Craig Chick, TAR Director of Political Affairs (Reprinted with Permission)

Why Sales-price Disclosure Won’t Help Appraisal Reform

The state’s appraisal process is often unfair—you probably won’t find many Texans who would disagree with that statement. However, many appraisal districts are under the false impression that mandatory sales-price disclosure is the key to lower property taxes and appraisal reform.

This is simply not true.

CADs already have the data

The Texas Comptroller’s office annually publishes a Property Tax Report. The most recent of these reports indicates that central appraisal districts across Texas have a median appraisal of 99% of the area’s market value. Does that sound like appraisals are way off?

Furthermore, district s use only a fraction of the sales data in a given area to perform a mass appraisal. Chief appraisers have testified they need information on as few as 5% of comparable sales to produce accurate appraisals, and they currently receive about 35% of all comparable sales confirmation surveys.

And many appraisal districts have agreements in place with local MLSs to share comparable sales information. Fact is, most central appraisal districts are receiving around 85% of all residential sales data. If appraisers need only 5% of this information to properly do their jobs, why is sales-price disclosure necessary?

Sales price doesn’t matter to commercial appraisers

Some appraisers are calling for sale-price disclosure as a way to value commercial property. However, commercial property is appraised by using the income method—not the sales price. For example, the Uniform Standards of Professional Appraisal Practice does not mention comparable sales when attempting to value commercial real property. Factors such as rental rates, rental terms, and capitalization rates are utilized. Sales price disclosure legislation will do nothing to assist valuing commercial real property.

What will fix the appraisal process?

The Texas Association of REALTORS® has identified 10 ways to improve the appraisal process. 

1. Lower the over-reliance on school property taxes
The problem with property taxes is not out-of-control appraisals; rather it’s a system of funding our public education that heavily relies on property taxes.

2. Repeal the current calculation for an effective tax rate and replace it with a simpler calculation
Since the enactment of the Property Tax Code, many backouts for calculating an effective tax rate have been added to Texas law, allowing local taxing jurisdictions to rig the system in their favor. The general taxpaying public does not understand what an effective tax rate is.

3. Require all taxing jurisdictions to begin with the new effective tax rate and vote to increase or decrease the tax rate
This will eliminate the automatic increase local jurisdictions receive with higher property values. Higher property values will no longer be seen as free money. The effective tax rate will become the tax rate at which to begin deliberations.

4. Decrease the rollback rate for local taxing jurisdictions, other than school districts, to 3%
In 1981, cities and counties argued for an increase in the rollback rate to 8% because of the rate of inflation. The rate was increased from 5%. The rate of inflation for 2005 was slightly more than 3%.

5. Repeal the petition requirement for a rollback rate election for local taxing jurisdictions other than school districts
Taxpayers shouldn’t be burdened by a petition requirement before a rollback election is called to ratify a higher property tax rate. Rollback elections should be automatically called when the property tax rate exceeds the rollback rate.

6. Require additional education requirements on chief appraisers and central-appraisal-district employees
Increasing the educational requirements for chief appraisers and employees will enable them to do a better job.

7. Enforce additional requirements on appraisal review board members before they are appointed to serve
Increasing the requirements for ARB members will ensure qualified individuals are appointed who have the knowledge and experience of the appraisal process.

8. Create separate ARB panels to hear different classifications of real property
Individuals who have the experience and knowledge about different classifications of property will help to ensure fairer hearings.

9. Stagger appraisal notices regarding proposed valuations of real and business personal property.
This will allow homeowners more time to talk to appraisal districts and help to alleviate the “cattle call” many property owners experience when contesting their appraisals.

10 . Repeal current law which allows a chief appraiser to sue a property owner after an ARB hearing.
This will prevent a chief appraiser, upon the approval of the board of directors, from filing a lawsuit against a property owner who prevailed in an ARB determination hearing.

Mandatory sales-price disclosure will not fix the appraisal process or lower property taxes. This 10-point proposal, which the Texas Association of REALTORS® is putting before members of the Texas Legislature, will result in fair appraisals for all Texas taxpayers.