Reducing property taxes - Fairly's case study

A look at the early stage operating results from our property tax reduction service in New York.

By: 

James Burns

How it started

Prior to launching our commercial tax reduction platform, we piloted a MVP (minimum viable product) reducing the property tax bills of residential and commercial property owners in upstate New York. We figured sharing the two most important things that we learned would be useful:

  1. Less than 3% of the individuals we spoke with knew tax reduction services existed.
  2. On average we saved our clients ~10% on their tax bills.

The lack of knowledge of tax reduction opportunities blew us away. Fortunately, it also led us to publish a beginner property tax overview blog post, which necessitated the creation of this blog. It's also the only reason you're reading this right now. The following is metadata from our operation in upstate New York.

Statistics

  1. Average reduction (Pre-appeal) -9% of tax bill
  2. Average Reduction (Post-appeal) -11% of tax bill
  3. 40% of homes were indicated as overassessed
  4. Average home overassessed by 12.5%
  5. Our tax reductions resulted in a market value increase of 7.9% for our client's properties*
*utilizing same home sales, controlling for average price appreciation over the same period

Our "Pre-appeal reduction" metric means that in the first stage of filing, we achieved a 9% reduction on our client's tax bill. For cases that we appealed, entering the second stage of filing, our average reduction increased by 22% (from 9% -> 11%). For reference, the average reduction in Nassau county was 5.5% during this time period.

Our identification of overassessed properties was informed by our valuation algorithm (More to come on this, keep your eyes peeled for a future blog post...). Initially, we believed that seeing 40% of homes flagged as overassessed must be a mistake. We sanity checked this number by comparing the relationship of sales to their taxable market value, we found that roughly 34% of properties sold for less than their taxable market value - meaning the new owner is overpaying property taxes. This result is in line with similar studies conducted in NY.

Anomaly, or the norm?

Similar stories echoing throughout New York State have caused some areas in New York to explode in terms of how many homeowners file tax appeals - Nassau County is an extreme example.

Source: Share of Nassau homeowners who win reduced assessments nearly doubles by Scott Eidler

With 220,000 homeowners filing appeals, roughly 46% of the 475,000 Nassau Homeowners filed appeals. This is an unimaginable proportion - in the context of the entire country. In the largest markets for tax appeals, no other county is close. The three largest counties (by number of appeals filed) are included below:

Household counts based on last available census (2019). Corresponding appeal year selected.

Residential or Commercial tax appeals?

Although our reported statistics primarily reflect our observed results in the residential space - there's one incredibly important number we left out. While the overassessment in this residential market was substantial and widespread, (in our opinion about 40% too high) in this same sub market commercial property was also overassessed 40% of the time, but carried an effective tax rate that was 18.75% higher than residential property. Effective tax rate differences can exist for many different reasons (such as different tax rates by property class, or even different assessment ratio's by property class).

How it's Going

Covid's impact on CRE value was severe and far reaching (and ongoing...). In New York City, office values dropped by 16%, and hotels/retail declined by 20%. This precipitous decline impacts small businesses and commercial property tax owners significantly more than multibillion dollar property managers. We built our platform to provide every property owner - regardless of size - with peace of mind that 24/7, 365, your property's assessment will be monitored.

August 17, 2021

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