Valuing Property

With few exceptions, Tax Code Section 23.01 requires appraisal districts to appraise taxable property at market value as of Jan. 1. Market value is the price at which a property would transfer for cash or its equivalent under prevailing market conditions if:

• it is offered for sale in the open market with a reasonable time for the seller to find a purchaser;
• both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions on its use; and
• both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the need or demand of the other.

Each appraisal district determines the value of all taxable property within the county boundaries. Tax Code Section 25.18 requires appraisal districts to reappraise all property in their jurisdictions at least once every three years. Tax Code Section 23.01 requires that appraisal districts comply with the Uniform Standards of Professional Appraisal Practice (USPAP) if using mass appraisal and use the same appraisal methods and techniques when appraising the same or similar kinds of property. Appraisal districts must evaluate the individual characteristics that affect the property's market value in determining the property's market value.

The Appraisal Foundation defines mass appraisal as "the process of valuing a universe of properties as of a given date using standard methodology, employing common data and allowing for statistical testing." USPAP's Standard 5: Mass Appraisal Development - which applies to appraisal districts performing mass appraisals - states that a mass appraisal includes:

• identifying properties to be appraised;
• defining market area of consistent behavior that applies to properties;
• identifying the characteristics (supply and demand) that affect the creation of value in that market area;
• developing a model structure that reflects the relationship among the characteristics affecting value in the market area;
• calibrating the model structure to determine the contribution of the individual characteristics affecting value;
• applying the conclusions reflected in the model to the characteristics of the property(ies) being appraised; and
• reviewing the mass appraisal results.

Before appraisals begin, the appraisal district compiles a list of taxable property. The list contains a description and the name and address of each property owner. In a mass appraisal, the appraisal district then classifies properties using a variety of factors, such as size, use, construction type, age and location. Using data from recent property sales, the appraisal district appraises the value of typical properties in each class.

Three common appraisal approaches appraisal districts may use are the sales comparison (market) approach, the income approach and the cost approach.

Sales Comparison (Market) Approach

The sales comparison (market) approach bases value on sales prices of similar properties. It compares the appraised property to similar properties recently sold, then adjusts the comparable properties for differences between them and the appraised property. When adequate sales data is available, the sales comparison approach is typically preferred in appraising single-family homes and vacant land in mass appraisal.

Income Approach

The income approach uses income and expense data to determine the present worth of future benefits. This approach seeks to determine what an investor would pay now for a property based on its anticipated future revenue stream. The income approach is most suitable for properties frequently purchased and held to produce income, such as apartments, retail properties and office buildings.

Cost Approach

The cost approach bases value on what it would cost to replace the building (improvement) with one of equal utility. Appraisal districts apply depreciation and add the estimate to the land value. The cost approach is best for appraising properties for which sales and income data are scarce, unique properties and new construction.

Notice of Appraised Value

• April 1, or as soon thereafter as practicable for a single-family residence; or
• May 1, or as soon thereafter as practicable for any other property.

The appraisal district sends a notice of appraised value if:

• the property's value is greater than it was in the preceding year (The appraisal district's board of directors can decide to send notices only if a property's value increases by more than $1,000.);
• the property's value is greater than the value rendered by the property owner (see Rendition section below for more information);
• the property was not on the appraisal district's records in the preceding year; or
• an exemption or partial exemption approved for the property for the preceding year was canceled or reduced for the current year.

A notice of appraised value contains:

• a list of the taxing units in which the property is taxable;
• the preceding year's appraised value;
• the preceding year's taxable value;
• the current year's appraised value;
• the kind and amount of each approved exemption, if any, for the current and preceding year;
• the exemption amount that may have been canceled or reduced for the current year, if approved in the preceding year;
• a statement of whether the property qualifies for the circuit breaker limitation on appraised value under Tax Code Section 23.231;
• In italics, the following statement: "The Texas Legislature does not set the amount of your local taxes. Your property tax burden is decided by your locally elected officials, and all inquires concerning your taxes should be directed to those officials."
• a detailed explanation of how to protest;
• the date and place the appraisal review board (ARB) will begin hearing protests;
• an explanation of the availability and purpose of an informal conference with the appraisal office before a protest hearing; and
• an explanation that the appraisal district only determines a property's value and the governing body of each taxing unit determines potential tax increases.

Property owners who disagree with the value in the notice, may use the Property Owner's Notice of Protest included with the notice to file a protest with the ARB.

For additional information on protests and appeals, see our Appraisal Protests and Appeals webpage.

Limitation on Residence Homestead Value Increases

The appraised value for a homeowner who qualifies his or her homestead for exemptions in the preceding and current year may not increase more than 10 percent per year.

Tax Code Section 23.23(a) sets a limit on the amount of annual increase to a residence homestead's appraised value to not exceed the lesser of:

• the property's market value; or
• the sum of:
  • 10 percent of the property's appraised value for the preceding year;
  • the property's appraised value the preceding year; and
  • the market value of all new improvements to the property.

  Tax Code Section 23.23(e) defines a new improvement as an improvement to a residence homestead made after the most recent appraisal that increases the property's market value and was not included in its appraised value for the preceding tax year. It does not include repairs to or ordinary maintenance of an existing structure, the grounds or another property feature. Tax Code Section 23.23(f) states a replacement structure for one rendered uninhabitable or unusable by a casualty, wind or water damage is also not considered a new improvement.

  The appraisal limitation only applies to a property granted a residence homestead exemption. The limitation takes effect on Jan. 1 of the tax year following the year the property owner qualifies for the homestead exemption. It expires on Jan. 1 of the tax year following the year the property owner no longer qualifies for the residence homestead exemption.

  Circuit Breaker Limitation on Non-Resident Homestead Property Value Increases

  Tax Code Section 23.231 sets a limit on the amount of annual increase to the appraised value of real property other than a residence homestead to not exceed the lesser of:

  • the property's market value; or
  • the sum of:
    • 20 percent of the property's appraised value for the preceding year;
    • the property’s appraised value for the preceding year; and
    • the market value of all new improvements to the property.

    The circuit breaker limitation applies only to real property that is not a residence homestead and is:

    • valued at $5 million or less; and
    • not real property that qualifies for special appraisal as:
      • agricultural land;
      • timberland;
      • recreational, park and scenic land;
      • public access airport property; or
      • restricted-use timberland.

      A new improvement is an improvement to real property made after the most recent appraisal that increases the property's market value and was not included in the its appraised value in the preceding tax year. It does not include repairs to or ordinary maintenance of an existing structure, the grounds or another property feature.

      A replacement structure for one rendered uninhabitable or unusable by a casualty, wind or water damage does not qualify as a new improvement under certain circumstances.

      The circuit breaker limitation takes effect on Jan. 1 of the tax year following the first year the owner owns the property on Jan. 1. It expires on Jan. 1 following the year the property owner no longer owns the property.

      A rendition is a form a property owner may use to report taxable property owned on Jan. 1 to the appraisal district. A property owner may render both real and personal property. The rendition identifies, describes and gives the location of the taxable property. Business owners must report a rendition of their personal property. Other property owners may choose to submit a rendition.

      Persons filing renditions who are not the property owner, the property owner's employee, the property owner's employee on behalf of an affiliated entity, a secured party or on behalf of a property owner rendering property valued at $150,000 or less must have the rendition notarized.

      If the personal property's total taxable value is less than $2,500 in any one taxing unit, the property is exempt in that taxing unit.

      • Advantages
        A property owner who files a rendition is in a better position to exercise his or her rights as a taxpayer. The property owner's correct mailing address is established on record so taxing units send tax bills to the right address. The property owner's opinion of value is on record with the appraisal district. The chief appraiser must send a notice of appraised value if he or she places a higher value on the property than the value listed on the property owner's rendition.
      • Deadlines
        Rendition statements and property report deadlines depend on property type or location. The property owner must deliver the statements and reports to the chief appraiser after Jan. 1 and by the deadline indicated below. Allowed extensions also vary by property type or location as referenced below.

      • May 15 upon written request
      • Additional 15 days for good cause shown
      • May 15 upon written request
      • Additional 15 days for good cause shown