It’s a tough time of year for homeowners in Houston. In November, a letter arrives from the Harris County Tax Assessor-Collector with next year’s property tax bill. Some people pay their taxes every month with their mortgage. Others, like me, end up writing a big check in January.
But there’s some relief. The Harris County Appraisal Review Board (ARB) is an independent entity that resolves disputes about property tax assessments. An appeal — also known as a “protest” — can even be filed online.
I wanted to know more about this industry. Who protests their property taxes? Who is successful at reducing their tax bill? How are outcomes different based on where you live, or whether you are a homeowner? Luckily, there is a lot of data that holds the answers to these questions.
An introduction to protesting property taxes
An annual protest, and subsequent tax assessment reduction by the ARB, can reduce the amount of property tax due right away. But it can also lower the baseline for next year’s tax assessment.
This can be good and bad. Annual protests constrain tax assessed values in growing neighborhoods, limiting the amount of tax revenue from areas that need more services and attention.
But an annual protest can also reduce property taxes to help keep low-income and fixed-income people in their homes. It can combat the rising property values and tax bills associated with gentrification.
This is important because the average property tax bill in Harris County is almost double the national average. There’s no state income tax in Texas, so local governments have limited options for revenue. Property taxes end up funding schools, roads, hospitals, law enforcement, and other government services.
What you pay in property tax depends on where you live. There are hundreds of “taxing units” such as cities, school districts, and utility districts, that only cover portions of the county. Outside estimates peg the average tax rate in Harris County between 2.09% and 2.31%, although my total tax rate inside the City of Houston is 1.84%.
Because these property tax rates are comparatively high, it’s vital for property owners to make sure that HCAD doesn’t overvalue their property from year to year. That means property tax protests. And, for a modest fee, there is a whole industry lined up and ready to help.
Who participates in the property tax protest industry?
Property taxes are big business, and there is a lot riding on the outcome of these protests. In 2019, with 99.5% of protests resolved, the ARB reduced Harris County property tax assessments by $22.2 billion. Homeowners represented just over $3 billion of the reductions (13.5%).
On one side is the Harris County Appraisal District (HCAD). They exist “for the purpose of discovering and appraising property for ad valorem tax purposes for each taxing unit within the boundaries of the district.” The agency manages data for approximately 1.8 million parcels and about 500 taxing units, such as the City of Houston or Houston Independent School District.
On the other side are property owners in Harris County. This can include homeowners, commercial property owners, land speculators, or landlords. And they can be individual people, limited liability corporations, nonprofits, religious institutions, or governments, among others. In this blog, when I refer to homeowners, I mean homeowners who live at the property.
In the middle, there are tax consultants, accountants, and law firms who facilitate the protests. These companies often charge between 20-50% of the tax savings as their fee. So if they reduce a tax bill by $1,000, they charge up to $500.
Finally, there are parties who depend on property tax assessments for their jobs. These include government employees, insurance companies, builders, and investors. The overall property tax trends can have a significant impact on their work.
Property tax protests reduced payments by $444 million in 2019
I reviewed property tax protest data for 2019. At the time of this analysis, 99.5% of the protests had been settled, so the numbers are not final. Additionally, I applied a uniform 2.00% tax rate across the county, so the numbers are approximate. Here are the highlights:
- Overall, there was a 6.9% decrease in tax assessed values on protested properties – a $22.2 billion reduction.
- Property owners saved $444 million in tax payments because of their protests.
- Only 26.7% of property owners filed protests on their own (despite evidence of better outcomes from doing it yourself), 68.2% hired help right away, and 4.9% both self-represented and hired help.
- If “help” fees averaged 20% of the tax payment savings, this would result in a market size of over $88 million within Harris County.
- On the whole, there was a 3.8% decrease in tax assessed values on protested owner-occupied properties – a $3 billion reduction.
- Homeowners saved $60.2 million in tax payments because of their protests.
- Generally, homeowners saw little difference in performance whether they hired help or protested themselves. This is based on aggregate information across the country.
- However, there are major differences in homeowner outcomes at the neighborhood and property levels.
- If “help” fees averages 20% of the tax payment savings, this would result in a market size of $12 million for homeowner protests.
Common Houston wisdom prevails: homeowners should balance the time it takes to file a protest themselves with the expected tradeoff in tax savings and fees from hiring help.
Protests and outcomes are different based on geography
A homeowner’s success with property tax protests has a lot to do with their location.
This is a map that looks at property tax protests across the county, divided into Harris County cities and City of Houston Super Neighborhoods. The map does not include protests in unincorporated Harris County, but the subsequent table does.
The layers on this map help illustrate differences across the county:
- Median Homeowner Increase. This represents the average tax assessment increase for owner-occupied homes. It calculates the difference in tax assessed value between 2018 and 2019 for all properties in the boundary.
- Homeowner Protest Rate. This represents the percentage of homeowners who appealed their property tax assessment. It counts the number of unique protests and divides by the number of residential homestead discounts in the boundary.
- Homeowner Mean Savings. This represents the average savings on the tax assessed value for homeowners who protested their property tax.
- Savings to Average Value. This metric standardizes how much is at stake for homeowners across the county. It calculates the median protest savings and divides by the median tax assessed value within the neighborhood.
- No Change. This represents protests where the ARB did not reduce the tax assessed value at all. In other words, the homeowner did not get anything for their time invested in their protest.
Dig in to the data:
Click on the image below and it will open an interactive table in a new browser window.
- Property tax increases for homeowners are generally uniform across the county, but there are exceptions.
- No matter what neighborhood you live in, you are likely to experience an increase in property taxes.
- Protest rates are higher in affluent neighborhoods and lower in low-income neighborhoods and communities of color.
- Positive outcomes (reductions) are more likely in affluent neighborhoods, such as Jersey Village or Bunker Hill Village.
- Negative outcomes (no change) are more likely in low-income neighborhoods, such as East Little York / Homestead and Denver Harbor.
- Homeowners who self-represent generally have slightly better outcomes than those who hire help, but the difference might not be worth the hassle.
If you’re curious about the data or this analysis, please send us your questions on Twitter to @januaryadvisors.