Property taxes based on a sale price higher than the current assessment should be:
Correct Answer
B) Projected at the level a new owner would face
Why this is correct: In jurisdictions that reassess on sale, property taxes for a new owner will be based on the sale price. Projecting expenses at the level a new owner would face is necessary for an accurate net operating income (NOI) projection. Why the other choices are wrong: Carrying forward the seller's current amount would understate the expense and overstate NOI. Excluding taxes from the operating statement is incorrect, as they are a real expense. Reducing them to reflect an anticipated appeal is speculative unless the appeal is certain. Exam tip: Model expenses from the buyer's perspective, not the seller's.
Why This Is the Correct Answer
Why this is correct: In jurisdictions that reassess on sale, property taxes for a new owner will be based on the sale price. Projecting expenses at the level a new owner would face is necessary for an accurate net operating income (NOI) projection. Why the other choices are wrong: Carrying forward the seller's current amount would understate the expense and overstate NOI. Excluding taxes from the operating statement is incorrect, as they are a real expense. Reducing them to reflect an anticipated appeal is speculative unless the appeal is certain. Exam tip: Model expenses from the buyer's perspective, not the seller's.
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