Harris County Property Values Increase Dramatically Across the Board By Brian Wolford, Managing Consultant, Houston The Harris County Appraisal District (HCAD) in Texas has released the new property values for 2014, and many taxpayers may be wondering why their property’s value increased so dramatically. For commercial property owners, you likely received a value notice with anywhere from a 15 - 30 percent increase from last year. You can see the breakdown of HCAD’s overall value increases for 2014, by property type, in Figure 1. So, why have values increased so drastically this year? The appraisal district would have you believe it’s due to Houston’s booming economy, low unemployment, population growth and all-time high housing demand. But is that the whole story? No one would argue that the majority of property values have increased over the past few years. However, it’s probably hard to believe that values have actually gone up more than 50 percent in the past two years alone. But unfortunately, this is a very common percentage increase we are seeing in Harris County.
Property Type
Total % Value Increase
Apartments
26.4%
Warehouse
11.9%
Office
17.8%
Retail
22.6%
Commercial Land
21.4%
Figure 1 – Harris County Value Increases
The reason for the dramatic increase, in short, is “mass appraisal.” HCAD prepares a cap rate study each year to determine what commercial properties are trading at. Then, they apply this cap rate to all similar properties in the area and notify you of the new value you will be taxed on. In addition to the likelihood of the computerized information being unreliable and inaccurate when conducting a mass appraisal, there is another major flaw with this methodology: no two properties are identical. There are a number of variables that differentiate “similar” properties from one another. For example, the land is different in terms of location, traffic count, ingress/egress, utilities, drainage, etc. In addition, building structure and designs differ, as do tenant mixes. Cap rates also present valuation issues. There might be a similar property to yours that sold at a 6 percent cap rate; however, you might believe yours could only sell for an 8 percent cap rate. So why the difference? The lower cap rate transaction could be due to the type of financing used, or lack of financing in general. The new owner could be tax exempt, allowing them to pay more for the property up front. Or it could be an international investor seeking a safer investment than they can find on their own soil, so a lower return on their investment is reasonable in their situation. The unfortunate reality of mass appraisal is most of the values are inaccurate. The only way to get a true market value on your property is to appeal the value and attend a hearing. The Texas Real Estate Appeal Deadline is June 2nd. We highly recommend enlisting a property tax professional at this time to review your valuation in order to achieve maximum tax savings. Here at Paradigm Tax Group, we understand what goes into a purchase price, and the ways market value differs from an investment value. We know there is more to an acquisition than a one year analysis like Harris County is using. Our team in Houston has years of experience in providing our unique brand of results-oriented property valuation reviews, appeals, property tax reductions and status reports to Harris county property owners and managers. For a complimentary review of your property's market value in comparison to the real estate property tax valuation you received from your county, please don't hesitate to contact me (281) 569-4730 or bwolford@paradigmtax.com.