HCAD’s Valuations Violate Constitution

Harris County Appraisal District operates a multi-tiered valuation system that violates the Texas Constitution. The cornerstone of Texas’ Constitution regarding taxation is "Taxation shall be equal and uniform". However, Harris County Appraisal District has three distinct categories of valuation: 1) low-income, primarily African-American homes tend to be taxed at more than 100% of value, 2) home owners and small business owners are taxed based on 100% of market value and 3) mega-building owners of trophy properties are taxed at deep discounts to market value, perhaps 50 to 70% of market value.

This is a regressive system. Those least able to pay are taxed at more than the appropriate level, most properties are taxed at 100% (although with a high level of dispersion in the values) and the trophy properties are given huge discounts.

Seven of the ten Zip Codes where homes are over-taxed by at least 10% are primarily African American. Zip Codes where the population is primarily African-American are seven times as likely to be over-taxed by 10% as primarily Anglo Zip Codes.

Typical homes are valued near 100% of market value. However, at least 200,000 Harris County homes are valued at more than 110% of market value based on a study of recent sales and 2014 HCAD market values by O’Connor & Associates. While there is a range of sales, most HCAD appraisers are afraid to exercise professional judgment during informal hearings.

Mega-value and trophy properties are treated differently at each step in the process. Greenway Plaza was settled informally for $611 million in 2013, while is sold for $950 million in the same year. However, based on property tax valuation criteria, it should have been values closer to $1.15 billion. Hence, Greenway Plaza was valued at about 50% of the market value in the year it sold.

Greenway Plaza is not an isolated example. There are many recent examples of trophy office buildings selling for more than 50% higher than the HCAD value. Harris County Commissioners are investigating the HCAD valuation procedures. We believe the results will show that HCAD is continuing to value mega-value office buildings and trophy properties at 50 to 80% of market value. However, this is just the initial value.

Few owners of low-income homes protest. Some owners of moderate value homes protest. However, they are often given rough treatment at the informal and formal hearings at HCAD. Very few of the home owners have filed judicial appeals. Conversely, the owners of trophy properties have historically been given a different level of service at the informal hearings. These accounts have historically been settled informally at very favorable values, typically in the range of 50 to 70% of market value. HCAD did change the informal process for the high-value properties in 2013, and many had appraisal review board hearings.

While it is not financially feasible for home owners to file judicial appeals, we believe 49 of the 50 largest downtown office buildings filed lawsuits to contest their values in 2013. HCAD is posturing that they will take a tough posture in settling these buildings. However, the reality is HCAD does not have the resources to try lawsuits for all trophy properties. At this point, HCAD has either settled or is settling lawsuits for the 2012 tax year for some of these same buildings at values 30 to 50% below the 2013 value.

HCAD may respond that the Texas Comptroller’s Property Value Study showed HCAD’s valuations were reliable. However, few property tax professionals give the comptrollers study any credibility. (This issue will be addressed in detail in another analysis.)

HCAD may attempt to defend the 2013 trophy properties being litigated. However, the initial 2014 market values for these trophy properties are likely 20 to 40% below market value. Most of these values will not be settled in administrative hearings. They will very likely file lawsuits and quietly settle the values sometime in 2015, with substantial additional reductions.

Harris County property taxes are not uniform and equal. It is a regressive system that punishes those least knowledgeable about the appeals process and rewards those who know the system and can afford professional representation. Harris County property taxation is not uniform and equal, and violates the constitution.

For more information, contact Patrick O’Connor at 713 822 8613 or poconnor@poconnor.com

Don’t pay more than your fair share of property taxes. Let O’Connor & Associates represent you at Harris county appraisal district to reduce your taxes. O’Connor & Associates can represent you at the Montgomery county appraisal district.

Patrick C. O'Connor has been president of O'Connor & Associates since 1983 and is a recipient of the prestigious Mai designation from the Appraisal Institute.