With the 2021 protest season well underway, I wanted to write a blog post to help homeowners understand the difference between the assessed value and the market value of their properties. There are many rows of numbers on the notice of appraised value (NOAV), but we tend to look at the row with the largest one... the "Total Market Value." And we all got a sticker shock to see this particular value increase by 15-25% or more from 2020. What?!?! During the year of the COVID-19 pandemic, my property value is up this much?!?!
Total Market Value
The only two rows that matter on your NOAV are the Total Market Value and the Assessed Value. The Total Market Value is determined by the appraisal district annually. It is what the appraisal district believes what your house would sell for on the open market on January 1 of a given year. Appraisal districts use various techniques to determine this value, but it is primarily determined by the arms-length (not foreclosures, sales within the family, distressed sales, etc.) sales from the previous year. The critical thing to note is that the appraisal district will recalculate this value next year irrespective of whether you filed a protest this year or not! And the second important thing to note is that reducing this value alone without also decreasing the Assessed Value will not lower your property tax bill!
Assessed Value
This value alone determines the ultimate amount of property taxes that will be due. Your Assessed Value can be the same as the Total Market Value, or it can be lower. By law, this value cannot increase by more than 10% from the previous year's Assessed Value, if you have the homestead exemption and no new improvements were made to the property (the market value of all new improvements added to the property does not count in the 10% limit). This is why it is absolutely critical to have The Homestead Exemption during periods of rapid real estate price growth, like what we've seen in 2020 and continuing into 2021. The Homestead Exemption alone will save you thousands of dollars in property taxes over the next 2-3 years, so make sure you have it! Next, let's look at some stats for the Austin area.
Homestead Exemption Effect
The difference between your Total Market Value and the Assessed Value is called the Homestead Cap Loss (HS Cap Loss). HS Cap Loss × Your Tax Rate = Property Tax Savings! The graph below shows the number of residential properties in the Austin area with a given HS Cap Loss amount. For example, there are 25,828 residential properties with HS Cap Loss between $10,000 and $19,999. All these homeowners will enjoy thousands in property tax savings!
Will Your Tax Bill Go Up 10%?
Not necessarily! If your Assessed Value went up the maximum 10% from last year, it does not mean that your property tax bill will go up 10%. Taxing unit (school districts, county, water districts, etc.) budgets and the total taxable values of all the properties within the taxing unit jurisdiction determine the tax rate and, ultimately, your tax bill amount.
Should You Protest?
It depends... If you don't have the Homestead Exemption or your HS Cap Loss amount is $0, then yes! If your HS Cap Loss is over $20K, your chance of reducing the Total Market Value to be below the Assessed Value is almost zero. If you are somewhere between $0 and $20K in HS Cap Loss, it probably makes sense to go through with the protest. Remember that to save anything on property taxes, your protest outcome must reduce your Total Market Value to be below the Assessed Value. Otherwise, it's a waste of time.
Ensure You Have the Homestead Exemption
As you can see, for the next 2-3 years it will be absolutely paramount to have the Homestead Exemption. In order to qualify,
- A home must be owned by an individual, not a corporation/business entity, and
- It must be the owner's principal residence on January 1st of the tax year
Not sure if you have a homestead exemption and whether you qualify? Search for your address on the form below: