The Role That Litigation Can Play in Property Tax Appeals

By Jerry Heaton

Did you know that Texas is one of the few states that does not require the disclosure of a real estate transaction, thus sale prices are not readily available to the public? 

States with this kind of practice are known as “non-full disclosure states.”  While not disclosing the price of a real estate transaction protects privacy, it is also an opportunity for assessors to use their imagination to estimate the terms of the sale.

For real estate tax purposes, if a sale price is disclosed, most tax assessors in the State of Texas will raise the property value to the disclosed sale price. If a sale is not disclosed, however, many assessors will still know the property traded based on the deed being filed. The assessor will often then research the loan amount on the property and raise the property value to a number higher than the loan amount.

In Texas, tax assessors conduct mass appraisals on properties at least every three years, and more frequently for most income-producing real estate. Mass appraisal techniques are the appraisal version of chubby crayons, where values are manipulated using the broader averages of market trends applied against the individual characteristics of each property.

Mass appraisals on properties employ a wide variety of valuation techniques. In reality, market averages only really apply to average properties and underperforming properties can rapidly fall away from “average performance”.

If an appraisal district is able to accurately locate a sale price of a commercial property, through resources such as Loopnet or CoStar, they will likely value the subject property at or just below that value.  The question is whether this type of estimate fully reflects the market value of the property?

There are a multitude of reasons why the sales price may not be considered an acceptable value for property tax purposes. The following factors may be the cause of an over-stated value, all of which are valid grounds for dismissing a disclosed sale price:

  1. A property that is subject to a sale-leaseback
  2. A property that is part of a portfolio of properties and the price disclosed was an allocation of a bulk purchase
  3.  A property that was traded with tax incentives such as a 1031 exchange
  4. A property that is part of an assemblage of properties where the buyer was atypically motivated

Even if a sale is disclosed and was clearly an arms-length transaction, Texas allows for a tax appeal using a provision of the tax code commonly called “fair and equal” taxation.

This code dictates that no property should be assessed at a value higher than a reasonable number of competing, appropriately adjusted comparable properties. Therefore, if the tax assessor raises the value of a property to meet the sale price but they do not raise the value of all surrounding like-kind buildings, then the assessor has not valued the property that sold on a “fair and equal” basis.

An example of this type of situation on a multi-family property would be if two apartment buildings are in the same class, same area, have similar rents and were built around the same time frame. But if an assessor raises the value on the one that sold for $100,000 per unit while leaving the others in the area at $80,000 per unit, then that is not a “fair and equal” assessment.   

In order to correct this problem, tax consulting firms like Paradigm Tax Group will fight the “unequal” assessment through the appraisal review board process and, often times, a court battle.

This court battle is rarely ever a trial by jury. It is usually settled in an informal setting with appraisal district staffers without excessive cost to the taxpayer. Paradigm has coined this process a “Purchase Price Defeat” tax appeal.

The chart below shows a few examples of actual Purchase Price Defeats achieved by Paradigm Tax Group. These results have saved millions of dollars for many astute taxpayers.

Paradigm is one of the largest, fastest-growing property tax consulting firms in the nation. With offices in Dallas, Houston and San Antonio, we have the personnel and local expertise to help you achieve maximum tax savings no matter where you own property in Texas.

Our people are our strength and we hire the best in the business.  Let’s have conversation about how we can help you with your properties.

For more information on the Purchase Price Defeat process and a complimentary report on your property, please contact Jerry Heaton at jheaton@paradigmtax.com or (214) 883-5026.

As you are aware, we are all facing an unprecedented health event involving COVID-19. We here at Paradigm Tax Group consider the safety of our employees, as well as our clients, our top priority. We want you to know that during this major event, we are still open for business and ready to serve the property tax needs of all of our clients and will do so with the health and safety of everyone concerned at the top of our minds. READ MOREā€¦

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  • Paradigm Tax Group does not service single-family residential properties at this time. We apologize for any inconvenience.