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Obsolescence In Real Property – How Can It Affect My Value?

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Obsolescence in Real Property:

How Can It Affect My Value?

What is Obsolescence?

Obsolescence is defined as “the process of becoming obsolete or outdated and no longer used.” Obsolescence can impact a multifamily property in many ways to lower the property’s value. Both owners and appraisers should be aware of any potential obsolescence at play when evaluating a property’s market value.

Types of Obsolescence

There are three main types of obsolescence that can play a role in a multifamily property’s value: 1) Functional, 2) Economic, and 3) Physical.

Functional Obsolescence 

Functional obsolescence deals with the function of the property and how, generally over time, the property’s original function is not as useful. For example, consider an older building constructed without elevators at a time before modern elevators were common. When the building was new this would have been perfectly normal. However, if that same building still existed today, it would have functional obsolescence because we expect elevators in apartment buildings with 3+ floors.

Economic Obsolescence 

Economic obsolescence is often the most frustrating for an owner because it is always an external force impacting the property outside of that owner’s control. A great, and timely, example of this type of obsolescence is COVID-19 and the impact it had on our economy. Many businesses had to either shut down or suspend activities causing financial hardship on many families. With little cash coming in during the peak pandemic months, families often could not pay their full (or any) rent owed to multifamily property owners. This external impact on the income a property could generate is a textbook example of economic obsolescence.

Physical Obsolescence 

Physical obsolescence is probably the most easily avoidable of the three types of obsolescence. Physical obsolescence is often brought on due to deferred maintenance that causes damage or accelerated deterioration of an asset. A good example of this would be not replacing a roof in a timely fashion, and then having extensive water damage throughout the property years later that would require extensive work to fix. This physical obsolescence lowers the value of the property.

While obsolescence is not always easy to spot, both property owners and the appraiser should be diligent in looking for its impact on a property’s market value.

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How Can I Prepare For a Site Visit?

Posted by & filed under Site Visits.

How can I Prepare for a Site Visit?

The Importance of Site Visits

It is truly impossible to overestimate the importance of site visits. For a tax agent to adequately represent a property, they need to have firsthand extensive knowledge of the asset. Without this knowledge, a property owner can never receive top-tier representation. As a property owner, there are a few preparations you should make before your site visit with your tax agent.

Step 1: Inform Your Staff of the Visit

For a site visit to go smoothly and effectively, the staff at the property needs to be aware of the tax agent’s visit. Moreover, the staff responsible for meeting with the agent must be knowledgeable and completely honest. A good agent asks hard questions for managers/owners to answer, and they need truthful responses. If the property is slipping off its foundation, the agent needs to know. If the property has plumbing issues every other day that require water to be shut off to the property, the agent needs to know. If the property has extensive water damage from leaky roofs, the agent needs to know! Your agent needs to know all the good and bad with your property so they can adequately fight for a fair valuation.

Step 2: Provide Financial Information

Next, be sure to prepare and provide your agent with the profit and loss statement for the property as well as unit statistics/rent rolls. As multifamily properties are income-producing, the ability of a property to produce income plays a significant part in its valuation.

Step 3: Be Prepared to Show a Vacant Room

So they can see what a unit looks like, be prepared to take your agent to a vacant unit. A good agent will want to examine the condition of the unit, its flooring material, countertops, appliances, and everything in between. All this information can play a crucial role in valuing your property. Note, however, that you need to show your agent a unit that is representative of the majority of the other units at the property. For example, if 90% of the units at the property have granite countertops, do not show your agent the unit with a Formica countertop.

And that’s it. Preparing for your site visit is quite simple and should make your visit that much quicker/effective. By following these simple steps to prepare for your visit with your agent, you are setting your appeal up for success.

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Why Should My Agent Visit My Multifamily Property?

Posted by & filed under Site Visits.

Why Should My Agent Visit My Property?

The Impact of Understanding an Asset

As a multifamily property owner, do you or your company often purchase new properties without seeing the asset in question? Most likely, that sounds like a terrible idea to you. Understanding what it is that you are buying and going to operate is a pivotal component to owning and managing a multifamily property. Due diligence is required to not only understand the risks of an asset but also the benefits. You cannot fully understand the impact a property will have on your portfolio without visiting that property, walking its grounds, and analyzing its condition through your own eyes.

The Impact of Understanding an Asset

The same can be said about the property valuation of an asset. Tax agents are asked to step in and help frustrated owners secure a fair market value of their properties. Owners are often rightfully worried about over taxation and rely on their agents to be their advocates. But, just like a prospective property buyer, how can a tax agent accurately understand the risks and benefits associated with a property without visiting it? They cannot. The understanding of an asset accompanied by a site visit cannot be duplicated through google images and satellite views of the property. It comes from feeling, touching, and seeing the asset firsthand. This lack of ability or unwillingness to visit properties that agents represent ultimately ends up hurting the taxpayers these agents swore to protect.

Advantage Over Taxing Jurisdictions

In addition to providing a better understanding of a property to a tax agent, site visits allow a bit of an advantage to agents and taxpayers when dealing with Central Appraisal Districts (CADs). CADs are often understaffed and overburdened to produce accurate values of the properties within their taxing jurisdiction every year. This means that CADs rely heavily on “mass appraisal techniques” to meet their offices’ responsibility to taxpayers. The problem with this approach is that CADs are unable to get into many details when dealing with a specific property. That is where an advantage for the taxpayer presents itself. The county may not know that your property had five downed units this past year, or that a natural disaster destroyed a portion of the property or any other number of events/characteristics that affect the asset. These are likely not reflected in the valuation. It is the duty of the tax agent to know those issues and present them to the CAD for revaluing the asset. Without those site visits, agents are willfully abandoning an additional tool they have to help their clients.

Evaluate Your Current Agent

If you have never seen your agent at your properties, it is time you demand it from them. The communities you serve and have built deserve to not have resources taken from them due to over-taxation. Challenge your agent to put you and your communities’ best interest first by requiring they visit your properties today.

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National Representation vs. Local Experience

Posted by & filed under Site Visits, Tax Agent.

Why we are passionate about knowing your properties

Appeals in a Big Firm

Everyone has reasons for doing what they do, and I am no exception. I used to be a partner at a national firm with properties all over the country. I took pride in my work and in our team, and I loved helping clients reduce their property tax burdens. After many years and thousands of hearings, I was given the assignment to handle our firm’s protests in Louisville, Kentucky. I eagerly prepared to go and attend the hearings, but as busy as we were, I was only able to review the properties from CoStar and the internet. I found comparable property sales and put together my evidence, sure that my workup was bulletproof.

Shocking Reality Check

When I arrived at the hearing, I began to present my case with full confidence in my work product. The board respectfully listened, and then when I finished they began to ask me some tough questions. They asked me about the neighborhoods and areas of town, and which adjustments were made and why. They asked about the condition of the subject and the comparables. I did not know the answers. Finally, I was asked a life-changing question: had I ever seen or visited any of the properties in person?

Under oath, I had to admit that I had not seen them. Their response shook me: “No one who knows anything about this part of town and these properties would ever consider them comparable.” That was it–the nail in the coffin. I did not secure a single reduction for my client that day, but I did walk out of that hearing with a firm conviction that I would NEVER be in that situation again. I vowed that I would represent my clients as if I owned the properties myself. I would visit every property and I would do my best to visit every equity or sale comparable we would use. At the end of the day, no one in the hearing room would know more about the subject property and the comparables than I would. 

Starting Over

Upon seeing that I could not make that change in my national firm, I set out to create my own firm. I noticed that at national firms, agents are often overburdened and don’t have time to visit every property. The reason I founded Wayfinder is to be different from the busy national firms and to provide personalized expertise and representation. We are founded on the principles of integrity, accountability, and excellence. I have never forgotten the shame I felt in Louisville, Kentucky, and I never want to feel it again. When a client entrusts you with their appeal, agents should never take that responsibility lightly. They should do more than you can on your own because they are fully dedicated to representing properties in the appeal process. 

Giving the Best to Our Clients

This monumental change in my perspective has caused us to spend countless hours visiting properties all over the markets where we represent our clients. The results have been profound. We have spent time learning the markets, asking questions, and becoming experts in the properties, knowing we are doing everything in our power to truly represent our clients.

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The Cheapest Agent Costs You the Most

Posted by & filed under Property Taxes, Site Visits.

The Cheapest Tax Agent Usually Costs the Most Money

Are You Getting What You Paid For?

Comparing Agents

Searching for the right Texas tax agent can be overwhelming.  There are so many options, and everyone seems to have something unique.  The most common criteria used to compare agents is the contingency fee they charge, and agents are typically paid based on the tax savings they achieve for their client.  The major benefit to contingency is that the agent carries the risk and the client always comes out ahead by pocketing the difference from the original taxes less the agent’s fee. 

Lower Fee or Better Results?

The property owner’s dilemma is whether to hire the agent with the lowest fee or the one with the best results.  If Agent A charges 30% and Agent B charges 20%, it is logical that the owner would see the net 80% as a better deal.  Unfortunately, experience shows that the cheapest agent usually is the most expensive.  

Low cost service usually indicates: 

  1. You are just another volume client
  2. Agents are typically overburdened and can’t provide you with specialized service
  3. Agents don’t have the time or the drive to visit your property and gain critical first-hand knowledge

On the other hand, agents who specialize may charge a higher contingency fee, but some of the benefits are they:

  1. Have time to know your properties individually
  2. Perform annual site-visits to help them see the property over time
  3. Perform deeper market research to help them achieve greater tax savings

Comparing Results

To illustrate the difference, let’s look at some real-life 2020 multifamily examples (with names redacted) in Midland, TX: 

  Agent A – 30%   Agent B – 20%
Property #1   #2
Noticed Value $52,074,060   $62,175,000
Final Value $31,000,000   $62,175,000
Tax Savings $359,569    $0 
Net to Client $251,698    $0 

 

Agent B did not achieve any tax savings for their client.  The fact that their fee was lower did nothing to help their client lower their property taxes.  However, Agent A’s expertise and focus produced results that put money back into the client’s pocket.  Remember, if you aren’t paying your tax agent, then they aren’t saving you money.  The age-old adage rings true, you get what you pay for.  The cheapest agent usually costs you the most in lost tax savings.       

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10 Points You Should Use to Evaluate Your Agent Today

Posted by & filed under Property Taxes, Site Visits.

Has Your Agent Drifted?

Despite our best intentions, it is human nature to drift over time.  We may start a new fitness routine, but after a few weeks we slowly stop going to the gym.  Some of us may commit to eating healthier, but we quickly become bored with broccoli and slide back into bad eating habits (fried chicken).  Those who are conscious of this effect constantly check themselves to get back on track.  Property tax agents are no different.  When a tax agent wants your business, they will position themselves with all they can and will do for you.  At first, you are the apple of their eye and will be treated like a VIP.  Over time, drift begins to creep in, and you become just another number in their client pool.  If you are not careful-and diligently holding them accountable-it will likely begin to be reflected in your tax savings.  

Hold Your Agent Accountable

The Property Tax Agent Checklist is a free tool that allows you to rate your agent in 10 areas that impact you directly.  They are:

  1. Frequency of updates
  2. Ease of communication
  3. Communication when there are problems
  4. Expertise in property taxes
  5. Requests for information 
  6. Mentality for problem solving 
  7. Investment in your success
  8. Capacity to meet your needs
  9. Commitment to physical site visits
  10. Current on market research

The score your agent earns from your evaluation will help you know if you should keep your agent or seek better representation.  Choosing the right agent for you can mean a huge impact to your bottom line.  Choosing a tax agent once and then continuing to use them simply to keep the status quo is the perfect storm to let drift set in.  The phrase “set it and forget it” is for crockpots, not for tax agent representation.  It allows agents to become complacent, and your results suffer.  As Joyce Carol Oates said, “The great menace to the life of an industry is industrial self-complacency.”  

Trust, but Verify

Your agent should focus on your best interests, but drift can cause them to go astray.  Use the Property Tax Agent Checklist annually to confirm that your agent is giving you the best representation.  Where there are correctable shortcomings, bring them up and hold your agent accountable to make the necessary changes.  You deserve the best agent to help you and your company reduce your Texas multifamily property taxes each year.

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Aren’t All Property Tax Agents the Same?

Posted by & filed under Property Taxes, Site Visits.

A GENERALIST CAN’T DO WHAT A SPECIALIST CAN

It is common understanding that not all physicians are created equally.  Primary care physicians are wonderful at general care and can help with many problems, but a patient would be ill-advised to ask them to perform the specialized care of heart surgery.  In medicine, it has long been expected that doctors specialize in order to learn the complexities of a specific area of the body so they can give the best care. Currently, there are over 159 specialties and subspecialties listed by the American Board of Medical Specialties.   

property tax agent

ALL PROPERTY TAX AGENTS ARE CREATED EQUALLY

That is a common misunderstanding.  For too long in the property tax world, companies have been told that property tax agents are all the same and can handle any property type in any market.  This is not true.  Properties and markets are very different.  The belief that all are the same has resulted in many property owners receiving poor representation and care.  Specialization has become more necessary with the advanced technologies and information available in the world.  Tax agents who specialize in markets and property types are much better prepared to reduce property tax burdens than tax generalists.  Just as the trained eye of the heart surgeon sees issues, conditions, and solutions specific to the heart, the specialized multifamily property tax agent understands issues unique to your property type. Wayfinder Tax Relief is the only firm specializing in multifamily property tax in the state of Texas.

Specialized property tax agent

SPECIALISTS GIVE BETTER CARE

Medical specialists spend nearly all their time within their specific field of practice and come to know the details of their expertise at a much deeper level.  Understanding the details allows for better care and more accurate work.  Tax agents who try to be a “jack-of-all-trades, masters of none” are usually overburdened with too many properties, too many different industries, and a lack of time necessary to give quality attention to each appeal. That is the opposite of what you want when it comes to getting reductions and filing protests.  

Tax agents who specialize give more time to each appeal, have first-hand knowledge of the property, and even do additional research into surrounding properties to ensure they present the best, most substantiated case for their client.  The end result of this specialization is the best possible outcome for the client.

GETTING THE BEST RESULTS

Specialization in markets and property types separates great tax agents from the rest of the tax agent pool.  If you need heart surgery, go to a heart surgeon;  if you want the best representation for your multifamily property, go to Wayfinder. The results will speak for themselves.

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Is Your Tax Agent a Multifamily Specialist?

Posted by & filed under Property Taxes, Site Visits.

The greatest in the world in any field, be it surgeons, athletes, musicians, etc, are those who are dedicated to their craft and repeatedly focus their efforts on excellence. Others may practice, but the greatest consistently perform, and then ask, “what was the result and how can it improve?” They then do it again. They do not stop when others stop. They do not give up when it is difficult or seems impossible. They persevere, never letting obstacles stop them from their goal of excellence.

Our society values and rewards specialization. Just look at the salaries of specialized surgeons, athletes, or musicians. If I needed heart surgery, I would seek out the best heart surgeon, not my primary care physician. I know that my primary care physician, while a capable doctor, is not the best for what I need: heart surgery. A professional baseball team needing a pitcher, would not search out an outfielder to fill their need. While both players are skilled, their specific expertise does not translate to excellent performance.

Why should hiring a tax agent be any different? Most property tax firms are like primary care physicians. They are capable of general care and are helpful for common issues, but unfortunately, that does not mean excellence for any specific property types or issues. On the other hand, multifamily specialists, like heart surgeons, focus only on multifamily properties. They are dedicated to excellence, consistently perform, and then ask, “what was the result and how can it improve?” They then do it again. Right now, it is more important than ever that you have the best multifamily property tax expert on your team helping your company weather the economic storm of Covid-19. Hiring a multifamily specialist can save you time, reduce your property tax expenses, and be the game-changer you need right now.

Wayfinder Tax Relief, LLC is the #1 multifamily property tax specialist in the industry. They focus solely on multifamily properties and are at the cutting edge of the industry change. They are involved in many local apartment associations and are members of the Texas Apartment Association and the National Apartment Association.

First-Hand Knowledge: How to Secure the Best Multifamily Property Tax Reductions

Posted by & filed under Site Visits, Property Taxes.

You wouldn’t buy a property without doing the due diligence of an in-person visit, maybe even more than one. Google Earth or satellite views are nice tools, but they can’t replace being physically at the property and seeing the asset first-hand. Why should representing your property in a property tax protest be any different?

How can your tax agent know the issues your property is truly facing: location, demographics, shifts in the economy, storm damage, etc. without visiting your property? In short, they can’t truly know. They may make assumptions, or guesstimate about effects, but their testimony will lack the fullness necessary to achieve the best results at the board hearing your protest.

Tax agents who put their clients’ best interest first, will visit your property annually. It may be time to give your tax agent a grade. Ask your agent when they last visited each of your properties. Have them show you pictures and notes taken on their visit. Will they make their contingency fee conditional upon visiting your property? If not, why won’t they commit to giving you the representation you deserve to achieve the best tax savings?

We make the Wayfinder Guarantee part of our business. We guarantee to visit our client’s properties annually or we won’t charge a fee for our services. We know that we provide the best representation when we physically visit the properties, the communities and the jurisdictions where they are taxed. This process has allowed us to consistently secure bigger and better reductions than our competitors.

Wayfinder Tax Relief, LLC is the #1 multifamily property tax specialist in the industry. They focus solely on multifamily properties and are at the cutting edge of the industry change. They are involved in many local apartment associations and are members of the Texas Apartment Association and the National Apartment Association.

Site Visits Done Right

Posted by & filed under Site Visits.

Visiting our client’s properties annually is essential to making sure we achieve the best results. We have discovered so many overlooked or ignored issues that have resulted in substantial tax savings by being on-site.

This year we improved the annual site visit by becoming licensed drone pilots. We now have current pictures from both the ground and air of our client’s properties. Roof damage, flooding issues, and hard to visit places are now easily documented in pictures and videos in 4K resolution.

We love sharing our photography with our clients to use as they would like. Wayfinder is a property tax consulting firm specialized and focused on multifamily properties. If you would like additional information about our services please contact us at william@wayfindertaxrelief.com or 480-616-1025.

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