How to Get Fair Market Value in an Unfair Market

Getting Fair Market Value in an Unfair Market

Deborah L. Crain, J.D.10707 Corporate Drive, Suite 126

Stafford, Texas 77477281-565-5777

[email protected]

Taxation must be Equal and Uniform Property must be taxed on the Basis of its

Fair Market Value Appraisers may not Appraise Property

above its market Value Previously there was a single Appraisal

Review Board for each Appraisal District – ◦ Texas Constitution amended to allow for smaller

counties to combine their efforts

Texas Constitutional Principals of Property Taxation

Law Office of Deborah L. Crain, P.C ., 10707 Corporate Drive, Suite 126, Stafford, TX 77477 (281) 565-5777 WWW.DEBORAHCRAINLAW.COM

Three Departments in the Assessment and Collection of Property taxes:◦ Taxing Unit (Fire Department, School District, City

government, MUD, other Special Entity)◦ Appraisal District-Independent agency that

assesses property in the County◦ Collection Division-Creates the bills and receives

payment. Usually the County Assessor, except in some small counties.

State is constitutionally prohibited from taxing Property.

Players

Law Office of Deborah L. Crain, P.C. 10707 Corporate Drive, Suite 126, Stafford, TX 77477 (281) 565-5777 WWW.DEBORAHCRAINLAW.COM

Appraisal District appraises all Real and Personal Property in the county and arrives at a total value.

Taxing Unit decides how much revenue they need and sets a Tax Rate (published yearly in the newspaper).

Collector’s formula to determine your property’s tax: Value x Rate = Tax

Tax Process

Law Office of Deborah L. Crain, P.C. 10707 Corporate Drive, Suite 126, Stafford, TX 77477 (281) 565-5777 WWW.DEBORAHCRAINLAW.COM

Appraisal phase January 1-May 15◦ When is value determined (Jan 1)

Incomplete construction is prorated This is important because you need to determine whether or not the property is

valued at the prorated value or the full value Notice of Appraised Value sent – the county is not required to send it if there is no

change in the value Equalization and Review Phase May 15-July 25

◦ May 15 Protests Begin Most counties have information about your property on their website Appraisals for formal appeal hearing; Zillow might have good info for informal

discussion Protest must be filed before June 1 (no protest means you accept the tax) An exception is the clerical error – 25.25 Motion

Assessment Phase July 25-October 1 (Take appraisals and then determine the corresponding tax amount. The tax bills are due by October 1)

Collections Phase October 1-◦ Delinquent date Feb 1 of following year

Key Dates

Law Office of Deborah L. Crain, P.C., 10707 Corporate Drive, Suite 126, Stafford, TX 77477 (281) 565-5777 WWW.DEBORAHCRAINLAW.COM

The price at which a property would transfer for cash or its equivalent under prevailing market conditions if:◦ On the market for a reasonable time for the seller

to locate a buyer◦ No Hidden conditions that would change the price

if they became known◦ Neither buyer nor seller is looking to maximize

their gains and neither is in a position to take advantage of another-arms length transaction

Definition of Market Value

Law Office of Deborah L. Crain, P.C. , 10707 Corporate Drive, Suite 126, Stafford, TX 77477 (281) 565-5777 WWW.DEBORAHCRAINLAW.COM

Cost

1. Estimate cost of replacing or reproducing improvements2. Subtract Depreciation3. Add land Value – (land value is determined by market approach)

Market-Most common in Texas◦ Comparables◦ Requires an active market to be effective – this is what is difficult about

today’s market because there are so many foreclosures (Latter and Blum Executive)

◦ Works least for very unique properties – good exception is a home that is overbuilt for the neighborhood (10,000 square foot home in an neighborhood that the next highest square foot home is 6,000 sq. ft.)

Income1. Determine properties net annual income2. Determine Capitalization rate (the rate of risk associated with the

property)3. Divide net annual income by cap rate to arrive at property value

Appraisal Methods


Mandatory Homestead◦ Persons who Qualify for over 65 and Disabled may

only receive only one.

Property Tax Exemptions

School County

General $15000 $3000

Over 65 $10000 $0

Disabled $10000 $0


Optional-On top of Mandatory◦ Units may offer one, all or any combination of the

3 exemptions◦ Persons who qualify for over 65 and Disabled may

receive both.

Property Tax Exemptions

School City County Special district

General At least$5000

Max 20%

Same

Same Same

Over-65 At least $3000

Same

Same Same

Disabled At least $3000

Same

Same Same


Texas veterans who receive100% disability from the VA receive100% exemption on property taxes. (Effective 2009) (If the property is owned jointly, then it is applied to their ownership interest)

Foreclosures or low-end sales because of the economy in a neighborhood cannot be excluded from comps. (Effective January 1, 2010)

Residential appraisal must be based on market value rather than highest and best use. (House surrounded by commercial) (effective January 1, 2010)

To qualify as a comparable, sale must have occurred within the previous 24 months of appraisal date (effective January 1, 2010)

Recent Changes in the Law


Trends-Moving out to the burbs/Moving back inside the Loop

Government Intervention◦ $8000 New home buyer program-Artificially keeping

home prices high◦ Artificially Low Interest Rates◦ Deficit Spending – government printing money,

causing inflation can artificially affect FMV Easements – Any kind of restriction can affect

value, either positively or negatively (Homeowner’s Restrictions)

Deed Restrictions

Fair Market-Disruptions to Market Value


Prepare, Prepare, Prepare◦ Ask the CAD to explain how it arrived at its

appraised value. ◦ Ask the CAD for all information they used in

preparing your appraisal. (There may be some cost)◦ Check all lot and building measurements for

discrepancies◦ Ask the CAD for records of similar properties◦ Get your own Appraisal done by an independent

Appraiser◦ Are there any hidden defects the CAD is not aware

of? (Pictures can be good evidence)

How to file an Appeal


The CAD must give you 15 days notice of a hearing After a hearing date is set, ask for all documents and

evidence it plans to present at your hearing Consider hiring a professional to present your case

(most work on a contigency fee basis) Just the facts, ma’am. When Hiring an attorney – make sure they know enough

about property tax to fairly represent you Should the ARB rule against you, what is the next step?

1. Binding Arbitration2. File Suit in District Court (within 45 days of the ARB decision;

chief appraiser must file notice of intent wiith ARB within 15 days)

Going Before the ARB


Taxes must not be paid delinquent (Feb 1), or you lose many of your appeal rights. Here are a few reasons you may appeal late. These appeals include the current year and 4 prior years:◦ Clerical Error; V.T.C.A, Tax Code § 25.25◦ Appraisal is 1/3 higher than its market value (Benson Chevrolet v. Bexar

Appraisal District, 242 S.W. 3d 54 – Tex App.-San Antonio 2007 – 41.41 appeal is not necessary if property owner files a 25.25 appeal before the taxes become delinquent to correct error, sometimes known as a substantial error) (This means that if TP paid timely they can go back in time to get an overpayment. Example: 2007 home under construction but valued as if it was fully complete. TP received a refund check in the amount of $16,000.

◦ Failure to notify you of changes in your appraised value◦ Including property on the rolls that should not have been included.◦ If there was no notice of the appraised value or the tax bill itself, you may

be able to assert that there was no constitutional due process – Aldine Independent School District v. Connie Ogg, 122 S.W. 3d 257 (Houston – 1st Dist. 2003). (Where there is no delivery of the required notices, there is no entitlement to penalties and interest.)

Late Protests


V.T.C.A., Tax Code 33.01, et seq.: Late fees and Penalties add up fast. Even if the tax amount is in dispute, it is best not to allow the tax bill to become delinquent.

Taxes become delinquent Feb 1 of following year. Feb 1 penalty is 6% (max of 12%) increases by 1% each month Feb 1 1% interest, increases by 1% per month forever July 1 the Assessor may include additional penalty up to 20%

to cover the fees of hiring an attorney.

Delinquency

Tax Amount Current On Feb 1 On July 1

Base amount $3000 $3000 $3000

Penalty 0 6% 12%

Interest 0 1% 6%

Additional Penalty 0 20%

Total $3000 $3210 $4248


Talk to both your business and individual clients and remind them to check on the values of their property. This is a good way to add value to the relationship that you have with your client.

Closing


Business

How to Get Fair Market Value in an Unfair Market