What is the difference between market value and appraised value?

What is Market Value? How do appraisal districts in Texas determine market value?

Market Value of your property is the price at which your property would sell for in an open market. Also, called Fair Market Value (FMV), it is the price that a customer would pay for your property in an arms length transaction.

Appraisal districts are mandated to appraise all properties in the county yearly. Texas property tax code, sec 23.01 requires that all taxable properties be appraised at their market value as on January 1st of each year. When you receive your Notice of Appraised Value, the Market Value you see on it is the value that the appraisal district "thinks" your property would have sold for on January 1st of that year. This is the value you protest every year with your appraisal district.

What is the difference between market value and appraised value?

The county appraisal district (CAD) sets a value on your property annually. That is the appraised value. Since all CADs are required to appraise properties at market value, theoretically then, appraised value is the same as market value. However, in a real estate boom, market value can rise 20% to 30% each year. This can lead to spikes in property taxes year over year. Hence, homesteads have their appraised values capped. If you have been residing on your property for more than a year, then your appraised value will be much less than the market value. If you purchased your home in the past year, or if this is your rental/investment property, then the appraised value will be same as market value. As such, appraised value for property tax purposes, cannot go higher than the market value.

Will a lower appraised value lower my home's selling price?

Absolutely not! Your appraised value for property tax purpose has nothing to do with the selling price. Your selling price is purely a function of demand and supply. The price your property commands in the open market is dependent on various factors such as your home's condition, quality, age, neighborhood, desirability etc. If your CADs appraised value is lower, it does not mean a lower selling price.

If I have a homestead exemption, is there any point in contesting the market value (not the appraised value)?

You should! Though your appraised value is capped and comes out lower than market value, you should protest your market value. If you protest and lower your market value this year, it will start lower next year. If more people in your neighborhood protest, it will help keep the entire neighborhood value lower. Though some CADs claim that they determine market value as on Jan 1st each year independently of previous year's market value, the empirical observations are contrary to that.

Even if there is no immediate financial incentive, you should still protest. Reason being, when the county appraisers do bulk appraisals,

they use similar homes in the neighborhood as comparables. For this reason, it benefits everyone to make sure their appraisals fairly reflect market reality. If the entire neighborhood protests, it will help keep the entire neighborhood value lower.

In a booming market, market value will be way higher than your capped appraisal value. Eventually, the appraised value and market value converge. The more you suppress the market value, the sooner the market value meets the appraised value. After that point you're saving money as the market value is the driving force, not the appraised value.

Can the ARB raise my market value at the hearing?

Nope, ARB cannot raise the appraised value of the property, unless the property owner requests it! Ref: Senate Bill 2 of 2019.

"The bill prohibits an ARB from determining the appraised value of a property that is the subject of a protest to be an amount greater than the property's appraised value as shown in the submitted appraisal records, except as requested and agreed to by the property owner."

Will adding improvements increase my appraised value?

Yes, they do! Additional bedrooms and baths will increase your appraised value. Additional square footage will as well. If your renovation increased the quality of your home enough to change condition and or quality of your house, then your appraised value will increase. Routine repairs, re-painting, fixing broken stuff don't have much of an impact on the appraised value.

What if my appraised value is higher than the purchase price?

You are a new homeowner; you received your first Notice of Value from your appraisal district. And you are surprised that the appraised value in the notice is way higher than what you paid for just a few months ago! Well, it is quite common for appraisal districts to attach a higher appraised value than the purchase price. However, that doesn't mean you cannot protest the noticed appraised value! You can and you should protest your noticed value, ALWAYS!

If you are a new homeowner and your appraised value is higher than your purchase price, then all you need to do is file a protest with your appraisal district before the protest deadline, generally May 15th and submit a copy of your closing documents, which clearly show the sale date and price. Your appraisal district will then match your purchase price if the sale was completed in the last quarter of the year. If the sale happened earlier in the year, they may time-adjust it till January 1st.

Texas being a non-disclosure state, appraisal districts are forced to purchase sale prices either from a data vendor or rely on voluntary disclosure from new homeowners. Remember that voluntary sale price disclosure survey mail you got from your county appraisal district? Yes, disclosing your purchase price to the appraisal district helps them assign an accurate market value for property tax purpose. By disclosing your purchase price voluntarily, you can hope to see the same reflected in your noticed appraised value and avoid a protest the first year. Else, you will anyway have to disclose it at the protest hearing!