Shakedown: The HCAD Appraisal Game

HCAD fights owners of moderate housing for every single assessment penny. So why is it routinely handing out tax breaks worth several millions to big corporations?

image Missouri City resident Glynda Williams, a career letter carrier for the United States Postal Service, has invested a little here and there in real estate. Nothing fancy for the African-American woman who isn't raking in the big bucks — just some small houses in Harris County's foreclosure-driven markets that include a property in the Northglen subdivision.

Even though some of the homes in the blighted neighborhood, located near Barker Cypress Road and FM 529, are worth $50,000 on average, the Harris County Appraisal District valued Williams's parcel at $60,000. By law, when sales data are available, every appraisal district in Texas is supposed to compare homes of similar size, age and condition to determine the market value of a selected property.

"If the appraisal district says your house is worth more today than yesterday, you might go, 'Wow, that's great news,'" says John Osenbaugh, a real-estate consultant who represents clients in fighting property-tax issues.

Property-tax expert John Osenbaugh thinks that HCAD is pulling another Enron scam by purposely shifting the tax burden from the owners of Houston's priciest skyscrapers to modest-income homeowners who have property that costs $100,000 or less.
Monica Fuentes
Property-tax expert John Osenbaugh thinks that HCAD is pulling another Enron scam by purposely shifting the tax burden from the owners of Houston's priciest skyscrapers to modest-income homeowners who have property that costs $100,000 or less.
Houston's biggest winners in the appraisal system protest game: Click to enlarge.
Source: hcad.org
Houston's biggest winners in the appraisal system protest game: Click to enlarge.

"It's not great news," Osenbaugh says. "The news is that you're being taxed as if it were worth that much more. If you had proper representation, which you can't afford in the first place, you wouldn't be paying that tax."

An extra $10,000 might not seem like a big deal, but the additional tax burden could turn into a small fortune for somebody at Williams's income level. Not only that, but HCAD is "running a scheme that makes Enron look like amateurs," and the public hasn't got a clue that it's happening, Osen­baugh says.

While HCAD raised the market value of Williams's humble residence, Brookfield Properties, in 2011, successfully protested HCAD's appraised value of One Allen Center — the circa-1972 34-story skyscraper at 500 Dallas Street — to the tune of $36 million in reduced market value — which translates to about $855,733 off of its tax bill.

Instead of paying taxes based on HCAD's appraised value of $145.2 million, Brookfield gamed the mass appraisal property-tax system and successfully knocked down the certified value by 25 percent to $109.3 million.

In 2011, the New York-based company cost Houston Independent School District more than $1.8 million and the City of Houston more than $1 million in lost tax revenue. Along with One Allen Center, Brookfield is the owner of Three Allen Center, Heritage Plaza on 1111 Bagby Street, Total Plaza on 1201 Louisiana Street, the former Continental Center at 1600 Smith Street and a handful of other downtown high-rise office towers.

A portion of the Allen Center's savings, for instance, could have prevented some of the nearly 3,300 Houston-area teachers from losing their jobs in the 2010-2011 school year.

A months-long investigation by the Houston Press finds that Brookfield isn't the only mega-dollar company that's sitting pretty with a momentous tax break.

According to a June 2012 Service Employees International Union report, corporate giants such as Chevron, Exxon and Hines Real Estate Investment Trust successfully protested the appraised value of 350 large commercial office properties in Harris County. The impact: a total reduction of more than $2.4 billion in tax base on which tax ­liability is calculated.

Critics of HCAD — which is responsible for valuing a complex mix of 1.4 million parcels in no-zoning Houston that includes Baytown's ExxonMobil, the largest refinery chemical complex in the country — say the agency has purposely and knowingly shifted the tax burden from the filthy rich onto folks who own homes that cost under $150,000.

That's "a false issue," according to Jim Robinson, HCAD's chief appraiser since 1990. Guy Griscom, HCAD's assistant chief appraiser, also fervently denies the claim.

"No. There's no truth in that," says Griscom, who adds that in 2013, HCAD has increased the value of 12.2 percent of the homes in the $80,000-to-$150,000 range.

Instead, HCAD, the third-largest appraisal district in the country, points a finger at the Texas Legislature. In 1997, a provision was added to the Texas state tax code that cripples the ability of appraisal districts to hold the true market value of high-end commercial property, Griscom explains.

"Not only do they have to be valued at market value, but the value has to be uniform and equal. But the measure of equity that's in the tax code is really junk science [because] it isn't statistically based," says Griscom. Texas is one of the few states that don't require sales-price disclosure on taxable property, which means appraisal districts around the state rely on private contracts to compile sales data that are often incomplete.

"[The tax code] says the median value of a group of comparable properties properly adjusted, whatever in the world that means. Obviously, you can have major disagreements over what are comparables," explains Griscom, who thinks that a bill filed recently in Austin aimed at changing the equity provision might not have any traction.

In the meantime, lawsuit-prone corporations and their attorneys are beating up HCAD and taking its lunch money. "When you're talking about major commercial or industrial properties, those property owners have deeper pockets than the appraisal districts," Griscom says. Vinson & Elkins and Fulbright & Jaworski are two Houston-based international law firms that have represented class A property owners in successful property-tax protests and lawsuits.

Due to the manipulation of the system by the rich and powerful, in 2011 alone, the City of Houston and Harris County lost out on $15.4 million and $9.4 million in tax revenues respectively, while the Harris County Hospital District was deprived of more than $4.6 million in revenue. Local school districts, including Alief, Spring Branch and Katy, were shorted $29.1 million in property-tax revenue.

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25 comments
proudtexan13
proudtexan13

@daughteroftexas  

I apologize for just now getting around to this. I paid my tax bill on Monday and that reminded me that I needed to thank you.  In one of your posts below, you mentioned a company called Jubally.com.  In June, 3 days before my hearing, I went to their site and ended up purchasing their evidence report.  On the day of my hearing, I took what they gave me in and presented it. I walked out with a sizeable reduction, and ended up paying them much less than I have O'Connor and had much better results.  So, thank you for sharing that info.

MarkinTex
MarkinTex

Good to see local media starting to cover HCAD's corrupt tactics. I hope you don't mind, but I reposted your article on the blog, "The HCAD Wall of Shame" (http://hcadwallofshame.wordpress.com/) that documents corrupt behavior by HCAD that I and other contributors have experienced, and I welcome anyone here to contribute their experiences to that blog. 

HCAD routinely lies to property owners in informal meetings, and appraisers will often let it slip that they have no intention of lowering an appraisal before they have even heard your evidence (see: http://hcadwallofshame.wordpress.com/2012/07/09/alex-t-ton/). The ARB can be just as bad. Some ARB members are truly there too help taxpayers, but many are just there for a power trip, will violate procedure and are often racist (see http://hcadwallofshame.wordpress.com/2012/07/18/verdeen-newton-doris-butler-and-pauline-newman-2/).

 And good luck filing a complaint. I filed a very detailed complaint over impropriety of an ARB board member, and got a  short letter back saying they had found no impropriety, with no elaboration. When I demanded to see copies of all information related to their alleged "investigation", I got a letter from the County Attorney stating that all that information falls under attorney-client privilege, and they even petitioned the State Attorney General to declare it privileged, which he did. I have left messages with the State Attorney General's office which have been ignored.


Again, I encourage everyone to submit your HCAD horror stories to "The HCAD Wall of Shame" (http://hcadwallofshame.wordpress.com/).

Tanstaafl2
Tanstaafl2

It's not that HCAD has a policy of giving breaks to rich companies and sticking it to the little guys (regular folks).  The reality is HCAD tries to stick it to EVERYONE.  The difference in what happens after that is that the big companies have the knowledge and the assets to protest and fight HCAD's initial appraisals, whereas the little guy usually just accepts it.

There are numerous law firms and tax protest companies (they're not hard to find) that will represent a little guy and protest an appraisal on his behalf.  The property owner just fills out a short questionnaire and form granting authority to the firm to represent him.  Takes 5 minutes and he doesn't have to do anything else.  The standard fee charged by these firms is 50% of the tax savings you'd see in one year due to the reduction they got you.  50% may seem steep, but it's not bad considering you're doing no work to get the savings and would likely get NO savings otherwise.

Keep the following in mind:
1.  HCAD often sets the new appraisal at a certain percent above the old appraisal (by law, they are limited to a 10% increase per year), so if you protest and keep the appraisal down every year, the effects build upon each other - just like compound interest.
2.  HCAD also looks at how your property compares to other property appraisals in the neighborhood - if you're below the average that puts on extra pressure to raise your appraisal.  YOU get hurt if your neighbors are too ignorant or too lazy to protest their appraisals, because that drives up the average appraised value to which your property will be compared.

ec342
ec342

I stopped reading when the SEIU was quoted. The SEIU is the sleaziest union to ever exist. Corrupt, corrupt, corrupt!

ec342
ec342

Well, this article is as slanted to the Left as it could POSSIBLY be. Not once was what any Democrat believed ever questioned or ridiculed, but only how they presented themselves. On the other hand, every Republican was soundly ridiculed for what they believed, and even their beliefs were presented skewed. A serious attack piece against conservatives.

ckasmiroski1
ckasmiroski1

Yet another tired article and same lame viewpoint of business not paying taxes, pointing out race, and the little guy getting screwed.  We are all getting screwed!

Here is an idea; How about we all pay ZERO in property taxes?  How can you own property if the government can come take if from you anytime we don't pay them?  You don't own anything if someone can take it from you.  Or how about you pay more in taxes, each year..., because some obscure gov employee says your property is now worth x?  How does that make any sense?

bcky46
bcky46

I so totally agree with this. I am a Houston newbie and I have looked at how property is assessed in various cities and nothing has compared to how outrageously they are valued here.. I am buying a bare lot with a supposed assessed (market) HCAD LAND value of $9,900.. its been on the market for a year (at $9,900) and when the seller reduced the price to $5 I offered $4k and it was quickly accepted..

Another funny thing is, on this property, the house was demolished by the City several years ago but yet the HCAD continues to assess the property as still having the house ($48k).. and the seller has been paying (by my estimate) about $1,000 more per year! Legally HCAD is supposed to be informed by the City of all demolitions, yet many assessed values are never changed to reflect this... hmmmm..

Nico
Nico

Just find it interesting that the author feels compelled to point out that Ms. Williams is "African-American".    Given that her race has absolutely nothing to do with the story, it's content, or the writer's thesis.  I can only surmise that her race is important to him ... and that is very sad.

And I invite Mr. Jansen to post why her race was referenced, other than to fit his internal matrix of separating people according to his racial perceptions.  I'll wait, but I bet he will not respond.


jennytulltx
jennytulltx

Not sure what the whining is about.  It doesn't require outside representation to dispute your appraisal.  I have done it 4 times in the past and every time got my tax bill reduced to reflect the actual value of my home, not the fiction they were trying to thrust upon me.  Just do a little research, include every negative you can, aging neighborhood, number of forclosures, homes converted to rentals, etc.  Take some time and effort and it pays off.  But I guess hard work will never trump drama and poor-mouthing.  Now that doesn't say we in Houston pay some of the highest property taxes in the country.  We do - along with the other scam - insurance.  But that is another story.

Robert541
Robert541

I would be willing to bet that HCAD does not eliminate taxable value for those  who live under the flight paths of airplanes, next to rail road tracks, or pipelines. When the beltway was put in at the south side the noise level went up dramatically on my property. Ill bet they dont reduce value on that basis!

denbrenison
denbrenison

http://www.window.state.tx.us/taxinfo/proptax/tc06/ch23a.htm#23.013

"If the chief appraiser uses the market data comparison method of appraisal to determine the market value of real property, the chief appraiser shall use comparable sales data and shall adjust the comparable sales to the subject property."

I understand that lending a voice to those citizens who cannot actively fight their tax bill is paramount with this article but in a cursory search of Texas' tax code (see above), I find that the market data approach is one cemented in statistical analysis.

To elaborate, HCAD derives its value from a comparable sale sheet of neighboring properties. Unfortunately, as is referenced in the article, this data is not exactly tabulated. A real estate agent does not have the duty to disclose the sale or purchase data of your home - would you want them to? Could open more privacy doors than anything. However that is another issue. Rather, I would have written the story, with less sensual language, in the narrative of HCAD’s lack of disclosure of comparable pricing to taxpayers highlighting their lack of additional mediums to protest appraisal valuations.  

HCAD calculates values of recently sold properties in your neighborhood (accounting/adjusting for foreclosures, etc) and arrives at a median value for a comparable sized home. Note well, this information is sourced from slim, albeit reliable and published data. To elaborate, HCAD cannot value your home against comparable foreclosure sales as these are distressed prices and, more importantly, you are not in foreclosure. On the opposite end of the spectrum, HCAD will not use a value for the most expensive comparable home because the sale could have included precious artwork, a nice view, or a good real estate agent. HCAD then applies this median value or multiple to your home. We all know what median value is and why it is substituted for average, so I will not delve into that topic. 

The issue occurs and I salute the taxpayer for it, to question the comparable homes. As the story points sometimes values are difficult to derive so pricing should adjust to the more conservative - not always the case, unfortunately. However, I believe that HCAD uses correct comparable pricing and, if it does not, should publish how it arrived at the value for your home. Hence, publish its comp sheet. The taxpayer, when debating said value, should publish their comparable sheet, too. Remember, that as a taxpayer you cannot use comparable sales from the cheapest of sales or, I don't see why you would, the most expensive. Caveat, sometimes sales do not exist in certain areas and then values are derived from nearest comparable sales. This multiplier will be adjusted for your property should the comparable values be outliers. Hence, why we as taxpayers are able to protest our value. 

Again, taking into account the comparable sales and the dearth of sales in say landlocked I-10, apply this to 10+ story commercial property market. I assume there are not too many comparable sales for Wells Fargo-like buildings. So, if utilizing the market data approach, multipliers (as discussed above) must be used to derive at a value. However the difference between the Wells Fargo building (1000 Louisiana) and the Williams Tower (2800 Post Oak) are quite expansive. Apart from I believe is 7 stories, Williams is located in the Galleria versus Downtown. Of course, both are horrendous parking nightmares, Wells is located in a Central Business District interconnected to similar buildings. Williams is located is a pseudo-CBD on a busy two-way street but with a nice water feature. If accounting for nothing else, Wells should receive a premium versus Williams latest sales price ($412M, still not an actual number) hence its 2013 value is $434M. Note, too, although Wells is interconnected to number of different businesses, has more stories, and impressive shade of green, it is a smaller building by square footage - so factor that into the calculations as well. In sum, a difficult appraisal value to attain and as the comparable sales in the area are slim the multiplier (like the landlocked I-10 property) will be arbitrary but an arbitrary value based on median pricing data which can be protested! 

Thomas Martinez
Thomas Martinez

because our government favors the BIG MONEY and lot the regular people. Why??? because the regular people DO NOT do anything about things that matter! The people need to organize, educate themselves and take action on the issues to STAND for something that matters and do what is needed to make a difference. Each and Every Person CAN MAKE A DIFFERENCE IF THEY TAKE A STAND!

daughteroftexas
daughteroftexas

Fantastic article Steve.  The big problem lies in that they have made protesting so cumbersome and inconsistent that nobody really knows where to start.  When this happens, home owners either do nothing about their rising value with the county, or they hire an agency who charges them either a large flat fee, or a contingency fee.  But these contingency fees mean nothing to the homeowner individually, we're all just a fish in the sea to them. These agencies make their money on commercial properties, or by having a lot of residential hearings per day, they just don't care about the small timers.  I've met John before, and he's different. He cares. I wish all were like him. 

I believe HCAD responds to these type of people better than agents because they've shown a personal interest in their property.  I will always handle my protests myself because of this.  I know there is a product coming out on the market soon for the Houston area that uses HCAD's methods and data against them in order to beat them at their own game.  It also uses sales so that you don't have to go through a realtor to get that info.  I believe it is built for the do-it-yourselfer, those who want to handle the hearing on their own. It supposedly gives you all the evidence you need for your hearing.  I went to their seminar recently, I'll see if I can't find out when or if they'll have another.  If I recall correctly, the company is called Jubally.  Weird, I remembered it because it's spelled a bit differently. www.Jubally.com I think.  Supposedly it comes online in early May.

Motherscratcher
Motherscratcher

When I was checking comparable appraisals in Katy, I noticed that the Kickerillo Co. office on Fry Rd. has been appraised as a residential, single family property even though this has been the company's corporate headquarters for years and years. Complete with a commercial parking lot and signage on Fry. As far as I can tell, it's been this way since the mid 80's. What I find even more interesting is that some of the homes on Fry where people ACTAULLY LIVE. are being assessed at the same valuations on significantly smaller lots with significantly less improved square footage. I just happened to notice this and made a mental note that it seemed odd. If I owned commercial property near this office, I would want that sweet deal. I would be surprised if there was not a benefit to the characterization.

ThePosterFormerlyKnownasPaul
ThePosterFormerlyKnownasPaul topcommenter

If Texas is going to rely on ad valorem taxes for funding our governmental activities, then two things must be done.  These are disclosure of sales price and elimination of taxation on unrealized gains.


There was a story a number of years back which pointed how the wealthy have managed to game the appraisal system.  A mega house being built by a man who made his fortune in pager services had caught on fire.  After the fire was extinguished, the DFD placed a cost of some $35M on damages.  The problem was that the house was appraised by the DCAD for about $2M.

bcky46
bcky46

I will further go on to say I have attended some tax sales and seen what is done.. there is a disclaimer that HCAD values should not be relied on as being correct.. man, people should really re-read that several times (& that disclaimer should be put on every assessment notice too! lol).. cuz at the tax sale, even if the property is a bare lot but HCAD has not reduced the value due to the house no longer existing they totally suck some people into actually believing the property is worth considerably more than it is in reality.. yes, the buyers should be doing their due dilligence but on those sales you can see how the constables are laughing all the way to the bank.. its still a misrepresentation of the actual facts/values..

I have looked at listings of properties bought several years ago at the tax sales and the buyers try to sell them at that inflated "market" value.. guess what happens.. the property sits, and sits, and sits.. the owner drops the price, drops the price and drops the price until it is not much higher than what he/she paid at the tax sale 2 or 3 years ago.. If those properties were indeed worth those inflated assessed values they would have sold at those prices quickly..

I have looked at the HCAD site and clicked on previous valuations link and guess what.. lots of properties have never had their valuations lowered in the last 5 years even tho we have gone thru the worst housing crisis since the Depression... hmmmm...

daughteroftexas
daughteroftexas

@denbrenison

From the Texas Property Tax Code:

Sec. 23.01.  APPRAISALS GENERALLY. (a) Except as otherwise provided by this chapter, all taxable property is appraised at its market value as of January 1.

(c)  Notwithstanding Section 1.04(7)(C), in determining the market value of a residence homestead, the chief appraiser may not exclude from consideration the value of other residential property that is in the same neighborhood as the residence homestead being appraised and would otherwise be considered in appraising the residence homestead because the other residential property:

(1)  was sold at a foreclosure sale conducted in any of the three years preceding the tax year in which the residence homestead is being appraised and was comparable at the time of sale based on relevant characteristics with other residence homesteads in the same neighborhood; or

georgescott
georgescott

George Scott: Some of the truth some of the time all of the truth none of the time.

The 2013 value of the Williams Tower is NOT $434 million.  That is the notice value that HCAD has established, but HCAD has a decades long inability to defend its assertions.  Why it can't hold its values is at the heart of the story and it involves many factors including HCAD's own cowardice, the Legislature's decision to grant corporate welfare, and the refusal of the Comptroller of Public Accounts to take or encourage actions it could do to level the playing field.

As far as your assertion that foreclosure sales cannot be used as comparable sales, you are in fact wrong - you are wrong in terms of both law and appraisal practices.

denbrenison
denbrenison

@daughteroftexas @denbrenison 

Apologizes. I was incorrect in my language. However, the theme of my argument is still maintained: that HCAD uses said median value in calculating a property. As foreclosures will tip the scale in one direction, I am correct that if a neighborhood were to have regular sales and foreclosures, HCAD would take the median value of comparable sales. 

georgescott
georgescott

George Scott

Foreclosed properties are not automatically excluded by law although HCAD makes every effort to exclude foreclosed properties. 

denbrenison
denbrenison

@georgescott

Apologizes. I was incorrect in my language. However, the theme of my argument is still maintained: that HCAD uses said median value in calculating a property. As foreclosures will tip the scale in one direction, I am correct that if a neighborhood were to have regular sales and foreclosures, HCAD would take the median value of comparable sales. 

Additionally, as my comment reads, the Wells Fargo tower is valued at $434M not the Williams tower ($354M). The difference is highlighted in said thesis. I should add that the recent sale to Invesco occurred in 2013, so it should not effect Williams' value this year. 

Consequently, as my comments read there is not much applicable sales data to accurately value 10+ story high rises; hence, my median value argument. HCAD should publish the comparable sales it used to derive said value and the protester should argue with opposing data. I, again, offer that no one is 'gaming' the system here. I do, as my comment reads, understand the time a traditional taxpayer must devout to protesting his/her value and how, if negotiated, that taxpayer would likely accept the first, revised offer. This is versus the time allocated by investment funds. 

georgescott
georgescott

@denbrenison @daughteroftexas 

George Scott

As for me, I am not going to take the shovel out of your hands.  Keep digging because I am getting a kick out of it. Keep writing and when you get this urge to defend HCAD on its practices based upon your apparent presumptions of what it is doing regarding foreclosures and sales of property by financial institutions using MLS out of your system, I'll write a complete column about your presumptions.

GeorgeScott
GeorgeScott

@daughteroftexas @georgescott 

Dear Daughter,

This kind of half-truth, incomplete truth, part of the story from the poster is the kind of self-rationalization nonsense that those who would reform the system have to put up with all the time.

I have written the bottom line truth to the guy's disinformation that has some truth in it.  I have great confidence that there will be those in the profession who will step forward and explain in more detail to the readers why this guy is mostly wrong in terms of the overall reality of what's happening in the property tax system for everyone but the mega-value property owners.

HCAD has its defenders.  We have them in a defensive posture. That's where they belong.  Hopefully, the rest of the news media will begin doing their job like the Houston Press has done in its usual position of leadership.

daughteroftexas
daughteroftexas

@georgescott Yep.  The Texas Property Tax Code allows for foreclosures to be used as comps, but unless you know the facts, they'll try to argue otherwise.  It's up to the property owner to be knowledgeable and inform them so that you're not taken advantage of.

 
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