Happy tax season! (Just us? Your office isn’t celebrating with donuts and balloons?)

But seriously. Most companies need real estate to do business, and we should all pay our fair share of taxes on that real estate. So how do you know if you’re actually paying a fair share? This time of year, real estate assessment becomes very important. After years of managing property tax reviews and appeals, I’ve realized that the appeals process is pretty opaque, and so most people don’t know if they can capture opportunities for tax savings. Over the past eight years, our team at Cresa Minneapolis has saved our clients an average of 20% on their property tax bills.

Interested in how that works? Here are four key facts you may not know about commercial property tax and tax appeals.

You Should Review Your Property Taxes Every Year

Property taxes are based on fair market values, and the market is always shifting, so your property tax bill will be different every year. We recommend a planned annual review of property assessed values so that you avoid over-paying taxes or missing a critical assessment error. Real estate taxes are not a set-it-and-forget-it line item.

Your Property Is Not Individually Appraised

Did you know that most appraisers do mass appraisals? For example, in your town or city, if commercial building sale prices have gone up 10% in the past year, every commercial property is assessed at an increase of 10%. Your specific property only gets an individual appraisal if you appeal the default, mass-appraised value.

Your Property Should Assess Based on ‘Sticks and Bricks,’ Not Rental Potential

In the state of Minnesota, and most other states, we assess properties based on “fee simple” value — what a property would sell for on the open market if it were vacant and available. Some people also call the fee simple value “sticks and bricks” — the actual value of the physical property. That means properties can’t assess higher based on potentially high long-term income from current tenants. If we determine that a property’s assessment is not fair based on fee simple value, we can appeal.

Single-Tenant Properties Have Different Values Than Multi-Tenant Spaces

That said, single-tenant properties have lower fee simple value than multi-tenant spaces. Did you know that multi-tenant properties have to be built very differently in order to support multiple occupants? Multi-tenant properties need certain corridor layouts, exits, separated HVAC systems, and more. Thus, single-tenant properties should be assessed lower than their multi-tenant neighbors.

Here’s a scenario to consider: Let’s say you operate from a single-tenant property (your business is the only one that uses the space). Across the street is a similar-sized property, but it is built to be multi-tenant, with six discrete businesses in the space. If the two properties are assessed using a mass appraisal, there may be a mistake. Your single-tenant property likely should be valued lower and so may be a candidate for an appeal.

As licensed brokers active in the commercial real estate market every day, we use our expertise to negotiate the fairest property values for our clients. As real estate experts, Cresa advisors are viewed by assessors as “educators,” meaning we have a shared goal of assigning the right value to the property. We illustrate how properties would be valued on the open market, providing assessors with concrete information and statistics to legitimize a value reduction consistent with the taxable fair market value.

If you’re interested in working with Cresa to understand your property taxes, please contact Stephanie Paul at spaul@cresa.com Jon Hicks at jhicks@cresa.com.