When it comes to filing real estate tax
complaints, many of us know that the sale price in an arm's length transaction between a
willing seller and a willing buyer is usually considered by the applicable
board of revision in rendering its decision. This is generally good news when a
buyer buys for less than the current valuation, and not so good news when a
buyer buys for more than the then current valuation.
What if there is no recent sale involved? Does it
still make sense to challenge your property’s increased valuation (and
consequently, the taxes paid)? Can a property owner’s appraisal really stand a
chance against the applicable county auditor’s opinion of value?
As to whether or not it makes sense to challenge
your property’s increased valuation, it of course, depends. It basically
depends on how much extra taxes will need to be paid, for how long, and the
attorney, appraiser and other fees involved with a complaint. If you take the increase in market value and multiply
the same by the “tax as a percent of market” percentage (which you can get from your county auditor or local tax district),
you can come close to determining the extra amount in taxes you will be faced
with as a
result of your property’s increased valuation (please note that there are additional factors that may not
be included in this estimate such as special assessments and homestead
exemption figures).
For example, let’s say the county
increased the value of your property by $20,000. While that number is
significant, if your tax as a percent of market” is 2%, your taxes would only increase
by $400/yr. On the other hand, a
$100,000 valuation increase on a commercial property with the same tax rate
would result in taxes increasing by $2,000/yr. Since valuation in Ohio is
updated every three years (each three year period being a “triennial”), you
could be faced with a $6,000 increase (in our commercial example) if the year
of increased valuation is the first year of a triennial. If an appraisal costs, say $2,000, and an
attorney will take the case on a contingency basis, the challenge would be
worth it. You basically need to do a
cost/benefit analysis for every situation in order to determine if it makes sense to challenge your property’s increased
valuation. It is important to note, however, that for residential
properties; most county auditors have an informal procedure where homeowners
can challenge an increase in valuation without appraisers and attorneys.
The Supreme Court of Ohio in Dublin City Schools Bd. of Edn. v. Franklin Cty.
Bd. of Revision, Slip Opinion No. 2016-Ohio- 3025 (“Dublin”) answered our second query (regarding whether or not a property owner’s appraisal stands a chance
against a county auditor’s opinion of value), in the affirmative. In Dublin,
the County Auditor valued a two-story office building in Franklin County (with
a bank on its ground floor) at $2,205,000, and the owner sought a value of
$1,000,000 based on an appraisal it presented to the Franklin County Board of
Revision (“BOR”). The BOR agreed with the owner, and appellant, the Dublin City
Schools Board of Education (“BOE”), appealed to the Board of Tax Appeals
(“BTA”), which affirmed the BOR’s valuation. Thereafter, the BOE appealed to
the Supreme Court of Ohio.
The BOE in Dublin
argued that flaws in the owner’s appraisal made it not probative and
accordingly, the BTA should have automatically reverted to the auditor’s
original valuation of the property. Among the issues the BOE had with the appraisal
were that: 1) the comparables were “not even remotely comparable,” (even though
the comps were office buildings within the same geographic area as the subject
property, none of the sale comparables included a bank as part of the
property); and 2) the appraisal used LoopNet, a listing service, and county
records for verifying the arm’s-length character of the sales, rather than
through direct contact with parties to the sale. The BOE did not however
present any new evidence of value at the board of revision hearing, or at the
BTA.
The Supreme Court of Ohio shot down the BOE’s
arguments based upon a straightforward application of what the court has called
“the Bedford Rule,” based on the
following case: Bedford Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision,
2007-Ohio-5237. “Pursuant to that rule, ‘when
the board of revision has reduced the value of the property based on the
owner’s evidence, that value has been held to eclipse the auditor’s original
valuation,’ and the board of education as the appellant before the board of tax
appeals may not rely on the latter as a default valuation.” Instead, pursuant
to this Rule, the board of revision’s adopting a new value based on the owner’s
appraisal (or other evidence) has the effect of shifting the burden of proof to
the board of education, on appeal to the board of tax appeals.
The court then recognized that the BTA
correctly applied the Bedford Rule in Dublin.
Even though the BOE at the BTA found fault with the evidence that the owner
presented before the board of revision, under the Bedford Rule, as long as the
evidence of value that the owner presented to the board of revision was “competent
and at least minimally plausible”, the board of education may not invoke the
auditor’s original valuation as a default value; rather, the burden shifts to the
board of education to prove a new value, and the BOE in Dublin did not offer any proof.
Does the Bedford Rule apply in every
situation? No. According to the court, the
Bedford Rule applies when four (4) factors are present: "First, the
Bedford Rule applies in a case in which the property owner either filed the
original complaint… or filed a counter-complaint… Second, the Bedford Rule
applies when the board of revision has ordered a reduced valuation based on
competent evidence offered by the property owner... Third, the Bedford Rule
applies when the board of education is the appellant before the BTA…The fourth
and final element of the Bedford Rule is that the board of revision’s
determination of value is based on appraisal evidence rather than a sale price
offered as the property value.”
While the appellant in Dublin did argue that the second factor of the Bedford Rule was not
present (no competent evidence), the Supreme Court of Ohio basically told the
BOE that it was too late. According to the court, “These observations
constitute matters that are among those consigned to the expertise of the
appraiser and to the board of revision and the BTA as fact-finders. This appeal
seeks to cast us in the role of “ ‘super BTA,’ ” but … we decline that role
now.”
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