A tax attorney says one small change in the law could have far-reaching implications on the property appraisal process.
Senate Bill 329 — which was recently recommended for passage by the Senate Committee on Assessment and Taxation — would require “At any appeal hearing before the regular division of the state board of tax appeals relating to the determination of valuation of property for taxation purposes, the county appraiser shall submit a single property appraisal report.”
Overland Park tax attorney Linda Terrill said that, while simple, “the impact on the process could be the most significant improvement to the current system in some time.”
Terrill said there is a huge difference between a computer-assisted mass appraisal and one from a licensed appraiser.
Terrill, who provided the only testimony about the bill, said that while mass appraisal is a “necessary evil, as thousands of parcels need to be valued quickly when the appraisal process is annual,” the Board of Tax Appeals treats a mass appraisal — in which no appraiser has evaluated the property directly — identically with an appraisal from a licensed appraiser.
In a mass appraisal, county appraisers compile market rent studies, market expense studies, and capitalization rate studies, usually by property type.
“For instance, for commercial properties, the categories are typically retail, office, industrial, apartments, etc,” Terril said. “Land studies are done. Some counties do this annually, others do every other year, with some counties outsourcing some or all of the studies. A common outsource is the cap rate study. Worse yet, some counties just copy and use the cap rate study performed for some of the larger counties, even though there is no evidence it would have any applicability to properties in their county.”
In the case of commercial property, properties are divided into Classes A, B, C, and D.
Terrill said, for example, that a 60,000-square-foot national department store retailer will be a Class A investment-grade.
“The rent under mass appraisal will be the same as all other Class A retail properties like Scooter’s Coffee, a bank, drug stores, gas stations, build-to-suit properties etc., but they are not limited to comparable properties,” Terrill said. “Capitalization rates may sometimes have even fewer delineations. Some counties have a county-wide cap rate. This is all done even though everyone knows the risk of owning a small building differs from a multitenanted retail property or a large single tenant owner/occupied property.”
The difference with a licensed appraiser, she said, is that the licensed appraiser will compare with similar properties.
“In an appraisal done by a licensed appraiser, that same national department store will have its rent determined by verified current rents for comparable properties,” Terrill said. “Same for expenses and cap rates. What is comparable?
“Here’s my analogy. If you were looking for a 3-bedroom, 2-bath house under $400K in the Shawnee Mission School District, the county appraiser would take you to every house in the Shawnee Mission School District, regardless of bedrooms or price. The licensed appraiser would take you to 3-bedroom, 2-bath houses $400K or less in the Shawnee Mission School District.”
Statistically, Terrill said, a perfect mass appraisal will end up with 1/3 being right, 1/3 high and 1/3 low.
“The appeal process in place is there to address the 1/3 that are valued too high,” she said. “So, we go to BOTA and the county presents the same documents that overvalued the properties by using the mass appraisal universes rather than an appraisal of that property.”
Terrill said that under SB 329, if a property is appealed to the BOTA, the county would no longer be able to submit or rely on mass appraisals, but would instead have to submit a single property appraisal report — as is done in Missouri and other states.
