So you get the appraisal notice for your property and you’re looking at it like it’s a Martian rock. “I kind of understand what it is, but where did that number come from?” Sometimes the county’s appraisal, or valuation of your property’s worth, is spot on. Sometimes it’s high, low, ridiculously high, ridiculously low – all are possibilities because the appraisal district doesn’t do an exact valuation of your property. I mean, how could they? If you live in Harris County, that’s over a million appraisals to do every year. So instead, the county relies on a technique called mass appraisal. Let’s take a behind-the-scenes look at how they value your home, which directly determines how much you’ll pay in property taxes.
Mass appraisal is just what it sounds like: appraising properties by the masses. The county appraises the whole neighborhood at the same time, and they do that by getting what’s called a market area multiplier. I know you want to call that a MAM, but trust me, I’ve tried and it hasn’t caught on. The market area multiplier is an average of the ratio between a property’s building cost and the amount it sells for. First, let’s talk about building cost.
Mass appraisal is just what it sounds like: appraising properties by the masses. The county appraises the whole neighborhood at the same time...
Building cost is replacement cost, minus depreciation. The replacement cost is determined by assigning value to different parts of a house (like a bathroom, pool, new kitchen, etc.), which is done mostly by a contracted company called Marshall & Swift. The company determines, for example, that a bathroom in a property like yours will be worth 10k at the time of sale. So if your property has 2 bathrooms, the bathrooms alone make up 20k in replacement cost. Let’s say the replacement cost of your property is 110k. But it’s several years old, so we’ll knock off 10k for depreciation, bringing the building cost down to 100k.
Marshall and Swift says your house is worth 100k, but what does the market think your house is worth? It’s all about location, location, location! The location is going to affect the market value of your property and so when you go to sell it, it actually sells for 150k.
Now that we have those two numbers, we can easily come up with the market area multiplier: 150k (market value) over 100k (building cost) gives us a ratio of 1.5.
Say some of your neighbors sell as well, and their homes have identical building costs as yours, but sell for different amounts. Your appraisal district will average the three homes’ ratios together to get the market area multiplier for your neighborhood. That means that when the county goes to value your neighborhood next year, everyone is going to get valued 1.5 times higher than the cost of their property.
Jumping back to the specifics of building cost, this number is comprised of many features, and they all significantly affect your property’s value. You can protest most of these cost features when you protest your taxes, if they’ve valued them too high. Below are some cost features you can challenge the appraisal district on.
Take a look at your appraisal district’s property profile page. This can be found by searching your address on your local appraisal district's website. Do they have everything right? Do you really have .25 acres of land? Was the home really built in 1993? Is the square footage really 2,631? These are important things to check because, as you may remember, every one of them is either increasing or decreasing the building cost value of your property. And if your market area multiplier is above 1, your house is going to increase even more. There are a few other cost features that are a bit more confusing.
Looking for your district's website? Here are a few of them:
- Bexar County CAD
- Brazoria County CAD
- Collin County CAD
- Dallas County CAD
- Denton County CAD
- Fort Bend County CAD
- Galveston County CAD
- Harris County CAD
- Montgomery County CAD
- Tarrant County CAD
- Travis County CAD
Odds are this is fine, but every once in a while it’s wrong, and if it’s wrong, oh boy, can you get overtaxed. The building class, also called building grade, is a classification of the quality of construction of your home, on a scale of some sort – usually. Most counties ascend like one would think – It’s not a hard and fast rule, but in most counties a building class 10 is higher quality than a building class 4. But because it’s inconsistent across counties, you should just ask your appraisal district for a complete list of its building classes so you can make sure your property is correctly classed. If it’s not, you can request that it be re-classed. If they have your property as a 6+ and it’s re-classed as a 6, that could mean tax savings for this year and years to come.
Condition, Desirability, Utility (CDU)
Sometimes this is referred to as just condition or desirability, and appraisal districts will use them interchangeably. The most important thing about your home’s CDU is its effect on what’s called the “percent good,” which determines the depreciation of your property. The typical spectrum of CDU is (from best to worst):
- very good
- very poor
To determine whether your condition is right, take a look at the CDU (listed on the appraisal district's website) of a few of your neighbors’ houses that you drive by every day. If their home is nicer than yours, but you have the same condition rating, you should try to get your CDU lowered. But do bring in a few of your neighbors’ properties to back up your case, as one probably won’t do it.
This one is the worst, because it seems like something the appraisal district leaves in to justify their models. It’s basically a fine-tuning of CDU, and changing effective year does the same thing as changing the CDU. Effective year is essentially the build year your home is comparable to. So if your home was built in 1977 but is in excellent condition and remodeled, your effective year might be 1994. Your property is more comparable to properties that were built in 1994 than 1977. This means your property shouldn’t depreciate at the same rate as a property that was built in 1977 with no remodels. In a lot of appraisal districts, effective year really affects your property valuation, so if you can get it changed it could significantly lower your property taxes. This is definitely worth challenging if it’s inaccurate.
Mass appraisal is great for the appraisal district and sometimes great for you, but not always. The way mass appraisal usually shakes out is with about half of the properties over-appraised and half of them under-appraised. If your property is one of the over-appraised ones, it could be worth protesting the county’s valuation to save you lots of money in taxes. That’s why so many people enlist our property tax consulting services every year and let us handle all these minute details.