The best case that over-assessed taxpayers can make in an assessment appeal is providing evidence of their property’s fair market value. But what is “fair market value” and how do you prove it?

By James W. Chipman

Fair market value (or fair cash value) is the gold standard in property tax assessment law. It’s generally understood to mean the price a property would bring in the open market between disinterested parties acting independently of each other and without compulsion.*

Fair market value can be proven four different ways, but each one has its drawbacks.

1. Recent sales: Was it fair and square?

When a property sells, the key is how proximate the sale was to the assessment date in question and whether it was an “arm’s length transaction” – this term refers to the conditions surrounding the sale. A recent arm’s length sale of property in Illinois is considered the best evidence of its fair market value**. However, determining what constitutes an arm’s length transaction and an appropriate time frame are thorny issues. With any sale, expect assessing officials to scrutinize the buyer-seller relationship and to look at market changes since the transaction date. Also, taxpayers should never assume that a stated purchase price is a good indication of fair market value without considering whether other factors like special financing or personal property affected the price.

2. Recent construction costs: Are they all legit?

The costs to construct an improvement and the price paid for the land can also establish a property’s fair market value. Construction costs, however, are often sketchy and fraught with errors. Thus, cost data is usually considered suspect unless there is compelling evidence that all direct and indirect costs associated with the project are accounted for and that the costs are representative of the market area. That’s why some boards of review require a sworn affidavit from the contractor to support the contention***.

3. Appraisal: How experienced is your appraiser?

Taxpayers can submit a professional fee appraisal of their property. But let the buyer beware for two reason: a) the cost of an appraisal should always be weighed against any potential tax savings; and b) an appraisal provides a best estimate of value, not an actual one. In addition, remember that an appraisal is only as good as the person who prepared it. Selecting the right appraiser is critical because not everyone has the same qualifications and experience to appraise residential, commercial, and industrial properties or has the ability to consider the inherent complexities and peculiarities they each possess. (Golan Christie Taglia maintains a list of qualified appraisers and can make recommendations regardless of your location and specific property type.)

4. Comparable sales: Are they peas from the same pod?

Under this method, recent selling prices of similar properties are used to help determine the fair market value of a subject property with the assumption that the property will sell at a price near the comparable properties. The operative word, of course, is “similar.” Unfortunately, there are no uniform standards that apply regarding how closely properties should resemble one another for comparison purposes and how any differences between the properties should be adjusted in order to prove the claim.

If you need expert advice on preparing an appeal that involves the complex challenge of proving your property’s fair market value, the property tax team at Golan Christie Taglia is ready to help. Contact Jim at JWChipman@GCTSpringfield.law)or 217.280.5518.

Sources:
*35 ILCS 200/1-50
**Walsh v. Property Tax Appeal Board, 181 Ill. 2d 228(1998)
***Kane County Board of Review 2018 Rules & Procedures, Sec. D(8)(c)