Last weekend, the National Association of Real Estate Editors (NAREE) awarded this series discussing state and local property taxes “Bronze” in their Best Series category. While originally published in May 2016, a year later nothing has alleviated our property tax increases.
Several weeks ago I wrote a pair of columns (here and here) about how the core math of Texas property taxes is fundamentally broken (and always has been). While, A+B=C, if “A” is patently wrong, how can “B” and “C” be accurate?
In this case, “A” is assessed property value, “B” is property tax rate and “C” is the revenue required to run the city and state. In Texas, without real estate transaction disclosure, “A” is always a bit of a crapshoot as DCAD pulls assessed values out of thin air. Now I’m sure there’s some enormous algorithm they use to calculate values (a bottle of Jack, a blindfold and a dart board?) but in the end, not having access to the actual selling prices of real estate in Texas hamstrings a meaningful conversation about taxation rates.
As it is, property tax assessment districts in Texas have higher rates (“B”) than are actually needed because they have no visibility into “A” valuations. Texas rates are high because the underlying assessed values are inaccurate.
Yesterday, the Dallas Morning News outlined how this year’s rate increases hit middle-income homes harder than higher income homes. Color me shocked! And yet, the middle class are just as vocal about keeping Texas’ system of non-disclosure in place.
For me, this was the most salient paragraph …
“Local officials say they are hamstrung by state law in trying to accurately assess commercial and high-end residential properties. Texas, unlike most other states, doesn’t require real estate sales prices to be publicly disclosed. Property owners who can afford pricey Realtors often demand nondisclosure agreements. State law also permits property owners who successfully challenge their appraisals to collect attorneys’ fees from the county.”
If non-disclosure died, here’s what would happen…
First, the state would take 3 to 5 years to change the system. During that time, the state taxation districts would rebuild their databases of assessed values based on transactions occurring during that window. From there, the state would reverse engineer the taxation rate. If the state needs $X and property is worth $X, what rate gets us to that level? Hint … it’s a rate a HELL of lot lower than it is today.
For example …
A $200,000 home taxed at today’s homestead rate of ~2.3 percent equated to $4,600 per year in property taxes. But let’s say that home is really worth $310,000 … then the tax rate would only need to be 1.5 percent to reach the same $4,600 in annual property taxes.
I hear you saying … “If, after this exercise homeowners still pay about the same, what’s the point?”
First and foremost, accuracy. Just as Realtors base selling prices on comparable sales, so would taxing districts like DCAD. Rather than painting the Mona Lisa with a paint roller, assessed values and any annual increase/decrease would be accurately portrayed in their calculations. In being able to “see the math,” homeowners and DCAD would be working from the same data … and be more accurate.
Being more accurate means FUTURE increases and decreases are felt more quickly in the system. For example, in my cursory look through DCAD, it appears it took them a couple of years to begin reducing taxes during the recession. Had they been given real data, those reductions may have happened quicker, saving homeowners money, and likely with a lot fewer tax protests. (Of course, like gas, prices go up more quickly than they go down. Funny that.)
Second, the wealthy, who are paying for property tax agents to tamp down their taxes, would have A LOT harder time succeeding. The folks the Morning News said are “demanding nondisclosure agreements” on their multi-million dollar transactions would no longer be able to keep their traps shut.
Personally this is what galls me the most: The wealthy are the most able to pay taxes but are also the least likely to pay them. Also, the infrastructure of the USA, from education to roadways to business opportunities, has enabled their wealth, and yet they are hell bent on not paying their fair share back into the system to pass those opportunities on to the next generation. As I noted in my original columns, this was not the case in the past. In eras when personal taxation was excruciatingly high, over 80 percent thought that was fair. But that was a time before greed became god.
I get that you’re thinking that if your property was assessed at 100 percent of its true value, then your taxes would go through the roof. But I think that’s a false assumption. Even with our broken system, everyone from the mayor to the governor are seeking a way to lower taxes.
Unfortunately, like most political fixes, it’s weak tea. They are all exploring lowering the taxation rate while none have spoken out to eliminate non-disclosure and install a level playing field.
The reason is simple. The wealthy, who donate and have political influence, don’t want it. They want to buy their $5 million house that’s only assessed at $1.8 million. What they fail to understand is that like everyone else, if DCAD had accurate information, their rate would decrease and their actual taxes paid might not change much.
Proof? Here are the 10 most expensive houses currently for sale in Dallas with their asking price and DCAD valuations. Will these homes sell for these prices? Unlikely, but they’ll sell a lot closer to asking than assessed value. But it does demonstrate what the owner and their Realtor believe they’re worth (armed with accurate MLS sales data) versus what they’ve paid their tax consultant to convince DCAD (who doesn’t have access to the same data).
|Address||Assessed Value||Asking Price|
|10711 Strait Lane||$18,200.000||$32,347,000|
|5950 Deloache Ave||$18,340,290||$28,500,000|
|10210 Strait Lane||$12,903,810||$27,500,000|
|10620 Strait Lane||$8,298,160||$17,900,000|
|4009 W. Lawther Dr.||$13,264,530||$17,500,000|
|10777 Strait Lane||$8,616,100||$15,000,000|
|4800 Park Lane||$9,893,530||$14,500,000|
|4926 Deloache Ave.||$5,582,640||$13,645,000|
|5020 Elm Hollow Dr.||$7,928,830||$11,950,000|
|4842 Brookview Dr.||$4,623,020||$11,595,000|
In the end, if a homestead is $100,000 off in assessed value, it’s theoretically $2,300 off in its taxes, but for every $1 million off, it’s $23,000 in tax avoided. Just these top 10 homes represent over $82 million in discrepancy and are in theory avoiding some $1,904,080.07 in taxes a year. Oh, and nine of the 10 list tax agents on their DCAD records whose job it is to reduce property tax bills.
The more costly the property, the more incentive to finagle the assessed value. (And isn’t there something a little fishy when a homeowner on one hand lists a home for sale at a price vastly more than they’re paying a tax consultant to plead with DCAD that its “worth” with the other? Jus’ sayin’.)
But as I say, with all cards on the table, the math is more accurate and ultimately has less negative impact on ALL homeowners. As it is, when you have garbage data going into a calculation, your end result is also garbage.
Me? Over the past three years, my assessed value has gone up 35 percent and my taxes have been capped for the past two … meaning they wanted to raise me more but were limited by the 10 percent cap on homesteads. So, like many of you, this more than just an academic exercise for me.
Remember: High-rises, HOAs and renovation are my beat. But I also appreciate modern and historical architecture balanced against the YIMBY movement. If you’re interested in hosting a Candysdirt.com Staff Meeting event, I’m your guy. In 2016 and 2017, the National Association of Real Estate Editors has recognized my writing with two Bronze (2016, 2017) and two Silver (2016, 2017) awards. Have a story to tell or a marriage proposal to make? Shoot me an email email@example.com.