Valuation from Tax History

[KrisB]

Hi all,

Horse farm owner here. When doing an appraisal, do you utilize the tax history and do the valuations in the tax history play a roll in your final valuation? How heavily would you say you rely on the property tax values?

For instance, if the CAD says the barn is valued at 400k, how does that play into your appraisal?

Thank you so much for your help!

 

[Mark K]

Hi all,

How heavily would you say you rely on the property tax values?

In this state, not at all. The assessed value rarely has any basis in reality compared to the real world.

This is true for all real estate but especially true for agricultural real estate which is heavily subsidized by non-ag taxpayers.TX may be different.

 

[Artemis Fowl]

Disclaimer: I do not know Texas tax law.
Assessors assess for assessments. Often utilizing depreciated cost and mass appraisal techniques. Intended use and user is different as well as requirements to meet credibility for intended use. Here in Michigan we have Taxable value and Assessed value. Taxable is a calculation that deviates significantly from market value over time. Assessed Value should be a decent ballpark figure but better methods to value exist. Ask how your taxable value is determined. Either way, a competent fee appraisal should be more credible for an individual property. I think I would rely moreso on the land component of assessments than improvements...but then I know how I did it. Varying levels of competency exist within the assessing world just like everywhere else.

 

[KrisB]

In this state, not at all. The assessed value rarely has any basis in reality compared to the real world.

This is true for all real estate but especially true for agricultural real estate which is heavily subsidized by non-ag taxpayers.TX may be different.

Thanks Mark!

I ask because the farm we purchased had the buildings GROSSLY overvalued. Our covered arena and barn have been listed as Main Area, with values close to $30/square ft. We have many comps of the same structures showing Canopy on Dirt with $6/sq foot valuations.

What we are trying to figure out is if we overpaid for our farm due to this huge discrepancy is value or if independent appraisals don't look at that at all.

 

[KrisB]

Disclaimer: I do not know Texas tax law.
Assessors assess for assessments. Often utilizing depreciated cost and mass appraisal techniques. Intended use and user is different as well as requirements to meet credibility for intended use. Here in Michigan we have Taxable value and Assessed value. Taxable is a calculation that deviates significantly from market value over time. Assessed Value should be a decent ballpark figure but better methods to value exist. Ask how your taxable value is determined. Either way, a competent fee appraisal should be more credible for an individual property. I think I would rely moreso on the land component of assessments than improvements...but then I know how I did it. Varying levels of competency exist within the assessing world just like everywhere else.

Thanks! Yes, here in Texas our taxes show Market Value and then Taxable Value.

What I would like to know is if our taxes have been wrong since the buildings were built and significantly overvalued (we are battling the CAD currently and they agree they're wrong), would a tax history showing a 1.5m value when it should have been a 500k value, hold any weight in an independent appraisal? Wouldn't one assume the tax value is lower than the market value?

 

[Mark K]

What we are trying to figure out is if we overpaid for our farm due to this huge discrepancy is value or if independent appraisals don't look at that at all.

I'd say your best approach is to approach the Assessor with comps (tax assessment records) of other properties with similar barns and compare their assessed values to yours.

In this area, tax cards provide no support for the market value but they can be useful to confirm sizes, age of buildings, acreage, etc.

As far as overpaying...no idea. I hope you didn't base your purchase price on the assessed value on the tax cards!

 

[Artemis Fowl]

An appraisal should be an independent estimate of value. The assessment is a data point but not a great one, particularly when it's being appealed. A good appraisal is excellent evidence for a tax appeal. A poor appraisal will have the opposite effect...do some diligence if selecting a fee appraiser. Good strategy to find one is to find out who the assessors in the area have used for their own side of appeals...they've usually been vetted as reliable already and are experienced. Appraisers are mercenary. There may be a limitation regarding how far back the law can consider...reason being you have received valuation notices every year but didn't appeal prior to this. Not saying I agree with that but often that's just how the laws are written. Another good piece of evidence is your actual construction costs...hopefully you have those docs still. If the assessing office has already agreed they are wrong...have they proposed a solution?

 

[Artemis Fowl]

Thanks Mark!

I ask because the farm we purchased had the buildings GROSSLY overvalued. Our covered arena and barn have been listed as Main Area, with values close to $30/square ft. We have many comps of the same structures showing Canopy on Dirt with $6/sq foot valuations.

What we are trying to figure out is if we overpaid for our farm due to this huge discrepancy is value or if independent appraisals don't look at that at all.

Ahh...the other component. That purchase appraisal should not have given great weight to the assessment other than reporting it. It is possible that an anchor bias was introduced simply due to the fact that that number was out there and likely seen by the appraiser but on-site inspection and comparable sales and/or income analyses (if any) should overcome that influence. Impossible to say. Be open to the possibility that it was right and taxes just suck.

 

[Terrel L. Shields]

When doing an appraisal, do you utilize the tax history and do the valuations in the tax history play a roll in your final valuation?

zero

would a tax history showing a 1.5m value when it should have been a 500k value, hold any weight in an independent appraisal? Wouldn't one assume the tax value is lower than the market value?

It is not safe to assume the tax value is lower than market value. That's why our state has a challenge period annually. The year I was on the board of equalization, there were over 3,000 challenges to valuation, and we lowered 80% or more of them. Mass appraisal techniques can be flawed.

While a weak appraiser might look at the value of the building, the good rural appraisers are far more likely going to be influenced by the owner's actual construction costs if the owner will tell them when and what it cost to build. Most will discount a barn or shop additionally as an over-improvement, which is what it sounds like. Most horse barns are more exotic than the common pool of buyers is willing to pay. If not horse people, they don't need it. If horse people, they might want to build a new barn that suits their needs and operation. And it would depend upon whether they are raising brood mares, racehorses, or say a cutting horse operation vs simple western pleasure class horses. Are they training horses? Breeding them? Standing a horse as stud. A buyer considering your operation might be thinking in terms of the cost to convert to their style of horse operation.

We have some indoor arenas here - one went into foreclosure during the Great recession and the bank held onto it for 10 years before selling it 20% below listing price and less than half what it cost to build. Such specialized farms are often market dogs.

 

[KrisB]

An appraisal should be an independent estimate of value. The assessment is a data point but not a great one, particularly when it's being appealed. A good appraisal is excellent evidence for a tax appeal. A poor appraisal will have the opposite effect...do some diligence if selecting a fee appraiser. Good strategy to find one is to find out who the assessors in the area have used for their own side of appeals...they've usually been vetted as reliable already and are experienced. Appraisers are mercenary. There may be a limitation regarding how far back the law can consider...reason being you have received valuation notices every year but didn't appeal prior to this. Not saying I agree with that but often that's just how the laws are written. Another good piece of evidence is your actual construction costs...hopefully you have those docs still. If the assessing office has already agreed they are wrong...have they proposed a solution?

It's an extremely complex case that will likely end up in case law books when finished.

To try to give the cliff notes, we bought the farm in Oct 2019. It was built in 2005. It was cutting out of a larger tract of land when we purchased. I have complained that the property tax valuations were outrageous but didn't know enough about how to fight them. After 5 years I had had enough and learned that you can ask for your appraisal cards. Ours is the only one in the county with the barn and Arena listed as main area and all others are canopy on dirt. I reached out to Bettencourt Tax Group and they're helping us fight it, and going back all 5 years now that there is a new supreme court ruling in 2024 that allows us to. We went to an ARB hearing, it got tabled so they could look into this unprecedented case more. Another hearing Jan 2025, and all new board members! They said, nope this is way to complicated, take it to court. The chief appraiser takes our guy to the side and says she knows we're getting screwed, but she doesn't want to set a precedent, so if we go to binding arbitration, they won't present evidence against us and we'll get it fixed. Upon filing for arbitration, the Texas Comptrollers office says nope, you aren't eligible for arbitration since it isn't just a value argument (we filed a 25.25 change form, not a chapter 41). You have to litigate.

Using the comps of over 5 similar properties, all are listed as canopy on dirt with a $6/square ft value. That would change our CADs market valuation of the property when purchased from 1.1m to 570k.

So since we are suing, I am curious if this grossly overvaluation due to buildings being improperly listed, could have had any influence on the appraisal we did upon purchase. I think it influenced the prior owner (she'd been paying those values for 15 years!) on the purchase price. The property was never listed by the way.

We are just going to be throwing everything at the appraisal district and seeing what they'll settle with. If I have an argument that they contributed to overvaluation and in turn overpayment, I want to make that argument. We chat with the lawyer today so I would like to come with some educated information on how independent appraisals may or may not use the CAD appraisal info. We did have an independent appraisal as required by our SBA loan.