You can tell a property’s value when you appraise it. If you have more than one properties in Texas that you plan to sell—or if you want to buy—you should abide by the tax reform law.
If you find yourself having questions about the reformed property tax code of Texas, we can help.
This particular article explains to you some of the important changes in the tax code. You can learn about the needed steps to determine your property’s market value.
You can use this information to be ready for your property’s appraisal. Read further to familiarize yourself with how properties work in Texas.
Changes on the Property Tax Reform and Relief Act of Texas
The Texas Property Tax Reform and Relief Act of 2019 experienced changes on February 11, 2019. One of which is revisions in the Senate Bill 2 or SB 2. This now states that appraisal districts are under obligation to use the appraisal manuals.
The accepted official procedure now has to follow the “generally accepted” appraisal methods and techniques.
Appraisal titles that properties can qualify for include the following:
- Appraisal of Real Estate by the Appraisal Institute
- Dictionary of Real Estate Appraisal by the Appraisal Institute
- Uniform Standards of Professional Appraisal Practice by the Appraisal Foundation
- Publication with Information Containing a Mass Appraisal
Understanding How Appraisal Methods Work on Properties
Appraisal districts have a ready list of taxable properties. The list will include the description, name, and address of the unit’s owner. It is through appraisal districts where the calculation of the property’s value happens. Appraisal districts are also required to reappraise the property once every 3 years.
When you have a taxable property, it needs an appraisal to reach the market value. This value determines how your property’s value transfers to cash.
Your property has market value when
- it is for sale in the open market for an acceptable amount of time for a buyer to find it,
- it is available for personal or commercial use that is already known both to the buyer and seller, and
- it is in the market to help the buyer and seller maximize their gains.
These are the most common approaches that you can expect from the appraisal district. They use market data or sales comparison approach and the income and cost approach.
Types of Property Appraisal Methods
1.The Market Data Comparison
The market data comparison approach happens when the values of similar properties are being compared. Properties similar to yours will be the basis for appraisal.
The appraisal district looks at recently sold properties with the closest value. Similarities and differences with your property are then considered.
Bear in mind that a sale is not accepted for comparison unless it is within 24 months of the appraisal. There’s a loophole to this when there are few samples of comparable sales.
When your property has few similar units in the market, then it may or may not undergo comparison.
A similar property sale used for comparison needs to be time-adjusted. Factors considered are lot size, condition, location, age, amenities, access, occupancy, and income.
Other considerations include legal burdens, deed restrictions, operating expenses, and existing easements.
2.The Property Income Approach
The income approach looks at the income and expense data of the property. This approach looks into the present worth of future benefits. It takes into account what an investor can make once he/she pays for the property.
This type of approach is best for properties that function for production purposes. These are places where income is being generated and owners get a stable flow of revenue. It includes retail properties, apartments, and office buildings.
Gross income potential and operating expenses of property upkeep are also for appraisal. Also included in the appraisal are the following:
- Base projections of future rent
- Capitalization rates/rates of discount
3.The Property Cost Approach
This approach is good for properties with scarce income data. This includes properties under construction and unique types. The approach focuses on the cost of improving the property.
Things like the construction rates and the replacement efforts are being included. Appraisal results depend on comparing the property with a similar utility.
Cost data are being used by the appraisers from the sources that they collect. After the collection of data, they can then make the proper “adjustment” on your property’s appraisal.
Take note that the property is being appraised based on the functional, physical, and economic obsolescence. Depreciation plays a huge part in this appraisal method.
The More You Know, the Better Options You Get
Learning more about appraisal methods helps a lot, especially when you’re aware of what your property amounts to. This is because there are documents that you need to prepare beforehand. Also, an appraisal helps you work out your property’s price and condition with your buyer or seller.
Before putting your property up on the market, have them appraised. Know their worth, and get the most advantage from your sale.
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