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Austin Property Taxes The Approaches to Establishing Property Value in Austin Austin property tax appeals depend on both real estate, valuation and advocacy. This article provides insights for preparing for your Austin property tax appeal. Real estate valuation is a combination of art and science. Estimates of value are based upon judgment, data and analysis. Judgment is required to select the best land sales, rent comparables and improved property sales (depending on the type of property). Real estate valuation primarily uses three approaches to value property: the sales comparison approach, income approach and the cost approach. Following is a summary of each:Sales Comparison Approach The sales comparison approach is used at Austin property tax hearings for houses, land and owner-occupied buildings. It is sometimes used for income properties as a secondary method of valuation. To perform the sales comparison approach you need information on sales of property similar to your property. The factors given primary consideration in selecting comparable sales include location, size and age. You can obtain this information from a variety of sources including the appraisal district, real estate appraisers, brokers and third party vendors. Analyze Sales Inspect and photograph the comparable sales making detailed notes regarding differences between the comparable sales and your property. Then make adjustments for differences between the subject property and comparables. Adjust comparable sales to the subject property. For example, if a comparable sale has four bedrooms and your home has three bedrooms, make a downward adjustment to the sales price to the comparable sale to bring it down to the level of your house. Select sales as similar as possible to the subject property to minimize adjustments. Comparable sales data is given strong consideration in Austin property tax hearings for houses, land and owner-occupied commercial buildings. The credibility of the valuation determined using the sales comparison approach depends heavily upon the quality and quantity of comparable sales data available. Income Approach The income approach is typically used for income properties during the Austin propert tax hearings. The basic theory is that investors purchase income properties for the income stream they produce. This income stream can be converted to an indication of market value for the property. The primary steps in the income approach are to estimate the potential gross income using rent comparables and information regarding actual income at the subject property. An allowance for vacancy is estimated based on the performance of the subject property and average vacancy in the area. Operating expenses are estimated using actual expenses at the subject property and market expenses for similar properties. The net operating income is calculated by deducting vacancy and operating expenses from the potential gross income. Net operating income is converted to an indication of market value by dividing it by the capitalization rate. Cost Approach The cost approach is not typically used at Austin property tax protest hearings except for new buildings. Appraisal districts often use the cost approach for properties up to two or three years old. After that, they typically use either the sales comparison approach or income approach depending on the type of property. The appraisal district will apply the cost approach for a new property by adding the market value of the land (typically the purchase price) to the construction costs for the building. In addition, they may add an allowance for soft costs and for entrepreneurial profit. If the sum of land and construction cost exceeds the appraisal district's assessed value, it is unlikely they will reduce the assessed value in the property tax hearing. However, if the sum of land and construction cost is less than the appraisal district's initial assessed value, providing this information at the hearing will likely generate a reduction in your assessed value and property taxes. Uniform and Equal Approach The Texas Property Tax Code was amended in 2003 to allow property tax for property owners to protest based on "a reasonable number of comparable properties appropriately adjusted." This new section of the Texas Property Tax Code allows a protest based on a limited number (perhaps 3 to 10) of assessment comparables. Some appraisal districts agree and are considering protests under the section. Others have chosen to interpret this section differently. Preparing Unequal Appraisal Analysis To prepare a protest using Uniform and Equal, gather data on assessed values for property similar to your property. Make adjustments for significant differences between the assessment comparables and your property. This can include items such as building size, land size, number of bedrooms, number of bathrooms, size of garage, site influences, age, etc. Make negative (downward adjustments) to an assessment comparable for items that are superior in the assessment comparable. For example, if the assessment comparable has four bedrooms and your house has three bedrooms, make a downward adjustment to the assessed value for the assessment comparable for this item. Median Value After applying appropriate adjustments to the assessment comparables, calculate the median level of assessment for the assessment comparables. The median is the middle data point after the adjusted assessment comparables are arrayed in order of increasing or decreasing (on a per square foot value basis). Multiply the median per square foot assessed value times the size of your property (improved area) to calculate the value your home should be assessed for based on Uniform and Equal. Section 41.43 of the Texas Property Tax Code provides you the opportunity to protest using this methodology. Austin 2007 Property Tax Hearings Unfortunately, the Travis County Appraisal Review Board generally ignored evidence submitted by the property owner (during Austin property tax protests personally observed by the writer). The Travis County Appraisal Review Board did consider evidence generated and produced by the appraisal district during these hearings. If it supported a reduction, they made a reduction. However, these was no sign that they were willing to consider evidence submitted by the property owner during the noted Austin property tax protests. Links & Resources | |