Overly inflated property assessments this year have commercial property owners in an uproar and they’re pressuring governments to do something about it.
Some are even threatening a tax revolt unless something is done to address their outrage.
“How in the world could property assessments rise by as much as 40 to 120 per cent in just one year?” they wonder, and who would blame them? That’s just the high assessment notices I know about.
One business person, who doesn’t want their name used, told me Property Valuation Services increased the assessment on one vacant piece of land by 70 per cent. Even if the city decides to hold property taxes at last year’s level, he’s looking at a 70 per cent increase in his tax bill for that one property and that’s not the only property in his portfolio.
Naturally many of the commercial property owners are appealing their assessments but that doesn’t necessarily mean their assessments will go down.
The dramatic uptick in commercial assessments has some people thinking there’s a major flaw in the assessment system.
Property Valuation Services describes itself as a not-for-profit corporation established through provincial law.
It is governed by a board of directors comprised of elected and administrative municipal officials, and includes municipal representatives appointed by the Union of Nova Scotia Municipalities, the executive director of the UNSM, two independent members and the deputy minister of Service Nova Scotia, who is a non-voting member.
According to the services’ website, it uses three different approaches to value properties, which assessors use to develop market value estimates:
- The “direct comparison approach” assumes that an informed purchaser would pay no more for a given property than it would cost to acquire a comparable property.
“Using the direct comparison approach to value is most appropriate when the market is active and many properties with similar characteristics are selling,” according to the explanation found on the website.
- The “cost approach” supposes an informed purchaser would pay no more for land and building or buildings than it would cost to buy a similar piece of land for construction of a building with similar characteristics. In that case an assessor estimates the land value and then adds the cost of replacing the building or buildings, less depreciation and other improvements. Costs are said to be adjusted to the valuation date and reflect market values in the area.
- The “income approach” values a property based on the income it will generate over its economic lifetime, usually applied to determine the value of investment properties.
The assessor is supposed to determine the potential gross rental income of the property by analyzing its rental income and the rents paid for comparable properties in the same area. The assessor analyzes property sales to determine what rate of return investors are seeking for the various types of properties.
While most property owners are willing to accept a slight increase in their assessment, to coincide with inflation and noticeable increases in value, the 2012 assessments have many veteran property owners scratching their heads trying to understand why and how.
People forget that the business community has been feeling the pinch in a tough economy and this is just one more burden it is expected to carry.
Are governments in danger of killing the goose that laid the golden egg? Maybe.
This time the business sector may not be willing to tolerate adding any more to its load without fighting back.
