COMMENT OF THE DAY: A PROPERTY TAX PROTESTOR’S GUIDE TO HCAD BUILDING GRADES 
“There is no process to request that a home be considered an economic misimprovement. When a neighborhood has changed to the point that the original homes are no longer the norm, either by new construction or remodeling, HCAD can deem the remaining original homes as econ improvements.
On to grade — Grade is set when the home is constructed. There is usually a discussion between the builder and the appraisal district as to what level of customization is going into the property as it’s being built. Think of a typical Pulte starter-home as a C+. For every level of better materials or customization, the grade will be increased up to a maximum of X+. This is, for the most part, impossible to change on a permanent basis. Especially after the construction is complete. The key here is to get in either during construction or immediately after. It helps if your home is exactly the same as the rest on the block, but for some reason, your grade is higher. Bring in floor plans and show which houses are similar.
On to Condition/Desirability/Utility (CDU) – This is the one you can play with. A home with a reasonable amount of un-repaired deferred maintenance should be in Average condition. In the old days, all new homes were put on at Excellent condition, but HCAD has since changed that policy and puts most new homes on in Average condition. This is the one you need to work on with signed written repair estimates and pictures. Every year. Big stuff — electric, plumbing, foundation, windows, storm damage, etc.
Finally, Level of Remodel — None, partial, extensive, total, new/rebuilt. This causes a great deal of angst to many people, because there is no real written explanation of what each one is, and how long a remodel actually lasts. There are homes from the early 90s in West U that are still being considered New/Rebuilt, and, as such, are being compared to brand new construction. Additionally, HCAD does not know about every remodel — they only started getting the building permits about 6 years ago. So, your neighbor with the spectacular new kitchen who did it under the table may still be listed as having no remodel. Unless you want to bring in pictures of their kitchen from the last BBQ, there’s not much you can do, other than show that yours is in worse shape than HCAD shows. Additionally, many ARB boards and appraisers have different ideas as to what makes a remodel — putting new cabinet doors up in the kitchen? I’ve seen that called a partial remodel. Replacing knob and tube wiring without increasing capacity to avert a possible fire? I’ve seen that called a repair, and not an improvement.” [BrewWench, commenting on How Do You Get on HCAD’s ‘Cheap’ List?] Illustration: Lulu
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I have a question (raises hand). So…say a well-known Houston developer has a corporate HQ on the west side. It’s been a corporate HQ for many, many years. There is signage out front, a large parking lot and an enormous flagpole. The HQ is in what appears to be a very large home, but has been a commercial property for decades. It is listed as residential on the tax roles. Is there a benefit to that? Is the assignment wrong?
Wow, this person sounds like he/she knows how to play the game with HCAD. This person needs to be a hired gun to take on HCAD.
This is simply another wealth transfer device. HCAD is nothing but a bunch of animals. They just keep raising the taxes and the levies and laugh. What do they care? If you’ve ever been personally involved in a protest and seen the nightmare that is HCAD, you will understand. The first meeting is a joke. Wast 2 hours or so for nothing. Then on to the ARB. The ARB is trash.
Just like the city’s water bills (another wealth transfer device), the taxes keep climbing no matter what….and the schools and roads get worse and worse. Sucks.
Stay safe out there.
BC
man i told my kid if they throw rocks you gotta throw em back at twice the velocity so to speak.
Fantastic. Thank you for sharing this information, BrewWench! I’ll buy ya a cold one. ;)
@MikeHoncho
Sure sounds wrong, and they may be evading property taxes. Why don’t you let HCAD know about it and they can decide?
I might check out their account on HCAD.org and see if their State Class Code was A1 (residential) or F1 or C1 (commerical). Also, below the Valuation section of the page, look to see if the Building Type is a “Res. Struct. Or Conversion”. That means it was built as a residence, but converted to commercial use. If everything says residential, and they’ve been there for many, many years, they have an incorrect class code.
This was an excellent comment of the day. I’ve never had to get into the nitty gritty on residential tax protests, but I’ve done plenty of commercial protests and I know that system well.
The commercial process is very different from the residential appraisal process. Whereas one- to three-unit residences are ALWAYS valued on the cost approach to market value appraisal, commercial properties are somewhat arbitrarily divided between the cost approach and the income approach. In theory…both of these approaches are a mathematical function of sale comparables, put through a rigorous statistical analysis. However, anybody that’s ever picked apart their residential sales knows how unreliable the HCAD analysis is to begin with and how difficult it can be to make adjustments for the peculiarities of each unique transaction of each unique property; this in spite of that every n-th house in a subdivision is basically identical and that there is plenty of data to draw from. Now do away with orderly homogeneous subdivisions of production houses, insert a slightly more savvy set of buyers and seller, and you’ll find, to your horror…that the few sales comps that get reported to HCAD for each type of commercial property are so far and few in between that there is no statistical significance to their cost approach or income approach. I’ve seen where the best that HCAD can come up with in five years of research are sales comps for four sales of gas stations; I’ve seen properties where an income-producing billboard or cell phone tower has transferred as personal property along with the real property but not been adjusted out of the real property sale comp; I’ve seen where it is public record that government-subsidized 0% financing was assumed as part of a transaction, that the sale price was just ridiculously high as a result, and where HCAD used that sale comp year in and year out to hit every property of that type and class throughout the county; I’ve seen them apply incorrect formulas to their cap rate studies; and I’ve seen them ignore input when I catch stuff like this, refuse to make changes or even comments for their own reference.
Then, once you get into the cost or income analysis on each property, there’s just so much wiggle room. In the cost model, you can play with the grade of the property as well as with physical, functional, or economic analysis. Sometimes (albeit rarely) you can even change its type; but you can’t attack it on the basis of physical vacancy, low rental rates, or a declining market, and getting HCAD to recognize a metal warehouse off of Washington Avenue as being a teardown can be like pulling teeth. They’ll never acknowledge that a teardown actually detracts from land value.
And then there’s this peculiarity of state law whereby physical vacancy isn’t supposed to actually matter; so that you might have a vacant Macy’s anchoring the same mall as an occupied Sears, and yet they must be valued according to the same process based on market conditions and a fee simple assumption (as opposed to a leased fee assumption). HCAD’s cost model implicitly makes these assumptions, but they will readily change their rent and vacancy inputs on an income model. I actually like the fee simple assumption because it should maintain parity between residential and commercial uses, but it is applied in such an inconsistent manner that it creates inequities; and of course somebody like me will come in and argue both sides of the coin in order to get the market value knocked down due to vacancy and then to argue that doing so was inequitable for occupied properties.
They’re willfully ignorant, I think, and they like it that way. If it were up to me, Texas would be open-disclosure but chief appraisers would have to be professionally qualified and elected by property owners in order to ensure accountability. Property owners would be able to join in class action suits to obtain restraining orders against appraisal districts when their policy is blatantly illegal and affects whole classes of property. Homeowners and so-called “farmers” would have to give up their homestead exemptions. Schools, churches, hospitals, the State, and other exempt entities would have to pay property taxes (even if their payments came right back to them through tax revenue) in order to ensure that they pay the opportunity cost for their land or for opulent expenditures.
It’s not up to me, though, and it never will be.
Several years ago, I went before a HCAD appraiser armed with lots of photos and was able to get my 1948 Braes Heights home classified as an “economic misimprovement,” but a few years later, it was mysteriously changed back to “Fair.” However, there was never any explanation from HCAD for it (nor did they have to prepare any “evidence” to justify the change.
A year later, I went before the HCAD board armed with tons of photos. There were three board members and two of them agreed with me that my home was valued too high. However, the third person (who appeared to be the Head board member) disagreed and somehow his “vote” cancelled out the other two votes that were in my favor. I also found out later on that he unfairly compared my home to a similar-aged home that had had extensive remodeling and landscaping. Of course, he didn’t have to offer any photographic proof — I had to take his word for it — and I later found out that “comparable” home was a remodeled showplace that looked better than my old home did when it was new. Needless to say, I was rather disgruntled of the unfairness of it all.
There needs to be some new rules and guidelines for HCAD appraisals and comparisons.
If the goal of HCAD is to come up with honest figures of value for property tax assessment, I have the perfect solution on how this can be done:
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If HCAD puts a figure on your property that is too high, a property owner has the right to *force* HCAD to buy the property (for 20% less than their claim). So if you have some junker that’s only worth $100k and HCAD says “Sorry, we have proof it’s worth $200k”, you could say “Perfect, then it’s yours for $200k minus 20%”. That would be a good deal for them since they are so sure it’s worth $200k. That would keep them honest.
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On the flip side, if you protest saying the property value is too high, and it’s lowered, HCAD would have the *right* to buy the property for the new lower value (*plus* 20%). That would keep people with $5m buildings, that are assessed at $4m, from coming in and saying “But it’s only worth $3m”. HCAD could say “Okay, it’s only worth $3m, so then we’ll buy it for $3m + 20%”. That would keep protesters honest (the ‘right’ to buy could be extended beyond HCAD if there were issues with them buying property)
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If need be, the 20% figure could be raised to lower the number of instances where this honestly mechanism is used.
@ Cody: The mechanism is supposed to be that both property owners and taxing entities have a right of protest. It is totally legitimate for a school district, for instance, to protest and even to litigate if a property has been appraised at an inappropriately low level or if procedures were not followed that had the effect of denying them tax revenue. It does happen, but only somewhat rarely. I happen to think that it should happen a whole lot more often, in particular with commercial real and personal property.