Real estate property taxes, also known as ad valorem taxes, are based on an appraised value of your home. Texas allows all property owners the right to protest their property value with their county appraisal district. We normally call this process “protesting taxes”, although we’re not actually protesting the “taxes”. To be more accurate, we are appealing a high appraisal “value” that provides the basis for tax assessment.
County appraisal districts use a “mass appraisal process” to determine the value of your home. This approach is an understandable necessity simply because of the overwhelming number of properties they need to appraise, but it has some inherent inefficiencies. Homes differ in many ways. Because of such variety in homes, there will be ways in which individual properties do not fit a mass appraisal model perfectly. There will always be a large number of homeowners who have unfair appraisals. When the unique characteristics of your property or neighborhood suggest that the appraisal district overvalued your tax appraisal, it is up to the property owner to bring this to their attention through a protest hearing.
The following are the most common reasons property values are overstated, along with some ways you may be able to achieve reductions :
» Clerical or Appraisal Errors
Have a look at the county appraisal record on your home. This is sometimes called an “appraisal card”. A clerical error may just be a typo, so check this for accuracy. Also, does the county list any non-existent improvements ?
The most common appraisal error is having incorrect square footage. Often this is because the county appraiser had limited access to the subject property. When assessing a home, the appraisal district puts a lot of value on the Gross Living Area (GLA) of improvements ‑ that is, the air conditioned or heated living space. One point to especially be attentive about is whether the appraisal district has included any unfinished attic space (maybe over a garage) in your square footage.
Regrettably, the appraisal district will be disinclined to change the square footage on an appraisal card unless it is a substantial error. If the square footage is incorrect by 10% or more, you need to present evidence showing the correct measurements of the property. This can be in the form of builders’ blueprints or a vector sketch with measurements by a state licensed appraiser.
If the appraisal district has measurements that differ from the square footage indicated by your builder or architect, there may be an explanation. Generally accepted appraisal guidelines use the exterior measurements of buildings. You cannot simply go with the sum of interior measurements for each room. The width of a brick ledge or wall thickness can easily account for a few hundred feet difference between the interior and exterior measurements of a home.
» Property Condition
Sometimes the appraisal value can be reduced if you can prove that the property condition was substandard on January 1st of the tax year. Good examples would be something such as a cracked foundation, fire damage or flooding, substantial wood rot, or significant roof deterioration. You will need to present evidence such as an engineer’s report, or an insurance claim, as well as pictures to clearly display the property condition. Also, the appraisal district needs to be able to quantify how much it will cost to restore the property to market condition. Usually, this is achieved by presenting contractor estimates or invoices.
» Sales Comparison
Sales comparisons are the most familiar approach to property tax appeals. This involves a comparative market analysis within the neighborhood that provides some indication of market value for your home.
However, this is not as simple as it may seem. The appraisal district has a plethora of rules about what they consider to be an acceptable comparable sale. There are also many value adjustments that the average homeowner cannot re-create on their own.
- The appraisal district’s definition of your “neighborhood” may be more narrow than you assume. For appraisal purposes, they can have sub-neighborhoods within neighborhoods. Where there is are not enough of good comparable sales, they may look at a broader “neighborhood group”. All of this is cryptic to the typical homeowner.
- The appraisal district generally only considers comparable sales within the prior calendar year, unless it benefits them to go beyond their own declared parameters. Even if you know there have been recent sales that are good comparable properties, the appraisal district will probably seek to dismiss them unless they occurred within a specific time frame.
- The matter of whether to give consideration to distress sales presents a problem for homes that are in areas with a lot of foreclosures, short sales, or corporate listings. Actually, the Texas property tax code states that the chief appraiser must “consider” foreclosures. Unfortunately, the legislature did not define “consider”, because the appraisal districts hold the position that it is not a requirement to use foreclosures in their appraisal. Appraisal districts argue that such properties are disqualified as comparable sales because they were not normal arms-length transactions. The appraisal district will also make the assertion that the condition of foreclosed properties is typically substandard; therefore, they do not reflect true market value. Granted there is some truth behind the premise, but this is not always the case; and it is not fair to property owners to apply this as a blanket assumption.In the real world, we understand that in a “buyers market”, sellers must compete with distressed properties which have a real impact on values. Some neighborhoods are characterized by mostly all distress sales; this constitutes their market, and those transactions represent their value.
- There are many variables that factor into a sales comparison analysis. Value adjustments are made for differences in square footage, land area, age of improvements, architectural quality (sometimes called “Grade” or “Class”), extra features such as pools or outbuildings, and much more. It is a far more complex undertaking than many property owners realize. It can be frustrating when you cannot re-create the methodology used by the appraisal district to determine your property value.
Let’s consider a few final thoughts about the sales comparison approach to determining market value.
- If you have a fee appraisal report by a state licensed appraiser that indicates a lower market value on January 1st, the Texas property tax code requires this to be given more weight and consideration than most other kinds of evidence. During a time when interest rates are favorable, many homeowners have recent fee appraisals from refinancing mortgages. Appraisal districts seek to avoid acknowledgement of these financing appraisals on an assumption that lender ordered appraisals are artificially low to minimize their exposure risk and protect the interests of the lender. In honesty, any appraisal performed by a state licensed appraiser must be accurate without regard to the reason it was conducted or by whom it was ordered.
- If the subject property has sold within the prior calendar year, this is generally considered to be the best indicator of market value. Upon presentation of a signed HUD-1 closing statement, the appraisal district will usually concede. Again, there are exceptions. For example, if the property was a foreclosure, short sale, a corporate listing, or part of an estate, the appraisal district will disregard the transaction. Sometimes they will reject a closing statement when there are not real estate broker commissions in the transaction, placing the burden of proof on the property owner to otherwise establish that it was an arms-length transaction.
If you bought your home for more than the appraisal district’s value, there is still hope for a reduction. How is this possible ? Keep reading, because that’s what we are about to consider.
» Equity Approach
The last approach we will examine for lowering the appraisal value on your home is an “equity” appeal. In Texas, the property tax code prescribes that properties are to be valued for tax assessment purposes in a “uniform & equal” manner.
In this type of case, it doesn’t matter so much what your neighbors’ homes have sold for, or how much your home could possibly sell for; instead, we want to know what value the appraisal district has determined for your home relative to other similar properties in your neighborhood.
You may have a valid case for a reduction if the appraisal value of your home is beyond the median value of a significant representative sampling (typically 9-15 comps) of comparable properties in the neighborhood that are properly adjusted.
Don’t underestimate the importance of keeping vigilant when it comes to the tax appraisal value of your home. Focus attention on the right methods of appeals and you may find yourself winning reductions in protest hearings.
In most cases, the best way to help ensure an outcome in your favor is with representation by a competent property tax consultant. By choosing the right one, you stand a much higher chance of winning the case and saving yourself money in the long run. Property tax appeals are typically handled on a contingency fee basis — So what do you have to lose ?