Real estate agents act as guides throughout the entire real estate journey and beyond. Your clients will have questions about everything from the details of the transaction process to how they can find properties that meet their criteria. The more information you can provide—whether it’s in the form of direct answers, helpful resources, or referrals to professional experts in your network—the better. Not only will they have a smoother and less stressful transaction, but their confidence in your services will increase.
That long-term confidence in your expertise is at the crux of growing your business: 30% of a typical realtor’s business is repeat or referral clients. This guide to commonly asked questions about property taxes is designed to help you address your clients’ worries and give them the insight they need to strategically consider property tax costs before, during, and long after the transaction closes.
Keep reading so you have up-to-date answers for questions like:
- How do property taxes work in Texas?
- How do property taxes affect a home-buying budget?
- What can homeowners do to lower their taxes?
- Why are property taxes so high in Texas?
- What can homebuyers do to minimize their future property tax obligations?
5 Common Property Tax Questions Homebuyers Want Answers To
Your clients are going to have lots of questions about property taxes. Share this information with them so they feel confident making offers, paying their taxes, and setting their new homeownership finances in order.
How do property taxes work in Texas?
Property taxes are calculated every year based on the assessed value of individual properties. Local appraisal districts determine the value either by direct appraisal (which must happen at least once every three years) or through calculations that consider neighboring properties and market changes. Local tax offices then take this valuation, apply exemptions to it, and derive every homeowner’s tax bill.
Related: Texas Property Tax Relief: What May Change and What Will It Mean for You?
All of this work happens on the local municipal level rather than the state level. While it’s important for your clients to know there are two separate entities that handle these processes—the County Appraisal District that manages appraisals and the County Tax Assessor office that handles the tax bills—it’s even more important that both you and they understand the general annual schedule for these processes:
- January 1st: CAD officials appraise the market value of the home as of this date.
- Mid-to-late spring: Homeowners will receive a Notice of Appraised Value if their market value increases. At this point, homeowners can decide if they should protest the appraisal.
- May 15th or May 30th: Depending on the specific date noted in the Notice of Appraised Value, homeowners have 30 days from the date of sending to file a protest form.
- Late spring and early summer: CAD officials and protesting homeowners will go through a series of communications to reach a final appraisal value. This includes informal communications and a formal hearing in front of a review board. At the end of this process, the values are finalized and sent to the County Tax Assessor.
- October: Homeowners receive their finalized property tax bills, and payment is due by January 31st.
How Do Property Taxes Affect a Home-Buying Budget?
Before your clients even pay their first property tax bill, property taxes will be an important financial consideration in the home-buying process. Because property taxes in Texas are approximately 2% (and can vary significantly across different counties and cities), lenders will add property taxes to their calculations as they determine a client’s total housebuying budget. This is especially important when your clients have an escrow account and their monthly mortgage will include a portion of their annual insurance premiums and estimated property taxes.
There are three strategic ways you, your clients, and their lender can work together to use this information:
- Set a general housebuying budget so you can show homes within a comfortable margin and your clients don’t have to worry about going out of budget.
- If your clients are searching for a home in an area with dramatically different tax rates in adjacent counties, work with the lender to create different ‘budgets’ for each county so you can find listings that always sit within the client’s financial reach. (This is also helpful if your clients are using an FHA loan with a threshold that varies from county to county.)
- Send the lender the details of each property your clients are seriously considering. The lender should be able to quickly estimate the property taxes for the home and determine whether it’s within their budget.
What Can Homeowners Do to Lower Their Taxes?
Homeowners can do a lot to strategically lower their property taxes. Before the transaction goes through, they can submit an offer for a low buying price. The lower the initial market value is, the lower the equivalent property taxes will be. (Remember, Texas is a non-disclosure state, so CAD officials don’t necessarily have access to the final sales price or history on the MLS; however, a low sales price should certainly weigh in during protests or future valuations.) Homebuyers can protect this lower starting point by preferring a lower purchase price over other seller concessions during negotiations.
New homebuyers also have options after the transaction closes. The two main strategies are:
- Filing for a homestead exemption (and any other exemptions they may be eligible for due to age or disability status): This will exempt a certain portion of the property’s value from school district taxes, which tends to be the biggest individual levy in property taxes. It also “caps” the increase in assessed value for the home, so the County Tax Assessor works with a smaller, protected property valuation amount.
- Protesting property taxes: While it’s called ‘protesting property taxes,’ homeowners are actually disputing their property’s appraised value, which is then used to calculate the assessed value and property tax bill. They can file a protest notice with their County Appraisal District and present arguments and evidence about why the appraisal value is wrong. There are third-party services your clients can hire to manage this process entirely on their behalf year after year. It’s important to protest every year so appraisal values don’t creep out of control.
Why Are Property Taxes So High in Texas?
You’re going to hear this question a lot from first-time homebuyers and out-of-state buyers. The average property taxes in Texas are high because there is no personal income tax. Instead, local municipalities manage taxes and get revenue for city and county projects by assessing property taxes on properties within their jurisdiction.
Related: Is It Worth It to Protest Your Property Taxes?
If your clients are unpleasantly surprised by the high property tax rates, there are a few ways to ease their concerns. First, for out-of-state buyers, estimate the income taxes and property taxes they’d have to pay in their home state and compare it to the likely property taxes they’ll pay for a home in their budget and preferred region here.
Second, discuss all the options they have to keep their property tax bills low, such as filing for a homestead exemption as soon as the transaction closes and protesting their property taxes every year. You can also explain the new changes to property taxes, including higher exemptions and no property tax increase caps.
What Can Homebuyers Do to Minimize Their Future Property Tax Obligations?
Many prospective homebuyers and experienced homeowners think of protesting property taxes as a strategy for reducing only their current year’s taxes. This can be very discouraging as property tax protests might not always result in tangible tax savings. For example, if a property is appraised as having a 15% increase in market value but has a homestead exemption in place, the homeowner will only be billed as if there were a 10% increase due to the exemption cap. Protesting and lowering that 15% down to 12% or even 10% seems useless.
But that’s certainly not the case. Protesting property taxes provides long-term value because:
- Ensuring the appraised value doesn’t steeply climb upward throughout the years protects homeowners in the event they lose eligibility for a homestead exemption or pass on their home to inheritors.
- Under the new pilot program, some previously ineligible properties can now receive a 20% cap. However, the program is only scheduled to last for three years. If property owners don’t protest appraisal values in the interim, they’ll face a shockingly high increase in taxes if the program doesn’t renew.
- It helps keep neighborhood values more affordable. When more and more people throughout the neighborhood protest their property taxes and lower their appraised values, other homeowners can use these numbers as evidence in their own protests. This cyclical effect helps protect everyone.
When protesting does have an immediate effect on property tax bills, that’s even better. That means homeowners see immediate savings, but they’re also going to see a compounding effect on their savings every year compared to if they hadn’t protested at all.
Talk to Your Clients About Long-Term Property Tax Protest Services
Even with your ready explanations and insights into the property tax system and how to protest property taxes, your clients might be overwhelmed by all the different strategies and information. To help them navigate, consider recommending a property tax protest service. At Home Tax Shield, we offer expert assistance and can manage each homeowner’s tax protest process entirely. We also protest property taxes every year a client is with us, so they see fair appraisal values and fair property tax bills each year. Reach out today to learn about our services and provide more value for your clients.