March 19, 2020
By Chris Daugherty, Senior Manager, Altus Group
If there is one thing that Texans can count on when it comes to property taxes, it’s that they are going up. On the one hand, this is due to the incredibly hot real estate market in Texas as demand has driven up prices on existing real estate and spurred billions of dollars in development of new projects. On the other hand, rising property taxes put upward pressure on operating expenses and downward pressure on net income. And while changes in your property taxes are a reflection of changes in your tax assessment, your tax assessment might not accurately reflect changes in your revenue.
For example, in Houston, an apartment owner might see revenue increasing by 2-3% annually. However, depending on the neighborhood, the year-over-year property tax assessment growth can be 15% to upwards of 30%. The reality is, appraisal districts have become more aggressive because they see more demand and therefore, higher property valuations. It’s not fair, necessarily, but that’s the reality of property ownership today.
What, then, can you do as a property owner who is faced with a double-digit tax assessment increase? Here are a few tips that rely on both internal and external resources:
1. Read Your Mail in Detail
It might seem obvious, but often one small detail can create a ripple effect. Tax assessments are complex calculations relying on numerous data points, both property specific and market level. Understanding the market data benchmarks as well as how your property compares to the market, will help you make a quick determination if the assessment calculation is accurate. Knowing what to look for within the calculation can require some expertise. Sometimes, it’s a simple error that can cause a significant overassessment.
2. Know the Market
Knowing the market plays a big role when working in multiple municipalities and counties that have different assessment methodologies. This is where hiring a quality tax consultant can provide significant value. It’s important to have an in-depth understanding of how the appraisal values are determined, and how to operate within the law to reduce your taxable value. Having access to actual data on local tax trends and valuations is how to build a case when arguing a tax assessment. A tax consultant has the advantage of leveraging data from numerous properties in a single neighborhood, city, and county for many years.
3. Build Partnerships
It can be a struggle to build a relationship with someone with whom you are always disagreeing. This is the natural state between a property owner who is trying to lower an assessment, and an assessor who feels they have done their job correctly. One of the top benefits of hiring a tax consultant is that they on your side, but the good ones also understand the side of the appraisal district. Any tax consultant worth its salt needs to speak to, and relate to, the pain that property owners are experiencing, and then communicate it effectively to the assessors. This relationship is of enormous benefit, as it allows for a realistic strategy towards ensuring a fair settlement.
4. Activate Specialized Industry Skillsets
This is the most challenging tip to follow. Decades in the property tax business has shown that approaching each asset type, regardless of location, with unique industry expertise results in the best outcome for the property owner. This is because the valuation and operating expenses inherent with a medical office building vastly differs from the operating expenses connected to a multi-family property. Having a deep understanding of operations, cash flow, and property performance helps to build a unique viewpoint in the appeal argument.
5. Hire a Quality Tax Consultant
In our current market, property valuations are on the rise — and so are tax assessments. The best way to tackle overvalued assessments is to work with a consultant with an in-depth understanding of the market, that knows the appraisal districts, and can discuss important issues with you as an equal partner. At Altus, our ability to resolve tax assessment issues and communicate effectively with the taxing authorities has helped independent owners, REITs, and investment funds better forecast realistic tax budgets, underwrite acquisitions and improve the financial performance on their assets
Chris Daugherty is a senior manager with Altus Group, based in Houston.
For comments, questions or concerns, please contact Paul Bubny