Tax Appeal – The Appraiser’s Role

For most of us, we have already received the first half tax bill from the county, or it will be soon on its way. For appraisers, this particular time of year can open avenues for additional clientele, apart from the typical mortgage lending appraisal work. Questions often arise from appraisers about the propriety of seeking out and accepting such work. But, properly addressed and completed, tax appeal work can be a lucrative addition to the appraiser’s services.

Property values for the purpose of taxation are established by periodic reappraisals or reassessments. In Ohio, properties are reappraised every six years. Updates to the county’s appraised values are performed on a tri-annual basis. According to the Ohio Department of Taxation, the tax first half tax bills now being received for 29 of Ohio’s 88 counties are based on a reappraisal (5 counties) or a tri-annual update (24 counties).

One of the counties for which the 2015 real estate tax is based on a tri-annual update is Cuyahoga County. News source cleveland.com reports that overall, property values increased at an average rate of 1.7% county-wide from 2012 to 2015. However, in some neighborhoods, especially those nearest to, or on the lakefront, real estate taxes increased as much as 22%. No doubt, whether warranted or unwarranted, there may be some unhappy taxpayers who will want to appeal their tax values.

The three most important things for appraisers to especially keep in mind when accepting and performing a tax appeal appraisal are:

1. Be competent regarding market trends and market conditions.
2. Be competent in performing an appraisal with a retrospective value opinion.
3. Be unbiased and neutral, and not advocate for either side.

Appraisers must be able to properly interpret the market conditions and trends as of the tax lien date, which is retrospective. Many county auditors have reported that one of the major issues they have encountered during a tax appeal is an appraisal provided by the property owner which indicates a current value, rather than the value of the property as of tax lien date (January 1^st). This is an area which requires competency. Appraisers undertaking such work should be particularly attentive to the COMPETENCY RULE and USPAP Advisory Opinion 34 (AO-34) which provides guidance regarding retrospective appraisal assignments.

From a professional standards viewpoint, appraisers seeking out or accepting tax appeal work must use care that they do not misrepresent themselves in any advertising for such work. Appraisers must not extend promises of lowering a property owner’s taxes, or offer to adjust fees based on upon whether the results of the appeal will be successful in reducing the property owner’s taxes. Such would be in violation of the ETHICS RULE of USPAP. In addition, the National Taxpayers Union estimates that only 20% to 40% of taxpayers filing a protest receive a reduction in taxes. Therefore, such guarantees might backfire on the appraiser.

Appraisers must especially avoid the appearance of advocacy in such assignments, as one may easily become sympathetic to the property owner’s position. Even though they are the client in such assignments the appraiser must resist the temptation. Some appraisers feel they can provide a service which includes advocacy for the client as long as the service does not include an appraisal and the appraiser is not acting as an appraiser, but rather as a consultant. USPAP FAQ #317 (2016-2017 Edition of USPAP) addresses the issue.

317. VALUATION SERVICE INVOLVING ADVOCACY
Question: A client feels that her property is over assessed by the county. She’s asked me to perform a tax consulting service that involves advocacy for her position and I’d like to charge her on a contingency fee basis. This assignment would not include an appraisal. I have two questions: Is this service allowed under USPAP? If not, can I perform this assignment outside of USPAP?
Response: You may not perform this assignment under USPAP. An appraiser, in appraisal practice, may not be an advocate. The Conduct section of the ETHICS RULE states:
An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.
An appraiser:
• must not perform an assignment with bias;
• must not advocate the cause or interest of any party or issue; (Bold added for emphasis)
Appraisal practice is defined as: valuation services performed by an individual acting as an appraiser, including but not limited to appraisal or appraisal review.
Furthermore, none of the certifications in USPAP allow any bias, contingent compensation related to assignment results, or direction in value that favors the cause of the client.
Absent any law or regulation to the contrary, you may complete this assignment outside of USPAP, as long as you are very clear about your role. The ETHICS RULE also states, An appraiser: must not misrepresent his or her role when providing valuation services that are outside of appraisal practice.
Refer to Advisory Opinion 21, USPAP Compliance, for further guidance.

To summarize, if an individual has represented himself or herself to the property owner/client as an appraiser and there is an expectation that the individual will be providing a service which includes appraisal expertise, then the service cannot be provided outside of USPAP and include any form of advocacy.