Many commercial property owners in California pay more than they should in property taxes. Assessors often overvalue properties, leading to excessive tax bills. The Trifecta Formula is a proven method that helps owners lower their tax liabilities. This strategy uses three key valuation approaches—Income, Cost, and Sales Comparison—to challenge overassessments. Learning how to apply these methods can result in significant savings.
Understanding Property Tax Assessments in California
How Property Taxes Are Assessed
California property taxes are based on an assessed value set by the county assessor. Proposition 13 limits annual increases, but reassessments occur due to ownership changes, new construction, or periodic reviews. Assessors use different methods to determine value, which sometimes leads to overestimations.
Why Property Owners Overpay
- Assessors may use outdated or incorrect market data.
- Income potential may be exaggerated.
- Depreciation and property-specific issues are often overlooked.
- Market downturns are not always reflected in valuations.
Understanding how assessments work helps property owners identify overvaluations and take action.
The Trifecta Formula: Three Approaches to Reducing Property Tax
1. Income Approach – Proving a Lower Revenue Potential
The Income Approach values properties based on Net Operating Income (NOI) divided by the Capitalization Rate (Cap Rate).
How It Works:
- A high NOI results in a higher assessed value.
- A low cap rate inflates property valuation.
How to Challenge the Assessment:
- Adjust the NOI: Demonstrate that rental income projections are too high or actual income is lower due to vacancies, tenant turnover, or lease incentives.
- Highlight Increased Expenses: Show that maintenance, utilities, and management costs impact profitability.
- Use a More Realistic Cap Rate: Assessors may apply an aggressive cap rate. Using a market-appropriate rate supports a lower valuation.
2. Cost Approach – Accounting for Depreciation and Replacement Costs
The Cost Approach calculates property value based on replacement cost minus depreciation.
How It Works:
- The county estimates the cost to rebuild the property from scratch.
- Depreciation and obsolescence reduce value but are often miscalculated.
How to Challenge the Assessment:
- Prove Depreciation: Older buildings lose value over time. Assessors may underestimate the effects of aging, maintenance needs, or outdated designs.
- Account for Functional or Economic Obsolescence: If a property is outdated or in an area with low demand, its value should be adjusted.
- Verify Construction Costs: Assessors sometimes use inflated building costs. Independent contractor estimates offer more accurate data.
3. Sales Comparison Approach – Using Market Data to Your Advantage
The Sales Comparison Approach values a property based on recent sales of similar properties.
How It Works:
- Assessors compare a property to recently sold buildings in the area.
- Factors such as size, location, condition, and zoning influence valuation.
How to Challenge the Assessment:
- Find True Comparables: Ensure the properties used in the assessment match your property’s characteristics. A high-end building should not be compared to an older structure in a different area.
- Adjust for Market Fluctuations: If the market has declined since comparable sales occurred, the assessment should reflect this.
- Consider Distressed Sales: If comparable properties were foreclosures or distress sales, they do not reflect fair market value.
Why Combining All Three Approaches Works Best
Using just one method may not convince the assessor. The Trifecta Formula strengthens an appeal by:
- Providing a complete analysis that covers all aspects of valuation.
- Identifying discrepancies in the assessor’s calculations.
- Increasing the chance of a tax reduction by demonstrating inconsistencies.
By applying all three approaches, property owners improve their chances of reducing tax liabilities.
Steps to Appeal Your Property Tax Using the Trifecta Formula
Step 1: Review Your Property Assessment
- Request assessment records to check for errors.
- Gather financial statements, lease agreements, and expense reports.
- Research recent sales data and construction cost estimates.
Step 2: Consult a Property Tax Expert
- Experts analyze assessment data and build strong cases.
- Working with a professional increases the chances of a successful appeal.
Step 3: File Your Appeal Before the Deadline
- Each county has strict deadlines for filing appeals.
- Submit a Request for Assessment Review or appeal application to the local Appeals Board.
Step 4: Present a Strong Case
- Use all three valuation approaches to support your appeal.
- Provide financial documentation, market research, and expert reports.
- Be ready to negotiate with assessors.
Step 5: Follow Up for Maximum Savings
- If the appeal is denied, review the assessor’s reasoning and consider additional steps.
- Many cases settle before a hearing, but persistence leads to better results.
Real-World Success Stories
Property owners who applied the Trifecta Formula successfully reduced taxes:
- A retail property owner saved $30,000 annually by proving lower rental income and depreciation.
- An office building secured a 20% tax reduction after showing lower comparable values.
- A warehouse owner received a partial refund by correcting cost estimates.
Take Action Today
Commercial property taxes are one of the largest expenses for property owners. Overpayment is avoidable with the right strategy. The Trifecta Formula offers a practical approach to securing fair valuations and maximizing potential refunds.
📌 Need help with your tax appeal? Our team specializes in challenging overassessments and reducing property tax burdens. Schedule a free consultation today!