The valuation of commercial property requires in depth thorough examination of the value of the property using all three approaches to value- sales comparison, cost and income approach. Tax assessors routinely ignore the income approach resulting in skewed values. Each commercial tract is unique and requires evaluation and consideration of all facets in order to arrive at the fair market value for ad valorem tax purposes
For income producing property, Georgia law requires that income approach information be applied when available. Tax assessors throughout the state routinely ignore this approach to valuation often resulting in excessive valuation when the property is valued based exclusively on the comparable sales approach or cost approach. As prudent owners know, the price paid for income producing property is based on the income that can be produced. Accordingly, comparing sales prices of similar types of properties without examining the income and expenses related to the property is quite often comparing apples and oranges. Moreover, because of issues including functional and economic obsolescence examining the value of improved, income producing property often has little resemblance to the value of the property based on the income it can generate.
Georgia has one of the highest ad valorem tax rates per acre in the nation. However, paying excessive rates for raw land, even future development parcels, is unnecessary. Unlike in many states, property must be valued based on its existing use rather than potential alternative higher and better uses. The restrictive definition of Fair Market Value found in Title 48 generally results in a finding of much lower values for ad valorem tax purposes than can be expected from application of the typical USPAP or fee appraisal definition of Fair Market Value which is based on the most likely sales price considering both the existing and potential higher and better uses. This is true regardless of the purchase price paid for the property where the purchaser’s motivation was speculation or future conversion of the property to an alternative higher and better use.
In order for a valuation by a tax assessor to be valid, the valuation must comport with the definition of fair market value found in OCGA 48-5-2, the valuation must be uniform and must comply with the law. Georgia law requires that properties be valued uniformly with other properties in the county so that each taxpayer only bears its fair share of the tax burden. Georgia law likewise requires that the procedures and methodology set forth in Title 48 and the rules and regulations of the Georgia Department of Revenue be followed. These three areas create a wealth of opportunities for obtaining reductions for the practitioner who knows which rocks to look under and which area to focus the attack.
Many taxpayers are forced into preferential valuation programs such as CUVA and FLPA based on the perceived inability to fight the “fair market value” determined by tax assessors. What many owners do not know is that because of Georgia’s requirement of valuing property based on existing use in many cases greatly reduced market values (in many cases values at or close to the values that can be achieved under CUVA and FLPA) are possible without enrollment through pursuit of ad valorem tax appeals.
Preferential covenants such as FLPA and CUVA are great for owners who know that the use of the property enrolled will not change for the covenant period. However, when breached, these covenants carry significant penalties 2-3 times the tax savings enjoyed through enrollment. Through a strategic and comprehensive property tax valuation management strategy, owners can enjoy significant tax savings and make informed decisions that enrollment in a preferential valuation program is the best option for them. Even for owners that have enrolled in CUVA and FLPA, tax appeals can have significant value by keeping the “fair market value” low thus decreasing the potential penalty in the event of a breach of CUVA or FLPA during the covenant period.
Whether property identified for future development, partially developed property, developer lot inventory or inventory of completed improved space, Georgia law provides avenues for obtaining significant reductions for the developer’s property. The requirement of valuing based on existing use rather than alternative higher and better uses can provided significant tax savings for platted, zoned future development property where the physical use has not changed. Moreover, the valuation of developer inventory based on a discounted cash flow basis or through the application of absorption rates can provided substantial tax savings. For tax purposes, where one lot or unit sells for $100, the remaining 100 units are not also worth $100. Tax assessor’s routinely fail to recognize this.
Multi-family property provides the opportunity for application of both the income capitalization approach and discounted cash flow or absorption analysis. Tax assessor’s typically value such properties based on retail sales prices of other multi-family units and fail to either apply the income approach to value or discount the property based on the anticipated sell out where the property is held for sale rather than rental.
Whether a residence or a luxury condominium, the uniqueness of residences and condominium developments require exploration of all aspects of valuation including the improper inclusion of intangibles or personal property included in the sales prices of properties used as the basis for valuation. Often because of the subjective process utilized by the tax assessor in valuing residential properties, wide disparities in otherwise seemingly similar properties exist and provide opportunities for substantial reductions.
Specialized properties such as resorts, mills and other industrial properties require the application of specialized valuation techniques. Often the valuation of these types of properties is outsourced by tax assessors and require engaging a professional appraiser on behalf of the taxpayer. These cases often come down to battle of the experts and a battle over the admissibility of the experts testimony based on the methodology used and compliance with Georgia law and USPAP. At Roberts Tate, we work with only the best appraisers based on both the quality of reporting and testimony. We also provide a safeguard to ensure that the appraisers report and methodology are sound. Whether the case is won or lost for special use properties often turns on the ability to avoid pitfalls in the valuation approach utilized and discredit the other sides opinion of value and basis for such value. At Roberts Tate, this is what we do.