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Harris County threatens to sue Harris County Appraisal District

That headline may sound dry, but this is a big deal.

HCAD

Worried about the erosion of the tax base, county officials said Wednesday that they may consider suing the Harris County Appraisal District over concerns it is undervaluing certain business properties at the expense of homeowners.

Officials said HCAD’s Appraisal Review Board in recent years has agreed to set values for commercial and industrial properties that are far below what those properties later sell for, suggesting the independently governed agency did not adequately fight property owners who challenged their appraisals in court.

Commissioners Court on Wednesday took the unprecedented step of agreeing to hire independent appraisers to double-check HCAD’s valuations of business properties. Court members said they would take the appraisal district to court, if necessary, but suggested their action was meant more as a warning to the agency or the Texas Legislature.

“They haven’t been pushing to get these appraisals done the way they should have on some of these major buildings,” said Precinct 3 Commissioner Steve Radack, who placed the item to hire independent appraisers on Wednesday’s agenda. “I think they need to be shook up and understand that they have a very important job to do and not bow down to pressure from people that, you know, hire big guns to get their taxes lowered on buildings, some of which are clearly more valuable than their appraisals.”

[…]

Commissioners Court wants independent appraisers to closely monitor the appraisal process this year, and for the county attorney to be prepared to challenge the results, if the court deems it necessary. Any challenge must be filed within 15 days of HCAD submitting preliminary property values to the Appraisal Review Board, which typically occurs in mid-May.

The Houston Press had a cover story last year about large commercial properties getting lowball appraisals that were costing the county millions in revenue, and before that former Chron business columnist Loren Steffy covered the topic with the specific example of the Williams Tower, which anyone over 35 still thinks of as a the Transco Tower. The issue has been known for a long time, but this is the first time that the county has taken direct action about it. It’s interesting that it comes at a time when real estate is hot and revenues are rising – we sure could have used some of that lost revenue a few years ago when the bottom fell out of the market and everyone that depended on property tax revenues had to cut the hell out of their budgets – but the concern for the longer term is valid and pressing. The response from HCAD is less than convincing to me.

HCAD Chief Appraiser Sands Stiefer defended the settlement process, and predicted the county’s venture would not result in a lawsuit. He said HCAD has implemented changes since he started last June to ensure “that nobody gets away with something unfair” during litigation.

For example, if a proposed settlement exceeds a certain percentage in value, Stiefer said it must be “discussed with me before it is finalized.” Appraisers also must submit formal reports on the settlements before a final agreement is made, he said.

“It’s absolutely untrue that we are giving away the store in that settlement process,” he said, noting that Houston’s hot real estate market means that market values often change rapidly, especially for certain commercial properties.

Sales prices also do not have to be disclosed, which Stiefer described as a “roadblock.”

I agree that sales price disclosure is an issue, but if this is the process to ensure accurate appraisals, it seems lacking to me. Not to be insulting, but what assurance do we have that the head guy isn’t in the same tank as everyone else? Given the track record to date, having a fresh set of eyes on the process sounds like a good idea to me.

Appraisal district critics such as George Scott, who worked for HCAD as a spokesman until 2012, applauded the county’s action Wednesday, saying it would enable it to make a strong case to the Legislature in 2015 for changes to improve the appraisal process for business properties and potentially encourage HCAD to better defend market values.

“It is a powerful, powerful step to tell the Harris County Appraisal District that everything that transpires is now going to be high, high, high on the radar,” Scott said.

Scott’s blog is here, and while he covers a variety of topics these days, HCAD is still his main hobbyhorse. See here and here for a couple of examples. I don’t think anyone believes this matter will actually wind up in court. Radack et al are seeking leverage to get HCAD to change how it does things. I think they’ll win in the end, but it may get messy along the way. I suspect other large urban counties will be keeping a close eye on this as well, and of course other entities within Harris County – Houston and all the other cities, HISD and all the other school districts, HCC and Lone Star College, etc – are affected by this and may want a piece of the legal action if it comes to that. I’m sure we’ll be hearing quite a bit more about this in the next few months.

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5 Comments

  1. John says:

    One of the few times County Commissioners doing the right thing. Commercial values (esp office buildings) are far far below value, you get an appraisal based on comp sales and most of these buildings are 30-40% below market value

  2. George Scott says:

    Thanks for the link. I don’t believe it is going to end up in a lawsuit either but other factors are going to kick in. You may already know or just be finding out that the Comptrollers PVS study has just been released and it concludes that commercial values in Harris County are appraised at 101%.

    I will publish two columns over the weekend that will address this matter. It may be counterintuitive, but the theoretical good publicity HCAD gets from this will soon dissipate. In fact, the PVS results this year are exactly what is needed to push the Legislature to resolve these matters once and for all.

    Again, thanks for the link.

    George

  3. Ross says:

    I hope that commercial properties get valued correctly out of this, but I think there’s a real possibility that Harris County forces HCAD to increase valuations, 1500 lawsuits get filed by commercial property owners, and HCAD loses almost all of them, with the net result that we’ve spent a pile of money and valuations don’t noticeably go up. The real key is to get the legislature to change the law so we don’t have these battles.

  4. Mainstream says:

    My only experience with this is anecdotal. When searching for a property for a local non-profit, the variance between HCAD listings and asking prices was often double, while in my neighborhood, HCAD tax values and sales prices were within 20% or so of each other.

  5. Pete Duggan says:

    The simple solution to all this would be for the county to offer to buy any property in dispute for the amount the owner says it’s worth should the price be substantially lower than the appraisal. If Building X gets valued at $100 million but they claim it is only worth $50 million, rather than lower the valuation, double check the value with an expert and write the owner a check. I’m sure a number of homeowners would go for this tactic considering how little sympathy they get from the appraisers while the big boys get a free or nearly free pass.

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