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Appealing Property Taxes for Your Home: Preparing for the Hearing

March 31, 2006

Appealing Property Taxes for Your Home: Preparing for the Hearing

Written by Pat O'Connor, MAI

To properly appeal your property taxes and be successful at the hearing, there are a number of considerations to review.

Reviewing CDU and grade of your home

Review the appraisal district's description of grade and CDU (condition, desirability and utility) for your house. Grade is a qualitative evaluation of the construction materials and level of craftsmanship used to build your house. Most appraisal districts have about eight to 15 different grades to describe homes of varying quality. Entry-level appraisers typically make the initial estimate of grade. The appraisal district's estimate of grade for houses within a subdivision often varies for homes that are essentially identical. This can occur when two or more appraisers are evaluating the grade of properties within a subdivision. The CDU or condition factor is highly unreliable. However, the appraisal district uses this as a key factor in valuing your property. The appraisal district, in most areas, believes it actually knows the quality and condition of improvements in homes that are 20-to-80-years-old, even though they have not been in the house since it was initially built. (The appraisal district's staff typically measures and visits homes while still in the construction process. This is why it is likely they were in your home when it was initially built, if the appraisal district existed at that point and time.) If you can document that either the grade or CDU for your home is not accurate, the appraisal district will probably correct them and revise your value.

Review amenities

Review the appraisal district's information regarding amenities - year built and year remodeled. If you are not sure the year your house was built, it is often stamped into the lid on the toilet tank. Review the year your home was renovated. Some appraisal districts still consider renovations performed between 20 to 40 years ago, even though the contributory value of a renovation may only last for five to 10 years. Some owners become concerned about appealing if they have amenities not described on the appraisal district records. For example, if you have a swimming pool not listed on the appraisal district records you may wonder if you should be concerned about appealing. (If you file an appeal, will the appraisal district come inspect your house? Most likely not.) Appraisal districts handle a large volume of appeals during the property tax appeal season. Therefore, they are not able to visit properties simply because the owner files an appeal.

Documenting meaningful deferred maintenance.

While many homes have cracks in the driveway, it is not likely to be an effective factor in a property tax appeal hearing. However, the appraisal district staff and ARB will consider factors such as rotten wood, peeling paint, roof leaks, foundation problems, settlement and other similar problems. Obtaining a bid of the cost to correct the problems is the most effective way to utilize this information in a property tax appeal hearing.

Developing a market value appeal

Comparable sales are the cornerstone of a market value appeal for a home. The exception may be a new house where cost is an important factor. Sources of comparable sales data can be found in the House Bill 201 package obtained from the appraisal district and MLS sites.

New-home discounts

Recently purchased homes in subdivisions where builders are active, or near subdivisions where builders are still active, often sell for 5% to 15% less than their initial purchase price. This is because homeowners would rather purchase a brand-new home with fresh paint and carpet than a slightly used home. To put this in perspective regarding the implication for property tax protest: if you purchased your home for $200,000 two years ago, and are currently assessed for $200,000, you are over-assessed! Researching data for recently sold homes sold by the initial owner (versus the builder) will document this discount.

Livable versus sellable

One of the first steps to selling a home is interviewing Realtors. During this process, homeowners will ask their Realtor, "what do we need to do to sell our home?" The costs of preparing a home for sale are substantial. Realtors will typically encourage homeowners to replace carpet, tile and other flooring, interior paint and exterior paint, and landscaping as appropriate. Realtors will also request that any deferred maintenance such as roofs, foundation problems, rotten wood, HVAC, electrical problems, offensive pet and smoke odors, and plumbing problems be addressed. Depending on the condition of your home, you should consider the livable versus sellable factor when preparing for your property tax appeal hearing. The vast majority of homes sold have cosmetic upgrades performed and deferred maintenance corrected before the property is sold.

Livable versus sellable for a two-year-old home

A discount may be appropriate for the cost to prepare a home for sale and for the differential for new homes versus slightly used homes (in areas where builders are active). While this may seem like double dipping, Realtors would likely advise someone who has a two-year-old home to perform cosmetic repairs so the home looks sharp and shows well before it is marketed.

Presentation of sales data

Prepare a summary with information on the subject property at the top of the chart and data for two to five comparable sales below it. Array relevant fields such as address, account number, year built, square feet, sales price, sale date, sales price per square foot and improvement price per square foot. (Some appraisal districts focus more on the sales price per square foot for improvements versus the overall sales price per square foot. You can calculate the improvement price per square foot by deducting the appraisal district's assessed value for the land from the total sale price. The resulting value is the sales price for the improvements. Calculate the sales price per square foot of improvements by dividing the sales price for improvements by the size of the house).

Unequal appraisal

Unequal appraisal is an effective tool in appealing property taxes annually to minimize your property taxes. For many owners, it is not practical to appeal based on market value since the value determined by the appraisal district is less than the actual market value. Although addressing livable versus sellable does help in these cases, using unequal appraisal provides most owners another basis for appeal. Section 41.43 of the Texas Property Tax Code provides the basis for appealing on unequal appraisal and reads as follows: "a protest on the ground of unequal appraisal of property shall be determined in favor of the protesting party unless the appraisal district establishes that... the appraised value of the property is equal to or less than the median appraised value of a reasonable number of comparable properties appropriately adjusted."

Important components of an unequal appraisal appeal include a reasonable number of comparable properties that are appropriately adjusted. Comparable properties are generally considered to be properties that are similar with regard to the quality and quantity of improvements. A reasonable number of comparables are often considered to be between two and 10. If there's only one comparable that supports reduction, you are likely to be equitably assessed. In most cases, we prefer to have more than just one assessment comparable. However, some improvements are atypical and there are a limited number of comparables. For example, there are not a large number of bowling alleys that were built in the last five years in northwest Dallas. Neither are there a large number of 4,000 square-foot homes in an area where most homes range in size from 2,000 square feet to 2,500 square feet. For homes, you should focus on properties within the same subdivision, provided comparable properties are available within the subdivision. When appealing your home, it is probably not necessary to make appropriate adjustments. Most appraisal review boards will consider evidence regarding unequal appraisal based on reviewing the assessment comparables.

Review and analyze the information on unequal appraisal the appraisal district provided in the House Bill 201 package. You may want to research the assessment comparables chosen by the appraisal district to see whether they are comparable based on size, location, year built and quality.

Prepare your own unequal appraisal analysis based on researching assessment comparables on the appraisal district's web site. If the appraisal district does not have a web site, send a request for information or visit the appraisal district to obtain the assessed value for similar homes. Select assessment comparables and summarize the data in a table. If you believe it is appropriate and feel comfortable doing so, make adjustments to address the differences between the subject property and the assessment comparables.

Do appraisal districts and appraisal review boards follow the law regarding unequal appraisal?

Unfortunately, many appraisal districts believe they are immune from following this law. This also applies to the laws which provide owners the right to House Bill 201 information, a scheduled hearing, burden of proof, unequal appraisal and an independent ARB. More often than not, the appraiser at the informal hearing will not consider information regarding unequal appraisal. However, it is likely the appraiser will offer a reduction in assessed value to resolve the appeal so it does not have to be addressed at the ARB hearing. While unequal appraisal is clearly intended to be a basis for appeal, this law is fairly new. A combination of time, legislation and litigation will resolve these problems.

You have now completed three analyses regarding the tax assessment for your home:
  1. Errors in the appraisal district's data,
  2. Market value, and
  3. Unequal appraisal.
Review the advantages and disadvantages of each analysis to determine what information is most effective for your property tax appeal. Also determine what O'Connor & Associate's terms as a target value and ARB value. The target value is the opening negotiating position you will request when you start the negotiation. The ARB value is the highest value you will accept at the informal hearing.
Read more about Appealing Property Taxes for Your Home.
Read more about The Hearing Process.


Patrick O'Connor, a designated member of the Appraisal Institute, is president of O'Connor & Associates. The firm, in business since 1974, specializes in real estate appraisals, research, and state and federal tax reduction services nationwide. With offices in Houston, Dallas, Los Angeles and Newport Beach, the firm employs more than 180 people. Patrick O'Connor is frequently acknowledged by national publications as a respected source of information on real estate. Visit www.cutmytaxes.com.

Copyright by O'Connor & Associates, 2006

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