Unequal Appraisal in Texas: Equity Claims Under §41.43(b)(3) and §42.26(a)(3)

The statutory text, side by side

At the appraisal review board (ARB), Tax Code §41.43(b) puts the burden on the appraisal district. A protest on the ground of unequal appraisal is decided in the owner's favor unless the district establishes one of three things: the property's appraisal ratio is at or below the median level of appraisal of a reasonable and representative sample of other properties; it is at or below the median level of a sample of properties similarly situated or of the same general kind or character; or, under §41.43(b)(3), the appraised value is equal to or less than the median appraised value of a reasonable number of comparable properties appropriately adjusted.

In district court, §42.26(a) states the same tests from the owner's side. Relief is granted if the appraisal ratio exceeds the median level of a representative sample by at least 10 percent, if it exceeds the median of a similarly situated sample by at least 10 percent, or, under §42.26(a)(3), if the appraised value exceeds the median appraised value of a reasonable number of comparable properties appropriately adjusted. Under §42.26(b), the court sets the value at the applicable median, uses the lowest value if more than one ground applies, and is not required to adopt either party's proposed median.

The two ratio tests depend on sales ratio data, which is thin for commercial property in Texas. That is why nearly all commercial equity work runs through the third ground.

Why the adjusted-comparables test is different

The (b)(3) and (a)(3) tests compare appraised values with appraised values. In Harris County Appraisal District v. United Investors Realty Trust, a 2001 decision by the Fourteenth Court of Appeals in Houston under an earlier numbering of the same test, the court affirmed relief for a shopping center owner whose expert adjusted the appraised values of seven comparables for location, traffic access, age and depreciation. The court held that the owner did not need to prove the market value of the comparables, treated adjusting their appraised values as the only independent analysis required, and said that where market value taxation and equal and uniform taxation conflict, equal and uniform taxation prevails.

In practice, a property appraised at or near its market value can still be over-appraised relative to its peers. Where the district's mass appraisal model lags the market, that is common: commercial property is over-assessed by 15% to 25% on average during market shifts because CAMA models lag (IAAO / National Tax Association), and the lag is rarely uniform across buildings of different ages and classes.

Check the comparables for statutory appraisal caps before you compute the median. Section 42.26(d) directs that, for property subject to an appraisal limitation, the comparison use the market value the district determined, so a capped comparable can distort the grid if you use its capped figure.

What "appropriately adjusted" means in practice

Tax Code §23.01(f) answers part of the question. The selection of comparable properties and the application of appropriate adjustments under §41.43(b)(3) or §42.26(a)(3) must be based on generally accepted appraisal methods and techniques, and adjustments must rest on recognized methods necessary to produce a credible opinion. Panels and courts read that as a demand for the same discipline you would bring to a sales comparison grid.

• Select on the characteristics that drive value for the property type: location and submarket, size, age and effective age, condition, quality class, and for industrial buildings, clear height and dock configuration.
• Adjust the comparables' appraised values toward the subject, and state the unit of comparison, usually appraised value per square foot of net rentable or gross building area.
• Support each adjustment with market evidence: paired sales or rent differentials, depreciation from the district's own cost schedules, or documented market data.
• Watch the land and improvement split. If the subject's land carries a different unit rate than the comparables' land, address it directly instead of burying it in a net adjustment.
• Keep gross adjustments in proportion. A comparable that needs very large adjustments is a weak comparable, and panels discount it.

How many comparables is a reasonable number?

The statute does not set a minimum, and the courts have not fixed one. In United Investors, seven comparables chosen on location, age and physical characteristics were enough. Panels tend to ask two things: is the set large enough that one outlier does not move the median, and is it representative rather than drawn from the lowest-appraised buildings in the neighborhood?

A sound practice is to define the selection rules first (same neighborhood and property class, a size band around the subject, a range of construction years) and then present every property that meets them. When the district's grid uses a different set, the panel can compare selection rules instead of arguing building by building. The grid below is for Westheimer Crossing, a 96,000 sq ft neighborhood retail center appraised at $15,360,000, or $160.00 per sq ft.

The median adjusted value of $144.96 per sq ft indicates $13,916,160 for the subject, a reduction of $1,443,840 (9.4%). At a 2.2% combined tax rate, that is about $31,760 a year.

Presenting the claim to the ARB

Because the district carries the burden at the ARB, a well-built owner grid forces the district to rebut a specific median. Request the district's evidence under §41.461, which entitles the owner to the data, schedules and formulas the chief appraiser will introduce. Under §41.67(d), information the owner requested that was not delivered at least 14 days before the hearing may not be used as evidence, except to rebut the owner's evidence or argument.

Then compare the district's equity grid with yours: different comparables, different adjustments, or the same comparables with different adjustment rates. Present your grid on one page with a map, the selection rules, the adjustment support and the median clearly marked. Panels hear many protests a day, and the one-page median is the document they reference when they deliberate.

Protest on both grounds. Form 50-132 lets the owner check incorrect appraised value and unequal appraisal together, and §42.26(b) lets a court apply whichever ground produces the lowest value.

After the ARB: district court, arbitration and SOAH

If the ARB denies the claim, the owner can file a petition for review in district court within 60 days after receiving notice of the final order (§42.21(a)). The case is tried de novo, and the court determines the median itself under §42.26(b). Binding arbitration under Chapter 41A covers protests under §41.41(a)(1) or (2), which includes unequal appraisal, for property valued at $5 million or less by the ARB order, with the request due within 60 days of receiving the order. Owners of non-industrial property valued above $1 million by the order can instead appeal to the State Office of Administrative Hearings.

ATALI ELECTRIC's Equity Uniformity module builds the comparable matrix from appraisal district records, applies documented adjustments, and computes the median adjusted value per square foot. That leaves hearing prep time for the selection rules and adjustment support that actually decide these cases.