Equalized Value: Learn It Before Filing a Tax Appeal

If you own CRE in NJ, how do you feel about your latest assessment?  Given how bad the 2009 market was, many of you are probably looking at the assessment and thinking about filing a property tax appeal.  (The appeal deadline is 4/1/10, unless there is a revaluation taking place.)  That's good.  Just know that in many cases the amount of the assessment is not an accurate indicator of the "true value" of your property and, therefore, not the number that should be considered.  Instead, you need to know the Equalized Value for your property when deciding whether a tax appeal is warranted.

Many owners do not realize that the assessment amount on the Notice of Assessment (green card) may not necessarily reflect the true value at which a property is being assessed and taxed by the municipality. This can turn out to be an expensive misunderstanding.

Keep in mind that in NJ property taxes are supposed to be based on the fair market value (FMV) of the property and that the annual assessments are supposed to reflect the FMV of the property.  However, as time passes between revaluations, that is often not the case.  Between revaluations, assessments generally remain unchanged from year-to-year whereas market values are constantly changing.  To address market fluctuations, each year the Division of Taxation analyzes current sales of properties across all property classes in a municipality as compared to the values established under the last revaluation. This results in what is known as a municipality’s annual Equalization Ratio (a/k/a Average Ratio) The Equalization Ratio for a particular municipality can be obtained from the assessor or County Board of Taxation. You can also find 2010 Equalization Ratios here.

The Equalization Ratio is used to translate the current assessed value of a property to its true assessed value a/k/a “Equalized Value.”  The Equalized Value is supposed to reflect the FMV of the property based on the current assessment and county data.  It is calculated by dividing the total assessment from the Notice of Assessment by the municipality’s Equalization Ratio.

For example, the 2010 Equalization Ratio for Linwood, NJ, is 61.99% whereas in Margate, NJ it is 84.28%. Thus, a $1M assessment in Linwood reflects an Equalized Value of $1,613,163.40 ($1M/61.99%). Meanwhile, a $1M assessment in Margate reflects an Equalized Value of $1,186,521.10 ($1M/84.28%).

Why is Equalized Value important?  Because the Equalized Value tells an owner the true value at which the municipality has assessed the property and, in turn, is collecting taxes under the tax rate.  Only by comparing the Equalized Value to the appraised FMV of a property can one begin to determine whether a tax appeal is warranted.

So, if you are still trying to decide whether to file a tax appeal, don't just look at the assessment, look at the Equalized Value of the property.  (You should also talk to an appraiser and attorney experienced w/ tax appeals, because the "fun" does not stop w/ "Equalized Value" when pursuing a tax appeal.)

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