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.
How can the Right Property Tax Agent Simplify My Life?
Increased Results, Decreased Stress
Extending Your Reach
Tax agents may seem like they are a dime a dozen, but if you want a tax agent to simplify your life, you need to dig a little deeper. Tax agents come from a wide array of firms, experiences, locations, reputations, and client experiences. It is important to ask yourself what you are looking for in an agent? Do you want someone you have to constantly check on to make sure they are meeting the deadlines? Do you want to feel like they are just another person you must supervise? Or maybe, your agent cuts you out entirely, doesn’t give you updates until you beg enough, and then only tells you about their successes while leaving out all your other properties.
From my experience, that is not usually what a client wants but it is often what they get when they hire the average tax agent. It is easy to see why an agent who cuts you out or needs your constant monitoring would not simplify your life. It could even seem like more work to hire an agent, after all, if you need to monitor everything why not do it yourself?
If you feel burned out from previous agents, I’m sorry to hear that. An agent should extend your reach. Allowing you to do more with your limited time. The right agent figures out a customized plan with you for how and when you want reports so that you don’t need to ask. They don’t make last-minute requests, causing you to drop everything to answer in time. And they certainly don’t need you to remind them of deadlines. If anything, it should be the reverse where you are being reminded by them because you are so confident they have your back that you can move on with other responsibilities.
The right tax agent will also simplify your life by having experience in your property type. They will be a specialist, not a jack-of-all-trades. They will know the best valuation approaches for your property and market and will use them to secure you the best possible reductions. A large part of experience comes from visiting your properties and the local market. Actual boots on the ground, asking the right questions and documenting the right facts. If your agent is too overburdened to visit your property, then they are missing a critical piece of the valuation puzzle. They may secure you a reduction, but it’s like slinging mud against the wall to see what sticks.
The right specialist tax agent will deliver you the best results possible. Does that always mean a reduction? No, an agent can’t guarantee a result. But, if they have done everything they should be doing, they will come to you and let you know the results with confidence. Knowing they left no stone unturned, and no argument omitted. The results of a specialist in your property type are usually better than the average agent and that can give you confidence when you report the results.
A tax agent may not simplify your life, but the right specialized tax agent will. If you are tired of begging for reports, supervising your agent, or only getting part of the story, it sounds like it may be the perfect time to reevaluate your agent and find the right one to simplify your life!
In multifamily property tax appeals, great tax agents work for a percentage of the tax savings. This means that unless they are successful in reducing your property valuation, you won’t pay them anything. This takes the risk off you as the owner and places the burden on the tax agent to perform. As long as a tax agent is working on contingency, you will always come out ahead.
Great tax agents take a personal interest in you and your property. They visit it every year and build relationships with those at the property and the Central Appraisal District. The results you experience are much better and lasting than those of a volume agent.
The Cost of a Bad Agent
A bad agent can cost you more than just the current year tax savings, they can cost you your reputation, which could impact future deals and tax savings. Just because an agent is working on a contingency fee does not mean they are getting you the best results. They may even be getting you small reductions every year, but if they are only taking those small reductions because they are too busy to know your property, you may be losing out on thousands in tax savings.
A bad agent may save you $10,000 a year on a single property, but a great agent may save you $20,000. If the great agent’s fee is 30% instead of the lower 20%, you will still net $14,000 rather than $8,000 each year by choosing the better, higher fee agent. If they were to average those same results over the next 10 years, you would net $140,000 in tax savings vs. only $80,000. All of that savings is on one property. Imagine if you had 10, 50, or 100 properties; the difference in those results add up quickly.
Don’t Shortchange Yourself
Unfortunately, too many multifamily owners unknowingly undervalue themselves and undercut their success. They think they want the cheapest agent believing it will save them money on fees. The cheap agents are sly and promise them all sorts of things to get the deal, but the client quickly finds out that it was a smoke show to get them to buy. The deliverables are less shiny than advertised, the results are subpar, and appeals are being churned out of a volume machine, with little human interaction or judgment.
Quality representation takes time and personal attention. Multifamily owners with the mindset of long-term success choose agents that specialize in their property type. They choose to pay a higher contingency fee to ensure their properties are visited annually and treated individually. There is a lot of money on the line in property taxes. It is, after all, usually the number one expense for the Texas multifamily property. Successful owners choose quality over quantity. They don’t want to be a number, unable to speak to a live person when they have questions. The value is in the relationship with their agent, and knowing their agent truly cares about their properties gives them peace of mind. And peace of mind is something we could all use more of in the world today.
As a prudent multifamily owner, managing costs is very important. If you hire a roofer, you will want to know and approve the contract cost upfront. Property tax agents sometimes present a tempting offer to cap fees, but there is a hidden dark side when you play that game. You may worry about how much a tax agent without a fee cap will cost, and that is a valid concern. From experience, I have seen that capping an agent far outweighs the benefit to the client. I would like to pull back the curtain for just a moment and help you glimpse the danger lurking in such a deal.
Compensated based on success
Property tax agents are typically compensated based on their success. This means that you always come out ahead if you are paying them a fee. When there is no cap, excellent agents do their best to examine every angle and opportunity to reduce your property taxes. They know that the better they represent you, the higher your savings and their fee.
On the flip side, you may see agents with a contingency fee plus a cap. This means that no matter how good they do, they will only receive the maximum cap amount. Agents under such a deal know exactly the amount of reduction they need to hit the cap and the temptation is to do just enough to hit the cap. Anything above that they are doing for free. The true danger to you, as a multifamily owner, is that you don’t get the lowest value and tax bill. You only get it low enough for your agent to max out their cap. Thousands of dollars of additional tax savings may be readily on the table, but since there is no upside to a capped agent, they aren’t asking for it. You ultimately lose tremendous tax savings, which usually far outweighs the cost of removing the cap.
You become a volume client
Another danger with using caps with your property tax agent is that you become a volume client. There is hardly any incentive for them to visit and know your property. They can likely secure the reduction necessary to hit the cap with minimal effort. Your property is just one of the thousands that churned out with little thought about the property itself. Getting an update on your property will likely be difficult if you can get one at all. Volume clients usually hear from their agents a few times a year. Does the following communication sound familiar?
1. When they need something signed by you.
2. When they need information, usually last minute.
3. When you get their invoice.
Your company and properties are unique and important to you. Hire an agent who treats them that way. The agents who give excellent service don’t have fee caps, and you wouldn’t want them to. I want you to have confidence you are getting the best representation possible. We have put together an agent checklist that helps you evaluate your current agent. It is valued at $1,000, but I want to gift it to you and my expense today so you can make sure you are prepared for the 2022 Texas appeal season. I hope you will take advantage of reviewing your agent and securing your maximum tax savings next year.
Can your tax agent get you bigger reductions than you can on your own?
If not, it’s time to reevaluate your agent
Property Specific Knowledge
Knowing the subject property is one of the first rules in valuation. As an owner or property manager, you likely have visited your property and know the difficulties it is facing. This is critical to determining an accurate value. For an agent to secure a greater reduction than you, they should know the property as well as, or better than the owner. This can only be achieved through site visits where the agent puts boots on the ground. First-hand knowledge by a dedicated agent allows them to find valuation issues that even a very diligent owner may overlook. Online maps, street views, and satellite pictures can never replace a real visit.
Valuation Knowledge and Time
The next critical step is knowing standard valuation methods, and which ones are most appropriate for your property type. For Texas multifamily, the income approach is usually the best method for determining value. In the case of new construction, cost would be more appropriate. As an owner, if you have experience with the approaches and the time to research market income conditions, you might do fine appealing on your own. However, if like most owners, you have dozens of other important issues demanding your attention, it may be difficult to devote the necessary time and resources to a valuation appeal. Your time would be far better spent doing that which only you can do and utilizing a professional specialized in Texas multifamily property taxes.
The right property tax agent has the time and resources to focus on your valuation appeal. They have extensive experience in the approaches and market. By utilizing a dedicated agent, you can free up your time to accomplish your vital priorities and still secure results. Thereby increasing your productive output, without becoming overwhelmed.
Relationship with the Central Appraisal District
As a final point, it is critical to remember that relationships matter. If you plan on owning the property for any length of time or want to keep doing business in the county, you should consider your relationship with the Central Appraisal District (CAD). They are trying to do their best with their limited time and resources. Approaching them with an aggressive attitude usually will result in the same behavior right back. When both sides begin by entrenching themselves in their position, it is hard to make progress. Unfortunately, some agents take this approach. Not only does is it hurt your potential valuation, but it can also harm your company’s reputation in the county. Whether you appeal on your own or seek a tax agent’s help, find those who are good at building bridges.
How Can I Reevaluate My Agent?
If you have an agent but wonder if they are getting you the best results, use the Tax Agent Checklist to evaluate your agent today. The insights you will gain from these 10 easy questions will help you determine if your agent can really get you a bigger reduction than you can on your own. You shouldn’t have to go it alone or settle for mediocre help. With something as important as your property taxes, you should Experience Excellence.
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.
Imagine you are traveling and you come to a fork in the road. Both routes eventually lead to your destination, which makes you wonder if it matters which route you take. So you ask yourself this question: Which route will get me to my destination in the fastest, most enjoyable way? If you are going to make the drive, you might as well enjoy it.
So it is with property valuation appeals. Whether you appeal it yourself, or you hire a property tax agent, the goal is to still settle with the Central Appraisal District (CAD) or have a hearing before the Appraisal Review Board (ARB). The destination may appear the same, but the journey and results can be very different.
Course 1: Doing it Yourself
When handling your own protests, it is common that there are many projects and important tasks that pull you in a million directions, because property taxes are usually only one of the hats you wear. They are easily put on the back burner for another day down the road, while more pressing sales tax issues or real estate deals are considered. Since property taxes on Texas multifamily are the number 1 or 2 expense item, it is clear that affecting that expense can have a tremendous benefit to your bottom line. Yet, it is still easy to be overwhelmed with all the specific deadlines and valuation evidence. Successfully appealing your valuation involves arguing valuation concepts and knowing the market. It involves studying comparable properties, documenting adjustments to their valuations, and attending meetings with the CAD or ARB. In the end, your simple appeal may take many more hours than you anticipated or wanted to give it.
Course 2: Hiring a Property Tax Professional
Hiring a property tax agent can alleviate most if not all of the above stress. An agent takes on the responsibility to ensure filing deadlines are met, evidence is gathered, and hearings are attended. Because agents focus on property valuations, they can give dedicated time to knowing your properties and aiming to secure you the best reduction. They are familiar with the laws and the markets. Following this course usually results in better outcomes for you, with a lot less time commitment and stress.
So How Long Will My Protest Take?
The ultimate answer depends on the course you choose. While both will typically last about the same number of calendar days, doing it yourself will involve substantially more time and commitment from you. If freeing up your time for other important projects, and potentially securing greater tax reductions is appealing to you, consider hiring a property tax professional to handle your appeals.
How Does Filing an Appeal Make a Difference on my Property Taxes?
Don’t assume that the Central Appraisal District is correct
What types of issues can be corrected by filing a protest?
One of the simplest reasons for filing a protest of your noticed value is to correct misinformation. This could be from incorrect building size, land size, construction quality, ownership, or other reasons. Additionally, contesting the noticed value can allow you to provide property-specific facts that are not accounted for in the mass appraisal valuation method, and thereby change your taxable value.
Is the system set up for me to fail?
Texas has a wonderful property tax system that is designed to ensure taxpayers are heard. Part of this process revolves around evidence supporting the noticed value. As a taxpayer, you need to prepare and bring your own evidence, but unlike most other states, the Appraisal District is not presumed to be correct at your hearing.
Under the Texas Tax Code §41.43(a) the Appraisal District bears the burden of proof to support their value. In other words, they need to prove why the value they set is accurate. This unique system is not set up for you to fail. Come with evidence supporting the correction you are seeking and present your case before the Appraisal Review Board.
How does any of this make a difference to me?
Your Texas property tax bill is determined from your taxable value multiplied by the tax rate. When you protest the noticed value and the result is a reduced valuation, your tax bill will be lower. Additionally, under Uniform and Equal provisions, others can be helped by your protest. Placing checks and balances on government taxation and overreach is a freedom we hold dear in this country. While we are subject to property taxes, filing an appeal of your valuation is one way you can exercise your freedom to ensure that you are not being overtaxed.
Here is an example of just what protesting your taxes can look like to you.
The noticed value was $2 million and after the taxpayer’s appeal the value was reduced to $1.5 million. The tax rate in the jurisdiction is 2.5%. The $500,000 reduction in the noticed value would reduce the taxpayer’s property tax bill $12,500.
Wayfinder offers taxpayer representation and assistance
If understanding and filing your own protest feels overwhelming and complicated, don’t worry. Wayfinder’s property tax experts offer personalized service to know your properties and help you achieve the lowest legal value for your property. We help liberate capital for our clients so they can do what they do best without stress.
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.