Filing a protest of your noticed value is an important right the State of Texas grants its taxpayers. There are many reasons to appeal that affect many different parties. In this blog, I would like to share with you just 4 main reasons to appeal your Proposed Value.
Reason 1: Makes a Positive Impact on Communities
Reductions to appraised value and tax burdens are inappropriately judged as only helping property owners, but the truth is quite different. Multifamily property owners serve entire communities by providing safe housing and amenities for residents and their families. By reducing the tax burdens of a property, owners are able to improve/update units, provide extra services to tenants, and offer improved amenities. This is all made possible through lowering of tax expenses.
Reason 2: Holds Counties Accountable
Counties are responsible for setting the appraised value of all real estate in their jurisdictions. This is often a burdensome job with only a few appraisers in an office. Without taxpayers’ appealing values and providing appraisal districts with information not readily available to the general public, values could become inaccurate county-wide and with little other recourse for taxpayers. Appeals help keep appraisal districts’ values in line with current markets.
Reason 3: Keeps Costs Down
This is a rather simple reason to appeal that serves residents of a multifamily property. Property taxes make up one of the largest annual expenses for these types of properties. Often, when expenses increase or stay high, a portion of these expenses get passed onto the tenants. Keeping a property’s taxes low is a way to combat increased rents and provide more affordable rates for families.
Reason 4: Expansion
Finally, if a multifamily property owner can combat expenses within a market, there is an incentive to reinvest in that market. A lowered tax burden means an increase in the attractiveness of purchasing more properties or even building in a certain area. The increase in multifamily properties coming online in a market creates a boost in that area’s economy raising wages, creating new jobs, and providing vendors with more work.
Whatever reason speaks to you more as a multifamily property owner, I hope that you understand the importance of your appeal on not just your own bottom line but also your community.
Filing a protest of your noticed value is an important right the State of Texas grants its taxpayers. To combat over taxation, multifamily property owners should be knowledgeable of a few terms so that they can effectively navigate the appeals process.
Notice of Appraised Value – This is the notice that the Central Appraisal District (CAD) sends out to property owners within its county stating the county’s opinion of value concerning a specific piece of property. This notice should provide taxpayers with a proposed assessed value, as well as a deadline to appeal this value.
Assessed Value – In Texas, the assessed value of a multifamily property is equal to the market value of the property (or the price that the property would exchange hands in an open and free market through an arm’s length transaction). This value is significant because it is then multiplied by the jurisdiction’s tax rate to calculate the annual property taxes owed on the property.
Notice of Protest – This is a document filed by the taxpayer to dispute the proposed assessed/market value of a property. This form may be found through the local CAD or the Texas Comptroller’s office.
Appraisal Review Board – This administrative board hears protests to proposed assessed/market value of the property. A taxpayer who filed a protest of their proposed value will go before this board and make their case if a settlement is not reached with the CAD.
Exhausting Administrative Remedies – Texas law uses this phrase when describing how a property owner may file a lawsuit against a CAD concerning a property’s proposed value. The term ultimately means that most taxpayers must file a Notice of Protest with their CAD and conduct an ARB hearing before they may file a claim to the court concerning the matter.
Sales Approach to Value – A settled method of valuing property using sales of comparable property in the same market as the subject property.
Cost Approach to Value – A settled method of valuing property using costs associated with producing a similar or near-identical property in the same market as the subject property.
Income Approach to Value – A settled method of valuing property using the income potential of a property. This is the favored approach when dealing with multifamily properties.
Uniform and Equal Appraisal – This is a constitutional requirement for CAD’s to value similar property similarly. Properties that are valued unequally to comparable properties should be corrected.
These are but a few of the terms and buzzwords used in every valuation cycle, but hopefully, it is enough to help you with any of your future appeals. For any clarification or additional help, please talk to your property tax agent today.
Before talking about the benefits of filing your property valuation appeal to court, it is important to understand what you must do first before you can file. In Texas, a taxpayer seeking to litigate their property value appeal must first exhaust their administrative remedies. This means that a taxpayer must first file a protest of noticed value with the valuing Central Appraisal District (CAD). Following an informal meeting with their CAD, the taxpayer must then have a hearing before an Appraisal Review Board (ARB). Once the taxpayer has this hearing, then they can file their protest to court.
Benefits of Filing to Court
The benefits of filing your value protest to court are simple, yet important. For starters, filing to court gives you another chance to have your case heard, or another bite at the apple. Never underestimate a do-over in life. Second, the court hears your case de novo, which means “from the beginning”. This is very helpful to taxpayers because they most likely lost or did not get the reduction they were seeking from the ARB if they are now filing to court. Without the burden of overcoming an ARB hearing, taxpayers can expect a fairer hearing. And finally, filing your case to court can give you an opportunity to better prepare your case and give you the time needed to present it. In an ARB hearing, you often only have 15 minutes to present all your evidence.
That is not a lot of time if there are complex factors you wish to present. In litigation, you have plenty of time to progress and share these issues with both the court and the CAD.
Ultimately, filing to court can offer property owners another chance at relief and a fair valuation. However, taxpayers need to be smart about when to take their protest this extra step. Litigation can be expensive, time-consuming, and burdensome. Suing the CAD should only be a last effort when you not only fully believe in your case, but know the outcome would significantly impact your value.
For any help or guidance in dealing with your protests, please feel free to contact our team today.
Obsolescence is defined as “the process of becoming obsolete or outdated and no longer used.” Obsolescence can impact a multifamily property in many ways to lower the property’s value. Both owners and appraisers should be aware of any potential obsolescence at play when evaluating a property’s market value.
Types of Obsolescence
There are three main types of obsolescence that can play a role in a multifamily property’s value: 1) Functional, 2) Economic, and 3) Physical.
Functional obsolescence deals with the function of the property and how, generally over time, the property’s original function is not as useful. For example, consider an older building constructed without elevators at a time before modern elevators were common. When the building was new this would have been perfectly normal. However, if that same building still existed today, it would have functional obsolescence because we expect elevators in apartment buildings with 3+ floors.
Economic obsolescence is often the most frustrating for an owner because it is always an external force impacting the property outside of that owner’s control. A great, and timely, example of this type of obsolescence is COVID-19 and the impact it had on our economy. Many businesses had to either shut down or suspend activities causing financial hardship on many families. With little cash coming in during the peak pandemic months, families often could not pay their full (or any) rent owed to multifamily property owners. This external impact on the income a property could generate is a textbook example of economic obsolescence.
Physical obsolescence is probably the most easily avoidable of the three types of obsolescence. Physical obsolescence is often brought on due to deferred maintenance that causes damage or accelerated deterioration of an asset. A good example of this would be not replacing a roof in a timely fashion, and then having extensive water damage throughout the property years later that would require extensive work to fix. This physical obsolescence lowers the value of the property.
While obsolescence is not always easy to spot, both property owners and the appraiser should be diligent in looking for its impact on a property’s market value.
In Texas, property owners are issued annually a Notice of Value from the Central Appraisal District (CAD) where their property is located. These notices of value are the CAD’s determination of a property’s market value and will influence a property’s tax liability in the coming year. Taxpayers have the option to appeal this value if they believe it to be too high. To do this, taxpayers or agents must fill out Form 50-132 from the Comptroller’s Office and file it with the CAD that issued the Notice of Value before the indicated deadline.
Informal Meetings and Appraisal Review Board Hearings
Following a successful filing of an appeal, the taxpayer is then able to meet informally with the CAD and attempt to reach a settlement. Reach out to your local CAD if you have filed a protest and ask for a time to meet informally. Most cases settle at this informal stage. If a settlement cannot be agreed upon with the CAD informally, the taxpayer and the CAD will then go before an Appraisal Review Board (ARB) for a hearing on the dispute. Both sides will present their case in a 15-minute hearing, and the Board will issue a decision.
Post ARB Hearing Options
Following an ARB hearing, taxpayers have yet another option to seek tax relief. If a taxpayer is not satisfied with their property’s value after an ARB hearing, the taxpayer may file a lawsuit against the CAD in court. However, it is important to note, litigation is only available to those that have “exhausted their administrative remedies” before filing to court. This means that a taxpayer can only file a lawsuit concerning their noticed value if they have filed an appeal and had an ARB hearing as stated above. Of important note, certain properties also qualify for arbitration with the CAD. This can be quicker and cheaper than litigation but requires certain, specific factors exist before taxpayers may seek relief in this manner. Please consult a Texas property tax expert in determining if your property qualifies for arbitration.
This process happens every year and many property owners have little understanding of this process and their rights. If you are a multifamily property owner in Texas, please reach out to one of our specialists so that we can help navigate you through this process and get you the tax relief you need.
It is truly impossible to overestimate the importance of site visits. For a tax agent to adequately represent a property, they need to have firsthand extensive knowledge of the asset. Without this knowledge, a property owner can never receive top-tier representation. As a property owner, there are a few preparations you should make before your site visit with your tax agent.
Step 1: Inform Your Staff of the Visit
For a site visit to go smoothly and effectively, the staff at the property needs to be aware of the tax agent’s visit. Moreover, the staff responsible for meeting with the agent must be knowledgeable and completely honest. A good agent asks hard questions for managers/owners to answer, and they need truthful responses. If the property is slipping off its foundation, the agent needs to know. If the property has plumbing issues every other day that require water to be shut off to the property, the agent needs to know. If the property has extensive water damage from leaky roofs, the agent needs to know! Your agent needs to know all the good and bad with your property so they can adequately fight for a fair valuation.
Step 2: Provide Financial Information
Next, be sure to prepare and provide your agent with the profit and loss statement for the property as well as unit statistics/rent rolls. As multifamily properties are income-producing, the ability of a property to produce income plays a significant part in its valuation.
Step 3: Be Prepared to Show a Vacant Room
So they can see what a unit looks like, be prepared to take your agent to a vacant unit. A good agent will want to examine the condition of the unit, its flooring material, countertops, appliances, and everything in between. All this information can play a crucial role in valuing your property. Note, however, that you need to show your agent a unit that is representative of the majority of the other units at the property. For example, if 90% of the units at the property have granite countertops, do not show your agent the unit with a Formica countertop.
And that’s it. Preparing for your site visit is quite simple and should make your visit that much quicker/effective. By following these simple steps to prepare for your visit with your agent, you are setting your appeal up for success.
How Much Can My Texas Multifamily Property Value Increase?
Taxable Value Equals Market Value
In Texas, Central Appraisal Districts (CADs) are tasked with valuing property within their jurisdiction for taxation purposes. This taxable value is 100% of its “Market Value” in Texas, which is essentially what the property would sell for in an open and fair market. CADs use recent listed sales, income production documents, and cost documents to value these properties at a level they believe would entice sellers and buyers in the market to come to the table. As a result, when something happens in the market that will significantly affect the sale price of these assets, taxable values should respond accordingly.
No Limit to Increase in Value
Unfortunately for those owners that like to work with set values, there is no limit to the increase or decrease of a property’s taxable value from one year to another. All that is required of the CAD is to find the market value of the properties it values as of the valuation date, regardless of previous years values. Resultantly, some Texas jurisdictions have recently seen their property values increase over 100% in one year following a boom in real estate values on the open market. Buyers and sellers are trading these properties at higher numbers, so the taxable values have followed suit. While this may provide little comfort to the owner that saw their taxable value jump significantly last year, this is the reality of ad valorem taxation on real estate within Texas. Taxable values can and do jump up significantly. The only partial limit to increased tax burden for property owners is that the Texas legislature does put restrictions on increasing tax rates annually.
Get Help With Unexpected Expenses
Because of this reality, many owners feel stress and uncertainty when taxable values come out every year, and the importance of a strong tax advocate cannot be overstated. Owners face unexpected tax expenses often in Texas, and the ability to offset some if not all of this increased expense can make a big impact on the communities these owners serve. If your multifamily property tax bill has increased in the past few years, please reach out to a specialist today for help in getting a fair market value of your property.
As a multifamily property owner, do you or your company often purchase new properties without seeing the asset in question? Most likely, that sounds like a terrible idea to you. Understanding what it is that you are buying and going to operate is a pivotal component to owning and managing a multifamily property. Due diligence is required to not only understand the risks of an asset but also the benefits. You cannot fully understand the impact a property will have on your portfolio without visiting that property, walking its grounds, and analyzing its condition through your own eyes.
The Impact of Understanding an Asset
The same can be said about the property valuation of an asset. Tax agents are asked to step in and help frustrated owners secure a fair market value of their properties. Owners are often rightfully worried about over taxation and rely on their agents to be their advocates. But, just like a prospective property buyer, how can a tax agent accurately understand the risks and benefits associated with a property without visiting it? They cannot. The understanding of an asset accompanied by a site visit cannot be duplicated through google images and satellite views of the property. It comes from feeling, touching, and seeing the asset firsthand. This lack of ability or unwillingness to visit properties that agents represent ultimately ends up hurting the taxpayers these agents swore to protect.
Advantage Over Taxing Jurisdictions
In addition to providing a better understanding of a property to a tax agent, site visits allow a bit of an advantage to agents and taxpayers when dealing with Central Appraisal Districts (CADs). CADs are often understaffed and overburdened to produce accurate values of the properties within their taxing jurisdiction every year. This means that CADs rely heavily on “mass appraisal techniques” to meet their offices’ responsibility to taxpayers. The problem with this approach is that CADs are unable to get into many details when dealing with a specific property. That is where an advantage for the taxpayer presents itself. The county may not know that your property had five downed units this past year, or that a natural disaster destroyed a portion of the property or any other number of events/characteristics that affect the asset. These are likely not reflected in the valuation. It is the duty of the tax agent to know those issues and present them to the CAD for revaluing the asset. Without those site visits, agents are willfully abandoning an additional tool they have to help their clients.
Evaluate Your Current Agent
If you have never seen your agent at your properties, it is time you demand it from them. The communities you serve and have built deserve to not have resources taken from them due to over-taxation. Challenge your agent to put you and your communities’ best interest first by requiring they visit your properties today.
When taxpayers are deciding to file a protest of their noticed value, they must first come to an opinion of value. If the taxpayer’s opinion of value is less than the noticed value, it may be worth filing an appeal. However, taxpayers should be honest in their valuation approaches so as not to file a fruitless or even frivolous appeal. Examine market impacts and see if there are any sales of comparable properties near your own. You can also look at similarly situated properties and see if they are near your same value. If after you have done your due diligence and come to the unbiased opinion that your property is overvalued, you then need to consider the impact of an appeal.
Is the Reduction Significant?
After you have settled on a value for your property you believe the evidence supports, it is then important to analyze the impact your reduction will have on your tax liability. To roughly calculate the tax savings a successful appeal will yield, subtract your opinion of value from the noticed value. This number is the reduction to the value you believe you can secure. Multiply that number by the most current tax rate used in that county and you can estimate your tax savings following a successful protest. Is it enough for you to file the appeal and potentially go to an appraisal review board hearing? If so, file that appeal right away! Otherwise, maybe just keep one eye on the value in future years and file an appeal when the property does become significantly overvalued.
That’s all you need to do when deciding on filing a protest. Examine your market to see if an appeal can even be successful, and then review the tax savings of a successful appeal so as not to waste your time for nonconsequential savings. If you need any help deciding on the success probability of an appeal or calculating your savings, please contact one of our Texas multifamily specialists today.
Helpful Hints When Protesting To The Appraisal Review Board
Know Your Rights
As a taxpayer that has decided to appeal the noticed value of your property to your local Appraisal Review Board (ARB), you need to know some of your rights to have a successful appeal. First, you have the right to inspect the Central Appraisal District’s (CAD) evidence before your hearing. As long as you made a request, Texas law requires that the CAD send you their evidence fourteen days before your hearing. Use this right to examine the CAD’s evidence. Additionally, there are several ways to reschedule your hearing. Arguably the most common way to reschedule a hearing for an owner with multiple properties across multiple counties is if the owner has hearings scheduled on the same day in different counties. Whichever county notified the taxpayer last on those same day hearings must reschedule their hearing. And finally, you have the right to appeal any ARB decision to litigation (or arbitration if your properties qualify) following your ARB hearing. In most cases, you will have sixty days after the ARB hearing decision was issued to file to court or an arbitrator.
Tips when in an ARB hearing
There are also things you should do in your ARB hearing that will help your appeal chances and your reputation with the county. First and foremost, prepare your case, and have evidence. If you show up at an ARB hearing without doing your homework on the property or market, you most likely will not find a sympathetic board. You need to have evidence supporting your requested value, and it should make sense. You also need to review the CAD’s evidence and come prepared to rebuff or correct their support. Second, be respectful. These hearings can get heated for taxpayers especially when their outcome may impact peoples’ jobs or livelihoods, but remember, these board members and the CAD representative are just doing the job required of them by Texas law. Stay calm and respectful at all times while still vehemently stating your case. It will help you when the board deliberates and protect your reputation in that county.
After the Hearing
After the hearing has concluded, it’s time to review your appeal. Yes, you need to examine the possibility of pursuing litigation or arbitration like we covered earlier, but you also need to evaluate what evidence worked and what did not. This is extremely helpful because you may have another hearing before this board this same year for a different property and need to rethink your strategy/valuation methods. Moreover, the members on these boards can stay around for years so you could have the same board members for several years in the future. You need to be thinking about how you can improve your appeals and make them more persuasive to those specific members.
If you have any questions about how to handle an ARB hearing successfully, please contact one of our Texas multifamily specialists today.