Using Technology to Reduce Tax Appeal Fees
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.

The tax appeal paradigm problems
  • Fees are excessively high. The typical fee charged 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. These percentage fees could be cut in half in 2021 and cut by 90% over time.

  • Fees have remained high for decades.Tax appeal attorneys and consultants have maintained excessively high fee arrangements for decades and have offered no technological innovation to reduce fees and increase productivity.

  • The tax appeal process remains non-transparent to CRE owners. Tax appeal attorneys and consultants have done little to shed a spotlight and educate CRE owners and asset managers on the tax appeal process. For instance, we surveyed over fifty CRE owners and none knew that the average tax appeal assessor hearing is thirty minutes in duration.

  • The time spent by CRE owners on tax appeal tasks is unaccounted for. While tax appeal attorneys and consultants enjoy excessively high fees, CRE owners and asset managers spend a lot of time disseminating financial statements and answering asset level questions.

Applying technology to re-invent the appeal fee paradigm

The activities and workflow for the tax appeal business can be categorized into two buckets: administrative and valuation. The valuation bucket could also be considered the evidence development.

Software can be trained to understand all of the government appeal related rules, so a software application instructs humans on what needs to be done and when. For example, the application alerts humans on impending filing deadlines. For each element of administrative tasks, the application could auto generate letters, forms, evidence packages, and so on.

Likewise, technology can be used to automate the valuation work. Auto valuation software can auto-ingest income statements, rent rolls, comparable sale transaction data, and other market data. Auto valuation software can auto produce income approach evidence that can be used for the tax appeal submission.

By utilizing technology, the hours incurred by humans involved in the tax appeal business could be greatly reduced – without sacrificing the quality of evidence development or achievement of obtaining lower values.

It is estimated that the amortized hours per property over a large (e.g., 50 or more) portfolio of properties is twelve hours. With the adoption of technology, the twelve hours could be reduced to four hours. Using this increase in productivity, a 15% fee could be reduced to a 5% fee. There are further productivity gains achieved from year to year, which puts a 2.5% fee in sight.

The benefits of adopting technology
  • Fees are excessively high. Via the application of technology, percentage fees could be cut in half in 2021 and cut by 90% over time. Please see our article Why Tax Appeal Fees Should be 5% or Less.

  • Fees have remained high for decades.Via the application of technology, percentage fees will no longer remain stagnant.

  • The tax appeal process remains non-transparent to CRE owners. Innovative technology could be used to provide CRE owners and asset managers with complete transparency. They should be able to see on demand the exact status of all appeals and the merit of each appeal’s evidence. They should be able to see all correspondence with the Assessor and the hourly breakdown of the work performed.

  • The time spent by CRE owners on tax appeal tasks is unaccounted for. Innovative technology could be used to alleviate data dissemination tasks and information inquiries handled by CRE owners and asset managers.

  • Quantifying fee savings. 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. A 5% fee would reduce the fee from $60,000 to $20,000; a 2.5% fee would reduce the fee to $10,000. Imagine a portfolio of one hundred properties experiencing fee savings of $50,000 per property (i.e., an 83% reduction) each year for five years. That could equate to a capitalized increase in portfolio value of $400 million.

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.