Do nearby foreclosure-sale prices count when the appraisal district values my home?

Plain-English summary

In Texas, your county appraisal district sets the market value of your home each year, and that value drives your property tax bill. Senator Kevin Eltife, who chaired the Senate Committee on Administration, asked the Attorney General a question that mattered a lot in the years after the 2008 housing crash: when a chief appraiser figures out what a home is worth, does the appraiser have to take into account nearby homes that sold at foreclosure?

For a long time, appraisers had brushed those sales aside. The reasoning was that a foreclosure sale is a distressed, forced sale, not the kind of "willing buyer, willing seller" arm's-length deal the Tax Code's market-value definition assumes, so a foreclosed home's low price did not reflect true market value. The request letter said appraisers had "historically refused" to consider neighboring foreclosed properties for exactly that reason.

The opinion explained that the Legislature changed this in 2009. It amended Tax Code section 23.01 to add subsection (c), which says that "[n]otwithstanding Section 1.04(7)(C)," a chief appraiser, in determining the market value of a residence homestead, "may not exclude from consideration" the value of other residential property in the same neighborhood that would otherwise be considered, just because that property was sold at a foreclosure sale in any of the three preceding years (and was comparable at the time of sale), or because its value declined due to a declining economy.

Reading that plainly, the opinion concluded that a chief appraiser may not exclude from consideration the value of neighboring properties simply because they were subject to a foreclosure sale. The foreclosed comparables still have to satisfy the statute's other appraisal requirements, but the appraiser cannot toss them out on the foreclosure ground alone.

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later Attorney General opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The Texas Senate (as the opinion described it): The opinion answered Senator Eltife's question directly, reading section 23.01(c) to mean that a chief appraiser may not exclude neighboring foreclosure-sale comparables from consideration simply because they sold at foreclosure, so long as the other statutory appraisal requirements were met.

Chief appraisers and appraisal districts (as the opinion described it): The opinion read the 2009 amendment as overriding, for residence homesteads, the older practice of disregarding foreclosure sales under the arm's-length language of section 1.04(7)(C); a comparable could not be excluded on the foreclosure ground alone.

Homeowners (as the opinion described it): The opinion addressed what a chief appraiser must consider when valuing a residence homestead. It spoke to the appraisal inputs the statute requires, not to any particular homeowner's resulting valuation or tax amount.

Common questions

Can the appraisal district use foreclosed homes as comparables when valuing my home?
According to the opinion, yes. Section 23.01(c) bars a chief appraiser from excluding a neighboring residential property from consideration just because it sold at a foreclosure sale, provided the other appraisal requirements are met.

Didn't appraisers used to ignore foreclosure sales?
The request letter said they had, on the theory that a foreclosure is not the willing-buyer, willing-seller transaction the market-value definition assumes. The opinion explained that the 2009 amendment changed that for residence homesteads.

Does this mean every foreclosed house in my neighborhood counts?
Not automatically. The opinion noted the comparable still has to meet the statute's other requirements, such as being in the same neighborhood and comparable at the time of sale based on relevant characteristics.

Does the rule also cover homes whose value dropped in a bad economy?
The subsection the opinion quoted lists both foreclosure-sale comparables and residential property whose market value has declined because of a declining economy. The opinion's holding focused on the foreclosure-sale ground that Senator Eltife asked about.

Background and statutory framework

The Texas Constitution requires that "[a]ll real property and tangible property in this State ... shall be taxed in proportion to its value, which shall be ascertained as provided by law." Tex. Const. art. VIII, § 1(b). The Legislature generally requires an appraisal district to appraise taxable property at its market value as of January 1. Tex. Tax Code Ann. § 23.01(a) (West Supp. 2011). "Market value" is defined in § 1.04(7) as the price a property would bring under prevailing conditions assuming an open-market sale, informed parties, and a transaction in which both seller and purchaser seek to maximize their gains and neither can take advantage of the other's exigencies. Tex. Tax Code Ann. § 1.04(7) (West 2008). The Tax Code also directs that market value be determined using generally accepted appraisal methods and that all property-specific evidence be taken into account. Id. § 23.01(b) (West Supp. 2011).

The dispositive provision was the 2009 addition of subsection (c). It instructs that, notwithstanding the arm's-length language of § 1.04(7)(C), a chief appraiser may not exclude from consideration the value of other neighborhood residential property that would otherwise be considered, because that property either was sold at a foreclosure sale in one of the three preceding years (and was comparable at the time of sale) or has a market value that declined because of a declining economy. Tex. Tax Code Ann. § 23.01(c), (c)(1) (West Supp. 2011). Applying the rule that the primary objective in construing a statute is to give effect to legislative intent, and that an unambiguous statute is read by its plain meaning, the opinion relied on TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439 (Tex. 2011), to reach its conclusion.

Citations

Cases:

• TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439 (Tex. 2011)

Statutes:

• Tex. Const. art. VIII, § 1(b)
• Tex. Tax Code Ann. § 23.01(a) (West Supp. 2011)
• Tex. Tax Code Ann. § 1.04(7) (West 2008)
• Tex. Tax Code Ann. § 1.04(7)(C)
• Tex. Tax Code Ann. § 23.01(b) (West Supp. 2011)
• Tex. Tax Code Ann. § 23.01(c) (West Supp. 2011)
• Tex. Tax Code Ann. § 23.01(c)(1) (West Supp. 2011)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0943
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2012/ga0943.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

May 30, 2012

The Honorable Kevin P. Eltife Opinion No. GA-0943
Chair, Committee on Administration
Texas State Senate Re: Whether, in determining the market value of
Post Office Box 12068 a residence homestead, a chief appraiser is required
Austin, Texas 78711-2068 to consider the value of previously sold foreclosed
residential property (RQ-1029-GA)

Dear Senator Eltife:

You ask whether chief appraisers, in determining the market value of a residence homestead for ad valorem tax purposes, are "required to take into consideration the value of other residential property that was sold at a foreclosure sale conducted in any of the three years preceding the tax year in which the residence homestead is being appraised and meets the other requirements of Section 23.01(c)(1)."[1]

Article VIII, section 1(b) of the Texas Constitution provides that "[a]ll real property and tangible property in this State ... shall be taxed in proportion to its value, which shall be ascertained as provided by law." TEX. CONST. art. VIII, § 1(b). Generally, the Legislature requires an appraisal district to appraise all taxable property in the district "at its market value as of January 1." TEX. TAX CODE ANN. § 23.01(a) (West Supp. 2011). "Market value" is defined as

the price at which a property would transfer for cash or its equivalent under prevailing market conditions if:
(A) exposed for sale in the open market with a reasonable time for the seller to find a purchaser;
(B) both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions on its use; and
(C) both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.

Id. § 1.04(7) (West 2008). The Legislature has further instructed that "[t]he market value of property shall be determined by the application of generally accepted appraisal methods and techniques." Id. § 23.01(b) (West Supp. 2011). Furthermore, "each property shall be appraised based upon the individual characteristics that affect the property's market value, and all available evidence that is specific to the value of the property shall be taken into account in determining the property's market value." Id.

Relevant to your request, the Legislature amended Tax Code section 23.01 in 2009 to add subsection (c).[2] That subsection states:

Notwithstanding Section 1.04(7)(C), in determining the market value of a residence homestead, the chief appraiser may not exclude from consideration the value of other residential property that is in the same neighborhood as the residence homestead being appraised and would otherwise be considered in appraising the residence homestead because the other residential property:
(1) was sold at a foreclosure sale conducted in any of the three years preceding the tax year in which the residence homestead is being appraised and was comparable at the time of sale based on relevant characteristics with other residence homesteads in the same neighborhood; or
(2) has a market value that has declined because of a declining economy.

Id. § 23.01(c). The Texas Supreme Court has held that the primary objective when construing a statute is to ascertain and give effect to the Legislature's intent. TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439 (Tex. 2011). If a statute is unambiguous, we adopt the interpretation supported by its plain meaning unless such an interpretation would lead to absurd results. Id. Your request letter explains that appraisers have historically refused to consider neighboring foreclosed properties when appraising a residence homestead because foreclosure sales do not represent the "willful and arm's length transaction requirement in Section 1.04(7)(C), Tax Code." Request Letter at 3. By enacting subsection 23.01(c), however, the Legislature plainly mandated that, notwithstanding section 1.04(7)(C), chief appraisers must consider "the value of other residential property that is in the same neighborhood as the residence homestead being appraised ... [and that] was sold at a foreclosure sale," as long as the other statutory appraisal requirements are met. TEX. TAX CODE ANN. § 23.01(c)(1) (West Supp. 2011). Thus, when appraising a property, a chief appraiser may not exclude from consideration the value of neighboring properties simply because they were subject to a foreclosure sale.

SUMMARY

Pursuant to Tax Code section 23.01(c), a chief appraiser, in appraising a residence homestead, may not exclude from consideration the value of neighboring properties simply because they were subject to a foreclosure sale.

Very truly yours,

DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

JASON BOATRIGHT
Chair, Opinion Committee

Virginia K. Hoelscher
Assistant Attorney General, Opinion Committee

[1] Letter from Honorable Kevin P. Eltife, Chair, Senate Comm. on Admin., to Honorable Greg Abbott, Tex. Att'y Gen. at 1 (Dec. 13, 2011), http://www.texasattorneygeneral.gov/opin ("Request Letter").

[2] Act of May 26, 2009, 81st Leg., R.S., ch. 619, § 1, 2009 Tex. Gen. Laws 1404, 1404-05 (codified at TEX. TAX CODE ANN. § 23.01(c) (West Supp. 2011)).