When determining a property’s value, assessors consider several factors, and the approach can vary based on jurisdiction. In Illinois, properties are assessed using an ad valorem property tax system, meaning taxes are determined according to the value of the property. Ideally, the property is assessed at what it would sell for as of January 1st of the tax year. The sale price of the property plays a crucial role in this process, especially if there has been a recent transfer. The sale price, recorded in public databases like the multiple listing service (MLS) for residential properties or CoStar for commercial properties, can significantly influence the assessor’s view of the property’s value.
Additionally, for newly constructed properties, the disclosed construction costs on the permit can be pivotal. Assessors may use these disclosed costs or refer to their own resources (such as cost manuals or software like Marshall and Swift) to verify if the construction costs align with market standards. If discrepancies are found, assessors may determine the cost to rebuild the property, accounting for any obsolescence.
Standard Methods of Assessment
Across Illinois, the general method for assessing property values is based on what a buyer would pay for the property if it were on the market, rather than its value to the current owner based on how it’s used. This is referred to as the “value in exchange,” rather than “value in use.” For instance, in retail properties, the value should reflect the price a buyer would pay for the property, not the value it has for the current business operating within it.
Impact of Property Improvements and Renovations
Property improvements, such as renovations or even changes in the neighborhood, can affect property value, but not always in the expected way. For instance, a car dealership may undergo costly improvements due to a franchisor’s requirements, but these changes may not add value to the property in the eyes of the marketplace. Similarly, on the residential side in Illinois, a “home improvement exemption” helps ensure that up to $75,000 in market value for certain improvements is not taxed for the first four years. This exemption applies to additions or significant renovations like new roofing, siding, or extensions.
Changes in neighborhood dynamics also play a role in property assessments. Over time, some neighborhoods or retail areas may experience cycles of decline or regeneration, which can directly affect the assessed value of properties in those areas. Assessors use these market shifts to adjust the value of different properties based on the current condition of the neighborhood.
The Role of Market Conditions and Comparable Sales
Comparable property sales, or “comps,” play a key role in determining property value. However, assessors must be careful when relying on market trends, such as real estate investment trusts (REITs) purchasing properties. For example, the capitalization rate (cap rate) used by REITs may not accurately reflect the value of every similar property in the area, especially since the majority of properties are not typically acquisition targets for such investment groups. Therefore, assessors must consider a broad range of sales data to ensure that they are not over-relying on atypical transactions that do not reflect the reality of most properties.
Common Mistakes and Misunderstandings in Property Assessments
Assessors can make mistakes, and such errors can lead to over-assessments, especially in a complex system like Illinois’ property tax structure. One common mistake is assessing a property based solely on its sale price without accounting for other properties in the area. The Illinois Constitution requires that properties be assessed uniformly, meaning that the sale price of one property shouldn’t automatically dictate the assessment of similar properties in the same area. Mistakes can also arise from incorrect property characteristics, such as the square footage or zoning classification, or from misunderstandings about how income-producing properties should be assessed.
Special Considerations for Unique or Historic Properties
Assessing unique or historic properties, such as those with unusual features or historic significance, presents additional challenges. In some cases, local township assessors are expected to assess complex properties, such as nuclear power plants or mega-projects like sports stadiums, despite having limited expertise. For these properties, it is often necessary to seek clarification from the state legislature to ensure proper assessment. These specialized properties highlight the complexities of property tax assessments in Illinois, where laws may need to be tailored to specific circumstances.
What to Do If You Believe Your Property Assessment is Incorrect
If a property owner believes their assessment is incorrect, the best course of action is to consult with a property tax attorney. Attorneys specializing in property tax law can help identify over-assessments and guide owners through the process of contesting them. Property tax attorneys typically work on a contingent basis, meaning they only charge if they save the owner money, offering an incentive to ensure the assessment is accurate.
Property owners can also start by checking the property record card for errors. If discrepancies are found, the next step is to contact the assessor’s office to explain why the property’s assessment may be incorrect, whether due to an inaccurate value or an unfair comparison to neighboring properties. However, accessing the necessary data can sometimes be difficult, as some assessor offices provide limited access to property records. Some jurisdictions offer data openly on their websites, while others may provide minimal access or require in-person visits to outdated computer terminals.
Conclusion
Understanding how property assessments are determined is key to ensuring that property owners are not overtaxed. The process involves various factors, including sale prices, construction costs, and neighborhood dynamics, but also requires careful attention to errors and inconsistencies in the data used by assessors. Property owners should remain vigilant about their assessments and seek professional guidance if they believe their tax obligations are too high.