Harris County Commissioners hired Texas’ premiere appraisal expert to investigate whether Harris County Appraisal District is fairly assessing home owners and commercial properties. Harris County Commissioners noticed a disturbing pattern of deep discounts in commercial properties they were purchasing at condemnation for right-of-way (or roads). There was a perception that the assessed value set by Harris County Appraisal District (HCAD) was often only 35 to 65% of the purchase price when they were purchasing commercial property. They hired appraisal expert Ted Whitmer to determine the market value of a number of large commercial properties in Harris County.

Appraisal districts use a process called mass appraisal to value hundreds of thousands of commercial properties and houses in Harris County annually. In Harris County, they value about 1.6 million properties each year, using a very limited staff. Most of the property inspections mandated by state law (every three years) are now done using aerial photography. There is an obvious limit to the information that can be obtained by aerial photography regarding condition, level of remodel, occupancy rates and rental rates.

The classic case of substantial discounts given to a commercial property was Greenway Plaza, purchased for about $950 million in 2013. The purchase price of $950 million was 55% higher than the taxable value agreed to by HCAD of $611 million for 2013. However, for property tax purposes, the fee simple value (which uses market rents instead of actual leases), is believed to have been about $1,150 million, based on analysis of market rent. A fee simple value of $1,150 million is 88% higher than the value agreed to by HCAD for 2013.

During his last years as Chief Appraiser of Harris County Appraisal District, former Chief Appraiser Jim Robinson became increasing concerned that the mega-value properties were being systemically under-assessed, causing in effect a two-tier property tax system. If houses and small commercial properties are valued close to 100% but the mega commercial properties are valued at 50 to 60% of market value, there would be substantial consequences including: 1) undermining the confidence of home owners that the property tax system is fair and 2) providing an unconstitutional subsidy to the wealthiest taxpayers and 3) denying tax entities substantial revenues. For example, if the commercial properties overall are valued at 75% of market value, this would understate the taxable value of commercial property in Harris County by $37 billion, costing tax entities roughly $1 billion per year.

O’Connor & Associates believes there is basis in fact that the mega-properties are grossly under-valued. “Greenway Plaza is not an isolated example. Most of the largest commercial properties (valued at $50,000,000 and higher) are valued at 50 to 65% of market value”, according to Patrick O’Connor, president of O’Connor & Associates. “There are systemic flaws in HCAD’s commercial value models that cause them to grossly under-value the largest properties in the county. HCAD’s errors are estimated cost tax entities $1 billion per year”, according to Patrick O’Connor, President of O’Connor & Associates.

O’Connor further stated that, “I believe former Chief Appraiser Jim Robinson is on the right track. The under-valuing of mega-commercial properties is in effect shifting $1 billion of taxes from owners of homes and small commercial properties annually. HCAD’s valuation procedures have the perverse result of consistently over-taxing the poorest home owners while consistently giving deep tax discounts to the largest downtown office building owners.”

The results of the Harris County Commissioners study will not be available until the end of May or June.

Home owners should consider filing a property tax protest by the May 31, 2014 deadline. State law prohibits property owners from obtaining the appraisal district’s evidence unless they first file a property tax protest.

For more information, contact Scott Sherrill at 713 375 4264 or Pat O’Connor at 713 822 8613 or poconnor@poconnor.com.