Three key factors can help owners successfully appeal excessive taxes.

Those are the assessments on a mobile home community south of Austin, Texas, that in just two years increased nearly 200% in taxable value. This near-doubling rate of annual increase has become commonplace across the state, largely due to three practices tied to appraisal district methodology.

Taxpayers who understand and can show the inherent flaws in these trends will be better prepared to argue for a reduction in their assessments.

Cost or income?

The first factor that has brought significant changes to assessed value in recent years is that county appraisers have largely changed their valuation method from the cost approach to the income approach. Rather than calculating market value by summing up the land value with the value of any onsite infrastructure, some county appraisers are using Freddie Mac and Fannie Mae appraisals to support their value conclusions.

From these leased-fee appraisals, the appraisers attempt to derive income assumptions including site lease rates, utility reimbursements, and expense ratios. This is problematic because often the appraisals they are sourcing include more than the real estate value alone and may not reflect actual sales occurring in the marketplace.

Homes or vehicles?

The second factor that has resulted in changes in assessed value is that assessors value recreational vehicle (RV) parks and mobile home communities, two fundamentally different property types, using the same income model. This presents several challenges.

Typically, both community types lease lots for placement of tenant-owned units, but the similarities end there. The amount of business value differs between the two property types.

Established RV parks such as Yogi Bear's Jellystone Park Camp-Resorts, with name recognition and amenities, draw significantly more visitors than local parks that lack name or brand recognition. An established RV park could be compared to a Marriott or Hyatt hotel, reflecting their tenants' short-term rentals and because they inherently include untaxable business value when sold.

On the other hand, a mobile home community might be compared to an apartment property with longer-term tenants and minimal, if any, business value beyond real estate. Mobile home communities have little need for name recognition or amenities when the tenants own their homes. Due to the cost of moving a unit, it is a challenge for mobile home residents to move, thus leading to higher stabilized occupancy and minimal turnover.

Infrastructure also varies between the two property types, with mobile home communities requiring more substantial utilities than RV parks. These significant differences confirm the importance of using separate models to assess the market value or taxable value of the two asset classes.

In the spotlight

The third factor that has affected assessed value is the increasing attention county appraisers have given to these two property types. In recent years, investment in mobile home communities and RV parks has risen in popularity nationwide as investors seek reliable and steady cash flows. Additionally, the supply of well-located mobile home parks has dwindled as cities have grown and changed the highest and best use of land in their path. This has increased land values, resulting in higher assessed values – a trend that will continue in the future.

As county appraisers rework their models for these asset types, they often create discrepancies between how a property has been assessed in the past and what is physically on the property, namely the total number of units and the mix between mobile home sites and RV sites. Many of these discrepancies likely still exist going into 2023, which may provide an opportunity for property owners to contest their assessed values and argue successfully for a reduction.

Historically, RV and mobile home park owners have not felt the need to protest tax assessments as often as owners of other commercial real estate asset classes. That may be changing in 2023, making this the first year many owners file a protest on their assessments.

Whether hiring a property tax professional or protesting their assessment independently, owners should utilize the points above when deriving a market value conclusion for their real estate. Inefficiencies in appraisal district models will allow significant opportunities for protests as well. Overall, if an owner receives an exorbitant 2023 tax-assessed valuation, there are many ways to appeal it successfully.