If you are a marketing-oriented personality and are looking for a part-time business opportunity, explore property tax appeals consulting. Evenings and weekends are perfect for hosting outreach programs to market such services to the homeowners (i.e., present your unique tax-saving program as compared to the competition's and signing them up on the spot or via personal follow-up meetings).
Every tax jurisdiction offers short windows to allow the filing of appeals, both on and offline, followed by the face-to-face presentation of (over-assessed) cases to the hearing officers or the assessing staff. Of course, the case presentation generally takes place on weekdays, so you have to make yourself available on weekdays (check with your county/town regarding the filing period and case presentation windows) during that period. Assessment cycles are essential determinants of appeals, so you must know how your jurisdiction's process operates. While 1 to 2-year assessment cycles tend to be more common, 3 to 4-year cycles are not too uncommon.
Current Consulting Environment
1. Inappropriate Market AVMs: Though many consultants started using 3rd party automated valuation model (AVM) values, they do not work well in identifying the over-assessed parcels on the tax roll as the underlying challenger AVMs tend to be Market AVMs as well. Since the 3rd party AVMs and Assessor AVMs would share very similar modeling sales samples (in terms of the period, sales significance, etc.), they produce very identical values, thus essentially validating the tax roll values while costing a lot of money for those values.
2. Flawed Sub-market level AVMs: Many tax roll AVMs are built at the sub-market level, without jurisdiction-wide equalization or smoothing, thus distorting values along the sub-market lines. Let's say Hillside Avenue divides the two sub-markets, despite having very similar, if not identical, housing stocks on both sides. Since the two sub-market level modeling samples would be mutually exclusive, the housing stocks on either side would be valued differently. If the internal QC fails to identify and correct those inconsistencies, the roll would be palatable to the consultants having access to jurisdiction-wide AVMs.
3. Some Consultants Take More Specialized (Non-AVM) Approach: Of course, some consultants are more specialized in marketing their services; for example, homes with GIS implications, close to major arteries, back into the service roads to highway, industrial areas, new constructions, etc. Often, analysts apply a basic cost approach rather than a market-adjusted cost approach to new homes and subdivisions, thereby inflating their values significantly above the real market; incomplete improvements: Instead of applying some token values to incomplete improvements (hence unusable as of the roll date), analysts often apply cost (the cost to cure, etc.), causing the age-old controversy, etc.
4. National Tax Firms Suffer from Similar Shortcomings: While some national tax firms pursue this business via their franchisees or licensees, they suffer from very similar shortcomings. They work with national AVM vendors to ascertain the "meaty" cases. Unfortunately, those are generic market model values, being sold to a wide range of users – from banks/mortgages to private mortgage insurances to mortgage REITs to tax consultants and others. Considering they are developed off of different sale periods and methodologies, they can produce very different values, not necessarily ideal for determining the tax rolls' accuracy. Even when the method is similar, they are nonetheless market models, thus untenable as good challengers.
5. Law Firms Often Challenge the Assessment Ratio: While most law firms in every jurisdiction represent individual homeowners, some are focused on the overall assessment ratio (a.k.a., residential assessment ratio, or RAR). Since assessment rolls must be fair and equitable, those law firms resort to independent RAR tests, internally or by hiring outside experts. Disputes over RAR, especially after significant reassessment, often force tax rolls to the court. The retail consultants, therefore, have limited competition with the local law firms.
The point is, the methodologies and strategies used by the existing (mass) filers are often based off significant inadequacies (resulting from hit or miss analytics or inappropriate AVMs), paving the way for the old domain to be renewed and reinvented, with more scientific baseline work coupled with creative marketing strategies.
Again, this professional domain is ready to be reinvented as the old strategies tend to significantly underperform in addressing and catering to the renewed market demands. Let's recap why the old systems have been underperforming:
Flawed AVM – At the parcel level (bottom-up), a competing Market AVM does not surgically identify the over-valued parcels on the roll; it usually cross-validates the roll values (as the AVM generating the roll and the challenger tax AVM share the same or very similar sales complexes and attributes).
Failure to Establish the Ratio – While a leading local law firm may take the initiative to challenge the ratio (top-down), consultants rarely spend that extra money to study, negotiate, and establish the ratio. An unadjusted Market AVM is, therefore, utterly ineffective. A prudent consultant must research and develop the ratio first, leading to a Ratio-adjusted Market AVM.
Though an adjusted Market AVM is better than an unadjusted one, it nevertheless succumbs to an inherently inappropriate methodology given the market being targeted. Market research based on an inaccurate AVM could be more counter-productive, meaning a vast majority of the real "meaty" cases could remain unidentified.
Forward-looking Solutions
1. A Custom Tax Appeals AVM, not a Market AVM, is generally required to identify Over-valued Parcels on the Roll – A Tax Appeals AVM is a specialized AVM that surgically identifies and categorically defines the over-valued parcels, irrespective of the original construction of the roll, i.e., AVM or Comps-derived. For example, after having identified the over-valued parcels on the roll, a good Tax Appeals AVM should break them down into major categories, e.g., (a) MaxiMax (ex: 30% & above), (b) MaxiMid (ex: 20-29%) and (c) MaxiMin (ex: 10-19%). Of course, the categories could change based on client requests. Though MaxiMax represents the most over-valued category, it's generally the least liquid (lowest frequency), while MaxiMin tends to be the most liquid.
2. A Custom Tax Appeals AVM Offers Biggest Bang for the Buck – Although a custom Tax Appeals AVM is more expensive than a generic Market AVM (as it is sold to a wide variety of users, including the competing appeals consultants), it identifies the truly over-valued cases, thus offering much bigger bang per buck. Moreover, by walking down on the curve (MaxiMax to MaxiMid to MaxiMin), a consultant ensures targeting the most over-valued (hence most profitable) cases first. In other words, if a new consultant decides to target only the top two categories in the first year, s/he still achieves the biggest bang for the buck, potentially expanding into the third category in the following year. On the other hand, a Market AVM is a total hit or miss for appeals consultants, without any assurance that the most over-valued would be targeted.
3. A Custom Tax Appeals AVM makes marketing a Scientific Exercise (Smart Marketing) – Since Appeals AVM precisely identifies and categorizes the over-valued parcels, the market penetration (targeting those homeowners) becomes a straightforward exercise. Depending on the liquidity of the tranches, homeowners could be invited to attend outreach seminars. Due to the uniqueness and accuracy of the Tax Appeals AVM, a vast majority of those homeowners will – for the first time – find out how they are over-assessed. This precise and scientific approach will help discover a market hitherto unknown and unexplored. While the clueless competition will continue to pour money into the far less effective Market AVMs chasing the meatless-to-less meaty market segments, this new generation of consultants will sign up the truly over-assessed clients at a rapid rate, proving that marketing is more a modern-day science than an age-old art. Since this is primarily a contingency business (meaning the tax savings are generally split), targeting the right market segments is the key to success. Custom Tax Appeals AVM provides that scientific base.
What is Needed to Get Started
A. Acquire the Tax Roll from the Jurisdiction – As soon as the tax roll is published, they need to acquire a soft copy with a year's worth of sales, should they decide to research the ratio. Obtaining the sales data is highly recommended as the ratio study would get them started with the top-down knowledge. While negotiating with the AVM consultants, they should bundle the ratio study for a better price (if not for free). The tax roll cost varies by the jurisdiction – from free to low cost to $ 100's of dollars. For instance, our county charges $10 for the entire roll, including sales. In order to keep the cost of the data manageable, data about specific zip codes could be thought of (of course, the ratio study will require sales from across the county).
B. Subscribe to a Comps Program – While the AVM will point to the over-valued cases, it does not replace the individual comps reports needed at the hearing. Brokerage sites are inadequate for two reasons: a) they show the active listings primarily, and b) even if they carry the recent sales, they do not provide the pre-formatted comps reports. The programs that allow dollar adjustments in terms of (sales) time and quantitative variables are preferred. While evaluating the various commercially available programs, the ease of use and flexibility of the adjustment matrix (where the coefficient values are stored) must be closely examined to avoid dealing with significant wasteful time and agony during the crunch time. Month-to-month subscription contracts are preferred to annual contracts as the need to process the comps reports would last only two to three months. Other basic business requirements (including LLC, etc.) and bulk mailing costs must also be factored in.
C. Two Complementary Minds could do Miracles – Teaming up with a buddy with a complementary skill-set could be the way to go. Since the targeting window is relatively short-lived, the outreach seminars could be simultaneously offered in two different town/county parts. The complementary skill-set works better as the business grows to handle operations and technical aspects while the other could concentrate on the marketing side. The advantage of the two-partner team from the get-go is that it helps create a similar passion, knowledge, and forward-thinking.
People who pursue part-time opportunities must also know the conflict of interest rules their full-time jobs generally impose (of course, there is no need to jeopardize the full-time job!).
-Sid Som, MBA, MIM
homequant@gmail.com
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