Navigating Common Area Valuation for Property Tax Assessment
- Jeremiah McGuire
- Aug 11
- 4 min read
When it comes to property tax assessments, one of the more intricate aspects is determining the value of common areas within a property. Common areas, such as lobbies, hallways, elevators, and recreational spaces in condominiums or apartment complexes, play a crucial role in the overall valuation. However, their assessment can be a complex and challenging task for property owners and assessors alike. Let's delve into the key considerations and methods involved in valuing common areas for property tax purposes.
Understanding Common Areas
Common areas refer to spaces within a property that are shared by multiple tenants or unit owners. These areas are typically maintained and managed by a Homeowners' Association (HOA), a Condominium Owners' Association (COA), or a property management company. Examples of common areas include:
Hallways and corridors: The passageways connecting different units or rooms.
Lobbies and entryways: The entrance areas to buildings or complexes.
Elevators and stairwells: Vertical transportation systems within buildings.
Recreational facilities: Such as swimming pools, gyms, parks, and community centers.
Landscaped areas: Gardens, lawns, and outdoor spaces accessible to all residents.
Parking: The parking lot or parking structure.
Valuation Methods for Common Areas
Several methods can be used to determine the value of common areas for property tax purposes. These methods often depend on factors such as the type of property, its location, the size of common areas, and the overall market conditions. Here are some common valuation approaches:
Cost Approach: This method involves estimating the cost of rebuilding or replacing the common areas at current market rates. It considers factors such as construction costs, materials, labor, and overhead expenses. However, this approach may not account for depreciation or changes in market value over time.
Income Approach: For income-generating properties like commercial buildings or rental apartments, the income approach calculates the value of common areas based on the potential income they can generate. This includes rental income from advertising spaces, parking facilities, or usage fees for recreational amenities.
Sales Comparison Approach: Also known as the market approach, this method compares the property's common areas to similar properties that have been sold recently. By analyzing comparable sales data, assessors can estimate the value of common areas based on market trends and property transactions in the area.
Allocation Method: In cases where common areas are shared among multiple properties or units, an allocation method may be used to distribute the assessed value fairly. This method considers factors such as the proportionate use of common areas by each property, the number of units or tenants, and any specific agreements outlined in the HOA Bylaws or property deeds.
Challenges and Considerations
Valuing common areas for property tax assessment comes with its share of challenges and considerations:
Maintenance Costs: Assessors need to consider ongoing maintenance and repair costs for common areas when determining their value. Well-maintained common areas can add value to a property, while neglected areas may detract from its overall worth.
Use and Access: The usage patterns and accessibility of common areas can vary widely. Assessors must take into account factors such as the frequency of use, exclusivity for certain residents, and any restrictions or limitations on access.
Legal Framework: Property tax assessments are governed by local laws and regulations, which may have specific guidelines for valuing common areas. It's essential for property owners and assessors to be aware of these legal frameworks to ensure compliance and fairness in valuation.
Market Trends: Real estate markets are dynamic, with fluctuating demand, supply, and economic conditions. Assessors must stay updated with current market trends and property values to make accurate assessments of common areas.
Nominal Value (in the eyes of the Courts)
In many instances Property Assessors have struggled with how best to determine the value of a common area. There has been extensive litigation regarding the valuation of common areas across the country and a vast majority of jurisdictions have all concluded that these areas have little / nominal value. This is justified because the courts view that the easements over the common areas, held by the owners of the benefiting pieces of land, among other factors, like land use restrictions and zoning laws, provide a benefit to the owners and increase the value of their property.
How does this affect me?
In the end, most common areas are either owned by the Home Owners Association or owned in a fractional interest by all owners in the neighborhood or building. The HOA is almost always going to be the one who pays the tax bill and it will be split among all owners as part of their annual Association fees. It affects you because just like other property taxes, it fluctuates and as the value of the property increases, usually, so do the taxes.
Conclusion
Valuing common areas for property tax purposes requires a comprehensive understanding of property dynamics, valuation methods, legal considerations, and market trends. Property owners, assessors, and HOAs must collaborate effectively to ensure fair and accurate assessments that reflect the true value of common areas within a property. By employing appropriate valuation methods and staying informed about industry best practices, stakeholders can navigate the complexities of common area valuation and contribute to a transparent and equitable property tax system.
I hope that you found this informative. If you feel that this information may help you or a client, please reach out. It is my mission to help others.
Jeremiah L. McGuire
Attorney
Memphis, TN
901-494-1622
Your Past. Your Future. Our Priority.
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