AREYOUUPSETABOUTYOURRISINGPROPERTYTAXES?YOUARENOT ALONE!
Whileallpropertyownersagreethatpropertytaxesaretoohigh,ownersbecomeparticularly incensedwhenpropertytaxesareassessedunfairly.Ownersdon’tmindpayingtheirfairshare, butitisunacceptabletopaymorethanotherownerspayforsimilarproperties.
Soyoumaybeasking,whatisthepotential?Example
Below:
Garyownsanapartmentcomplex,whichin2002was assessedfor$3million.The2003assessmentwas increasedto$5million.
Thenetoperatingincomeforthepropertysupportsavalue inexcessof$5million;however,theassessmentsfor similarpropertiessupportavalueofapproximately$3 million,basedonaperunitbasis.Gary’staxconsultant compiledinformationontheassessmentcomparablesthatsupportedavalueof$3millionand presentedthisinformationtotheAppraisalReviewBoard(ARB).
TheARBpanelmembersaskedwhythetaxconsultantdidnotpresentinformationonthe incomeandexpensefortheproperty.Thetaxconsultantrepliedthatthemarketvaluewasnot atissueinthisappeal;theissuewasuniformandequal.Afterconsideringtheassessment comparables,thepanelconcludedtoavalueof$4million,whichgeneratedtaxsavingsof approximately$30,000forGaryin2003.
WhatisUniformandEqual?
Appealingunderequityoruniformandequalessentiallyinvolvesusingareasonablenumberof appropriatelyadjustedcomparableproperties.Thesubjectpropertyshouldbeassessedforthe medianlevelofthecomparablesafteradjustment.Thetechnicalaspectsofthiswillbe discussedlaterinthisarticle.However,theessenceofanequityappealistocontrastyour assessedvaluewiththeassessedvalueforsimilarproperties.
BenefitsofanEquityAppeal
Usingassessmentcomparablestoreduceyourpropertytaxescanbeaneffectiveandcost efficienttool.Itincreasesthenumberofappealoptionsbyatleastdoubleandperhapssix-fold. Equityprovidesmeaningfulhelpwhentheassessedvalueislessthanorequaltothemarket valueoftheproperty.Whenmeaningfulevidenceispresentedoninequitableassessment, fairnessdoesnotneedmuchexplanation.Forexample,ifyourtractoflandisassessedat$4 persquarefootandanadjoiningparcelwithsimilarfunctionalutilityisassessedfor$2per squarefoot,ataxassessororappraisalreviewboardmembercanreadilyunderstandan adjustmentiswarranted.
Inadditiontheappraisaldistricthastheburdenofproofatanadministrativehearing.Whetherit isonmarketvalueoronequity,youdonothavetobeanappraisertoprepareorunderstandan equityanalysis.Mostownershavehistoricallyutilizedonlyanappealonmarketvalueatthe informallevelofappeal.Thisessentiallygivesthemonlyoneofsixappealopportunities.Using uniformandequalandusingthethreeappeallevels(informalhearing,appraisalreviewboard hearingandjudicialappeal)givestheownersixoptionstoappealpropertytaxesannually.One setbacktoappealingonequityisthatitcanbetimeconsumingtogatherandsummarize informationonassessmentcomparables.
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Thesixappealoptionsaresummarizedbelow:
Further,thevalueofanaccountcannotberaisedduringajudicialappealthatisbasedupon equity.However,thevaluecanberaisedonajudicialappealbaseduponmarketvalue.Hence appealingonequitygivestheowneronlyup-sideandnodown-sideduringthejudicialappeal process.
HistoryonEquity
WhenPresidentBushwascampaigningforgovernorofTexasin1996,hemadepropertytax reformoneofthekeyitemsinhiscampaign.During1997,theTexasLegislaturepassed numerousmeaningfulchangestotheTexasPropertyTaxCode.Theseincludedamendingthe Codetoallowuniformandequal(equity)appealsatboththeadministrativehearingsand judicialappeals.
Thelegislatureeffectivelywrotethecodeforjudicialappealsbutthedraftingwasunclear regardingequityappealsattheadministrativelevels(informalhearingandappraisalreview boardhearing).Subsequentlythecentralappraisaldistrictsgenerallyvigorouslyfoughtjudicial appealsonequityuntil2001whentheTexasAppealsCourtruledinfavorofpropertyowners andtheTexasSupremeCourtdeclinedtohearthecase.
EvenaftertheTexasSupremeCourtspokeonfairnessandtaxation,mostappraisaldistricts stilldeclinedtoconsiderequityattheadministrativeappealprocess.Thetypicalcomment duringanadministrativeappealonequitywas,“Youcansueustogetyourtaxesassessed equitably,butwecan’tconsiderthisinformationattheadministrativehearings.”
Nevertheless,manyappraisalreviewboardshavebeenconsideringuniformandequalforthe lastseveralyears.
ANewDawninTexasPropertyTaxes
The2003TexaslegislatureclarifiedtheTexasPropertyTaxCodetoconfirmthatproperty ownerscanappealusinguniformandequalattheadministrativehearings.Thiswill dramaticallychangethetaxappealprocessattheadministrativelevelin2004andbeyond. WhenEquityAppealscanbeHelpful
Equityappealsarehelpfulwhenpropertiesareunequallyassessed.Asurprisingnumberof propertiesareunequallyassessed.Single-familypropertiestendtobemoreconsistently assessed.However,apartmentsandcommercialhaveahighlevelofdispersionofassessed valuesforpropertieswhicharesimilarinsize,ageandlocation.
“Saleschasing”occurswhenanappraisaldistrictfocusesonassessingonlyanindividual propertyatitssalespriceandnotre-assessingotherpropertiesinthesubmarket.Whenan ownerisavictimofsaleschasing,equitycanbeaparticularlyeffectivedefensemethodology Equitycanalsobehelpfulfornewconstruction.Theappraisaldistricttendstovalueall propertiesatconstructioncosts;however,inmanycasesthemarketvalueofanewpropertyis lessthanconstructioncosts.Thiscanoccurbecauseofeconomicobsolescencewhichhas occurredinHoustonduetooverbuildingortoavalue-in-useissuesuchasarestaurantorbank buildingdevelopedinaspecialarchitecturalformatandmotifforaparticularbusiness enterprise.
Equityappealscanalsobeveryhelpfulwhenthemarketvalueisgreaterthantheassessed value,andanappealonmarketvaluewouldnotbeappropriateorproductive.
Finally,appealsonequitycanbehelpfulwhentheownerorthetaxconsultantdoesnothave readyaccesstomarketvalueinformationsuchasprofitandlossstatementsorrentrolls,but cancompileinformationonassessmentcomparablesforanequityappeal. PreparinganEquityAnalysis
Anequityanalysiscanbepreparedforeitherthelandonlyorfortheoverallproperty.Aland equityanalysiscanbepr egardlessofwhetherthepropertyisimprovedorvacantland. Appraisaldistrictstaffandappraisalreviewboardmembersbothseemreceptivetotheconcept oflandequity.Itisstraightforward,clearandeasytounderstand,especiallywhensimilar adjacentparcelsareassesseddissimilarly
Anoverallequityanalysisconsidersthetotalassessedvalueforthepropertycomparedtoa reasonablenumberofcomparablepropertiesthatareappropriatelyadjustedfordifferences suchassizeandage.MakingadjustmentscompliesmorestrictlywiththeTexasPropertyTax Code,butinsomecasesappraisersandARBpanelsaremorecomfortablewithunadjusted data.Adjustmentsarefurtherdiscussedlaterinthisarticle.
LandEquityAnalysis
Topreparealandequityanalysis,researchtheassessedvalueforthelandcomponentofyour propertyandofotherpropertieswhichareonthesamestreet.Whileitispossibletoarguethat landassessmentcomparablesonanotherstreetarecomparable,itismuchmore straightforwardandclearlyunderstoodwhentheparcelsareonthesamestreet.Consider preparingaplatshowingtheassessedvaluepersquarefootofthesubjectpropertyandthe assessedvaluepersquarefootofadjoiningproperties.
Inaddition,prepareasummarytablelistingthepropertylocation,keymapcode(orMapsco), sizeinsquarefeet,currentyearassessedvalueandassessedvaluepersquarefoot.Inmany cases,itisappropriatetoproposeanappropriateassessedvalueforthesubjectlandby multiplyingtheproposedpersquarefootassessedvaluetimesthesquarefeetoflandforthe subjecttract.Considerthefollowingequityanalysisforasubjectpropertyat1000SmithStreet:
LandEquityAnalysis
Location 1000SmithSt. 1010SmithSt. 1020SmithSt. 1025SmithSt.
MedianAV/PSFforsimilarpropertiesis$0.50 100,000sq.ftx$0.50=$50,000recommendedassessmentbasedonequity
PreparingaBuildingEquityAnalysis
TheTexasPropertyTaxCodeasrevisedin2003(Section41.43(b))forappealsonequityinthe administrativehearingsisasfollows:
(b)Aprotestonthegroundofunequalappraisalofpropertyshallbedeterminedinfavorofthe protestingpartyunlesstheappraisaldistrictestablishesthat…theappraisedvalueofthe propertyisequaltoorlessthanthemedianappraisedvalueofareasonablenumberof comparablepropertiesappropriatelyadjusted.
Theprimaryissueisselectionofareasonablenumberofappropriatelyadjustedcomparables. Thefirststepistolocateagroupofcomparablestoconsider.Asapropertyowner,youlikelyare awareofyourdirectandindirectcompetitors.Mostpresentationsonequityusefivetoten comparables.
Insomecasesitisappropriatetousemoreandinsomecasestherearenotasmanyasfive comparablepropertieswhicharereasonablyproximate.Determiningthereasonablenumberof comparablesdependsonjudgementandthefactsituation.
Makingappropriateadjustmentsisacombinationofartandscience.Realestateappraisers typicallymakeadjustmentsinthesalescomparisonapproachtoadjustfordifferencesinsize andage.Preparinganequityanalysisforataxappealwhichincludesadjustmentsonageand sizeisreasonableandappropriate.Ifthecomparablesaresimilarlylocatedandsimilarinregard tosizeandage,theeconomiccharacteristicsshouldgenerallybesimilar
Anydifferencesineconomiccharacteristicsarelikelytheresultofbusinessenterprisevalueas opposedtothevalueoftheapparentrealestate.Thebusinessenterprisevalueisnotsubjectto propertytaxes.
Thefinalstepistoprepareasummaryofthesubjectpropertyandtheassessment comparableswithorwithoutadjustments.Insomecasestheownersmayelectnottomake adjustmentstotheassessmentcomparablessinceittakestimeandinmanycasesthe appraisaldistrictstaffandappraisalreviewboardmemberscanmaketheirowndeterminations aboutwhichcomparablesaremostappropriateandshouldbegivengreateremphasisin assessingthesubjectproperty.Whentherearemanycomparablesavailable,careand judgementshouldbeexercisedtofindthecomparableswhicharebestsuitedfortheanalysis. PracticalApplicationsandTheirImpact
Equityappealsareacostefficientandeffectivewaytoreduceandminimizepropertytaxes.For ownerswhohaverecentlypurchasedproperty,theappraisaldistrictmaypressforacopyofthe closingstatements.Thisseemsinappropriateandinconsistentwiththeconceptofequity Whileonecouldunderstandwhyaclosingstatementisrelevanttoamarketvalueappeal,itis inconsistentwithandantitheticaltoanappealonequity
Insomecases,ownersmayneedtoprovidetheclosingstatementtocontinuetheappeal processeveniftheclosingstatementindicatesavaluehigherthantheassessedvalue. However,mostappraisalreviewboardsarereasonableandwillconsiderinformationonequity evenifthepurchasepricesupportsahighervalue.Itmaynotmakesensetoprovidetheclosing statementifthepurchasepriceisdramaticallyhigherthanthecurrentassessedvalueandan equityappealsupportsonlyamodestreductioninpropertytaxes.
Theuseofuniformandequal,orappealsonequity,attheadministrativehearingprocesswill dramaticallychangepropertytaxappeals.Ifyoudonotconsideranappealonequityfor2004 propertytaxesonyourinvestmentpropertyorhome,youwillprobablyoverpayyourproperty taxes.Thisdramaticchangeinpropertytaxationwillcausesomechaosasthecentralappraisal districtsworktoadaptandconsiderthisnewavenueofappeal.Therewillbevariedacceptance ofequityappealsamongappraisaldistrictsandbetweentheinformal,appraisalreviewboard andthejudicialappealphaseswithinindividualappraisaldistricts.
Forexample,somelargeappraisaldistrictsarestillsaying“Wedon’tusethatequitystuff,”for judicialappealseventhoughtheTexaslegislaturepassedtheequityprovisionforjudicial appealsevenyearsagoandithasbeenaffirmedbytheTexasSupremeCourt.
Equityshouldbeconsideredforallappeals,bothattheadministrativeandjudicialappeallevels. AlthoughtheTexaslegislaturehasprovidedpropertyownerssixoptionstoappealproperty taxesmostownersstillonlyuseoneoption(marketvalueappealattheinformalhearing).Using theotherfiveappealoptionswillresultinlowerpropertytaxes.
JudicialAppealsonEquity
Manyownersofincomepropertyhavebeenreticenttofilejudicialappealsforpropertytaxes. Regrettably,itisnotpracticalformostpropertyownerstoascertainwhethertheirpropertyis equitablyassessedornotuntilaftertheadministrativehearingshavebeencompleted.Many propertiesareinequitablyassessedwhentheinitialnoticedvaluesaredetermined.
Thelevelofinequitytendstoincreaseduringthehearingprocessbecauseofthedifferencesin appraisersandappraisalreviewboards.Whileallthepartiesareattemptingtodotherightthing, resultscanbeinconsistentwhenhumanjudgementisapplied.Forownersoflargeincome properties,ajudicialappealonequitycanbeanespeciallyappropriateandeffectiveremedyto minimizepropertytaxes.
Summary
Thechangeonequitypassedbythe2003Texaslegislaturehaslaunchedaneweraintax appeals.Theabilitytoappealoneitherequityormarketvaluedoublesoptionsforappeal.Equity appealswillquenchsomeofthedissatisfactiononpropertytax.Noonewantstopayhigh propertytaxesbutownersbitterlyresentbeingassessedunfairlyandunequally.However,most appraisaldistrictsintherecentpasthavedeclinedtodiscussthelevelofassessmentfor neighboringpropertiesatappealhearings.
Appealsonequitycanbechallengingtoprepareinvolume.Youshoulddiscussyour consultant’sabilitytoprepareequityappealsandtheirplantoimplementthembeforethe2004 taxappealseason.Implementingappealsonequitywillbechallenginganddifficultbothfortax
consultants,ownersandfortheappraisaldistrictstaff.Itwillbeamajoradjustmentforthe staffatcentralappraisaldistricts.
Howe er,itpresentsanincredibleopportunityforownerstoreducepropertytaxes.Equity providesagoodopportunityfortaxreductionevenwhenthemarketvalueishigherthanthe assessedvalue.
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By:PatrickO'Connor|Postedon02/07/2004with3comments
COMMENTS Thanksforthearticle!
FitoSantossaid: May25,2018at7:03am
FaithChiaravallosaid: May25,2018at3:07pm
RobertCettisaid: July28,2018at1:19am
ExcellentArticle.IhaveanARBappealcomingupnextweekandIseeIneedtoresearchanequity appeal.IresideinTraviscountyandfor2018myassessedvaluehasincreasedwaytoohigh.
Thanksfortheusefulresourcesavailableonyourwebsite.Iorderedthebook“CutYourTexasProperty Taxes”byMr.O’Connor
