The $21.75M purchase last week of a prime downtown block adjacent to Republic Square for a new 17-story Travis County Courthouse exposed problems in the county’s tax appraisal accuracy.
If you look at the historical tax appraisal data for the downtown lot, the appraised value was clearly significantly below market:
2005 Value: $7.6M
2006 Value: $7.6M
2007 Value: $7.6M
2008 Value: $7.6M
2009 Value: $7.6M
2010 Value: $13.9M
2010 Purchase $21.75M
The actual value of the lot — confirmed through an independent appraisal which determined the fair market value for the transaction — was 56% higher than the current appraised value and 186% higher than the appraised value in each of the preceding 5 years. What this means is that the previous owners of the land paid significantly less than their fair share of property taxes as a result of the faulty appraisal. In fact, the owners probably saved $2M last year and $3M the year before on their annual property tax bill.
Unfortunately, the Courthouse sale was not an isolated incident. It’s been long known that downtown property tax appraisals are significantly below market value. As a result of the under collection of taxes on the county’s most valuable land, residential and commercial property owners of less valuable but more accurately appraised property are paying an unfair share of property taxes.
According to the Statesman, “Patrick Brown, chief appraiser in Travis County, said this week that he has found mounting evidence that downtown commercial properties have been significantly undervalued for years — meaning the owners have received what has amounted to years of significant tax breaks.
‘We have admitted as much,’ Brown said. ‘Our commercial land values have been low the last several years.’
If true, homeowners and small businesses have been shouldering more than their fair share of the tax burden, an assertion made for several years by critics of the Travis Central Appraisal District. But Brown said property values have dropped or remained flat during the economic downturn, and the appraisal district probably will not significantly increase downtown appraisals in the near future.”
For downtown condo owners and shoppers, the low appraisal values are mixed news. For individual unit owners, condo valuations are set individually and are unlikely to change. Because so many individual units change hands, it is easy for the county to determine values. For buyers looking to move into a future development, the likely increase in property taxes for undeveloped or partially developed land means that development prices and resulting unit prices will increase. With few new projects in the pipeline, however, the change only means that it will be even harder for new projects to create a viable business case to justify financing.