Appraisal District Slammed Due to Skyrocketing Home Values

San Angelo Local Market Area

Residential Single Family Home Sales History, 2020-2022

Source: Texas A&M Real Estate Center, data pulled May 17, 2022

While real estate has experienced a rapid and large increase over the past two years, the appraisal district has been slow to catch up with it — appraisal districts are required to revisit each property’s appraisal every three years. This cycle was not fast enough to catch the ongoing red hot real estate market statewide. Johnson said his staff knew this going into 2022. The Texas State Comptroller’s office audits appraisal districts every two years in what is called a biennial study. The latest audit by the Comptroller, as Johnson expected, revealed the hot real estate market caused county appraisals to be lower than the State study required. Appraisal districts must maintain property valuations within +/-5 percent of the State’s numbers. The results forced the Tom Green County Appraisal District to re-appraise much of the county’s residential properties this year outside the regular three-year rotation.

Homestead exemptions will save most residents from the full effect of the large valuation increases. Homesteads have a 10 percent cap on the valuation increase and is noted as the “Total Accessed” value listed with each property on the appraisal district website. For many homestead owners, each will see 10 percent increases for the next two to three years. Although, Johnson said that should a housing recession hit and property values decrease, he and his staff will work hard to reappraise property values downward.

Those who rent may be most impacted. A popular San Angelo apartment complex is called College Hills West Apartments at 3426 Millbrook Dr., built in 1970. This property’s valuation increased to $14,656,050 from $4,239,070, a 346% increase. The Blvd Apartments, a newer and higher rent property just southwest of Sam’s Club on Sherwood Way, saw its valuation increase from $7,396,310 to $26,041,860, or 352%.

Higher rent usually follows higher expenses for landlords. What is more, rental properties are not eligible for the homestead exemption’s 10 percent annual cap on valuations. This could mean that those who don’t own their residence will be hardest hit by 2022’s valuation increases.

Johnson disagrees. He said the valuation of a rental property, as calculated by his office, is determined by the income that property produces, not by comparable properties or cost to build those properties less depreciation. According to Johnson, landlords are likely already charging rents to justify the newly appraised values. Therefore, Johnson believes, a majority of the current rental rates have the higher appraisals already baked in.

What is more, multifamily properties have generally enjoyed stagnant or relatively small valuation increases during the previous three to four years, Johnson noted. A glance at appraisals backs up Johnson. On most apartments, valuations have remained relatively stagnant since 2018 while anecdotally we know from following the local real estate market weekly at San Angelo LIVE!, rents have risen. Statewide, rents increased 21.94 percent from 2020 to 2021 according to rent.com. Appraisal district data also notes that rental properties in the county are 96 percent occupied.

Local government entities like the City of San Angelo, Tom Green County, and area school districts set tax rates for the following fiscal year that starts October 1. Generally, tax rates from all entities have remained the same for years. The City of San Angelo’s 0.776 rate was nearly reduced this year. The council instead decided to keep the tax rate the same to generate extra revenue for road repairs — an estimated $300,000 to $350,000 more revenue was generated by this decision.

The county’s tax rate fluctuates year-over-year to remain clear of the 3.5-percent rollback rate. Under State Law, if the newly set tax rate generates more than a 3.5 percent increase of total revenue over last year’s revenue, a special election must be held to approve the new tax rate. No politician desires an election to increase taxes so tax rates are driven down to avoid the rollback election. The 3.5 percent rule also applies to cities and school districts.

Texas Senate Bill 2, or SB 2, passed during the 2019 legislative session, redefined terms in the property tax code. For example, the “no-new-revenue tax rate” is the term now used to define the tax rate that matches the taxing entity’s prior year’s gross revenue. A rate approved by voters in a rollback election is now called, “voter-approval tax rate.” Prior to SB 2, the law allowed revenues to increase up to 8 percent before a special election was required; SB 2 set that threshold at 3.5 percent.

How local governments tackle the increase in valuations of residential and multifamily properties is yet to be determined. For example, Mayor Brenda Gunter was reluctant to commit to what her reaction will be until she receives the FY 2023 revenue estimates from the appraisal district in 6-7 weeks. Even still, she knows we’re headed for tough times.

“A lot of tough decisions need to be made in the 2023 budget cycle — we’re flying into a storm. The decisions facing every citizen right now are tough decisions in all of our personal lives. At the same time, the City will need to make tough decisions based on the tough economic factors hitting us right now,” she said.

For now, the Johnson said he welcomes property owners to come to his office and challenge their new appraised value. He said he wants voters to understand how the valuation process works. The valuation challenges also help his staff refine their methods and verify the data sets they are required to use.