Property taxes have represented a growing burden for most owners of commercial property. These tax rates have risen dramatically in recent years, and at this point, the state has one of the highest such rates in the country.
How is property valued? According to the Texas comptroller, an appraisal district generally relies on three approaches to determine property value. Here is a brief look at each.
The sales approach
The sales approach (also called the market approach) is based on sales of similar properties. The appraiser gathers information on comparable properties in the area that were recently purchased in order to determine a general value of the property being appraised. This number is then tweaked based on the differences between the two properties.
The income approach
Commercial property owners may see this approach fairly often. In order to determine property value, an appraiser relies on income and expense data. Generally, the goal is to determine the present worth of expected future benefits. Essentially, what might an investor pay right now for the property, based on the anticipated future revenue stream it generates?
The cost approach
This approach combines two key elements. First, the appraiser determines the value of the land itself. They add to this the cost of replacing the buildings on that property. That means estimating what it would take to construct a replacement building of equal utility. These two figures – the land value and replacement cost – are added together to come up with an assessment.
Disputing an assessment
No matter what type of commercial property you own – retail space, a hotel, apartments, office parks, malls, business personal use property, anything – you may be hit with an unfair property tax assessment. While seeing the valuation can be a shock, there is no need to panic. There are ways to dispute the assessor’s determination in an attempt to secure a fair assessment.