Revaluation of Real Property in the City of Buffalo: My New Assessment Is How Much?

If you own real property within the City of Buffalo, you recently received an assessment notice from the City advising you of the new value that the City intends to use when calculating the real property taxes due on your property. The notice that you received is the result of the first City-wide revaluation since 2001. The revaluation project, which the City completed with assistance from the appraisal firm Emminger, Newton, Pigeon & Magyar, Inc., was intended to bring the fair market values of all properties within the City up to date, taking into account changes in the Buffalo real estate market since the last revaluation in 2001. For some property owners, the City’s new value for their property may have come as a surprise and may have raised concerns about the resulting tax impact. Although the assessment notices sent by the City provide an estimate of the expected change in the real property taxes on your property, the actual impact will not be fully known until budgets are approved and tax levies are determined for all taxing entities, including Erie County, the City of Buffalo and the Buffalo School District.

If you are a property owner who believes that the new value assigned to your property is too high, the question is what should you do next? This alert is intended to help you decide whether you should seek legal assistance with that question. If you do decide you need legal assistance, our real property tax certiorari attorneys are available to help.

How New York State Taxes Real Property

Municipalities and school districts in New York State rely on real property taxes to provide services to their residents. More than $26 billion in real property taxes are raised annually across New York State. In order to allocate that tax burden fairly and proportionately among residents and businesses within each municipality and school district, New York State generally relies upon an ad valorem system of real property taxation. Ad valorem is Latin for “according to value” and accurately describes how real property taxes are allocated to taxpayers and properties in New York State.

Once a municipality or school district establishes its budget, it determines how much it needs to collect in real property taxes to support that budget (subject to the limits imposed by New York State’s real property tax cap). That amount is known as the “tax levy.” The tax levy is then allocated among all non-exempt real properties within the municipality or school district based upon the relative value of those properties.

Before that allocation can be made, however, the local assessor must advise the municipality or school district of those relative values. To do so, the assessor first assigns a fair market value to each property. The assessor then applies an equalization rate provided by New York State, expressed as a percentage of full value, to assure the property tax allocation among the 4,000 taxing jurisdictions in New York State is equitable. The resulting value is known as the assessed value. The assessor reports an assessed value for each property within his or her municipality, as well as the total assessed value for all non-exempt properties within that municipality.

With those two numbers in hand, the municipality or school district can then allocate the tax levy among its taxpayers. The municipality or school district does so by dividing the tax levy by the total assessed value, resulting in a tax rate that is applied to each $1,000 in assessed value for each non-exempt property within its boundaries. The example below illustrates how this works:

Municipality’s Tax Levy $2,000,000
Total Assessed Value in the Municipality $40,000,000
Tax Rate per $1,000 of Assessed Value
     ($2,000,000 ÷ $40,000,000) x $1,000
$50
Assessed Value of Property A $150,000
Tax Bill for Property A
     ($150,000 ÷ 1,000) x $50
$7,500

There are two key takeaways that should be kept in mind based upon the discussion above:

  1. A City-wide revaluation will not necessarily result in a higher tax bill. Whether or not it does so depends on the percentage increase in the fair market value of your property in relation to the percentage increase in the fair market value of all other properties in the City. If the increase in the fair market value of your property is less than the average increase in fair market value of all other properties in the City, your tax bill may actually drop. If the two are roughly equal, your taxes should remain roughly the same (subject to any increase in the tax levy). But, if your increase exceeds the average increase, your tax bill may increase.
  2. The fair market value assigned by the assessor to a particular property will ultimately drive the resulting tax bill for that property. If the assigned fair market value is too low, the property owner will not pay a fair share of real property taxes. But, if it is too high, the property owner will pay more than a fair share of real property taxes.

So how do you determine whether your assigned value is too high?

Determining Fair Market Value in New York State

Although there is no fixed method for determining fair market value of real property in New York State, the ultimate goal is to arrive at a fair and realistic value for the property. To achieve that goal, New York State generally allows the use of three different valuation approaches to determine the fair market value of real property: (1) the sales comparison approach; (2) the income approach; and (3) the cost approach.

The first approach, the sales comparison approach, calls for a comparison of the subject property to other comparable properties in the same municipality or geographic area that have recently sold. An appraiser using the sales comparison approach will usually begin by defining the attributes of the property being appraised, often called the subject property. The appraiser will then work to identify a number of potentially comparable properties that have recently sold, gather relevant information concerning those sales (i.e., the sales price, terms, whether they were arms-length sales, etc.), and make adjustments to the sale prices of those comparable properties to account for any relevant differences between each comparable property and the subject property (i.e., age, condition, size, etc.). After making those adjustments, the appraiser will usually arrive at a per-square-foot value based upon the comparable sales, then apply that value to the square footage to the subject property to arrive at a fair market value as determined by the sales comparison approach.

The second approach, the income approach, is generally applied to income-producing properties – but can also be applied to owner-occupied properties if they are similar to other income-producing properties in the same municipality or geographic area. When using this approach, the appraiser will usually also start by defining the attributes of the subject property. The appraiser will then typically identify a number of comparable properties that are under lease, gather information concerning those leases (i.e., lease rates and terms), determine whether the income and expenses of the subject property are consistent with comparable income and expenses of comparable properties, make any adjustments the appraiser deems necessary due to differences between the subject property and the comparable properties, and determine a market-based net operating income for the subject property. The appraiser then determines the applicable capitalization rate for the type of property in the municipality at issue and capitalizes that net operating income to arrive at a fair market value as determined by the income approach.

The third and final approach, the cost approach, is generally used only for unique or “specialty” properties, where there is effectively no market data available to allow the use of the sales comparison or income approach. If this approach is used for other types of property, it is typically used only as a ceiling, because it tends to produce higher values than the other two approaches. To compute a property value using the cost approach, an appraiser (often working in conjunction with a construction expert) will typically look at construction cost data and determine the reproduction cost new of the subject property, less depreciation (known as the “RCNLD” method). If you are concerned about the fair market value that the City has assigned to your property, the next step is to consider whether you have information that suggests a lower value for your property under any of these approaches to valuation. For instance, have similar properties in the City recently sold for less? How do your rents compare to the rents of similar properties in the City, and do you know how the City has valued those other properties? You may also want to ask yourself whether, if you were to sell your property today, you would ask more or less than the fair market value assigned by the City. All of these questions may help you decide whether you want to challenge the fair market value the City has assigned and, if so, whether you may need legal help to do so. The question then becomes, how do you challenge your new assessment?

Challenging Your Valuation

The assessment notice that you recently received should indicate that the City is offering all property owners the opportunity to meet informally with its appraisal consultants. Those informal meetings are scheduled to be held on dates between now and October 17, 2019, but you must call by October 9, 2019 to schedule your meeting. All informal meetings are by appointment only, and you should call at least two days in advance of your preferred meeting date to make your appointment. You can, if you wish, make a written submission in lieu of attending one of these meetings, as long as you do so by the specified deadline of November 1, 2019.

Municipalities typically offer the opportunity for these informal meetings when they undertake a revaluation – to give taxpayers a chance to both get more information about how their particular assessment was determined and to challenge their new assessment if they think it is too high. Although these meetings are informal, they provide a chance for the taxpayer to bring any relevant information or documents concerning the value of their property to the attention of the appraisal firm, and to attempt to convince the City that the new valuation should be corrected and reduced. For example, you may want to bring photographs, documents or other information concerning anything about your property that you believe reduces its value relative to similar properties in your area. You also have the right to be represented by, and attend these meetings with, your legal counsel, if you so choose.

After the informal meeting process concludes, the City and its consultants will determine if it is necessary to make any further changes to the value of your property. Then, on December 1, 2019, the City will publish its tentative assessment roll for all properties in the City. The value of your property on that tentative roll may, or may not, change based upon the informal meeting process. You should be sure to check the tentative roll when it is published (it will be available online) to determine whether any change has been made to the value of your property, and to also determine whether you wish to further pursue a challenge to that value.

A further challenge to the value of your property will require the filing of an administrative complaint with the City and could ultimately require that you commence a court proceeding. The timing and mechanism for making these challenges is beyond the scope of this alert. You should, however, be aware that specific procedures and time limits apply to these challenges, and that an incomplete filing or missed deadline may result in a waiver of your rights to further challenge the value assigned to your property. We strongly recommend that you consult with counsel in advance of the publication of the tentative roll to make sure you are prepared to file any further challenge that may be required.

Properties That Present Particular Challenges

For some property owners in the City, the revaluation of their property will present particular challenges not shared by the typical owner of a residential or small commercial property. If you have a property that falls within this category, and you believe the fair market value assigned to your property is too high, you should consult with counsel as soon as possible to determine the best way to present your challenge and ensure that you do not waive any of your rights in doing so.

Properties that may face particular challenges include, but are not limited to:

  1. Income-producing properties with below-market rents. The challenge presented by these properties is that market rents may have increased significantly since the value of these properties was last adjusted. Generally, New York State law values an income-producing property as if it was vacant on the date of valuation, and could be leased or rented at the market rents then applicable to that type of property. This can complicate a challenge to the value of such a property if it is subject to a long-term lease with a below-market rent set years before, or is otherwise rented at rates that are below those currently found in the market. In such instances, the property owner will want to document the reasons this is the case (i.e., functional obsolescence or other factors), and will also want to document any other factors negatively affecting the market value of the property (i.e., environmental or other challenges facing the property). The property owner will also want to pay particular attention to the issue of the appropriate capitalization rate to be applied to the property, based upon the relative investment risk, since small variations in the capitalization rate can result in big differences in value.
  2. Condominium properties. Condominium properties present a particular challenge because they qualify for a unique method of valuation. Rather than being valued as individually owned units, condominium properties in New York State are valued as if the entire complex is a single property (much like the valuation of an apartment building). Once that value is established, individual values are allocated to each unit based upon its particular features and relative contribution to the overall value. As a practical matter, this means that condominium properties must be challenged as if they were a single property and will usually require the services of counsel and an appraiser with expertise in valuing such properties.

Conclusion

No one wants to pay more than their fair share of real property taxes. Ideally, the City’s revaluation project would help spare taxpayers in the City that outcome by bringing all property values up to date, and fairly and equitably spreading the tax burden across all properties in the City. If, however, you believe that the fair market value assigned to your property is too high, you should participate in the informal meeting process and consider challenging your assessment if that process does not produce a satisfactory result. In the event you elect to do so, the real property tax certiorari attorneys at Phillips Lytle are available to assist you in protecting your rights as a taxpayer.

Additional Assistance

For questions regarding the revaluation of real property in the City of Buffalo, please contact Craig A. Leslie at (716) 847-7012, cleslie@phillipslytle.com or Daniel R. Maguire at (716) 847-8317, dmaguire@phillipslytle.com