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Am I Paying Too Much?
How to determine if your property is being over-assessed By Kristopher Nicoloff Siegel Jennings Co., L.P.A.
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rguably, the most common question posed by clients to property tax advocates is, “Am I paying too much in property taxes?” The answer: look at how your taxes are calculated. The tax rate is only controllable through the ballot box or a moving truck. However, the assessment is controllable through challenge. So, the real question is: am I being over-assessed? Although the question of being overassessed is particular to each property, there are a few things that taxpayers need to think about. First is understanding what you paid just a few years ago may not be an indication of your value today. Some properties may have gone up in value while others have gone down. For a moment, let’s assume that everything regarding the property has remained stable. Rent as well as expenses have not changed. The next step is to look at the market conditions for the applicable tax year. The upcoming assessment and tax bills will be as of January 1, 2023, here in Ohio. First, U.S. 10-year Treasury Notes had a yield as low as 0.556% in early 2020. January 2023 saw rates climb to 3.88%, and October 2023 saw the highest yield at over 5%. Based on interest rates alone, real estate purchased in 2020 may have lost 30% by January of 2023. County auditors who assess use the last three years of sales to establish the new assessments. As a result, they may over-assess your property. But let’s also look at the root cause of the increase in rates: inflation. Inflation exacerbates the picture. According to published rates, inflation stood at 1.4% in 2020, with a seven-year average of 1.83%. 2021 inflation exploded to 7%, a 400% increase from 2020, and the average from 2021-2023 (to date) is 5.73%. More staggering – these numbers are year over year. They do not originate from a baseline but instead compound, meaning inflation has risen 17.2% over the last
United States Annual Inflation Rates (2013 to 2023) 8
6
4 2
0
1.5
0.8
2013
0.7
2.1
2015 2014
2.1
1.9
2017 2016
2.3
1.4
2019 2018
three years. Did market rents increase as fast? Commercial rent trends contribute to the analysis. According to CoStar market research, national rent growth
7
6.5
2021 2020
3.7 2023
2022
of 2.3%. These increases are generally property-type specific, potentially helping some sectors like multi-family and industrial, but not office. Work from home isn’t helping the office market either. Statistics and reporting vary, but the U.S. Census Bureau found the number of people primarily working from home tripled from 2019 to 2021. Forbes reports that, as of 2023, 12.7% of full-time employees work from home, while 28.2% work a hybrid model. That’s over 40% of the U.S. workforce spending markedly less time in the office. As office leases come to term and work-from-home flourishes, rents will constrict. Expenses, both hard and soft, will likely also continue to rise. In the world of assessments, the past is not necessarily prelude. However,
According to CoStar market research, national rent growth continues to rise, but at a slower clip than 2021/2022. However, the Cleveland market still hovers at record levels, with annual gains at 6.5%, just shy of three-times the previous 10-year average of 2.3%.
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continues to rise, but at a slower clip than 2021/2022. However, the Cleveland market still hovers at record levels, with annual gains at 6.5%, just shy of three-times the previous 10-year average
Properties | November 2023