(This 2014 archived article was published in 2014. More recent data is found in the articles section of our web site).
For some time Chicago Commercial Appraisal Group, Ltd. has been arguing that the higher the real estate tax rate in any particular Chicago community area in Cook County the more likely it is to be substantially over assessed (or over appraised). We recently completed an analysis of industrial building sales in the Chicago south suburban market from 2011 through 2014 and found that there are very few sales in high tax rate cities and the bulk of the sales in lower tax rate cities. The median property tax rate of the buildings sold was only 11.72% and only four sales were found where the tax rate was over 15%. The assessor is often forced to use sales in low tax areas (since that's where the only sales are) but applies them to high tax subject properties without adequately adjusting for the tax rate differentials. We find that Chicago area commercial appraisers also often make the same mistake. As a rule of thumb there should be about a 3% value drop for every 1% increase in real estate taxes.
By doing a loaded capitalization rate adjustment on every comparable we can demonstrate mathematically (see Markham example above) that there should be roughly a 3% value drop for every 1% increase in the real estate tax rate.
Lansing's tax rate is 14.222% or 3.56% less than Markham's and would require an 11% downward mathematical adjustment (a rounded 3.10% value drop per 1% tax rate change). An Oak Lawn comparable (10.481% tax rate) has a 7.3% lower tax rate than Markham and would require a 23% downward mathematical adjustment which also reflects a similar percentage decline. If the property tax rate of the subject is 14% or less, it is more likely that Chicago appraisers of the Cook County Assessor would find enough sufficiently comparable transactions in lower tax rate jurisdictions, to lessen the need to wander into high tax rate districts in order to find comparable sales. Provided the comparable sales are selected judiciously then, the need to worry about quantification of an adjustment for tax rate differentials is reduced. If the subject property has a tax rate at 15% or higher, however, a tax rate differential quantitative analysis is virtually mandatory. Property values could be 10-30% lower or more if tax rate differentials are correctly accounted for. Peterson Appraisal Group, Ltd. is the only Chicago area commercial tax appraisal firm we are aware of that can provide detailed quantitative support for such adjustments. Analyzing every comparable is a very time consuming process. PAG has developed computer models to facilitate this analysis. Most Chicago area commercial appraisers are not mathematically adjusting for this factor and thus over appraising these properties.
Below is the scheduled release of townships in the next few months and the tax rates in those communities. We strongly urge you to have a loaded capitalization rate analysis done on any communities with tax rates of 15% or more.
The Chicago area communities listed below in bold are the highest tax rate areas with the greatest likelihood of the Cook County Assessor or Chicago area commercial tax appraiser over valuation. Of course even properties with lower tax rates should be reviewed since there is always the chance of over assessment.
|Riverside Township (2/7/2014 mailing)||Tax Rate|
|River Forest Township (2/11/2014 mailing)||Tax Rate|
|Bremen Township (3/7/2014 mailing)||Tax Rate|
|Country Club Hills||19.802-21.123|
|Cicero Township (3/20/2014 mailing)||Tax Rate|
Communities in bold are high tax rate areas with the highest risk of over assessment and over appraisal. A quantitative loaded tax rate analysis could often warrant a 10-30% adjustment for this factor alone. This analysis can even be applied to limited appraisals where no income approach is applied. We strongly advise you request a prelim from PAG to make sure you aren't paying more than your fair share of real estate taxes.