Ohio Modifies Real Estate (Tax) Valuation Statute- R.C. 5713.03

Ohio Am. Sub H.B. 487 (H.B. 487) which includes changes to R.C. 5713.03 (the section of the Ohio Revised Code regarding valuation of real property in Ohio) was signed into law on June 11, 2012. While small in terms of number of words changed, the amendment to R.C. 5731 is expected to be huge in terms of impact on proving property values before local boards of revision.

One of the biggest changes in the law is that Ohio county auditors are no longer obligated to consider the recent sale price of real property to be its true value. You may recall that the plain “mandatory” language of the original statute regarding recent sales prices establishing value was reinforced by the Ohio Supreme Court in Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision (2005), 106 Ohio St.3d. 269. Basically, the Court in Berea reversed prior decisions that factored in circumstances impacting the sale price (to establish value) such as mortgages, sale-lease-backs… The revised statutory language of R.C. 5713.03 now provides that an auditor "may" (vs. shall) consider the price of a recent sale as value. Perhaps compelling appraiser testimony can now trump the recent sales price as a property’s true value.

The other major change to the statute regards what type of real property interest is to be valued by Ohio county auditors. Prior to Am. Sub H.B. 487, R.C. 5713.03 provided that each county auditor "was to determine ….the true value" of each real estate parcel. Revised R.C. 5713.03 now provides that the true value of "the fee simple estate, as if unencumbered" is to be valued by Ohio county auditors. In other words, leases, mortgages and other encumberances are not to be taken into consideration when establishing market value for real property taxation.

In order to better visualize the changes, an excerpt from revised R.C. 5713.03 is re-produced below:

“Sec. 5713.03. The county auditor, from the best sources of information available, shall determine, as nearly as practicable, the true value of the fee simple estate, as if unencumbered, of each separate tract, lot, or parcel of real property and of buildings, structures, and improvements located thereon and the current agricultural use value of land valued for tax purposes in accordance with section 5713.31 of the Revised Code, in every district, according to the rules prescribed by this chapter and section 5715.01 of the Revised Code, and in accordance with the uniform rules and methods of valuing and assessing real property as adopted, prescribed, and promulgated by the tax commissioner. He The auditor shall determine the taxable value of all real property by reducing its true or current agricultural use value by the percentage ordered by the commissioner. In determining the true value of any tract, lot, or parcel of real estate under this section, if such tract, lot, or parcel has been the subject of an arm's length sale between a willing seller and a willing buyer within a reasonable length of time, either before or after the tax lien date, the auditor shall may consider the sale price of such tract, lot, or parcel to be the true value for taxation purposes. However, the sale price in an arm's length transaction between a willing seller and a willing buyer shall not be considered the true value of the property sold if subsequent to the sale:

(A) The tract, lot, or parcel of real estate loses value due to some casualty;

(B) An improvement is added to the property…”

Some believe the newly revised statute will result in lower values for commercial properties that have above market rents but are otherwise comparable to surrounding properties. The flip-side, however, is that those with below-market rents in affluent neighborhoods may see their values increased. Most others, including this author believe that there are more questions than answers at this point.

For a complete copy of Am. Sub H.B. 487, go to: http://www.legislature.state.oh.us/BillText129/129_HB_487_EN_N.html______________________.


Shiela Harroway said...

For me, as a real estate investor, I think this law is somewhat vague. The guidelines need to be as clear as possible so that there won't be any confusion, especially that this is real estate we are talking about.

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