By John Garippa and Brian Fowler
For the first time in many years, the city of Philadelphia has undertaken a comprehensive reassessment of all 579,382 parcels of property within its jurisdiction. Previously, the city had employed a haphazard approach to the assessment of real estate; the last partial reassessment in the city occurred in 2004, while many other properties were last reassessed in the 1980s. As a result of this disparate treatment, similarly situated properties often had very different assessments and tax burdens.
For the current reassessment, the city has employed a traditional definition of market value as developed by the International Association 
of Assessing Officers, but will primarily rely on the sales approach to value. This may prove to be problematic.
In the sales approach to value, an appraiser or assessor compares a taxpayer’s property directly with other recently sold properties in the marketplace using units of comparison, typically price per square foot. The appraiser adjusts these units of comparison for differences between the taxpayer’s property and the comparable sales.
The sales approach is most reliable when the comparison data closely matches the taxpayer’s property, and works well for valuing homes, where there may be minor differences in size and finish. The sales approach becomes nearly impossible to use on complex, income-producing property, however, and becomes more convoluted when time elapses between sales and the date of valuation.
In this reassessment, the city indicated that it will consider all sales that took place within the last six years to be recent transactions. That gives rise to all kinds of problems, because most real estate markets have experienced tumultuous changes in that time.
Sales that took place in 2007 have little in common with sales that took place in 2010, for example. And sales prior to the Lehman Brothers collapse in September 2008 have almost nothing in common with later sales.
Significant qualitative differences between properties can make the sales-comparison approach exceedingly impractical. In complex assets such as hotels, shopping malls and even office parks, there are enormous differences in the finish quality, branding, management, conditions of sale, and location, all of which make comparison almost useless. This is precisely why most knowledgeable appraisers prefer to rely on the income approach to value, where there are far fewer variables.
In Philadelphia, commercial property owners can prepare for reassessment by creating a narrative that identifies any functional or economic obsolescence issue specific to their property. Without prompting from the property owner, assessors rarely consider obsolescence during reassessment.
For example, if the owner’s property is atypically expensive to operate, then outline the additional expense. If design flaws in the property contribute to its obsolescence, explain these flaws. Moreover, if the flaws can be corrected, then show the extent of the needed work and its cost. If the flaws cannot be corrected, note that also.
And highlight any rental history that demonstrates the property has suffered from vacancy that is significantly higher than at comparable properties.
No purchaser would pay the same price for two similar properties if one were permanently more expensive to operate. At the end of the day, income-producing property is only worth the net income it produces.
All appeals to challenge property assessments in Philadelphia must be filed by Oct. 7, 2013. Owners who understand this process and know its pitfalls will be well positioned for an appeal that stands the best chance for success.
—John Garippa is senior partner and Brian Fowler an associate in the law firm of Garippa, Lotz & Giannuario with offices in Montclair, N.J., and Philadelphia, Pa. The firm is the Eastern Pennsylvania and New Jersey member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys.