One of the most familiar phrases in property tax case law is “welcome stranger.” Homeowners and commercial owners alike may encounter the practice, and it is especially prevalent throughout New York State despite an enormous volume of case law that has found tax assessors culpable.

The practice – in which a tax assessor singles out a property for an increase in its assessed value following a sale while neglecting similar treatment for comparable properties that did not recently transfer – goes by a variety of other descriptive names: “sales chasing,” “spot reassessment,” “welcome neighbor.” They all mean the same thing. The practice is illegal and unconstitutional because it treats similarly situated taxpayers unequally, levying a larger tax burden on those who happened to have recently purchased their property, which is an arbitrary distinction that is not permitted in New York State.

In most reported cases, the assessor’s bad act sticks out like a sore thumb. It is usually obvious that the assessment change was prompted by the sale, for three related and fairly unequivocal reasons: (1) the property recently sold; (2) the new assessment approximates the sale price; and (3) there is no record of physical improvements to the property that would warrant a legitimate value increase of the magnitude shown. So, the culprit that motivated the assessment change must be the sale. The assessor did not preciently derive the value based on a thorough analysis of the market. Case closed.

The common thread in nearly all of the reported decisions on sales chasing is that the increase in assessment was not made in the context of a municipality that had conducted a municipal-wide reassessment program in which all property values in the jurisdiction were evaluated in a uniform and even-handed process in which everyone receives equal treatment by the local government. In a properly conducted municipal-wide reassessment program, similar properties may not be assessed at precisely the same value but the methods used to determine their value was the same. A periodic and regular municipal-wide reassessment program is a fundamental recommended best practice by all assessment organizations, including the International Association of Assessing Officers (IAAO), and tends to result in the highest level of taxpayer equity.

In New York State, however, and in contrast to many other states, no law requires local governments to follow the practice. In fact, most of the assessing jurisdictions in New York State don’t, in many instances permitting assessment rolls to languish for decades and fall well short of established taxpayer equity standards. The decision to revalue all properties within a municipality is entirely up to the local lawmaking body, and is not a decision controlled by the assessor.

Where no reassessment program is implemented, these non-reassessing jurisdictions simply carry forward the same assessments year after year, making changes in very limited instances such as construction or demolition. This can be frustrating for assessors who see sales occurring sometimes well in excess of the existing assessment and the temptation may be to increase the assessment on the chance that it may escape the owner’s notice until it is too late to mount a legal challenge. Assessors also know that a new owner may see that their new assessment nearly matches (or is slightly below) what they paid and believe that the assessment is fair, not realizing that the increase occurred and was illegal. This strategy, while abusive to taxpayers, often succeeds.

All of this might lead you to conclude that sales chasing is only a problem in the municipalities that don’t regularly revalue, and the problem does not exist in those that follow the best practice of conducting a municipal-wide reassessment program. The answer is that the practice can occur just about anywhere, even when a complete revaluation is conducted but will be more difficult to discern in a revaluation municipality and also require greater efforts to prove in court. It is also important to note that the practice is far more likely to occur with commercial properties with often far greater tax impacts.

This is only natural: in the course of a municipal-wide revaluation, in which most if not all of possibly thousands of property assessments have changed, regardless of whether the property sold, how is it possible to prove that the sale motivated the change rather than other market factors? Still more challenging: what is the remedy when the new assessment reflects almost exactly what the new owner paid for the property?

“Sales chasing” is defined by the IAAO as “[t]he practice of using the sale of a property to trigger a reappraisal of that property at or near the selling price.” A more subtle version of sales chasing is also identified by the IAAO in cases where the assessor may not change the subject’s assessment directly based upon its sale price, but adjusts the underlying valuation model by recording the property characteristics (such as location, size, quality, age, etc.) differently for sold properties relative to unsold properties. In both instances, an arbitrary and hidden rationale is used to target some taxpayers for excessive taxation.

For a simple example, a large town implements a town-wide reassessment program in which it collects property data for all parcels, performs property inspections, and runs statistical analyses to establish values. Every property owner in town receives a notice that their assessment has changed. Among the data collected is the sale of a 160,000 square foot office building for $20 million, or about $125 per square foot. The assessor’s new value for the property? $19.9 million. Remarkably accurate if we are to assume that the assessor was not guided by the recent sale. From the property owner’s point of view, the assessment seems spot on, and what could be done to challenge if the rebuttal will be, “didn’t you just pay more than that?”

One of the best clues to an underlying illegal assessment practice can be found when a municipality has performed regular reassessment programs in earlier years, but following the sale of a particular property its assessment spikes to new heights in excess of annual market appreciation on the following assessment roll. Suspicion should arise any time a new assessment is issued that comes strikingly close to a recent purchase price.

This is an area even more ripe for abuse concerning commercial properties. One of the dirty little secrets underlying the municipal reappraisal process is that while the assessor’s determinations are subject to review by a centralized state agency for residential properties such as single family homes, no such oversight occurs for commercial properties. So, an assessor’s hand is afforded great and largely unseen latitude in re-setting assessments for commercial properties. Added to this is the fact that commercial properties often share far less homogeneity than homes and are usually based on their income-producing characteristics. Moreover, an assessor’s methodology in determining a property value is not readily discoverable under New York State law.

So it should come as little surprise that a recent sale price that occurs in the midst of a municipal-wide revaluation is a much easier and more effortless data point for many assessors to rely upon – who may assume they are practically immune from challenge – than the more arduous demands of constructing a market-based analysis of value that would apply to the property even if it had not recently sold.

Larger commercial properties that have been reassessed so as to raise suspicion of sales chasing often have sufficient property taxes at stake to command the somewhat greater expense entailed in evaluating the assessor’s methods. A statistics expert familiar with tax assessment, and ideally the various data systems typically employed by New York State assessors, should be engaged and would principally employ what is referred to as a Mann-Whitney statistical analysis of sales and corresponding assessments to determine whether properties that recently sold were treated differently than those that did not.

Here, unlike the more common case of welcome stranger, the submitted proof will be a statistical measure of equity. The assessor’s “intention” is irrelevant. The measures derived from this test, and possible others in support of the goal, should disclose whether the assessor deviated from the approach used to derive values for unsold commercial properties compared to recent sales, and therefore indicate sales chasing.

What is the remedy if, notwithstanding the methods used, the assessor’s value is supported by what the owner just paid for the property? Most would assume that the ultimate value of the property, as indicated by the sale, is the municipality’s ultimate defense. Not so.

The key here is that constitutional equity in tax assessment is less about whether the assessment is accurate than whether it was determined in the same manner as similarly situated properties. If sales chasing is proved, the municipality may be compelled to re-assess the property by ignoring the sales price and instead performing a valuation using the identical approach and techniques used for those properties that did not recently sell. The owner is in no danger under New York law of receiving an increase in the assessment on a challenged assessment roll, but may very well find that the new assessed value is substantially – and legally – below the challenged assessment and the sale price, and well worth the extra effort involved. A bonus may be that the assessor knows you are looking the next time.