According to the Colorado Division of Property Taxes, residential and business property values have experienced significant increases over the past two years (from June 30, 2012, to June 30, 2014). Residential property values are reported to have increased statewide by 14.3 percent, while commercial property values have gone up by 9.4 percent, industrial has risen by 5.5 percent, and farmland has soared by 11.1 percent. While this is a good indication that the real estate market, as well as the economy, here in Denver is patently recovering, it will also have a substantial effect on state property taxes because Colorado assesses property values as of January 1^st in odd years.

Although these increases likely won’t affect the 2014 property tax assessments, they will most certainly influence property taxes in 2015 and 2016. If you feel your property tax assessment is too high, you can protest it through the appeals system. Here are four tips to fashion a more successful appeal:

1. Formulate your argument. Because the appeals board won’t look favorably on the “my property taxes are too high” argument, it’s important to find a way to argue that the assessed value of your property is actually inaccurate.
2. Perform due diligence. The most successful appeals are those that find information that the assessor has not already gone through. The best place to start is by collecting all the information you can about comparable sales in the area, as well as competitive rental rates and operation expenses if you are appealing the value of a commercial property. This data may allow you to show that your property has higher expenses or lower rents than the properties to which the assessor originally compared it. It is important to take detailed note of the dates for the 18-month base period used in your property’s original assessment. Your appeal will not be given full consideration if your data falls outside of these dates.
3. Furnish supporting evidence. It’s important to provide documentation of why your property doesn’t fit into the model used by the assessor’s office in order to prove that the assessed value is inaccurate. This corroboration can be in the form of a sale offer for a lower market value, verification of a decrease in the property’s income stream, or other details that affirm deficiencies in the property’s condition or its performance. Including photographs to support these claims can also strengthen your appeal.
4. Contact your county assessor’s office to confirm deadlines for property value appeals. For Denver county, the deadline is November 15 each year (or the following business day if it falls on a weekend or holiday), but you can protest up to two years of property values. For most other counties in Colorado, the deadline to file an initial protest is June 1, but individual offices can choose to extend their deadlines, so it’s always a good idea to confirm them.

The increases experienced by commercial and industrial properties may negatively impact commercial real estate investors. In order to determine whether your investment properties have been inaccurately valued, it’s important to know how Colorado determines commercial property values. County assessors employ a three-pronged approach to work out the actual value of commercial and industrial properties:

1. This approach uses analyses of comparable sales, usually within a six-month to one-year time frame, as the basis of the property’s value.
2. For this approach, the assessor estimates the cost of replacing the property and its facilities with an equivalent substitute (minus depreciation costs) and uses that for the property’s value.
3. The third approach analyzes the property’s annual net income to calculate the investor’s financial return from the property and accounts for that in the final property value assessment.

The county assessor can choose to use one, all, or a combination of these three approaches when assessing the value of your commercial or industrial properties. However, if you choose to protest the assessed value of your property, you are not restricted to using the same approach or combination of approaches, so you can choose the approach that best suits your property tax appeal.

Savvy commercial real estate owners may want to start gathering data now in order to prepare themselves for next year’s property tax bills (and so that they will be better equipped to ascertain if their property’s value has been judged inaccurately). Additionally, because property taxes are assessed in arrearage and become the responsibility of the buyer when a property exchanges hands, the potential increase in future property taxes may be something to consider when evaluating good deals on commercial, industrial, or investment-purpose residential properties in the coming year.