When it comes to filing real estate tax complaints, many of us know that the sale price in an arm’s length transaction between a willing seller and a willing buyer is usually considered by the applicable board of revision in rendering its decision. This is generally good news when a buyer buys for less than the current valuation, and not so good news when a buyer buys for more than the then current valuation.
What if there is no recent sale involved? Does it still make sense to challenge your property’s increased valuation (and consequently, the taxes paid)? Can a property owner’s appraisal really stand a chance against the applicable county auditor’s opinion of value?
As to whether or not it makes sense to challenge your property’s increased valuation, it of course, depends. It basically depends on how much extra taxes will need to be paid, for how long, and the attorney, appraiser and other fees involved with a complaint. If you take the increase in market value and multiply the same by the “tax as a percent of market” percentage (which you can get from your county auditor or local tax district), you can come close to determining the extra amount in taxes you will be faced with as a result of your property’s increased valuation (please note that there are additional factors that may not be included in this estimate such as special assessments and homestead exemption figures).
For example, let’s say the county increased the value of your property by $20,000. While that number is significant, if your tax as a percent of market” is 2%, your taxes would only increase by $400/yr. On the other hand, a $100,000 valuation increase on a commercial property with the same tax rate would result in taxes increasing by $2,000/yr. Since valuation in Ohio is updated every three years (each three year period being a “triennial”), you could be faced with a $6,000 increase (in our commercial example) if the year of increased valuation is the first year of a triennial. If an appraisal costs, say $2,000, and an attorney will take the case on a contingency basis, the challenge would be worth it. You basically need to do a cost/benefit analysis for every situation in order to determine if it makes sense to challenge your property’s increased valuation. It is important to note, however, that for residential properties; most county auditors have an informal procedure where homeowners can challenge an increase in valuation without appraisers and attorneys.
The Supreme Court of Ohio in Dublin City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2016-Ohio- 3025 (“Dublin”) answered our second query (regarding whether or not a property owner’s appraisal stands a chance against a county auditor’s opinion of value), in the affirmative. In Dublin, the County Auditor valued a two-story office building in Franklin County (with a bank on its ground floor) at $2,205,000, and the owner sought a value of $1,000,000 based on an appraisal it presented to the Franklin County Board of Revision (“BOR”). The BOR agreed with the owner, and appellant, the Dublin City Schools Board of Education (“BOE”), appealed to the Board of Tax Appeals (“BTA”), which affirmed the BOR’s valuation. Thereafter, the BOE appealed to the Supreme Court of Ohio.
The BOE in Dublin argued that flaws in the owner’s appraisal made it not probative and accordingly, the BTA should have automatically reverted to the auditor’s original valuation of the property. Among the issues the BOE had with the appraisal were that: 1) the comparables were “not even remotely comparable,” (even though the comps were office buildings within the same geographic area as the subject property, none of the sale comparables included a bank as part of the property); and 2) the appraisal used LoopNet, a listing service, and county records for verifying the arm’s-length character of the sales, rather than through direct contact with parties to the sale. The BOE did not however present any new evidence of value at the board of revision hearing, or at the BTA.
The Supreme Court of Ohio shot down the BOE’s arguments based upon a straightforward application of what the court has called “the Bedford Rule,” based on the following case: Bedford Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 2007-Ohio-5237. “Pursuant to that rule, ‘when the board of revision has reduced the value of the property based on the owner’s evidence, that value has been held to eclipse the auditor’s original valuation,’ and the board of education as the appellant before the board of tax appeals may not rely on the latter as a default valuation.” Instead, pursuant to this Rule, the board of revision’s adopting a new value based on the owner’s appraisal (or other evidence) has the effect of shifting the burden of proof to the board of education, on appeal to the board of tax appeals.
The court then recognized that the BTA correctly applied the Bedford Rule in Dublin. Even though the BOE at the BTA found fault with the evidence that the owner presented before the board of revision, under the Bedford Rule, as long as the evidence of value that the owner presented to the board of revision was “competent and at least minimally plausible”, the board of education may not invoke the auditor’s original valuation as a default value; rather, the burden shifts to the board of education to prove a new value, and the BOE in Dublin did not offer any proof.
Does the Bedford Rule apply in every situation? No. According to the court, the Bedford Rule applies when four (4) factors are present: “First, the Bedford Rule applies in a case in which the property owner either filed the original complaint… or filed a counter-complaint… Second, the Bedford Rule applies when the board of revision has ordered a reduced valuation based on competent evidence offered by the property owner… Third, the Bedford Rule applies when the board of education is the appellant before the BTA…The fourth and final element of the Bedford Rule is that the board of revision’s determination of value is based on appraisal evidence rather than a sale price offered as the property value.”
While the appellant in Dublin did argue that the second factor of the Bedford Rule was not present (no competent evidence), the Supreme Court of Ohio basically told the BOE that it was too late. According to the court, “These observations constitute matters that are among those consigned to the expertise of the appraiser and to the board of revision and the BTA as fact-finders. This appeal seeks to cast us in the role of “ ‘super BTA,’ ” but … we decline that role now.”