Case Study

Purchase Price vs. Fair Market Value

The multi-family industry is one of the hottest markets to invest in here in the US. We are seeing many of these types of real estate assets exchange hands at a value based upon projections of future income. Is this a true arms-length transaction? Does purchase price equal assessed value?

THE CHALLENGE

When any market transaction takes place, oftentimes the assessor will use sale price as the new fair market value and assess the property accordingly. In some states, there is no way out of a significantly increased assessment as the result of a sale, such as California and Proposition 13. Regardless, in every state market value is “negotiable” when it comes to taxation, and a true market value needs to be determined. Our client purchased a property for $6,600,000 and it was up to us to determine true market value and negotiate a fair tax assessment.

THE APPROACH

In the process of forming a strategy, we understood the need to identify certain obsolescence opportunities and to take into account capital expenditures required to bring the building up to code making it rentable. We also leaned heavily on our local relationships to work through these issues in a fair, but aggressive manner.

THE SOLUTION

After compiling a unique strategy and executing an aggressive negotiation, we were able to settle on a final value of $5,000,000 resulting in tax savings of $51,000, setting a new baseline value that would translate into future year savings. The client was extremely satisfied, they continue to acquire property, and have engaged us on a go forward basis as they wish to maintain an aggressive but fair tax position.

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