What is Assessed Value as it Relates to Commercial Property in New Jersey, New York, and Pennsylvania?
“Assessed value” refers to the monetary worth assigned to a property through the evaluation of a third-party assessor. The assessor imposes an “assessed value” onto the property for the purpose of levying property tax.
What is Market Value as it Relates to Commercial or Retail Property in New Jersey, New York, and Pennsylvania?
Market value is sometimes used as a valuation measure. In some counties and municipalities of New Jersey, New York, and Pennsylvania, property is assessed at a ratio of 100% of market value. In those places, market value is the same thing as the assessed value of a property.
In other counties and municipalities, property is assessed at a ratio of less than 100% of market value. In those areas, the ratio or percentage of market value factors into an equation which is used to assess the value of a property: specifically, the assessed value of a property is divided by the percentage or ratio of market value used in that area. The resulting sum is the implied assessed market value of a property.
How is Assessed Value Calculated in New Jersey for Commercial Properties?
In New Jersey, the value of commercial properties is typically calculated based on the local market for similar properties.
When municipalities do mass appraisals, reappraisals, or revaluation projects that involve many different commercial properties in the same general area, valuation often works a little differently. Specifically, municipalities typically assess the value of the properties based on a cost approach, and then assign the underlying value of the land to the assessment.
Is That Same Calculation Applied for New York and Pennsylvania Commercial Properties as Well?
Many towns and municipalities in all three states are currently doing mass re-evaluation and reappraisal work. If you’re looking at an individual tax appeal situation, then valuation defaults to market value. In the vast majority of tax appeal cases, valuation turns on rent. This means that valuation is decided by factoring in property income, income in the market, and/or reviewing equivalent types of properties. The “sales comparison” approach is also used to help valuate properties in these situations.
Is an Assessed Commercial Property Value the Same as Market Value?
No, an assessed commercial property value is not necessarily the same as market value. In some cases, the assessor’s market value may be above fair market value. When we do tax appeals or assessment reviews for our clients, our aim is to determine the real, fair market value of the property. If the assessor’s market value happens to be above fair market value, we recommend filing a property tax appeal.
Is Assessed Value Generally Close to Market Value?
How closely assessed value generally comes to market value depends on the jurisdiction.
Our job is to advise our clients on how the assessment of a property fits in with the trends in the area. In some cases, properties are fairly assessed when compared to similar properties in the area, and thus are being taxed appropriately (or even at below-market rates). In those cases, we advise clients not to take any additional action. In other cases, properties are “over-assessed” and assigned a value that is above market value, which can result in owners being over-taxed.
How Does the Tax Assessment of Commercial Properties Relate to the Market Value in New Jersey, New York, and Pennsylvania?
As mentioned previously, the assessed value of a commercial property in New Jersey, New York, or Pennsylvania may or may not be equivalent to market value. This is where our professional expertise comes into play. Using what we know about the market, as well as the laws and tax codes in the various municipalities within those three states, we can evaluate whether or not a property assessment fairly lines up with market value. When we find that the assessment of a property is above market value for similar properties in the area, there is a high probability that the owner is being over-taxed. If that is the case, we can assist the owner in filing for an assessment reduction, to reduce their tax bill.
My Commercial Property is Located in an Area Where Similar Properties are Selling for More Than They are Worth. Is There Anything I can do About my Rising Tax Bill?
Sometimes a property sells above market value, which can happen for a variety of reasons. For instance, a property may sell above market value if it is leased long-term by a credit-rated tenant. Leases—especially leases over long periods of time held by individuals with good credit—may affect the sale price. Many investors look the lease terms to determine whether to invest in the property. They are generally positively persuaded if the property is leased long-term to a tenant with good credit, so such a lease may raise the effective value of the property.
Often in situations like these, where an investor buys a property based on the leaseholder and the lease, they are buying at a price that reflects a very low capitalization rate compared to the rent that is being paid by the tenant. The fact of the matter is that such a sale, really makes it a “leased sale”, and is not considered a market-based sale. Since it is based on the credit worthiness of the tenant and the length of their lease, it doesn’t really correspond to market value of the underlying property over time.
One way that this trend is currently reflected in states like New York, New Jersey, and Pennsylvania is in the sale of industrial properties. The market for certain sorts of industrial properties, such as warehouses and distribution centers, is currently extremely high. Therefore, the prices that are currently considered “market value” may temporarily be much higher than “market value” will be in the future. However, it is currently considered market value, as it is based on present day trends.
For more information on Assessed Value of Properties In NY, NJ & PA, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (973) 869-5550 today.
