Appealing Property Taxes For Apartment Owners

Appealing Property Taxes for Apartment Owners
Property taxes are one of​ the​ largest line item costs incurred by apartment owners .​
However,​ many owners do not appeal effectively .​
Even though owners realize that property taxes can be managed and reduced through an​ appeal,​ some view taxes as​ an​ arbitrary estimate provided by the​ government which can't effectively be appealed .​
It tends to​ boil down to​ the​ old adage,​ you​ can't fight city hall .​
Fortunately,​ the​ property tax appeal process in​ Texas provides owners multiple opportunities to​ appeal .​
Handled either directly by the​ owner or​ by a​ property tax consultant,​ this process should involve an​ intense effort to​ annually appeal and minimize property taxes .​
Reducing the​ largest line item expense has a​ significant effect in​ reducing the​ owner's overall operating expenses .​
While it​ is​ not possible to​ entirely escape the​ burden of​ paying property taxes,​ it​ is​ possible to​ reduce taxes sharply,​ often by 25% to​ 50% .​
Why some owners don't appeal
Some property owners don't appeal because they either don't understand the​ process,​ or​ don't understand that there is​ a​ good probability of​ achieving meaningful reductions in​ property taxes .​
Some owners believe that since the​ market value of​ their property exceeds the​ assessed value,​ then it​ is​ not possible to​ appeal and reduce the​ property taxes .​
Although appeals on​ unequal appraisal are relatively new,​ there is​ a​ clear-cut way to​ appeal property taxes at​ the​ administrative hearing level based on​ unequal appraisal .​
Unequal appraisal occurs when property is​ assessed inconsistently with neighboring properties or​ comparable properties .​
Also,​ some owners are reluctant to​ hire a​ property tax consultant,​ even though many consultants will work on​ a​ contingent fee basis,​ in​ which there is​ no cost to​ the​ owner unless property taxes for the​ current year are reduced .​
Overview of​ appeal process
The following are the​ primary steps in​ the​ annual process for appealing property taxes:
· Request notice of​ accessed value
· File an​ appeal
· Prepare for hearing
. Review records
. Review market value appeal
. Review unequal appraisal appeal
· Set negotiating perimeters
· Administrative hearings
· Decide whether binding arbitration or​ judicial appeals are warranted
· Pay taxes timely
Requesting a​ notice of​ assessed value
Property owners have the​ option of​ requesting a​ notice of​ assessed value for their property annually .​
Section 25.19g of​ the​ Texas Property Tax Code provides the​ owner the​ option to​ request a​ written notice of​ the​ assessed value from the​ chief appraiser .​
Owners benefit from requesting and receiving a​ written notice of​ assessed value for each property because it​ ensures they have an​ opportunity to​ review the​ assessed value .​
This notice should be sent on​ an​ annual basis .​
The appraisal district does not have to​ send a​ notice of​ assessed value if​ the​ value increases by less than $1,​000 .​
However,​ if​ an​ owner was not satisfied with a​ prior year's value and the​ value remained the​ same,​ the​ appraisal district probably will not send a​ notice of​ the​ assessed value for the​ current year .​
In this situation,​ the​ owner might forget to​ protest since a​ notice of​ assessed value for the​ property was not received .​
How to​ file and appeal
On or​ before May 31st of​ each year,​ the​ property owner should file an​ appeal for each property .​
However,​ while many owners are comfortable with an​ assessed value,​ in​ many cases there is​ a​ basis for appealing .​
Two options for appealing include:
1. unequal appraisal,​ and
2. market value based on​ data the​ appraisal district provides to​ the​ owner before the​ hearing.
You can appeal by completing the​ protest form provided by the​ appraisal district and indicating both excessive value (market value) and unequal appraisal as​ the​ basis for appeal .​
In addition,​ the​ property owner can simply send a​ notice that identifies the​ property,​ and indicates dissatisfaction with some determination of​ the​ appraisal office .​
The notice does not need to​ be on​ an​ official form,​ although the​ comptroller does provide a​ form for the​ convenience of​ property owners .​
(You can access the​ protest form at​ .)
House Bill 201 - helpful information
House Bill 201 is​ the​ industry jargon for a​ property owner's option to​ request information the​ appraisal district will use at​ the​ hearing,​ and to​ receive a​ copy 14 days before the​ hearing .​
The name House Bill 201 is​ derived from the​ bill used to​ enact the​ law .​
The details for House Bill 201 are located in​ sections 41.461 and 41.67d of​ the​ Texas Property Tax Code .​
When filing a​ protest,​ the​ property owner should additionally request in​ writing that the​ appraisal district provide a​ copy of​ any information the​ appraisal district plans to​ introduce at​ the​ hearing .​
The appraisal district will typically require the​ property owner to​ come to​ the​ appraisal district office to​ pick up the​ information and charge a​ nominal fee,​ typically $0.10 per page .​
While the​ cost for House Bill 201 requests are quite low (typically $0.50 to​ $2.00 per property for residential and commercial) the​ information is​ invaluable in​ preparing for the​ hearing .​
In addition,​ filing a​ House Bill 201 request is​ important because it​ limits the​ information the​ appraisal district can present at​ the​ hearing to​ what was provided to​ the​ property owner two weeks before the​ hearing .​
Preparing for the​ Hearing
Start by reviewing the​ appraisal district's information for your property for accuracy .​
If the​ appraisal district overstates either the​ quality or​ quantity of​ improvements,​ this will justify a​ deduction .​
The next step is​ to​ review the​ information on​ market value and unequal appraisal provided by the​ appraisal district in​ the​ House Bill 201 package .​
If the​ subject property is​ an​ income property,​ review the​ appraisal district's income analysis versus your actual income and expense statements .​
Consider the​ following areas as​ opportunities to​ rebut the​ appraisal district's analysis:
· Gross potential income
· Vacancy rate
· Total effective gross income,​ including other income
· Operating expenses
· Amount of​ replacement reserves
· Net operating income
· Capitalization rate
· Final market value
Many property owners and consultants start with the​ actual income and expense data,​ and use one or​ two of​ the​ assumptions provided by the​ appraisal district .​
However,​ they primarily utilize information from the​ actual income and expenses in​ preparing their own income analysis and estimate of​ market value for the​ subject property.
When comparable sales are the​ primary issue in​ determining market value,​ start by reviewing the​ comparable sales data provided by the​ appraisal district versus the​ assessed value for your property .​
Convert the​ sales prices from the​ appraisal district to​ either a​ per square foot or​ per unit basis .​
Then compare the​ sales to​ the​ per square foot or​ per unit assessment for your property .​
Sales can be helpful during the​ hearing.
The cost approach is​ not typically used in​ the​ property tax hearings except for brand new or​ relatively new properties .​
If your property is​ new,​ the​ appraisal district will probably want to​ review the​ cost information and you​ probably won't want to​ show it​ to​ them .​
In many cases,​ the​ actual cost of​ a​ property is​ higher than the​ estimate provided by the​ appraisal district .​
If this is​ the​ case,​ you​ will likely want to​ appeal on​ unequal appraisal instead of​ on​ market value .​
No matter how good your argument or​ how passionately it​ is​ expressed,​ the​ appraisal district staff and Appraisal Review Board (ARB) members tend to​ believe that cost equals value for new properties .​
Deferred Maintenance and Functional Obsolescence
Another issue that is​ important for the​ market value appeal,​ and to​ some extent for a​ unequal appraisal appeal,​ is​ information on​ deferred maintenance and functional obsolescence .​
Deferred maintenance could include items such as:
· rotten wood
· peeling paint
· roof replacement
· substantial repair
· landscaping updating and other similar items
Most appraisal districts give minimal consideration to​ requests for adjustments based on​ deferred maintenance,​ unless the​ property owner provides repair costs from independent contractors .​
There are some exceptions where a​ cooperative informal appraiser or​ sympathetic ARB will take an​ owner's estimate of​ deferred maintenance and make adjustments based on​ those costs .​
Most appraisers and ARB members are much more inclined to​ make adjustments if​ third-party cost estimates are provided .​
In addition,​ the​ appraisers and many ARB members are inclined to​ only deduct a​ portion of​ the​ total cost using the​ argument,​ we've been giving a​ replacement reserve allowance for this item for the​ past years and it'd be double-dipping to​ deduct the​ whole value off it​ in​ the​ current year .​
While this is​ an​ incorrect appraisal argument,​ it​ does tend to​ be the​ practice at​ many appraisal districts .​
The reality is,​ the​ cost of​ curing deferred maintenance is​ deducted from the​ offer by a​ prospective buyer .​
Examples of​ functional obsolescence would be a​ three-bedroom apartment unit that only has one bathroom,​ or​ a​ two-bedroom apartment that does not have washer/dryer connections in​ an​ area where those connections are common .​
Another example would be an​ apartment that has a​ window air conditioner in​ an​ area where central HVAC is​ typical and expected .​
Unequal appraisal analysis
The Texas Property Tax Code,​ section 41.43(b)(3),​ provides for appraising or​ appealing on​ unequal appraisal including ratio studies and a​ reasonable number of​ comparable properties appropriately adjusted .​
Virtually all unequal appraisal appeals involve a​ reasonable number of​ comparables that are appropriately adjusted .​
Comparables are similar properties .​
This is​ primarily because of​ the​ difficulty and cost of​ performing a​ ratio study .​
Historically,​ the​ position of​ many appraisal districts was that the​ property owner needed to​ get a​ fee appraisal for each comparable property and compare the​ market value estimated by the​ appraiser to​ the​ assessed value .​
The cost of​ getting multiple appraisals made this process financially impractical .​
Compiling a​ reasonable number of​ comparables appropriately adjusted is​ simple and straightforward .​
The first step is​ to​ choose a​ reasonable number of​ comparables .​
Usually four to​ five comparables is​ the​ typical number used at​ a​ property tax hearing,​ but in​ some cases,​ property owners choose ten to​ thirty .​
In some cases,​ there may only be one to​ four comparable properties that merit consideration .​
Most unequal appraisal presentations include three to​ ten comparables .​
The number of​ reasonable comparables depends on​ the​ location,​ type,​ size and age of​ the​ property .​
For example,​ there would be fewer five-year-old bowling alleys in​ the​ northern part of​ Harris County compared to​ recently built apartment complexes .​
After choosing a​ reasonable number of​ comparables,​ array them in​ a​ table format,​ including fields of​ data such as​ account number,​ net rentable area,​ year built,​ street address,​ assessed value and assessed value per square foot .​
You should also review the​ information in​ the​ appraisal district's House Bill 201 packet on​ an​ unequal appraisal .​
In many cases,​ the​ appraisal districts unequal appraisal analysis will document a​ reduction in​ your assessed value! If the​ appraisal districts unequal appraisal analysis documents a​ reduction,​ either the​ informal appraiser or​ the​ ARB should make the​ adjustment in​ assessed value for you​ .​
Having the​ opportunity to​ get an​ assessed value reduced automatically based on​ the​ appraisal districts unequal appraisal analysis is​ one of​ the​ reasons to​ appeal every property every year .​
Completing Hearing Preparation
After reviewing the​ appraisal district's information on​ your property,​ the​ House Bill 201 package,​ and your market value and unequal appraisal analyses,​ determine the​ strengths and weaknesses of​ each approach and decide which basis of​ appeal provides the​ best opportunity for a​ meaningful reduction .​
Although appeals on​ unequal appraisal have clearly been the​ law of​ the​ land since 2003,​ some appraisal districts and review boards have chosen to​ disregard the​ option for unequal appraisal put forth by the​ Texas Legislature .​
Although there is​ litigation underway which should resolve this issue within the​ next year,​ it​ would be prudent to​ visit someone who is​ knowledgeable in​ local property tax appeals to​ determine whether the​ county appraisal district and ARB in​ your area are considering appeals on​ unequal appraisal.
Set Negotiating Perimeters
After reviewing the​ information,​ it​ is​ important to​ set the​ highest level of​ assessed value you​ will accept at​ the​ informal hearing because after you​ accept an​ assessed value,​ the​ appeal process will be complete for the​ year and you​ will not be able to​ appeal further .​
Administrative Hearing Process
The two steps to​ the​ administrative hearing process are the​ informal hearing and the​ appraisal review board hearing.
The Informal Hearing
The following procedure and rules are typical at​ the​ informal hearing:
· Meet with an​ appraiser representing the​ appraisal district .​
You should be polite and prepared at​ this meeting .​
While many property owners are frustrated and angry at​ the​ high level of​ real estate taxes,​ the​ appraisal district appraiser does not control the​ tax rate set by various entities nor the​ policy regarding property taxes in​ the​ area or​ the​ state .​
The appraisal district appraiser is​ trying to​ execute his job in​ a​ professional manner and appreciates it​ when property owners work with him on​ that basis .​
· Provide the​ appraiser information on​ your property and he will review that information and information he has available .​
· The appraiser will likely make an​ offer to​ settle the​ assessed value of​ your property fairly quickly .​
You can either accept the​ value or​ negotiate further .​
Either way,​ you​ should know within ten to​ twenty minutes whether the​ appraiser will offer an​ acceptable value .​
If the​ value is​ acceptable,​ conclude the​ negotiation by agreeing to​ the​ value for the​ current year .​
If the​ value offered is​ not acceptable,​ ask to​ go forward with an​ ARB hearing .​
Appraisal Review Board Hearing (ARB)
The ARB hearing panel consists of​ three impartial citizens selected and paid by the​ appraisal district .​
The age of​ most ARB members ranges from fifty to​ eighty .​
There is​ an​ unfortunate bias in​ the​ system since the​ ARB members are selected and paid by the​ appraisal district,​ but most ARB members are reasonable people who want to​ make appropriate decisions .​
Like the​ appraisal district appraiser,​ the​ ARB does not set tax rates or​ tax policy .​
The members are also not responsible for the​ effectiveness of​ local government .​
It is​ unlikely to​ help your case if​ you​ complain to​ the​ ARB members about either the​ high level of​ property taxes or​ the​ poor quality of​ some aspect of​ local government.
The ARB will expect you​ to​ make your presentation in​ about three to​ ten minutes .​
They will typically wait patiently while you​ make your presentation and may have questions after you​ conclude .​
An appraiser from the​ appraisal district,​ who may or​ may not be the​ same person who attended the​ informal hearing,​ will represent the​ appraisal district at​ the​ ARB hearing .​
The appraiser will comment on​ the​ evidence you​ presented and will often present other information the​ appraisal district has available .​
If you​ requested a​ House Bill 201 package for your property,​ it​ substantially limits the​ evidence the​ appraisal district appraiser can offer at​ the​ hearing .​
The ARB members may have questions after the​ appraisers presentation .​
Then the​ property owner will be given a​ final opportunity to​ rebut evidence presented by the​ appraisal district appraiser and quickly summarize the​ evidence .​
The ARB members strongly prefer you​ not repeat your entire presentation at​ this point .​
After hearing the​ evidence,​ the​ ARB members will confer and make a​ decision .​
This decision is​ not subject to​ negotiation and they will not revise the​ decision if​ further evidence is​ presented .​
When this decision is​ announced,​ the​ hearing is​ effectively over .​
The ARB will send a​ letter two to​ four weeks later summarizing their decision and notifying the​ owner of​ a​ 45 day limitation from the​ date receipt of​ the​ ARB decision to​ either request binding arbitration or​ file a​ judicial appeal.
Binding Arbitration or​ Judicial Appeal
Beginning September 2018,​ owners of​ properties with an​ assessed value of​ $1 million or​ less may file a​ request for binding arbitration .​
The owner must file with the​ appraisal district no more than 45 days after receipt of​ the​ notice of​ the​ ARB's decision .​
The binding arbitration option is​ interesting because it​ includes a​ loser pays provision .​
The appraisal district pays for the​ arbitrator's fee if​ the​ final value is​ closer to​ the​ owner's opinion of​ value,​ and the​ owner pays for the​ binding arbitration if​ the​ final decision is​ closer to​ the​ appraisal district's opinion of​ value .​
Binding arbitration was passed to​ provide an​ alternative to​ judicial appeals,​ which can be expensive to​ prosecute.
Many owners pursue judicial appeals to​ further reduce property taxes .​
In 2018,​ O'Connor & Associates filed over 1,​200 judicial appeals on​ behalf of​ property owners in​ the​ state of​ Texas .​
The judicial appeals can be expensive if​ the​ property owner and attorney don't understand the​ process and have a​ plan in​ place to​ minimize the​ cost of​ legal and expert witness fees .​
Judicial appeals are typically successful .​
However,​ success requires cooperation from the​ property owner,​ such as​ providing responses to​ questions,​ documents and a​ deposition if​ requested .​
The judicial appeal is​ meaningful as​ an​ option to​ minimize property taxes since it​ reduces the​ base value .​
This is​ important because the​ appraisal district and ARB consider the​ base value in​ the​ subsequent year when setting the​ administrative hearing value.
Property owners can generate substantial reductions in​ property taxes by appealing annually .​
Consider appeals on​ both market value and unequal appraisal and obtain the​ House Bill 201 information when preparing for the​ appeal hearing .​
Property owners should consider all three levels of​ appeal: informal hearing,​ ARB hearing and judicial appeal/binding arbitration .​
While the​ ARB hearing and judicial appeal/binding arbitration can be an​ intimidating process,​ each is​ straightforward once you​ understand the​ mechanics.

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