Special contributor Lydia Blair with Mary Doggett, VP of National Investors Title Insurance

By Lydia Blair
Special Contributor

Property taxes are the talk of the town right now. Municipalities all over the Metroplex are proposing tax rate increases on top of the frequent increase in property values. This year’s tax bill may be a double whammy for our already steep homeowner taxes. If you’re thinking of avoiding those taxes, here is your warning.

“Texas is pretty efficient with collections or foreclosing because our property taxes are high,” says Mary Doggett, VP of National Investors Title Insurance.

Despite our strong homestead rights in Texas, you can lose your home if you don’t pay your property taxes. Rest assured that the taxing authorities will collect their money one way or another. There is no escaping it.

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I never realized DCAD’s boundaries create a great big bug.

Last week, Robert Mundinger over at TheMap showcased the work of his friend Owen Wilson-Chavez who’d created a 3-D map of tax revenues generated across the DCAD taxing area. During my self-guided tour, I discovered a bunch of other, equally interesting, maps. It’s Dallas like you’ve never seen it …

Above, you can immediately see the unsurprising fact of Southern Dallas not contributing much money in property taxes to the city’s coffers. But it’s more nuanced than that. First, pretty much all the green you see are concentrated areas of commercial real estate. Below the Park Cities “white spot” is downtown and Uptown. To the right is the Central Expressway corridor with the North Park Shopping Center area being the tallest green. Beyond that there’s Galleria, Preston Center and the commercial space bordering LBJ and Central Expressway. The lesson here is that higher density generates more taxes than it costs in services.

How much more?

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When we “feel like just a number,” we’re really just reflecting our uniqueness being ignored. We’ve long known we’re just a number to taxing bodies like DCAD … albeit one with a dollar sign in front. But recently, I’ve found we’re a percentage, too.

In valuing property, DCAD calculates the total market value based on both land and “improvements” (structures). The combination of these numbers equals the total assessed value of a given property. All fine so far. A (land) + B (structures) = C (total market value)

But did you know that there’s a ratio used between land and improvement values? You likely think this means that land appreciates at roughly the same rate of structures. Partly. It also means that land should be equal to a certain percentage of the structure. And when the ratio gets out of whack, it’s adjusted. On the surface this too seems generally fine, provided you start with structure and land that fall within the ratio (and nothing changes).

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Beginning in 2014, Central Market parent HEB began snapping up parcels on the city block bounded by Lemmon and Bowser Avenues between Reagan and Throckmorton Streets. Their intent was to open a Central Market. That plan has been abandoned for what I last heard was a Central Market planned for the old Albertson’s location on Lemmon and McKinney Avenues.

The main reason the deal failed was zoning. The parcels facing Lemmon Avenue are zoned for commercial operations while the Bowser-facing lots were zoned for residential use. The Oak Lawn Committee told HEB there was no way they’d support a commercial encroachment into a residential area. I’m sure the fear was that if they’d said “yes” here, other Lemmon Avenue businesses would want to convert the residential backs of their blocks to commercial too. (more…)

Recently sold 3131 Turtle Creek offers glimpse into DCAD’s commercial problem

Whenever property taxes are spoken about, residential usually gets the most ink. The reason is simple. The commercial market offers a fraction of the data available to a residential assessor. In the residential world, similar homes are typically clustered together, placing them in the same valuation realm. There aren’t a lot of crackerboxes on Strait Lane.  However in the commercial world, a four-story building can be next to a skyscraper.

Also, unlike residential, there is no centralized multiple listing service to get a view of commercial properties for sale. If residential is iPads and apps, commercial real estate is the equivalent of a quiet conversation in the back of a darkened, smoke-filled restaurant. It’s just more difficult.

I’ve made the suggestion that DCAD needs to hire appraisers to zoom around town and physically inspect commercial real estate to accurately assess its value. That’s because …

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921 N. Fitzhugh

It’s that time of year when most of us needed a bottle of Jack and a bullet to bite on just to open our property tax bills. Personally, my taxes are up nearly 52 percent in the past five years with this year alone squeaking in a nearly 13 percent rise. I’ve been increase-capped four years out of five.

One recent morning I saw a new listing pop in for a 616-square-foot home on Fitzhugh between Swiss and Gaston Avenues priced at $179,000. At $290 per square foot, I was curious, especially because as of this writing it’s under contract.

Turns out it’s a flip and bundled with 1001 North Fitzhugh, a 1,324-square-foot, three-bedroom, two-bathroom home adjoining and sharing a driveway with 921 Fitzhugh. Both properties were listed at $478,000 or $246 per square foot. (Investment properties, same owner)

Being the season, I decided to look at their taxes. What a story they told.

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Why Property Taxes are so BAD

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.

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Why Property Taxes are so BAD

Why Property Taxes are so BAD

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 is 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?”

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