If you are a commercial property owner or real estate investor in Texas, you have likely encountered the issue of unequal appraisals. The issue of unequal appraisals can have a significant impact on your bottom line and the broader real estate market.
In Texas, the commercial real estate market is diverse and dynamic, so it becomes essential to support fair and accurate appraisals to maintain market integrity and protect property owner’s financial interests.
In this blog, we will break down what unequal appraisal means, its causes, how it affects property owners, and what you can do to challenge it.
What Is an Unequal Appraisal?
An unequal appraisal occurs when the value of a property is assessed incorrectly compared to similar properties, leading to either an overvaluation or undervaluation of the property. For commercial real estate, this means property owners can end up paying more taxes than necessary or missing out on opportunities due to inaccurate valuations. The appraisal district can assign certain characteristics to a property based on the principle of highest and best use. These characteristics are then used to identify comparable properties for valuation purposes.
The Reasons Behind Unequal Appraisal
Several factors can contribute to unequal appraisals in Texas. Here are some main causes that will help you understand when to act against it:
• Market conditions and fluctuations: Real estate is tied to fluctuations in the market. In Texas, regional factors such as economic growth, work opportunities, and even oil prices can shift property values dramatically. As the market fluctuates, some properties may be appraised at different values or using data that does not fully reflect the current conditions, leading to inconsistent valuations.
• Errors in data collection and analysis: When estimating the value of a property, the appraisal is calculated based on exact data, but mistakes can happen. Whether it’s an incorrect record of a building’s square footage or outdated sales comparisons, inaccurate data can throw off an entire appraisal. According to a survey by the Appraisal Institute, around 22% of appraisers acknowledged data quality issues as a common challenge, showcasing how easily these errors can occur.
• Bias and subjectivity: While appraisers try to be objective, personal biases can influence their work. A 2022 study by the National Fair Housing Alliance found discrepancies in how properties in different neighborhoods were valued, especially in areas with different racial or economic backgrounds. Appraisers may unintentionally allow their biases to affect their valuation, contributing to unequal assessments.
• Differences in appraisal standards and practices : Texas is a large state, and appraisal practices may vary depending on the region. Different appraisers may use certain valuation methods over others or emphasize varied factors like construction cost or rental income, leading to discrepancies even among properties that should be valued similarly.
How Unequal Appraisals Impact Property Owners
Unequal appraisals can have a substantial effect on property owners, including the taxes paid, their investment decisions, and the overall influence over the market. Here are some implications of unequal appraisals:
Financial consequences
When a commercial property is overvalued, the owner incurs higher property taxes, increasing overall financial costs. Conversely, if the property is undervalued, the owner may miss opportunities, such as underpricing it during a sale. However, the county’s assessed value generally has little impact on the market price, as investment properties are typically valued based on future cash flows.
Property tax assessments
Another major effect is unfair property tax assessments. If a property is appraised above the correct market value, the overall tax will reflect this overvaluation. According to the Texas Comptroller’s Office, more than 10% of commercial property tax appeals in recent years have been due to appraisal inaccuracies, highlighting how widespread this problem is.
Market distortion
Unequal appraisals can have a huge impact on the broader real estate market. In such situations, buyers may hesitate to invest if they suspect the property is overvalued, while sellers might lose confidence in closing deals if the property is undervalued. This can lead to fewer transactions and disrupt the market dynamics.
How to Address Unequal Appraisals?
Fortunately, Texas property owners have options for addressing unequal appraisals. As a property owner, you have the right to appeal the valuation if you believe your property is overvalued compared to similar properties. You can also dispute any inaccuracies in the characteristics assigned to your commercial property by the county.
If you believe your commercial property has been unfairly assessed, you can file an appeal with the county’s appraisal district. To improve your chances of success, it’s important to present a strong, well-documented case with evidence, such as comparable property data or recent sales information. Engaging a property tax consultant or an independent appraiser can significantly enhance your chances of a favorable outcome.
How Can a Property Tax Consultant Help You?
As a property owner, understanding property appraisals and related tax disputes can be challenging and time-consuming. Hiring a property tax consultant can make the overall process easier and increase your chances of reducing an unfair tax burden.
Property tax consultants can help review your appraisal and identify any discrepancies. They can also compile evidence, file an appeal on your behalf, and represent you at a hearing. By working with experts, you can be stress-free about your properties and ensure they are valued accurately.
Conclusion
Unequal appraisals are an unfortunate reality in the Texas commercial real estate market, but they don’t have to be a permanent burden. By understanding the reasons behind the inaccuracies, knowing your rights, and taking the best course of action, you can ensure your property is correctly valued and protect your financial interests.
If your properties have been subject to unequal appraisals, don’t wait. Consult a property tax consultant today and receive the best assistance and recourse for your properties.