photo by david smith (free source) [CC0], via Wikimedia Commons
SUMMARY: If you’ve purchased real estate in Ohio after January 1, 2015, you need to determine if your county has accurately valued your real estate. If you determine the county’s value is too high, then you must file a complaint on or before March 31, 2018.
A story in a local business newspaper prompted this article. The story covered the recent purchase of an under performing downtown Cleveland office building. The purchase highlights an issue that can have a substantial impact on the valuation of Ohio real estate and, in turn, the taxes paid on that real estate.
A five-minute review of public records based on what I could learn from the newspaper article seems to indicate that the new owner has a good case for a reduction. Without knowing more, it appears the new owner may be able to save more than $100,000 in real estate taxes each year.
However, to realize those savings, the new owner has between January 1 and March 31, 2018 to file a tax valuation challenge with the County Auditor. File on April 1st and the jokes on you--your challenge will be dismissed for missing the statutory deadline.
In Ohio, the county values the real estate (i.e., land and improvements). The counties review each parcel and try to best determine its fair market value. The tax bills are then generated on the effective tax rate for the municipality where the real estate is located. A property owner can challenge a valuation she believes is too high. And, getting back to the newspaper article, the best evidence is a recent sale. If there hasn't been a recent sale, then an appraisal report (that conforms with Ohio tax valuation law) is the next best evidence.
If you recently purchased real estate take a look at the auditor’s website. Compare the price paid against the auditor’s value. If the purchase price is lower, you should consider filing a complaint against the county’s value and seek the sale price.
The Supreme Court of Ohio has held that a sale that occurs within 24-months before the tax lien date 7(i.e., January 1, 201 for this articles purposes) is presumed to be recent. So, if you’ve purchased real estate in Ohio after January 1, 2015, you need to consider how the sale price might impact your real estate tax obligations. Sales that occur after January 1, 2017 can be considered as well.
All too often, our firm is asked to review a property's value and during that process we learn that it was purchased three or four years ago and the property owner failed to contest the assessor's valuation. Unfortunately, Ohio law states that a sale more than 24 months removed from the tax lien date is too remote to form the basis for a strong and straight forward tax value challenge.
As with everything, the sale/county value analysis is not as black and white as we would hope. There are issues you should consider and run past a professional. For instance, did you purchase the property at a sheriff’s sale? If so, the sale price likely won’t carry the day. Did you buy the real estate from a relative? If so, how did the parties determine the sale price? In Ohio, the sale price must come from an arm’s-length transaction. Did you invest a significant amount of money into the property after taking ownership?
Over simplifying the matter, an arm’s-length sale occurs when there was no duress in the sale, the property was available for purchase to the general public, and the parties acted as typically-motivated buyers and sellers.
This is an area of law that is hotly contested. Sometimes "short sales" can be valid arm’s-length sales—when you might think that’s clearly a distressed sale. In other cases, sales between relatives have been found to be valid, arm’s-length sales even if the property was never listed for sale or actively marketed.
I beg you to go back over your files and review any recent purchases in your portfolio! Don't miss an opportunity to improve the value of your real estate or, at least, lower your tax burden to the fair and appropriate amount.
As a side note, if you are broker or accountant, you might raise the issue discussed above with your past and present clients. It gives you an excuse to reach out to your clients! Your insight might take an already-good relationship to the next level.
Good luck and call or write if you have any questions!
Copyright © 2017 by Stephen M. Nowak
Disclaimer: The contents of this article are intended to convey general information only and not to provide legal advice or opinions. The contents of this article should not be construed as, and should not be relied upon for, legal advice in any particular circumstance or fact situation. The article is intended to inform the general public of its legal rights. No formal legal action should be taken in reliance on the information contained in this article and I disclaim all liability in respect to actions taken or not taken based on any or all of the contents of this site to the fullest extent permitted by law. An attorney--especially in Ohio--should be contacted for advice on a case-by-case basis.