Do Construction Defects Affect Property Taxes?

Construction defects can affect property taxes as they lower the market value of a building. Market value is one of the main factors considered when determining how to tax property. If construction defects have lowered the building’s value, the owners may pay less in property taxes.

What Are Construction Defects?

Construction defects are generally defined as defects in the design, workmanship, systems, or materials used to create a project that eventually result in damage to a person or property. Some common construction defects include a damaged roof, timber rot, or faulty electrical wiring.

Construction defects can be a massive headache for property owners because of the costly repairs they entail and the risk of physical harm. Fixing construction defects may also involve litigation against the construction workers, a process that comes with its own hurdles and headaches.

How Construction Defects Relate to Property Taxes

Property taxes have throughout history been applied to two areas of property: real property and personal property. Real property includes buildings and land, while personal property includes movable items like cars, boats, and bonds.

Real property tax is calculated by multiplying the value of the land and buildings by the tax rate. Where construction defects come into play is with the value of the building. Often the first step in determining property tax is to decide the market value of the building or the amount for which the building would sell. If construction defects have caused the building’s value to decrease, the property tax will generally decrease as well.

Appealing A Property Tax Assessment

Once the county tax assessor has determined the amount to tax a property, the assessor’s office will send the building owner an assessment letter that outlines how the property’s value was decided upon. The owner is responsible for reading the letter and then determining for himself or herself if the assessment reflects the actual value of the property.

If a homeowner believes his or her property is taxed too high based on an assessment that missed, ignored, or misunderstood the facts—for instance, if construction defects were not taken into account—he or she can immediately begin a property tax appeal.

A person has fewer than 30 days to file an appeal. The appeal process usually entails a lot of research on the part of the owner, who will need to evaluate how high his or her tax rates are compared to other, similar buildings in the area. In cases where the appeal is based on construction defects, the homeowner will need an estimate for the defect’s costs.

Once the building owner is satisfied with the research, he or she can contact the local assessor’s office to request a review. Some assessors will discuss assessments with informal conversations, while others require the owner to fill out forms.

If the property owner is not satisfied with the review, he or she can appeal the decision. Since there are strict deadlines to adhere to and procedures to follow, many people hire a property tax attorney to help them with the appeals process.