How Tax Appeal Consultants & Attorneys Overcharge
The tax appeal opportunity

Commercial real estate (CRE) owners and asset managers of all property types typically review annually and appeal, when warranted, real estate taxes by challenging the value assessed by local governments – so CRE owners are well versed with this opportunity of lowering real estate taxes.

Historical fee arrangements

The typical fee charged by attorneys and consultants for a tax appeal is 20-25% of the tax savings in low tax (e.g., 1% tax rate) jurisdictions and 10-15% in high tax (e.g., 2%+ tax rate) jurisdictions. Fee percentages have remained at these levels for decades.

A 20% value reduction on a $100 million value with a 2% tax rate would result in a $60,000 appeal fee using a fee equal to 15% of the tax savings.

Excessively high hourly rate conundrum

Here’s how the $60,000 fee equates to $5,000 per hour. An average appeal could take twelve hours. The hours could typically be apportioned as four hours for the amortized administrative work (e.g., agent authorization paperwork, appeal form filings, data collection of owner’s financials, etc.) across a portfolio and six hours for the valuation work (e.g., evidence development, appeal case documentation, etc.) specific to one appeal. The assessor and board hearings are allocated one hour each. The sum of hours is twelve. $60,000 divided by 12 hours is $5,000 per hour.

No attorney or consultant deserves a $5,000 per hour renumeration. Attorneys and consultants overcharge since they get this level of hourly compensation. One way they achieve this is by not disclosing it.

The assessor relationship myth

The typical attorneys and consultants have every incentive to perpetuate excessively high fees to CRE owners and asset managers. The first and most dominant method to ensure the high fee paradigm is to convince CRE owners and asset managers they (i.e., the attorney or consultant) have a special relationship with the assessor. The attorney and consultant artfully monetize this special relationship by convincing the CRE owner and asset manager that the special relationship will provide a premium appeal result – meaning the appeal results are much greater because of the existence of the special relationship.

Hopefully as this is read, the reader can see how absurd this claim is. The assertion that special relationships result in an appeal result premium is a myth.

Attorneys and consultants like to perpetuate the myth because it serves in their best interests and not the interest of their client – the CRE owner or asset manager.

In today’s world of inspector generals and citizen watchdog groups, assessors are unable to give an appeal result premium for a special relationship even if he or she so desired. Please see our article What Assessors Want in a Tax Appeal.

Lack of technology means no productivity savings

The above-noted twelve hours can only be improved upon via technology innovation. Even assuming for the moment an attorney or consultant would assert that the average appeal (from a portfolio of properties) takes them less than twelve hours, well they would be demonstrating an even higher excessive hourly rate of compensation – to which there is no justification.

Typical attorneys and tax appeal consultants do not innovate with technology. This is another factor which helps them to overcharge CRE owners and asset managers. They want to somehow rationalize the excessively high fees because there is a lack of technological innovation. Please see our article Using Technology to Reduce Tax Appeal Fees.

Linking other services to justify excessively high fees

Tax appeal consultants sell other services, such as tax bill processing and payment. This creates a stickiness in the relationship with CRE owners and asset managers. Little do these owners and asset managers realize that technology is so good today the setup time to switch tax bill services is very easy and quick. Tax appeal consultants do not want CRE owners and asset managers to know this, because it is another factor that allows them to overcharge CRE owners and asset managers.

CREyield is leading the way
CRE owners should embrace those tax appeal companies that are driving dramatic fee compression via technology adoption – CREyield is leading the way. By doing so, CRE owners could bring appeal fees down to acceptable levels – eliminating the excess. Increasing efficiencies and reducing operating costs are what great owners and asset managers do.