5 tips to reach the right property tax value during COVID-19
5 tips to reach the right property tax value during COVID-19
As the COVID-19 pandemic continues to bring uncertainty to the US, Texas state and local authorities are adjusting real property deadlines and procedures for issuance of Notices of Appraised Values and property tax appeals. For the State of Texas, property taxes are the primary driver of revenue, and with likely declines in sales tax and oil/gas revenue, we can expect 2020 tax rates to increase. With the enactment of Governor Greg Abbott’s Disaster Declaration on March 13, this allows the taxing entities to raise property tax rates to as high as 8% to offset the loss of state and local revenue. Still, the outcome of this will not be determined until later this year.
While property owners are looking for some tax relief, the local appraisal districts are holding steadfast that recently released tax assessment values are based on a January 1 valuation date, and COVID-19 was not considered when values were determined and issued. Despite the Governor’s declaration, the Texas Attorney General determined the current economic impact COVID-19 has created, does not qualify for a “Disaster Relief” exemption as provided by the Texas Legislature. However, it is still under debate as to whether commercial properties will be eligible for this exemption in the future.
Prior to the pandemic, the incredible demand for real estate in Texas was the primary reason for prices being driven up on existing real estate, which 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 reflect changes in your tax assessment, your tax assessment might not accurately reflect changes in your revenue, especially now.
Here is what you need to know regarding valuations during the pandemic and what you can do as a property owner who is faced with a double-digit tax assessment increase:
- Stay up to date on changes
It might seem obvious, but often one small detail can create a ripple effect. This is why it is important to frequently monitor changes in Central Appraisal Districts (CAD) policies and timelines. For example, due to Stay at Home & Shelter in Place orders, CAD’s have delayed the issuance of Notices of Appraised Values (NAV). Normal mailing dates are April 1, with a May 15 appeal deadline; however, appeal deadlines are now 30 days from the date of issuance because of the delays. Informal meetings with the CAD and formal hearings with the Appraisal Review Board (ARB) will be handled remotely for the first time and we anticipate that the appeal season will be extended well beyond the late July certification date. This additional time can influence the information you include in your appeal.
- Know the market impact on your property
Tax assessments are complex calculations relying on numerous data points, both property specific and market level. Never had these data points changed so rapidly with such uncertain futures. 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.
Knowing the local 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.
- 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.
- 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 differ from the operating expenses connected to a multi-family property. Having a deep understanding of operations, cash flow, and property performance help to build a unique viewpoint in the appeal argument.
- Hire a quality tax consultant
In our current market, and with the pandemic leaving a devastating mark on our economy, property values are on the decline, but tax assessments with a January 1 valuation date are on the rise. The best way to tackle overvalued assessments and stay informed of complicated legislation updates 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.
We are working diligently for our clients to make sure that any escalation in values are being managed. It is important to recognize that information changes every day as we learn more about the decisions from state and local officials. Visit our State and Local Tax Changes Due to COVID-19 page for daily updates and read our observations from past downturns to help guide expectations for the coming tax cycle.