Binding Arbitration Empowers Texas Property Owners
The Texas Legislature provided a binding arbitration option for property tax appeals for properties that have an assessed value of $ 1 million or less in 2005. Prior to the passage this bill, the only option property owners had was to file suit in district court if they disagreed with an appraisal review board (ARB) determination. Filing a judicial appeal or lawsuit in state district court seemed an over-whelming process and woefully expensive to most home owners or small commercial properties.
Filing fees alone are about $300 for a lawsuit in the State District Court. It would not be unusual to spend $2,000 – $5,000 on legal fees and $3,000 – $5,000 for expert witness fees for an appraiser. Let’s review the example of a home owner with a $500,000 home who thinks his assessed value is 10% higher than it should be after the appraisal review board. The tax savings for reducing a $500,000 home by 10% would amount to approximately $1,200, based on a 3% tax rate and typical exemptions. It is evident it is not financially feasible to pursue a judicial appeal on a $500,000 home to obtain a 10% reduction based on the fees listed above.
The binding arbitration option allows a simple alternative after the ARB. The property owner can complete a form and send it with a $500 deposit to request binding arbitration. The best feature of binding arbitration is the arbitrator will truly be independent of both the property owner and the appraisal district.
ARB Selection & Training
Appraisal review boards are intended to be an independent body of citizens who evaluate property tax appeals.
Unfortunately, the statutory provisions for hiring ARB is terrible and the typical process for training and supervising ARB members via appraisal districts is inconsistent with Texas Property Tax Code and distorts their independence. The Texas Property Tax Code provides that the Board of Directors of the appraisal district shall hire the appraisal review board members. They are trained by the comptroller’s office to put forth a good effort to provide independent training. However, this training only lasts eight hours. To a large extent, the real training is conducted by members of the appraisal district staff and on-the-job training by other ARB members. In many cases, existing ARB members have been indoctrinated with a cultural attitude which favors the appraisal district and are uncomfortable with new laws such as unequal appraisal. Hence, the addition of the option to appeal an ARB decision to an independent arbitrator is a great addition to the Texas Property Tax Code.
ARB — Independent or Not?
Members of the ARB in most counties are citizen who want to do what is proper. Unfortunately, by a combination of culture, history and errant training by the appraisal district, many ARBs do not conduct hearings properly. The appraisal district is supposed to have the burden of proof in an ARB hearing. However, this is not the case in many appraisal districts. The appraisal district is required to provide the property owner all evidence it will use at the hearing if the property owner requests it. Further, the appraisal district is not allowed to use any evidence at the hearing which was not provided to the property owner two weeks ahead of the hearing, if the property owner requested the appraisal district Information. The ARB should enforce this rule to protect the rights of property owners. However, the author is not aware of one appraisal district in the state that enforces this property-owner friendly law. The ARB is required to consider appeals on both market value and unequal appraisal. The laws regarding unequal appraisal were clarified in 2003. Unfortunately, many ARBs are still not comfortable considering appeals on unequal appraisal.
A property owner cannot skip the appeal to the appraisal review board and go straight to binding arbitration. The first two steps in the property tax appeal process are to file a property tax appeal and attend an appraisal review board hearing. The property tax appeal must be filed by no later than May 31 or 30 days after the appraisal district mails the notice of assessed value. The appraisal district is not required to mail a notice of assessed value if the value does not change by more than $1,000. The appraisal review court will send a hearing notice to the property owner at least 14 days before the hearing. The property owner should request the information available from the appraisal district provided by Texas Property Tax Code 41.461 (also known as House Bill 201 information). The property owners should consider appealing on both market value and unequal appraisal at the ARB hearing. Most appraisal districts provide the option of an informal hearing before the appraisal review board hearing. It is usually worthwhile to consider this option. However, if you agree to a value at the informal hearing, it cannot be appealed using binding arbitration. You can only request binding arbitration if you have an ARB hearing.
Conditions to File for Binding Arbitration
After completing the appraisal review board hearing, you may request binding arbitration if:
- The property in dispute is real property (not personal property or mineral interests)
- You have received the ARB written determination on the appraised or market value of the property.
- The value set by the appraisal review board is $1 Million or less
- You are appealing market value (you may not appeal unequal appraisal in binding arbitration)
- Taxes have been timely paid
- You have not filed a lawsuit in District Court
You must file your request for binding arbitration within 45 days after receiving the ARB order. The appeal for binding arbitration may only address market value for real estate. You cannot appeal issues such as unequal appraisal, exemptions, not receiving a proper hearing, business personal property, mineral interests or a violation of the Texas Property Tax Code by the appraisal district or the appraisal review board.
Complete Comptroller form AP–219, Request for Binding Arbitration. The completed form and a money order or cashier’s check guaranteed by a banking institution in the amount of $500 made payable to the Comptroller of Public Accounts must be delivered to the appraisal district within 45 days of receipt of the ARB order. The Comptroller will not allow you to present a personal check, cash or any other form of payment.
Determining Opinion of Value
One key element of the Comptroller’s request for binding arbitration is the owner’s opinion of value. This is the trigger mechanism that determines whether the property owner or the appraisal district pays for the cost of the arbitrator ($450). The owner can include one opinion of value on the form and a lower opinion of value at the binding arbitration hearing. One can reasonably see how this would occur since the owner will have time after the binding arbitration form is completed to further research the analysis. For example, the owner may have time to obtain bids for items such as exterior painting, interior painting, roof replacement, landscaping, flooring replacement, wallpaper replacement, repairing tile, repairing painted stuck windows, pet odor, smoke odor, replacing fixtures, replacing doors, and replacing the HVAC. If you are not sure what value to request, err on a value at the high end of the range. Since you refined your opinion, you can reduce the value you actually request at the arbitration.
Arbitration Selection Process
When the Comptroller’s office receives the request for arbitration form from the appraisal district, it sends the property owner information on how to select an arbitrator. Both the appraisal district and the property owner can pick up to three arbitrators. After the process is initiated, the property owner and appraisal district have 20 days to agree on the arbitrator and return the completed form to the Comptroller’s office. The Comptroller will then contact the arbitrator to determine if the arbitrator is available and willing to take the assignment.
If the property owner and the appraisal district cannot agree upon the arbitrator, the Comptroller will randomly choose an arbitrator. The arbitrator will then contact both the appraisal district and the property owner regarding the arbitration for the property.
The arbitrator will coordinate setting a date, time and place for the arbitration. Options for the arbitration include in-person, by written submission, and by teleconference. The property owner is allowed to pick any one of these three options. Some arbitrators are willing to do only one or two of the options, perhaps in person and by teleconference. The arbitrator will also send a list of rules or procedures for the arbitration process.
You should carefully read and make sure you understand the rules for the arbitration process. These will address issues such as the timeframe for producing evidence and perhaps the timeframe for producing rebuttal evidence to the other sides for consideration. For example, an arbitrator might require both parties to submit their written evidence to the other party twenty-one days before the arbitration. He may further require that any new rebuttal evidence be provided to the other party 10 days before the arbitration. Failure to timely comply with such rules would mean your evidence cannot be considered. It would be unfair to the other party to allow untimely information to be considered at the arbitration.
The arbitration rules and procedures may also address issues such as time limits to present evidence at the arbitration, interrupting the other party, expressing courtesy to the other party and other such practical matters.
The writer has attended the training class necessary to become a binding arbitrator and is in the Comptroller’s registry of arbitrators.