&PLUS REALTOR. Home Warranties CAN HELP YOU, TOO! PROTECT YOURSELF WHILE ADDING VALUE TO THE SALE. 10 Ideas for Lead Generation

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1 GEORGIA REALTOR MAY/J U N E Home Warranties CAN HELP YOU, TOO! PROTECT YOURSELF WHILE ADDING VALUE TO THE SALE &PLUS 10 Ideas for Lead Generation Keeping the Current Market in Perspective Commercial Real Estate Ownership Choices

2 Legal Ease What REALTORS Need to Know About Property Tax With property values having fallen from their peak, more property owners than ever are appealing, or at least thinking about appealing, what they believe are excessively high tax valuations of their properties. This is resulting in a flood of property tax appeals across the state. REALTORS are being asked more questions about how our system of property taxation works and how to go about appealing property tax assessments. This article will provide REALTORS with an overview on both subjects. GENERAL All property in Georgia (i.e., land, improvements, and personal property) is subject to being taxed unless it qualifies for a specific exemption under state law. So, for example, a typical homeowner in Georgia will pay taxes on the value of his or her house (the improvements) and the lot upon which it sits (the land), but the owner s possessions (the personal property) within the house are generally exempt from taxation under state law. 1 All of these taxes are what are known as ad valorem taxes because they are based upon the value of the property. THE VALUATION AND ASSESSMENT PROCESS As a practical matter, the property tax process begins with the valuation and assessment of an owner s property. This function is generally performed by the Board of Assessors 2 for the county in which the property is located. The Board of Assessors usually employs one or more staff appraisers charged with periodically reviewing property in the county and determining its market value. These appraisers are required under Georgia law to appraise property based upon market analysis, comparable sales and other appropriate criteria. State law also requires that each property be assessed at its fair market value. This is generally considered to be the amount that a knowledgeable buyer would pay for the property and a willing seller would accept for the property in an arm s length bona fide sale. The fair market value of property is easier to determine for some kinds of property than for others. For example, if the property is a unit in a high-rise condominium where there are 200 other identical units and units are being bought and sold all of the time, fair market value might be easier to determine than a one-of-a-kind home in a neighborhood where houses do not regularly come onto the market. Of course, even in a condominium there can be distinctions in assessments based upon the unit s exact size, the floor on which it is located, the view from the unit, how it is finished, and how other units in the condominium and nearby condominiums are assessed. After the property has been valued for tax purposes, the Board of Tax Assessors then takes 40% of this value to determine a property s assessed value. 3 This assessed value is then multiplied by the millage rate for the tax district in which the property lies, and the resulting figure is what shows up on your tax bill. Before the Board of Assessors can appraise a piece of property, it has to assign each tax parcel with an identification number. Most residential homes 1 O.C.G.A This is a unit of the county government consisting of three or more appointed officials (Fulton County has five, some counties have even more). Note: the Tax Commissioner is a separate but equally important unit of the county government, and his/her role will be addressed further below. 3 This is the general rule, but there are exceptions, such as the preferential assessment of 30% applied to certain types of agricultural property covered by O.C.G.A For other examples see O.C.G.A through Georgia REALTOR MAY/JUNE 2009

3 After the property has been valued for tax purposes, the Board of Tax Assessors then takes 40 percent of this value to determine a property s assessed value. in subdivisions are assigned a tax parcel identification number at the time the property is first subdivided. In a brand new subdivision or condominium, it is possible that individual homes do not have identification numbers in the first tax year following the construction of the home or unit. This likely means that the developer paid the tax bill for the entire subdivision or condominium and then prorated it among the purchasers of the different homes. After the Board of Assessors has determined the value of every parcel within the county, the data is compiled into a published report known as the tax digest. MILLAGE RATES The term millage is derived from the Latin word mille meaning thousand. In the context of property taxes, the millage rate is the amount of tax due on every thousand dollars worth of property. How the rate is set depends primarily upon the budgetary needs of the various units of government that depend on such taxes. Generally, this includes the school system, the county government, the municipalities within each county, and the state government. 4 Once the annual budget is set, the county takes a look at the tax digest to find the total value of all property in the county. After reducing this figure to the 40% assessed value, it is a simple matter of long division to arrive at the millage rate necessary to generate tax revenues sufficient to fund the budget. 5 The process gets slightly more complicated if the property is in an area that is subject to both city and county taxes. The city government estimates its own budgetary needs and establishes a millage rate accordingly. In some cases, the city budget may even exceed the county budget. For example, in 2008 Fulton County established a millage rate of , and the City of Atlanta established a rate of Does this mean a combined rate of 58+ if you own property within the Atlanta city limits? Thankfully, the answer is no. Given the overlap in services provided by the city and county, Fulton County establishes CONTINUED ON PAGE 41 4 In 2008, the revenues generated by property taxes were allocated according to the following percentages: 58% to the school system, 34% to county governments, 7% to cities, and 1% to the state. 5 The county also takes into consideration other sources of revenue, so the formula is slightly more complex than that presented here. 6 See the attached schedule showing millage rates for Fulton County and its various municipalities from 1959 through Georgia REALTOR 13

4 CONTINUED FROM PAGE 13 Legal Ease different millage rates for property owners inside and outside the city limits. So property owners in Atlanta pay a Fulton County rate of rather than Thus, Atlanta property owners paid a combined millage rate of for HOMESTEAD AND OTHER EXEMPTIONS As part of the assessment process, certain exemptions may apply. The most common exemption in Georgia is the homestead exemption. This allows Georgia residents to receive a reduction in the amount of tax assessed against their primary residence. To qualify for homestead exemption, the resident must have occupied the property as of January 1st in the year during which the tax becomes due. There are generally statewide exemptions 7 as well as exemptions specific to the county in which you live. 8 For example, in addition to homestead, other exemptions may be available to households with an income under $30,000, to disabled veterans, or to surviving spouses of policemen or firemen killed in the line of duty. With the limited exception of some government-owned property, no exemptions are applied automatically. Rather, the exemption must be applied for and granted. For homestead exemptions, most counties require that you file on or before April 1st in order to qualify. However, once a property owner has made such application the owner does not need to re-file in subsequent years, unless the ownership of the property changes. 9 APPEALING TAX ASSESSMENTS What can be tricky about appealing property taxes is that the right time to do it is when the property owner receives the notice of tax assessment. This assessment notice is a statement of the valuation placed on the property by the county tax appraisers. However, since it is marked THIS IS NOT A BILL it is often disregarded by the property owner. If a property owner fails to file a timely appeal, the owner s only recourse is to wait until the following year, when the property owner may file a property 7 The current exemption is $2,000, but the legislature is considering an increase to $4, In Fulton County, homeowners will see an increase in homestead exemption from $15,000 to $30,000 over the next three years. Starting this year, a homeowner will receive a $20,000 exemption, and by 2011 the basic exemption will reach $30, If you sell your home to another party who intends to occupy the property as his primary residence, he will need to re-file for homestead in his name. Bear in mind however that most counties have an automated system that removes the homestead exemption if title to the property changes in any way. So if your home is titled in your name and you get married and change the title to joint ownership with your spouse, you should re-file for homestead as a precaution. Georgia REALTOR 41

5 CONTINUED FROM PAGE 41 Legal Ease tax return requesting that the Board of Assessors reappraise the property at a lower value. Georgia law actually provides that property shall be returned at its fair market value each and every year but there is not penalty for failing to comply with this provision. 10 Instead, when this happens the Board of Assessors will simply return the property at the prior year s value, pursuant to O.C.G.A Most counties provide a form for use in filing a return. These are generally available on the county s web site, and they are often combined with the homestead application. Also, much like the homestead exemption, the deadline to file a return is usually April 1st, but the date varies from county to county, so be sure to check with the Board of Assessors in the county where the property is located. The return should be submitted to the Board of Assessors on or before the applicable deadline, and this filing will result in a reassessment of the property. If the Board accepts the property owner s returned value, then the assessed value will be reduced accordingly and no further action on the part of the taxpayer is necessary. If the Board determines that the property should be assessed at a higher value, it will mail a new assessment notice (also known as a reassessment notice ) to the taxpayer, who will then have the opportunity to file an appeal. Boards of Assessors adopt their own internal procedures for conducting appeals, so the process may vary from county to county. The assessment notices are generally sent out in April or May, after the Board of Assessors has had sufficient time to re-appraise property values as of January 1. The Board of Assessors does not generally re-value every property in the county each year. Instead, property owners only receive a notice if their assessed value changes. While in a relatively small number of cases the assessed value of the property will go down, receiving a reassessment notice is usually not good news for the average property owner. A reassessment notice must show the prior year s value of the property, the current year s value, and an advisory statement that the property owner has 45 days to appeal the assessment. 11 Appeals must be filed in writing, but can be as simple as a letter to the Board of Assessors postmarked prior to the expiration of the 45-day appeal period. Sending the appeals letter by certified mail is recommended to avoid disputes over whether notice of the appeal was timely filed. The letter must identify the property, contain the tax identification number of the property and state the grounds for the appeal. In some cases, the rationale for the increase may be stated in the reassessment notice. For example, the notice may state new construction as the reason for the increase if a home was recently constructed on the property. Of course, if there has not been any recent construction on the property the owner can file an appeal based upon the mistake. Even if the new value is reasonable and there has been no mistake, the owner may still have a valid basis for appeal if the tax value is inconsistent with other tax values in the area. This is the concept known as uniformity, and along with valuation it is the most common basis for appeal. 12 Making an appeal on the basis that my neighbors are paying less may be effective argument for any particular tax year. However, the benefits of this argument are often short lived because the Board of Assessors can rectify the problem by re-assessing or equalizing the assessments of the properties in question. After the property owner has filed his or her appeal, it is usually a good idea to follow up with a more detailed letter to the Board of Assessors explaining the reasons for the appeal. In addition, property owners should consider arranging a meeting with the appraiser assigned to their case to discuss the appeal. Normally, the more organized and non-confrontational the property owner is in the meeting with the appraiser, the greater the likelihood of a positive outcome. The old saying that you catch more flies with honey than with vinegar certainly applies to most meetings with governmental officials, including county tax appraisers. If the appraiser believes an ad - justment of the assessment is in order, he or she can make that recommendation to the Board of Assessors which has the authority to revise the assessment. When meeting with the appraiser the property owner should present whatever evidence the property owner has to support a lower valuation of the property. This may be a settlement statement showing what the owner paid for the property, an appra - isal, or comparable sales information. There may also be more subtle reasons why a low valuation is justified, such as portions of the property being in a flood plain, zoning restrictions, or covenants and ease - ments which effectively strip the property of value. For example, a homeowners association may own 10 O.C.G.A days is the general rule as provided by O.C.G.A (e)(2)(A). In some counties the deadline may be 30 days if your tax payments are made in installments rather than annually. 12 Georgia law basically contemplates four possibilities for appeal: valuation, uniformity, taxability and denial of exemptions. The first two are far and away the most common reasons for appeal. Taxability is only an issue if the property owner claims tax exempt status and the Board of Assessors disagrees this generally arises in the context of certain quasi-charitable organizations. The last category concerns a property owner who files for an exemption but does not receive it, and feels that some error has been made. 42 Georgia REALTOR MAY/JUNE 2009

6 Legal Ease 30 acres of land in a highly desirable subdivision. However, if recorded covenants limit the use of the land to common property for the owners living in the community, the property has little, if no, true fair market value to anyone other than the owners living in the community. As such, the common property should logically only be taxed at a nominal value. More importantly, the existence of the common property likely means the values of the homes in the subdivision are worth more than if there was no common property. As such, it can be argued that the value of the common property is already factored into the value of each of the homes in the subdivision. Therefore, a large tax on the common property would essentially be a form of double taxation. The Board of Assessors normally decides appeals 13 without a formal hearing. Their decisions must be in writing and fall into one of three categories: (1) no change to the assessment; (2) a change in the assessment to the amount claimed by the owner; or (3) an altogether separate change. If the Board of Assessors makes the change requested by the owner, the appeal is over. If the Board of Assessors decides to make no change, it must send written notice to the property owner and the county s Board of Equalization stating the reason for the denial. This notice then constitutes the owner s appeal to the Board of Equalization without the necessity of the owner filing a separate appeal. If the Board of Assessors makes an altogether different decision (often a compromise between the assessed value and the amount requested by the owner), the owner may accept the decision or file a written appeal with the Board of Equalization within 21 days. While not frequently utilized, the property owner has the option to forego the hearing before the Board of Equalization and elect arbitration instead. 14 Coverage That s Right For You Get an E&O Quote And Buy Instant Errors & Omissions Coverage Online Today!* (sponsored since 2000) * For Qualified Firms E&O program underwritten by the XL Insurance companies through Greenwich Insurance Company and Indian Harbor Insurance Company. (Coverages not available in all jurisdictions.) Protect Yourself With Pearl THE BOARD OF EQUALIZATION AND BEYOND The Board of Equalization consists of three members and three alternate members, each of whom is appointed by a grand jury to serve a three-year term. Larger counties may establish additional boards as 13 If the county fails to respond to the initial appeal within 180 days, the appeal will automatically be referred to the Board of Equalization. Within 15 days of receipt of the notice of appeal, the Board of Equalization is supposed to set the matter down for a hearing within days from the date of the notice of hearing. As a practical matter, it may take several months for an appeal to be heard. 14 This option is worth considering in certain circumstances, e.g. if the appeal involves high-end commercial property and the true market value is dependent on complex financial analysis. The property owner may prefer an arbitrator who specializes in such matters rather than the Board of Equalization. Georgia REALTOR 43

7 CONTINUED FROM PAGE 43 Legal Ease needed, subject to guidelines set out in state law. 15 These individuals are fellow citizens and property owners. They do not represent the Board of Assessors, the county or the property owner. Instead, they are supposed to be objective third-parties whose purpose is to ensure that properties throughout the county are taxed in a fair, reasonable and consistent manner hence the term equalization. The Board of Equalization conducts hearings of tax appeals and considers whatever evidence is presented by the property owner and the Board of Assessors (normally represented by its appraiser). Formal rules of evidence do not apply. While property owners may be represented at the hearing by legal counsel or another representative they are not required to do so. Prior to the hearing, the property owner should review the information that the tax assessor s office maintains on the property. Sometimes referred to as a property tax card, it will typically show such things as the county s record of the total acreage of the lot, the total square footage of the improvements on the property, the materials those improvements are made of, and the age and condition of the improvements. In some cases, the property owner will discover a mistake in the county s records that can be used to argue for a reduction in the valuation of a property. When the Board of Equalization hears an appeal its members will deliberate immediately upon at the conclusion of the hearing. The property owner may listen to the deliberations, but can speak no further. This can be a rewarding and sometimes frustrating experience in that the property owner immediately gets to see how effective his or her arguments were in convincing the Board of Equalization to consider a different valuation of the property. After deliberating, the Board members cast their votes and the majority decision prevails. Keep in mind that the Board has the right to establish whatever value they deem appropriate based on the evidence presented. This value can even be higher than the assess - ment amount that the property owner originally ap pealed. Whatever the Board s decision, it must be in writing and must provide the grounds for the decision. Either the owner or the county may appeal to the county s Superior Court within 30 days from the issuance of the Board or arbitrator s decision. Such an appeal constitutes a de novo hearing (or brand new hearing where no one is bound by the prior decision) and formal rules of evidence will apply. Although property owners may represent themselves in court pro se, it is highly recommended that an attorney be involved at this stage. The case will be placed in the regular court docket and it may be several months or more than a year before the matter is resolved. This is due to the volume of cases that our courts have to hear. Once the case is finally heard, either by a judge or a jury, the resulting decision may still be appealed to a higher court. State law provides that the effect of any decision on appeal is to freeze the property value for a threeyear period. If a property owner appeals the 2008 valuation of the owner s property and the Board of Equalization renders a decision in 2009, the 2008 value as determined by the Board of Equalization shall also apply to years 2009 and This does not necessarily mean that the tax bill will not change, since the millage rate and exemptions could change. However, if there are no such changes, the tax bill should be the same. The Board of Assessors may also re-assess the property if facts or circumstances change, such as the property owner making additional improvements to the property or selling the property to a third party for a very high price relative to the present valuation. State law provides that the Tax Commissioner use a value equal to 85% of the assessed value when issuing tax bills for a property that is the subject of a pending appeal. In other words, if the property is assessed at $400,000 and the assessment is appealed, the property is taxed at $340,000 during the appeal period. The taxpayer may be entitled to an additional refund, or may be obligated to pay additional taxes, depending on the final outcome of the appeal. REFUNDS OF TAXES Separate from appealing the valuation of the property by the Board of Assessors, a property owner can also seek a refund of taxes paid in error on property. This may be appropriate for someone who has overpaid taxes or paid taxes on property which he or she mistakenly believed he or she owned, where tax payments were allocated to the wrong parcel, or tax exempt property was erroneously assessed, or in any other context where property was erroneously or illegally assessed by the county. This process is not intended to be used in lieu of the appeal process. As such, a taxpayer may not pursue a refund based on issues of valuation unless the taxpayer alleges that the original assessment was based on matters of fact in the record which were inaccurate, or the as sessment was based on the use of some illegal procedure. To pursue a claim for a property tax refund, the taxpayer must file a written claim with the county within three years of the payment of the tax. As each county is free to make its own rules as to what the claim must contain, the taxpayer should check with the Tax Commissioner to determine what information must be provided in the tax refund claim. If the taxpayer would like a hearing on the matter, the written notice must indicate that. If the county denies the 15 O.C.G.A (a). 44 Georgia REALTOR MAY/JUNE 2009

8 Legal Ease request or fails to rule on it within one year from the filing of the request for the refund, the taxpayer can file suit for the refund in Superior Court. The taxpayer will not have standing to bring the suit until the claim has been filed with the county, and the county has denied the claim or at least one year has passed. However, in the event of a denial by the county, suit must be brought within one year unless the taxpayer and the county agree in writing to extend that time period. If at any period the county grants the taxpayer s request or the court makes an award for refund, the county must pay those funds within 60 days. If a court renders a judgment in favor of the taxpayer, the taxpayer is entitled to prejudgment interest running from the date a written demand for the refund was made. CONCLUSION Taxes will always be a part of life. Being knowledgeable on ad valorem taxes is increasingly expected of REALTORS in their dealings with both cus to mers and clients. Seth Weissman serves as general counsel for the Georgia Association of REALTORS. The Red Book on Real Estate Contracts in Georgia Covers updated contracts revisions, timely topics including forclosures, REOs and short sales, special stipulations and answers to your hardest questions! Written by: Seth Weissman, GAR General Counsel and Ned Blumenthal Published by the Georgia Association of REALTORS Only $99 for REALTORS (Plus shipping and handling) To order the new revised edition, please contact Myndee Holdcraft at myndeeh@wncwlaw.com, , or visit Georgia REALTOR 45