Home > Homeownership > Myths about Tax Assessment vs. Property Values

I'd like to take this opportunity to clear up some misconceptions about tax assessment values and property market values. These two items are not the same thing and for many, many buyers, it seems to be a "magic" number to which they (the buyers) assume many new creative ideas. It also has no relationship with each other. They are mutually exclusive.

Before I go on, I must say that this blog will be very relevant to the greater Dallas-Fort Worth metroplex because this is my work area and I know alot about this area. It may or may not be true if you live in different parts of the country. Discuss with your Realtor(R) in your area to find out how tax assessment values work in relation to the property market values. They may work together or they may not.

As for us here in the greater Dallas - Fort Worth areas, we pay property taxes which generally consists of city and county taxes, school taxes, county community college taxes, and other special entities. The tax rate is usually determined by first determining what services will be provided by each entity and how much revenues are needed to support these services. Then, the appraisal district offer provides the values of all taxable properties within the boundaries. Then, the taxing entities will establish a tax rate necessary to raise the needed tax dollars to fund their budget.

These taxable property values HAS NOTHING to do with market value - which is the opinion of real property valuation. This property valuation is conducted for highest and best use of the real property given a reasonable time to market the property.

When a tax assessor evaluates the value of the property in January, he may use several different sources. The first source is the voluntary sales price survey sent out by the appraisal district office. If you had declared on there how much you paid for the property, it would be the right information for which the tax assessor use to tax your property on. Again, note that this is a voluntary survey and you do not need to fill out this survey. The next guess would be to use public records. Texas is a non-disclosure state. By that, it means that the sales price you pay for a property is not public information. However, what is made public knowledge is the mortgage you take out on the property. Based on this information, the tax assessor could estimate if you had put a 20% down, a 10% down, etc. and back out the estimated full value you paid for the property. Other guesses would also include just typically raising x% since property typically appreciates over time or comparing your neighbor's house to yours based on your square feet and that your neighbor had in fact filled out the voluntary survey.

At every January, tax assessor goes out to the houses and evaluates them. The assessor only makes the best educated guess based on the exterior of your property and its location (lot premium, etc.). What goes inside the house could be a different story and this is where it throws them off. A house built in the year 2000 could be severely deteriorated because the owner did not take care of the property. So, when a property appraiser enters the house to evaluate the values, there will be many items that will count against the value. At the same time, a house who basically just looks neat and tidy on the outside could have the most sophisticated, highly-sought after features today's buyers want. Hence, the value will be raised by the appraiser.

So, when you want to make an educated guess without a local real estate expert in your area, do not use the tax assessment values. Do not come out with "magic" numbers and cannot properly substantiate your offer price to the seller with important information. Remember that the best negotiator is a person that has the most information. Do not say that you are NOT paying more than the tax assessment value because a governmental body says it is worth this much.

In my past experiences of studying this, there are several conclusions that I have made over the years. Tax assessors are not property appraisers. Their function is different hence cannot be considered as one. Also, the less often the property change ownership, the chances of the tax assessment values go up is lower. Tax assessors do not know what goes on inside the house, hence cannot correctly determine the values of the houses correctly.  No one wants to pay anymore taxes than necessary. Hence, some neighbors choose to exercise their right to protest and in many cases, they win. So, the value is lowered.

I hope that I have answered some myths you might have about tax assessment and market values. They are not the same thing for which their purposes are made differently.

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