Investors vexed by Tarrant Appraisal District valuations
As property owners continue to deal with the elusive real estate values in today’s market, Blake, like many real estate professionals, says foreclosures are hurting the values of his residential investment properties in Tarrant and Dallas counties. But, unlike in Dallas County, Blake says TAD is not eager to consider a foreclosure a comparable sale, thus making Tarrant properties less desirable to his investors.
“I have a client who lives in California; I’ve managed properties for him for years and he has flat out said he doesn’t want any more Tarrant properties,” said Blake, owner of Atlas Properties. “… Usually in Dallas, you can send in the HUD showing what you paid and they reduce it to the purchase price, but there have been very few times that happens in Tarrant. And in the end, it’s just not worth the fight. It’s easier to just not buy the properties with assessed values that are too high.”
Luckily, some investors could find their answers in new constitutional amendments passed Nov. 3.
Voters approved four real estate-centered amendments that, according to the Texas Taxpayer and Research Association, would lead to “the most significant property tax reform in 30 years.”
Proposition 2 requires that tax appraisals of a person’s primary residence be pegged to the site’s value as a homestead, instead of a widely used “highest-and-best use” standard, such as the property’s potential for commercial development. This amendment is especially noteworthy for residences within “transitioning neighborhoods,” said TAD Chief Appraiser Jeffrey D. Law, such as residential areas transitioning into commercially zoned areas. Law said the changes will come in how TAD codes the accounts, which will amount to a change in methodology alone.
Proposition 3 allows the state to enforce uniform property appraisal standards, which Law said TAD already abides by and will continue to do so, though he is not sure what additional standards could be put into place.
“Many appraisal districts are trying to figure out what other standards they’re going to regulate. We’re waiting on the legislature,” Law said. “And we’ll do whatever the legislature says, I’m just not sure what it will be.”
Proposition 5 would authorize adjoining counties to consolidate review boards that hear appraisal appeals – an amendment that will have the greatest impact on rural counties that find it hard to attract enough citizens to their review boards. And Proposition 11, possibly the most highly anticipated amendment, will place more restrictions on government entities that use eminent domain to take private property.
Appraisal methodology
The residential real estate market has been in turmoil for a solid year, seeing rapid decreasing values across the nation. In Texas, values have remained consistent as have values in the Dallas-Fort Worth Metroplex. In pockets of Tarrant County, however, such as in suburban areas with hoards of new homes built in the last few years, foreclosures have continued to mount. Though any submarket’s rocky values – through foreclosures or a high volume of available homes – can affect values, Law said property owners must understand the most important piece of an appraisal is its date.
“Our appraisals are based on Jan. 1 of each year, so on Jan. 1, 2009, appraisals were set on the market data we collected, and typically that data was collected in 2008, so if the market adjusts or fluctuates after Jan. 1, 2009, those adjustments and fluctuations won’t be seen on the appraisal,” Law said.
Jim Gaines, research economist at Texas A&M’s Real Estate Center, said another factor that many property owners don’t understand is the simple definition of an appraisal, which is essentially “somebody’s estimate.”
“Value is not something that you can take a value meter and hook it up to the property and it will spit out what the property is worth,” Gaines said. “Value is an economic concept; it’s a human concept. We call it sophisticated estimates and at the end of the day, when somebody puts a number on the paper, it’s them saying ‘this is what I think this is worth.’”
Added to that scenario is Texas’ non-disclosure status, which Gaines says equals a “judgment call often based on incomplete data.”
Law said the only way to rectify any discrepancies caused by non-disclosures is for investors (and any property owner) to bring in as much data as possible to a protest meeting.
“Texas isn’t a full disclosure state so a lot of transactions occur that we’re not aware of,” Law said. “… Every case is different. There are times when people bring it in, and sometimes, based on that information, we may agree or we may not completely agree, but anytime you can bring in information to us, it’s always helpful.”
But, as Blake says, scheduling those protests is a battle all its own. Blake said he has several properties in need of protest, but many of those properties were scheduled for different dates, which means he or his staff would have to appear at TAD multiple times to handle each of his properties.
“At one point I just have to ask myself if it’s worth mine or my employees’ time to go to different hearing times for all of the different properties,” Blake said. “Things have to change. At least I hope they do.”
Law said scheduling, especially for those with multiple Tarrant County properties, is indeed in need of reform.
“There’s no law that says they all have to be separate appointments; they’re falling victims to our scheduling system and we’re working on it,” Law said. “I can understand with multiple properties how it could be burdensome to come up and take off work for multiple appointments and we’re trying to work on that and accommodate taxpayers. That’s an issue on our part and that complaint makes perfect sense.”
Law suggests investors or those who own multiple properties send in protests for all properties at the same time, which could help TAD to block out time for all the properties to be protested within one visit.
Foreclosures: considered or
not considered?
Mark Wood, partner at Howe/Wood and Co. real estate brokerage and development firm, has developed a few residential subdivisions in the Metroplex and said he has heard many frustrations from builders including some complaints concerning foreclosures being calculated into nearby property appraisals.
By law, foreclosures are not considered arms-length transactions, meaning they are not representative of a typical sales price under normal circumstances in any given market and therefore cannot be considered a comparable sale. But home owners say foreclosures are affecting their property values and should be calculated into the appraisal.
“Of course TAD says it’s lagging, but the whole thing doesn’t make a lot of sense to me,” Wood said. “… From what we’re hearing, the foreclosures aren’t really being taken into account at TAD, but the reality is, if they can’t sell it for what it’s appraised at, then it doesn’t seem like the appraisal process is working. That’s why it’s called fair market value.”
Law said while foreclosures are “not representative of fair market value,” TAD does take foreclosures into consideration “when we feel like foreclosures are making an impact in a certain neighborhood.”
Wood said he hopes Proposition 3 will quell inconsistencies such as foreclosures being considered comparable sales in only some districts is one situation.
“If other appraisal districts are accepting foreclosures in every case and some are only accepting them part of the time or not at all, there needs to be some consistency and I would hope that’s something the amendments address because it’s not going away anytime soon,” he said.
Law agreed, adding that while he cannot predict values for 2010, he does think Tarrant County property values will likely remain “flat” for the year because of current market conditions.
“As an appraiser, I follow the market. I look at what has happened in the market and try to make a determination of what will be,” Law said. “… Do I see the market rebounding and going back up? I sure hope so. I want my home to rise in value and not go down, but I would think that we’re probably going to be looking at a pretty flat year in 2010.”
