Worries about rising property taxes in Texas are fueling a wave of legislative proposals to reform the appraisal process and open up real estate price information to the public.
A state Task Force on Appraisal Reform, launched by Gov. Rick Perry, reported this year that property taxes grew from a total levy of about $9 billion in 1985 to about $30 billion in 2004, and high property taxes have driven some residents to sell their homes and move out of the state because of increases in appraised values.
“Texas homeowners and other property owners have told our task force that property taxes in Texas have become so burdensome as to become almost oppressive,” the report states. “Property owners tell us that something must be done to fix this broken system — and that it must be done quickly.”
One of the most contentious issues in the appraisal reform debate is the disclosure of real estate sale-price information. Texas is one of a slim minority of states that are considered nondisclosure states — information on the actual price paid for real estate is not publicly available, and Realtor-owned multiple listing services are the primary source of home-price data. The Texas Association of Realtors has historically opposed efforts to make sale-price information public.
Another issue of debate is the accountability and representation of officials in appraisal districts, and the ability to effectively appeal property appraisal decisions.
While appraisers typically have access to MLS data, sale-price information is not always available for commercial properties and high-end residential properties, which critics have said can lead to inadequate and undervalued appraisals. In such instances, critics have said that property taxes are not equitable — the rich pay less than their fair share in property taxes. But supporters of the nondisclosure laws say there isn’t enough information to conclude that properties are not being correctly assessed.
Some real estate transactions have been pulled out of the MLS just prior to a sale in order to avoid the reporting of sale-price information. The San Antonio Board of Realtors, to combat this practice within its local MLS, on Jan. 1 enacted a $500 fine for subscribers who yank a property from the MLS prior to sale and do not report the sale price. “This is being implemented to enhance the integrity of the MLS data for your best use,” according to a notice to members.
“It’s seldom that we get high-end residential property sales and commercial sales (information) — probably less in San Antonio than anywhere,” said Mary Kieke, deputy chief appraiser for the San Antonio-area Bexar Appraisal District in Texas. “Everything is held pretty close to people’s chests here. We appraisal districts are left trying to guess a lot of stuff based on loan amounts, (liens), newspaper articles and so forth.”
But there is plenty of information available through MLSs on the typical middle-class home, she said. “What we’ve done as a result of not having this information (on some properties) available to us — over the years we’ve shifted the burden to the middle-class homeowner. I think it is a consumer issue.” Higher-value homes “tend to get underappraised pretty dramatically — when we do find the sales price of a multimillion-dollar home it is often at 50 percent of the sales price.”
In some cases there are confidentiality agreements that prevent appraisers from accessing sale-price information for high-end residential properties, she said. “The law says (properties) have to appraise at what they would sell for, yet we only have access to market sales on a certain portion of properties we’re mandated to appraise.”
Property taxes are swelling in the state, Kieke said, as they are the primary source of money for schools. “We will either have to fund schools through some other manner or we will have to have sales-price disclosure.”
Charles Gilliland, a research economist at Texas A&M University’s Real Estate Center, said there is “speculation that a great deal of value is being missed” in the current appraisal system, though he said he hasn’t seen any definitive studies to prove it. From a property tax standpoint, it could be that appraisal districts “are a little more cautious about putting large numbers on big properties that are more than likely to be unique,” he said. “One of the main reasons is probably because they don’t have the information to justify the large numbers that would go on them.”
Those states that do not allow public disclosure of sale prices may seek to protect the privacy of residents’ financial transactions, Gilliland said, and there is also an argument that “just because you know the sales price doesn’t mean you know the market value.” Consumers haven’t been too vocal on the issue of sale-price disclosure, he said.
A research paper published in 2004 by two economic professors, Robert P. Berrens and Michael McKee, “What Price Nondisclosure? The Effects of Nondisclosure of Real Estate Sales Prices,” concluded that there is “a strong … case for legitimate public concerns attached to real estate sales price nondisclosure,” based on a study of real estate data in New Mexico.
“The limited statistical results and examples provide evidence of possible inequities in effective tax rates and tax revenue leakages that may be connected to sale price nondisclosure,” the report found.
Berrens, a professor of economics at the University of New Mexico, said that tax rates based on assessed home values studied in the Albuquerque area of New Mexico — a nondisclosure state — varied in different areas for similar properties, and the data showed that higher-valued homes “had an effectively lower tax rate.” He added, “It is more efficient and equitable to make all sale-price information publicly disclosed. It is certainly in the consumers’ interest as far as I can see. And as a taxpayer I think it’s in my interest as well.”
Public valuation Web sites such as Zillow could “change the landscape” in providing more disclosure of sale-price information, he said, as such Internet sites are posting estimated property values using publicly available data. But Zillow officials have noted that nondisclosure states pose a challenge for the site’s home-valuation algorithms, as the company relies on public records “as our primary data source.” Zillow has reported that Alaska, Idaho, Kansas, Louisiana, Mississippi, some counties in Missouri, Montana, New Mexico, North Dakota, Texas, Utah and Wyoming do not publicly disclose sale-price information from real estate transactions.
Rick Lifferth, vice president for the Utah Association of Appraisers and owner of Lifferth Appraisal Co. and Market Data Service, said privacy interests and tradition have preserved nondisclosure laws in Utah. While sale-price information can be difficult to acquire for commercial properties, he noted that MLSs are a solid — and essential — source of residential information for appraisers. “The Realtors have a very good system and so it has kind of neutralized the need. The data is pretty good so people can get by. We’ve had a really good relationship with the Realtors.” That has also made appraisers reliant on Realtor MLS data.
Without the MLS data, “We couldn’t function. We simply couldn’t,” Lifferth said.
To improve the appraisal and tax system in Texas, the governor’s task force recommended the passage of a constitutional measure to allow property owners to choose whether to pay taxes based on the historic five-year average of the appraised value for the property. This aims to prevent substantial year-to-year swings in property taxes. This measure should also give cities and counties the option to hold a public election to raise the sales tax rate in order to reduce reliance on property taxes.
Any sales tax increase would be coupled with a reduction in the annual appraisal cap for properties in that area from 10 percent to 5 percent, which would limit the tax increases based on annual appraisals. The existing 10 percent cap on appraisals “has proven to be ineffective for its intended purpose of protecting homeowners from rapidly increasing property values that lead to real tax increases that exceed wage or inflation growth,” the task force found.
The task force, which included two Realtor members, was split on the issue of sale-price disclosure, “with a slim majority supporting disclosure. Most of those that supported disclosure only did so under the condition that specific recommendations and constitutional amendments in this report are passed by the Legislature and a vote of the people.”
On this issue, the task force heard testimony “by appraisal districts and municipal and county government officials who claimed that they could do a better job and more easily and accurately appraise properties if sale price information were disclosed,” while “businesses, trade organizations and real estate owners testified against disclosure citing their concern over privacy” and a worry that sale-price information would be used without a detailed assessment of other factors, according to the report.
Avis Wukasch, chairman for the Texas Association of Realtors who served on the task force, said, “Our association position is opposed to mandatory sales-price disclosure.” She said that the property-tax problem in Texas is bigger than the issue of sale-price disclosure alone. The school system in Texas, she said, “is funded completely on the back of real estate,” and school taxes typically account for one-half to two-thirds of the total property tax bill that property owners receive.
The association last year launched its own task force on appraisal reform, recommending in its “Appraisal District Procedures” report that the association support legislation requiring appraisal districts’ board of directors to be elected, and to change the structure of appraisal review boards, among other proposals.
The Texas Apartment Association has also opposed mandatory sale-price disclosure proposals in the state Legislature while supporting other forms of appraisal reform.
“We do not feel like (sale-price disclosure) is a tool that is needed for the appraisers,” said George B. Allen, executive vice president for the association, as there are many factors to consider in valuing multifamily properties. “Sales prices definitely have more relationships with the single-family homes.”
While several bills proposed in Texas would provide for the mandatory public disclosure of sale-price information, a larger body of legislation addresses broader appraisal reform, he said. “There are scores of bills filed to deal with various parts of the appraisal process. There is a concern about the basic accountability of the appraisal districts themselves,” he said. The association has about 10,000 members that own or manage about 1.6 million units in the state.
Travis Kessler, president and CEO for the San Antonio Board of Realtors, said that the San Antonio board is also hopeful that the legislature will reform the appraisal district process, and until that happens the group is opposed to mandatory sale-price disclosure. “We’ve not seen a difference in the valuations of the property with or without the (sale-price) data,” Kessler said.
The mandatory sale-price rule for the board’s MLS subscribers, he said, is intended to ensure that the MLS data is reliable and that Realtors have “the correct data with which to serve the home-buying and home-selling public. We are a tool for Realtors, so that a Realtor can do a better, more accurate job.”
Deborah Myers, owner of Deborah Myers Real Estate Inc., which works with clients in the San Antonio metro area, said that she has not yet had a client who asked her not to disclose a home’s selling price in the MLS, though she said she has heard of instances in the area where buyers do not want agents to disclose this information.
“The buyers did not want the price disclosed so they would ask their agents to not disclose what they sold for. I as an agent would like to know what properties sell for because I can then present a good comparable market analysis,” she said.
Randy Kelley, a buyer’s agent with the San Antonio Home Quest Team, said that any manipulation of MLS data, even by omission, isn’t right. “It would not be doing a service to anyone in our business who represented buyers. We would not know what properties were selling for,” he said. “It undercuts our ability to represent our buyer by getting good comps data on which to base (offers).”
Texas Rep. Michael Villarreal, D-San Antonio, has authored a series of bills that would require sale-price disclosure in the state. House Bill 133, proposed in November, would require that the purchaser or grantee of properties file a sale-price disclosure report with a county appraiser within 10 days of a recorded deed. This report “is a public record and must be available on request for inspection and copying during normal business hours,” according to the bill text. Similar legislation passed the state House and Senate last year but died in a legislative conference committee.
Other legislation proposed by Villarreal provides that county elections can be held to determine whether to disclose property sale prices.
And there is a laundry list of appraisal reform legislation proposed by a variety of Texas legislators that relates to the selection of appraisal district board members, the regulation of property tax professionals and appraisal review boards, and other issues.
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