Client Alerts  - Real Estate Oct 10, 2024

Revaluation of Real Property in the City of Buffalo: My New Tax Assessment Is HOW MUCH?

City of Buffalo property owners receive assessment notices as the City plans first revaluation since 2019

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 the City intends to use to calculate the real property taxes on your property for the 2025-2026 tax year. The City’s new value may have come as a surprise, and you may have 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 the City and Erie County.

The notice that you received is the result of the first City-wide revaluation since 2019. This revaluation project, which the City completed with assistance from an outside appraisal firm, was intended to bring the fair market value of all properties within the City up-to-date, taking into account changes that have occurred in the Buffalo real estate market over the past several years.

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, the Phillips Lytle Tax Certiorari and Condemnation Team is ready and able 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 generally relies on an ad valorem system of real property taxation. Ad valorem is Latin for “according to value” and means that the taxes you pay are based on the value of the real property you own.

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’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 market 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, which is intended to ensure that 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 $1,000.00 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 you should keep in mind:

  1. A City-wide revaluation will not necessarily result in a higher tax bill. Whether it does so depends on the relative increase in the fair market value of your property in relation to the increase in the fair market value of all other properties in the City. If the relative increase in the fair market value of your property is less than the average relative increase in fair market value of all other properties in the City, your tax bill should 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 relative increase exceeds the average relative increase, your tax bill will likely 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.

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 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; or (3) the cost approach. Depending on the property and its use, one or more of these approaches may apply. If more than one approach can be used, the value of the property may be determined using each applicable method ― with the results considered together and reconciled to arrive at a final determination of the fair market value.

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 referred to as 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 on the comparable sales, then apply that value to the square footage of the subject property to arrive at a fair market value.

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. Usually, when using this approach, the appraiser will 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 the 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 will then determine an appropriate capitalization rate for the type of property at issue and will capitalize that net operating income to arrive at a fair market value.

The third and final approach, the cost approach, is generally used only for unique or “specialty” properties when there is insufficient market data available to permit the use of the sales comparison approach or income approach. If the sales approach is used for any 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).

Challenging Your New Assessment

If you are concerned that the fair market value that the City has assigned to your property is too high, the next step is to consider whether you have information that suggests a lower value for your property under any of the above 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? Put another way, you should ask yourself whether, if you were to sell your property today, would you ask more or less for your property than the fair market value assigned by the City? These questions can help you decide whether you want to challenge the fair market value that the City has assigned to your property. If so, how do you challenge your new assessment?

The assessment notice that you recently received offered property owners the opportunity to meet informally with its appraisal consultants. If you missed the deadline to schedule an informal meeting, but would like to speak with the appraisal consultants, we may be able to help. Regardless, you can still make a written submission in lieu of an informal meeting, as long as you postmark your submission no later than November 1, 2024 (the address for submissions is in the notice you received).

Municipalities typically offer the opportunity for these informal meetings when they complete a revaluation so that taxpayers can get more information about how their particular assessment was determined and, if appropriate, attempt to convince the appraisal consultants that the assigned value is too high. Although these meetings are informal, they provide a chance for taxpayers to bring any relevant information or documents concerning the value of their property to the attention of the appraisal firm, including photographs, income and expense information (which you will be asked to bring to the meeting if your property is income producing), and any other evidence that supports a lower valuation for their property.

Although the meeting is informal, the general rule in New York State is that a tax assessment is presumed to be valid, and it is the taxpayer’s burden to prove otherwise. Although that general rule is not, strictly speaking, applicable to the informal meetings with the City’s appraisal consultant, you can expect that your new assessment will not be changed unless you present persuasive reasons and supporting evidence for a lower valuation. Before attending the informal meeting, you may want to consult with an attorney with experience in handling real property tax challenges.  You may also want that attorney to attend the meeting with you to help put forward your best case.

After the informal meeting process concludes, the City will determine whether any further changes to the value of your property are warranted. Then, on December 1, 2024, 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 on the informal meeting process. 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 whether you wish to challenge that value.

A further challenge to the value of your property will require filing an administrative complaint with the City, typically no later than December 31, and could ultimately require that you commence a court proceeding. A further discussion of the exact 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 each of these challenges.  An incomplete filing or missed deadline can result in the waiver of your rights to further challenge the value assigned to your property. We strongly recommend that you consult with an attorney experienced in handling real property tax challenges in advance of the publication of the tentative roll to make sure that you are prepared to timely 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 valuation issues 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 that the fair market value assigned to your property is too high, you should consult with an attorney experienced in handling real property tax challenges as soon as possible to determine the best way to present your case and to ensure that you do not waive any of your rights to do so. Two examples of particular types of properties that can present atypical valuation issues include:

  1. Income-producing properties with below-market rents. The valuation of these properties can be challenging because the value of income-producing properties is typically based on market rents. Where market rents are increasing, as they have done over the past few years in the City of Buffalo, owners of properties with below-market rents may find themselves facing significantly increased assessments. This can occur because New York State law generally values an income-producing property as if it was vacant on the date of valuation, and it 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., long-term leases, functional obsolescence, etc.) 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 on the relative investment risk, since small variations in the capitalization rate can result in big differences in value.
  2. Condominium properties. Condominium properties are, by statute, subject to 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 on 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, which will usually require the services of an attorney with experience in handling tax challenges concerning condominiums and an appraiser with expertise in valuing this particular type of property.

Conclusion

No one wants to pay more than their fair share of real property taxes. Ideally, the City’s revaluation project will help spare taxpayers in the City that outcome, by both bringing all property values up-to-date and fairly and equitably spreading the City’s 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 consider challenging your new assessment. In the event you elect to challenge your assessment, the Phillips Lytle Tax Certiorari and Condemnation Team  is ready and able to assist in protecting your rights.

Additional Assistance

For questions regarding the revaluation of real property in the City of Buffalo, please contact Partners Craig A. Leslie at (716) 847-7012, cleslie@phillipslytle.com or Jacob S. Sonner at (716) 504-5733, jsonner@phillipslytle.com; any member of the Phillips Lytle Real Estate Practice’s Tax Certiorari and Condemnation Team; or the Phillips Lytle attorney with whom you have a relationship.

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