effect of the sales on property."

Just as in other states, taxation in Texas must be equal and uniform, and no type of property should be singled out to pay more than its fair share of taxes. Sounds simple, but don't be fooled, Head said.

Determining market rate, for example, is often not based on an intimate knowledge of a property. In most states, property taxes are predicated on market value, defined as the price a buyer would pay a seller under prevailing market conditions. Taxing authorities rely on income information when determining the market value of income-producing property.

But if an apartment property draws a sales price that's higher than its assessed valuation, it can raise a red flag to a taxing authority quite eager to revalue a property and raise the assessment.

"Here in Texas, public education is paid through property taxes so we get hammered every year," Raper said.

THE DO-IT-YOURSELF SYSTEM

While Raper, and others, hire lawyers or tax consultants to handle their assessment appeals, others do it themselves.

"Everyone should watch their assessment and valuation and make sure they are paying what is fair and reasonable," said Denver-based apartment owner Don Werner, Chairman of NAA's Independent Rental Owners Committee. His Performance Real Estate Management LLC has more than 100 units in its portfolio. Every year, Werner said, he challenges property assessments single handedly, but warns of the pitfalls.

"Part of the learning process is that you must be familiar with how to work the system," Werner said. "Here, one county has an electronic filing system, while a neighboring one has a paper one. The process can be tedious. It would be great if all the counties offered electronic filing."

For a novice, he said, it's far more complicated. "You have to know where to go to get your information, and you have to know what information you are looking for. For a person who is new at it, it's hard to get to the right person and the right database. They may not have learned that they can call their favorite real estate agent for comps, which takes only a few seconds, if you have the right relationship with them. Owners need to know and understand the real and reasonable value of their property."

Werner said he researches comparable values himself. "I have found the small investment in time to pull comparable sales for the valuation period, organize an argument supporting the real value of a property and presenting this information to the county tax assessor has been worthwhile," he said. "Recently, I appealed a valuation on a property that should be roughly $2 million, but the assessor had it for $2.45 million. I demonstrated, through the use of valid comparables, that the property should be valued at my number. The assessor agreed with my findings and adjusted the county valuation accordingly."

With the current taxation rates in his area, this adjustment netted Werner a savings of $2,847.

For Raper, Head does the valuation analysis and compares it with the county where a property is located. "I start in January gathering rent rolls, operations statements, budgets, cost estimates, photography, information about special leasing concessions or programs," Head said. "I get information about parking, about pools, everything that has to do with the financial and physical operation so that when I go before an appraisal panel, I go to present a convincing case."

APPPEALS ON THE RISE

Head admits that the amount of litigation over assessments varies from year to year, but he foresees appeals for assessment reductions are going to increase--at least in the Austin market. "I've been in this business for 36 years and I've never seen such disconnect. There is a tremendous amount of money chasing deals now."

At Tucson Realty & Trust Co., with 2,000 apartment units in its portfolio of single-family homes and commercial space, it makes sense to hire a tax consultant, said Dori Locke, CAM, CAPS, CPM, President and Managing Partner.

"They're raising taxes regularly and values are going up significantly in the Phoenix and Tucson markets," said Locke, of two of the nation's hottest real estate investment markets.

Notwithstanding current market conditions, Locke contracts with Sage Tax Group to handle the appeals every year. With offices in Locke's markets, the company has the knowledge and the relationships with local tax assessors that make sense for her company.

Win an appeal and Sage earns a 25 percent fee; lose the appeal and it's a goose egg for the consultant, Locke said. In return, Sage does the analysis and online filings and represents her company before the assessment board and the state board of equalization.

Locke said it's worth it. "They have the relationships with the assessor's office. They may not get a better deal, but they do know the ins and outs and how to get it done," she said.

B. Kreisler, ImPrint LLC, is a consultant to the multifamily housing industry. She can be reached at [e-mail] or 703/366-2861.

HOW TO LOWER YOUR PROPERTY TAXES

To be successful in lowering a property tax assessment, there are some basic steps to take. Most important is to be proactive so when the tax assessment arrives, the owner knows whether it is fair and how to proceed quickly and correctly if it is not.

KNOW THE PROCESS

1. Find the local taxing jurisdiction by phone, or to search many locations in a single effort, go to ww.statelocalgov.net on the Web.

2. Each jurisdiction has its own codes, rules and deadlines for filing an appeal. Proof of the importance of knowing filing deadlines is a recent Santa Cruz, Ariz., Court of Appeals ruling that found a property owner's excuse that he didn't receive notice of property value so he could not file by the statutory deadline, was no excuse. The ruling found that each property owner must be diligent in knowing when values are to be mailed, and if one is not received the property owner must inquire as to why. Be proactive by knowing when properties are going to be re-appraised.

3. Understand each jurisdiction's valuation method. The first question to ask a local tax assessor is why the assessment went up.

4. Know the process, which usually involves appealing to the local tax assessor, and if that fails to produce the desired results, appear before a tax review or appeals board. If still without success, take the case to court.

KNOW THE ALTERNATIVES

1. There are independent rental owners who handle their own appeals processes; or

2. Hire a tax consultant or lawyer who specializes in challenging tax assessments. The best advice, according to Ray Head. Partner at Morrison and Head LP, is to hire someone who has experience in the specific market because that person will know the market as well as local government protocols and players. The American Property Tax Council (www.aptc.com) has a county-by-county listing of tax experts. The site also has a state-by-state listing of relevant information.

MAKE THE CASE

1. Remember the value of due diligence.

2. If hiring a tax consultant, chances are they have an established relationship with the tax assessors. In the one meeting with the tax assessor, be amicable and be fully knowledgeable to present a convincing argument for lowering the assessment. The reality is that property valuation is not a science, so it boils down to opinion.

3. If you're batting zero, there's still time to hire a good tax consultant or attorney, especially those who have handled property tax reduction cases and are familiar with the jurisdiction where the property is located. These experts usually work on an hourly basis or a contingency fee based on the size of the property tax reduction. Get their references: look at their track record.

STRENGTH IN NUMBERS PROVES SUCCESSFUL IN SOUTH CAROLINA TA X BATTLE

There's something to be said for thinking outside the box. The Charleston Apartment Association (CAA) did that when it went to bat for a group of non-resident property owners and took on the Charleston County Council. which enacted a controversial 15 percent selective tax cap favoring homeowners in affluent communities while burdening apartment and commercial property owners and owners of second homes.

"I told members we had to band together for strength in numbers, that we had to reach outside our organizations and make strange bedfellows," said Victoria Cowart. CPM. Vice President of Property Management for Darby Development Co. Inc., Charleston, and CAA President at the time of the legal battle with the county council. "As an association, we have the leadership and we should help others when trouble calls. The fight went to the Supreme Court and we won. Now we're trying to make the county give refunds," she said.

CAA was asked by a group of homeowners to support its challenge to a tax cap and willingly joined the fight, taking the position that while a tax cap would benefit a select group, it would result in tax bill increases for apartment and commercial property owners and owners of vacation homes.

CAA subsequently provided support, opposing the action in a letter to the county, council offering strategic marketing support and participating in fund raising for which CAA raised $350,000 to defray the cost of the legal challenge that took place in South Carolina's 9th Circuit Court. "We offered owner members an opportunity to participate in a cause that would be a financial benefit to them in the end," Cowart said.

For its successful efforts in 2002. CAA won a NAA PARAGON Award for Government Affairs.