To abate means to eliminate something or reduce its presence and effect. The concept has many applications when it comes to dealing with property. An abatement can affect appraisals and your property tax bill.
Abating a Nuisance
Property owners, residents and governments seek to abate nuisances. A party such as an owner or occupier creates a nuisance by causing or allowing uses or conditions on property that interfere with the use and enjoyment of other properties. Nuisances can include excessive noise, smoke, chemicals or other pollutants, accumulation of trash or junk and continuous criminal behavior. With these offensive, noxious and annoying conditions come the potential loss of value for neighboring or other affected properties.
In the landlord-tenant context, renters of substandard apartments, rooms or homes seek to reduce the rent they must pay. Landlords can face liability for conditions that render their units uninhabitable. These include malfunctioning or non-existent running water, plumbing, heat and air conditioning violate landlord-tenant laws. A tenant may seek relief for safety hazards such as exposed wiring or unstable stairs or handrails.
In some states, the tenant may not withhold rent on the front-end even if the rental is substandard. Instead, the tenant must file a lawsuit against the landlord or counter sue the landlord in an eviction proceeding. The relief granted to such tenants comes as a refund of rent.
What is Tax Abatement?
Local governments raise revenue by taxing the value of your property. A tax abatement process eliminates or reduces that tax for a certain period of time. What is an abatement process will differ by jurisdiction. However, the methods generally involve contesting the value or qualifying for some reduction of the taxable value.
What is an Abatement Process for Appealing Valuation?
A property appraiser helps owners who believe the taxing authority has valued the property too high. In this method of abating taxes, the property owner challenges the tax department’s valuation to a local government board then, perhaps, to a court. To win an appeal requires that the owner demonstrate an erroneous method or that incorrect information was used. For instance, the taxing authority may have overstated the acreage of the land or square footage of the home. The tax appraiser may have valued your home as a one-story ranch when in fact it is two stories. With an appraiser, you may successfully show that the tax assessment varies too much from the applicable market values.
What is an Abatement Process for Getting an Exemption?
An exemption results in your having at least some portion of your property’s assessed value not taxed. Local governments have different criteria for who qualifies for these exclusions or exemptions. Some taxpayers may get relief based on their status as elderly, disabled or being a veteran.
What is an Abatement Process For Improving Properties?
As we use the term here, tax abatement takes the form of an exemption of at least part of the property’s value from taxation. You get the break by purchasing and building or improving upon an eligible property. As a general rule, you will not have to pay taxes upon the value of the new construction or improvements. Your property tax is assessed upon the value of the property before you constructed or improved it.
Local governments devise these tax relief programs to spur development and residence in a particular location or area. Often, deteriorated, dilapidated or neglected structures line the streets of neighborhoods targeted for these programs. Homeownership often is lacking, and household incomes tend to rest at low levels. With the blight and low economic metrics in these areas often comes an absence of retail, office or other commercial activity.
Tax abatement programs normally require that the owner live in the property in question. Local governments also cap the number of units allowed in the property, such as at four. In some locales, only single-family dwellings qualify.
In communities where apartment or other multi-unit developers qualify, affordable housing standards may apply. For instance, programs may require that the housing developer set aside a minimum percentage of units or square footage for occupants at or below the poverty level.
Tax reductions often last multiple years and run with the property. As such, subsequent owners of the property can have their property taxes abated during the remaining period. To illustrate, take a property with a 15-year period. The initial owner transfers the property after nine years. The new owner enjoys the tax relief for a maximum of six years.
Generally, your relief comes through a reduction in the assessed value of the property. The local government does not apply the tax rate to the entire appraised value, but to a portion of it. Depending on the program, the property owner pays taxes only on the value at the time of purchase. The value of the new construction, rehabilitation or improvements does not count. Certain programs may reduce the amount or percentage of the exclusion or exemption during the period.
Effect on Value
How tax abatement affects the value of real property often turns on the appraisal method used.
Appraisers likely will not take tax relief into account, at least directly, in the comparable sales or cost approaches. In the former method, the appraiser researches the prices and values of properties similar to the subject one. The “comparable” homes used in the approach typically have the same or similar square footage, acreage, location, building materials, floor plan and features. The cost approach to appraisals examines the expenses to turn vacant land until improved property.
Tax abatement comes into play when an appraiser employs the income approach. Here, the value reflects the income generated by the property. You will see appraisals of apartments and other rentals, lodging, offices, retail establishments and other commercial properties typically based on the income approach.
In calculating the income, the appraiser figures what the property owner would pay in taxes if all of the appraised value was included in the tax. That number is subtracted from the net income (revenues less costs other than property tax payments). Then, the appraiser calculates the net present value of the tax savings and adds it to the value.
Contact a Professional for an Appraisal
An accurate and reliable appraisal is vital if you’re selling, buying or needing a loan for your property. Our appraisers will discuss your needs, examine the property in question, determine the best valuation approach and get the proper data. Contact us today for your appraisal.