Thursday, June 10, 2010

So you are Protesting Your County Property Apprasial?


My recent experience coupled to past ones with the Montgomery County Appraisal District, otherwise known as MCAD, unveils many issues in the process for The Woodlands home owners as well as everyone in Montgomery County. I suspect these thoughts are applicable to most assessment districts in Texas.
If you have been here for a long time, you also probably have noticed how your home assessment constantly rises. You would expect that in an inflationary era. If the assessment sounds reasonable, you just take it on the chin and move on. Today, we find ourselves in deflation. This puts us in a completely different set of assumptions, yet the home values here in my neighborhood increased significantly! Neighbors panicked!
There could be several reasons for increased values, so I decided to share some recent lessons learned by yours truly and neighbors.   This is the season of no-joy and frustration with the county home assessment process. For me as a taxpayer, it is also the season of anxiety about the inevitable year-end tax statement to come, which is based in part on the outcome of the assessment. During the summer, not only should we be concerned about house assessments, but the local taxing authorities budget as well! This article will not deal with the budgets - only the process of assessing the value of our property assets.
Be it known that the assessment is based on the sale of homes. If your home is like mine, you have to prove that it is not in mint condition like most homes are that are on the market. You probably also will have to prove that the comparison homes are all in mint condition. You and I know that property is not generally sold in the same condition that we use it. Some may try to sell theirs at a lower price based on condition, but soon discover that it is a competitive sales environment out there. The house that is in the best condition is generally bought at the premium. That is usually determined by the county’s assessing organization plus a little more, not by a home that appears used inside. A bargain is a bargain though, and sales are made of fixer-up houses for various reasons. Everyone seems to know to improve the home in order to sell it. Your asking price would likely be at the per-sq-foot of nearby comparable homes.  Sales comps are not limited to comps in the assessment neighborhood. 
Montgomery County Appraisal District
Let’s back up a bit. MCAD is a government entity separate from the Tax Collector. Each has its separate independent process and decision makers.  In Texas, the board members are selected by the taxing entities, not the public. That means the loyalty is not to the taxpayers but the tax entities. For example, The Woodlands Township would be represented on the board as well as the county, the school district, hospital district, water and whatever else there could be. Their job is not easy.  Also represented is the county (currently precinct 3 in Montgomery County) and the county tax assessor. So if a government entity is to influence the policy of the district, it would do so through one or more of these representatives. One can intuitively see the reason to “buddy up” politically with the tax assessor collector, county, or other political entity. In local politics, check who is invited and attends township government functions and political socials.
With this said, I can firmly say that, as some others have expressed it, the appraisal districts are not only imperfect but the “Achilles heel” of the governing system of Texas.  I am not saying that the appraisal district does not listen and consider home owner issues, because they do!  I am saying that they are not accountable to the tax payers and therefore report to taxing entities and are there to raise taxes in spite of resident concerns and issues. I find that the district is not sufficiently rational in its decisions.
The appraisal district lends itself to the needs of the taxing entities and must rely on a complex and varying means of determining value. To do this, the appraisal district collects information from builders and other pertinent sources and provides the data according to open records act of Texas through a database available online. This method is very helpful and easily enables anyone to get the appraisal information on any property in the county. The district has defined appraisal neighborhoods based on area, home vintage and likeness of construction or property. There are necessary assumptions, whether we like it or not, to make the system as fair as possible. Many properties have to be assessed each and every year. Efficiencies have to be built into the systematic evaluation process. A neighborhood can be just a few homes or a large set of homes or properties. A neighborhood is not the same as defined by a builder or other government entity. 
The off-the-shelf- software utilized by the district automatically computes the assessment. This is essentially a black box for many, including me. This is not that important unless you must trust the system.  A homeowner can protest an assessment every year. It is highly time consuming to analyze and seek the answers.  A homeowner needs instructions on how to compute his own assessment. I am not going to tackle that in this article. If a homeowner is to protest the assessment, the protest must be submitted before the end of May each year. One has the option to meet with a staff member of the district informally before the protest deadline in order to understand how the value was derived. That is recommended to save time on the part of the district and the property owner.
Once a protest is submitted, the district must notify the homeowner of a date. One has the option to reschedule but must meet the rescheduling rules of the district. In my experiences, MCAD has a good responsive service center and willingly helps homeowners to understand their assessments. On the day of the protest, the property owner (or designated representative) first meets with a district employee who reviews your protest and tries to remedy it under a strict set of rules. If the employee and the property owner cannot resolve the issue, the case proceeds on to a hearing of the board of directors immediately afterward. The board usually has three members working all day on the cases. The protest is handled like a court case with the property owner vs the district. The district presents its case and the property owner counters with his arguments. From there, the board asks questions and the property owner interacts with the board. A maximum of 15 minutes is requested by the board for the protest decision. A verbal statement by the property owner to the board is not considered sufficient without visual proof such as photos. Board members and property owners cannot have previously discussed the property outside of the boardroom.
Experiences 
This year, my neighborhood received assessments that were collectively 16% higher than last year. This was a total shock since the assessments in 2009 had about the same increase. Personally, last year mine was capped at 10%, because all homeowners with a homestead are protected from giant increases by state law. So here we were facing a 26+% increase in three years. This time, many homeowners protested. Seeing this to be the case, we who reacted, acted in unison to understand and deal with the nature of this year’s huge increase. One resident obtained a comp for the neighborhood, but it did not meet the date or the neighborhood criteria of a valid set of comps for the 2009 assessment. However, it did show the only sale in 2009. Therefore, we understood that the increase was driven by the sale of that single home and had documentation of the sale to show the district.
A neighbor went to the district to understand the reason for that homeowner’s assessment and found out that the comp home was sold at a different square footage than recorded in county records. The district refused however to change the square footage in their database, saying that the house had been measured and the database correct. That put me to work! I investigated the sale and talked to residents and the new homeowner. Indeed, the home had been improved with additional bedrooms, expansion of a kitchen and added patio areas. The county records showed the square footage of the original home. To prove the county wrong in their assessment, I had to obtain public records from the HOA of the change request that was approved for the addition. In that request, the current and additional internal square footage was documented. I measured the potential square footage, which computed to be much more, but I did not have sufficient time to measure the rooms or to obtain an architectural drawing to check the living area space. For general analysis purposes, I also acquired and documented the living area, 2009 and 2010 assessments, styles of homes, and determined how the new sale played a role for determining true value in the neighborhood. That exercise revealed more potential issues than I anticipated or wanted. I now have little faith in the data for the entire neighborhood.
I prepared a package of information for the board and shared that with all my neighbors. It included the (1) neighborhood assessments in a spreadsheet, sorted by style, (2) external photographs, HOA records, and other supporting statements relative to the comp, (3) cover letter containing  what I was asking from the board and why, (4) Realtor’s comps for our neighborhood.
In the session with the staff assessor, the information I provided was refuted with the same argument as before – the house had been measured and was correct - end of story. I did not accept that of course. I reiterated my conclusion that the MCAD database was wrong and strongly emphasized that the data I had acquired was correct from the HOA. The assessor went to his supervisor. It turned out that I was the second person to protest this comp as incorrect. He modified the square feet of the comp in the software and reduced the appraisal 5%. He told me that was the best he could do. I said I choose to protest to the board, so I was put on the queue. So now I had theoretically adjusted for the error in the comp, but the assessment remained 10% higher than last year.

About 30 minutes later, I was called to present my case to the board. I had already discovered the issue of required photographs inside the home, because another property owner was totally rejected when he testified about the condition of his home without photographs. I did describe my own home and the situation, but none of that mattered. The only argument the board listened to was the error introduced when only one home was the determinate in a large assessment increase. They offered me a 50% reduction because of the error possible in using only one home – “meet me in the middle”. I had no choice but to accept it, even though I continued to argue the point. I argued that the square footage increased the sale value of that home proportionally to the resultant neighborhood assessment increase of 16%. They said that was probably just a coincidence. They did not listen or care. That was it. End of story.  
This process confirmed my belief that the district is not trying to be fair to an individual, but to push their agenda of raising values the most they believe they can get away with. Was a 5% raise justified? I believe not. Just because one home sold made the value of my home rise by 5%? My home is original – no upgrades, so why would anyone want to buy my home at the same price per sq foot as the comp? The comp was not a valid comparison at all. It is totally unique. Potential buyers will not, without me investing extensively to match the quality of that home, which is modified and unique, purchase my home at the MCAD assessment. So why do I have to pay taxes on that amount? I will try again next year.           
Lessons Learned  for next time            
1.    If you want to contest the value relative to the comp(s), take detailed photographs of your own home and comps to present to the board. If you are unable to obtain photographs of the comps, present an affidavit from the sale of the quality of the interior with photographs. If that is not possible, then an affidavit that you attempted to obtain such proof and all stakeholders in the transaction would not cooperate. Therefore, you assume everything is new and pristine inside. Take photographs of the external part of the home and comps. 
2.    Make sure comps are all from the calendar year before, e.g., 1-1-09 through 12-31-09 and that they are in the assessment neighborhood (or very relative to your case – exactly the same model or construction). 
3.    I made copies of my case for all members of the board present. I did not need to do so. Next time I will take one copy and an electronic presentation. If they want to see the photos and details, put on the computer. They have screens for all to see. The staff will run the presentation for the board to see and you will describe what you are showing.
4.    I will start much earlier in the process. I waited until mid-May. I should have started much earlier.
5.    Know your comps very well, their history from public records and from the real estate agent. It would be best of neighbors would keep a vigilance on sales and get the proper information before the current resident exits and the new resident moves into the home. It may take an enormous amount of time in the future. I am already three months behind a sale and know for certain that it will be an issue for the neighborhood next year.  
6.    Know the real estate trend and bring documentation that shows their assessment relative to the trend for the size and cost of your home.
7.    Have an attitude of being fair to them but tough. Hold your ground, You have done your research, so stick to the numbers. Follow your plan to contest the high assessment. Do not allow inflation to play a role. Apply any inflation adjustment after the process. Make that visible. Make everything visible.
8.    Don’t make them do the computations for you. You have those done in advance. Take a calculator with you.  They may refute something and pull their calculators out. They do make mistakes as we have seen. You must check their work.
9.   If you are unable to meet them due to work circumstances, you do have the option to submit your protest by affidavit and it will go directly to the board. There were several  folders containing affidavits waiting to be reviewed when the flow of people stopped in the boardroom.  
All in all, the process is helpful but tedious, long and very inefficient. The system discourages homeowners from protesting their assessments. Why can't a neighborhood get a correction to the database  and homes recalculated when the district makes an error? Why does every homeowner need to dispute the error? I am looking forward to an improvement in 2012 when we can work with the district electronically. I think some behaviors may change and the convenience should encourage homeowners to stand up for their rights more. I found several homeowners with twisted perceptions of the process. We have to stand in line, wait for appointments twice, once for the staff to see us and then again to argue our case before the board. I would like to see several improvements including a way to get the data for an entire or partial neighborhood. It took me a full day to get information piece by piece from a single home computer interface. If our comp has to be derived from a sales list, why do we have to go to a real estate agent to get one? That is not logical to me. I would like to see a clear process of how to present evidence. I saw one person with a CD of photos and in the interest of time, the board decided to make him an offer instead of reviewing his evidence. maybe that is an additional suggestion - just make sure you can show a CD and see if they take your bluff?

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janysek said...
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