Tax Appeal Work & Appraisers

Taxing the System – Tax Appeal

The Department receives a number of appraisal complaints related to property tax assessment appeals each and every year. While most originate with assessors and boards of review, some come from appellants themselves. The most frequent complaint involves alleged undervaluation and advocacy on the part of the appraiser. The local assessor or board of review will allege that the appraiser deliberately omitted more relevant sales by “cherry-picking” distressed sales or choosing sales from inferior locations.

Appraisers are not hired guns by counsel. Advocacy is a career-killer.

Unlicensed practice is the next most frequent complaint. There are a number of entities that, for a fee, not only will complete a consultant’s report (appraisal) but will offer to represent taxpayers at board of review hearings.

A Board of Review rule that an assessment complaint must be signed by the taxpayer or an attorney representing the taxpayer is consistent with PTAB rules already in place. PTAB rules provide that appeal shall bear an original signature of the contesting party or the contesting party’s attorney on at least one petition. PTAB rules further provide that a party has the right to represent him or herself in any PTAB hearing, and only attorneys licensed to practice law in the State of Illinois are permitted to represent a party at a PTAB hearing.

Accountants, tax representatives, tax advisers, real estate appraisers, real estate consultants and others not qualified to practice law in this State may not appear at hearings before PTAB in a representative capacity. Such representation is illegal in Illinois. We take this very seriously.

Our next largest complaint category involves contingency fees. Basing your fee on the percentage saved over a tax period as a result of an appraisal assignment is advocacy and an ethics charge. A few appraisers are under some delusion that by offering a potential client a range of values before they complete a formal appraisal…it doesn’t count as an appraisal.

APPRAISAL: (noun) the act or process of developing an opinion of value; an opinion of value.

(adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.

Comment: An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, not less than) to a previous value opinion or numerical benchmark (e.g., assessed value, collateral value).

These are easy cases to pursue and easier still to prove.

Ethics Breach?

Frequently we receive complaints from local assessors and boards of review that an appraiser has breached ethics by completing an appraisal on their own property or one they have an interest in. Nothing in state law or USPAP precludes an appraiser from valuing their own holdings. Conduct only addresses disclosing a current or prospective interest. The Department appreciates that many appraisers are property owners and certainly have a right to seek property tax relief. However, as an appraiser and a property owner, you might be better served hiring another appraiser for your own appeal.

From PTAB: Initially the Board finds the appellant submitted an appraisal of the subject property which he prepared. The Board finds the fact that the appellant is also the appraiser creates a conflict in that the appellant has a present interest in the property and a direct pecuniary interest in the outcome of the appeal proceeding if the assessment is reduced. The Board finds the appellant is acting as both an advocate for an assessment reduction and an expert who is to provide an unbiased opinion of market value as of the assessment date at issue. Due to this conflict the Board finds that the appellant’s estimate of value as contained in the appraisal is given less weight.

While disclosure of an appraiser’s interest in the property appraised may avoid an enforcement action by the Department, it will not satisfy PTAB’s concerns over bias.

Something to think about.

Restricted Reports

Some appraisers make the mistake of issuing the appellant a Restricted Report for use at a hearing. This is a waste of the appraiser’s time not to mention a profound waste of an appellant’s money.

From PTAB: The appellant contends overvaluation as the basis of the appeal. In support of this argument the appellant submitted a “Restricted Limited Appraisal Report” estimating the subject property had a market value of $408,000 as of January 1, 2004.

Due to the fact the appraisal was a restricted report, the appraiser stated within the appraisal that the appraisal contains no discussion of the data, reasoning and analyses that were used in the appraisal process to develop the appraiser’s opinion of value.

The Board further finds the evidence in the record does not support a reduction in the subject’s assessment.

The Board gives the estimate of value contained in the appraisal no weight.

First, as provided in the Uniform Standards of Professional Appraisal Practice, a restricted use appraisal report is for client use only.

Highest & Best Use

Appraisers who fail to follow through on demonstrating a property’s highest & best use are also wasting the appellant’s time and money.

From PTAB: In his analysis the appraiser was of the opinion the highest and best use of the subject as vacant is to be developed for commercial/business use. The appraiser concluded the highest and best use as improved is not consistent with the subject’s use as a car wash. The appraiser indicated the highest and best use as improved is for the subject to be converted to an alternative commercial/business use based upon a review of the accountant’s compilation of income and expenses for income tax years 2005 and 2006.

The witness testified he did not include in the appraisal the four criteria used to evaluate the determination of highest and best use because he prepared a summary narrative. In addition, the appraiser testified the report does not contain any estimate of land value.

The Board gives no weight to the appellant’s appraisal finding that the appraisal was not particularly credible. The appellant’s appraiser valued the subject property based on an alternative highest and best use. The Board finds this determination that the subject had a different highest and best use as improved was not supported in this record and was speculative. First, the appraisal did not contain an analysis of the highest and best use using the four criteria typically found in appraisals. Once highest and best use is determined the use must meet the following four criteria:

1. Physically possible
2. Legally permissible
3. Financially feasible
4. Maximally productive

Assessment appeal work, as in most litigation support assignments, is a specialty. Not every appraiser is equipped to provide what is needed in this forum.
Residential appraisers tend to treat this work the same way in which they treat mortgage lending work. Some commercial appraisers take shortcuts that end up costing their appellant clients time and money by failing to understand the burden of proof.

Market Value and the Burden

From PTAB: When market value is the basis of the appeal the value of the property must be proved by a preponderance of the evidence. National City Bank of Michigan/Illinois v. Illinois Property Tax Appeal Board, 331 Ill.App.3d 1038 (3rd Dist. 2002); 86 Ill.Admin.Code §1910.63(e). Proof of market value may consist of an appraisal of the subject property, a recent sale, comparable sales or construction costs. (86 Ill.Admin.Code §1910.65(c)).

Competency requires that all appraisers understand the assignment at hand.

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