Legislative Priorities for the 81st Texas Legislature
1. Appraisal Reform
Issue
Before central appraisal districts were created in 1982, thousands of taxing units appraised property and assessed taxes independently, resulting in wide disparities in values. As the state began to rely more on local property taxes to fund public schools and to use school district property values as a measure of wealth to calculate state aid to school districts, centralized local appraisal became necessary to ensure equal treatment of taxpayers. The resulting system of central appraisal districts has greatly improved equity in property taxation and school funding, though there are still wide disparities in the individual characteristics of central appraisal districts.
Many property owners in Texas perceive the current appraisal process to be unfair and not uniform across central appraisal districts. Many property owners also think the district works on behalf of the local taxing jurisdictions. Finally, the entire appraisal process, coupled with the local taxing jurisdictions budgeting process, has become increasingly difficult to understand.
The Texas Association of REALTORS® position
• Supports legislation repealing the Board of Tax Professionals and moving its functions to the Texas Comptroller of Public Accounts and the Texas Department of Licensing and Regulation;
• Supports the passage of a constitutional amendment to give the comptroller's office or other state entity authority to enforce uniform standards among all appraisal districts in Texas
• Supports efforts to change the order of certain performance reviews conducted by the comptroller's office, so a methods and procedures review is conducted prior to a property valuation study;
• Supports legislation that changes how an effective tax rate is calculated to ensure no new revenue is realized by local taxing jurisdictions when local property values increase;
2. Binding arbitration
Issue
The 79th Texas Legislature passed SB 1351 and HB 182, which established a new property-appraisal-review process after an appraisal review board (ARB) hearing. Prior to the enactment of these bills, property owners who wanted to appeal a decision of the ARB had to file suit in district court. Binding arbitration gives property owners another avenue to contest unfair property appraisals without having to file costly lawsuits. A property owner who chooses this option will pay a $500 filing fee to cover arbitration costs. A "loser pays" provision ensures that any homeowner who prevails in binding arbitration receives the $500 filing fee back but forfeits the fee if the appraisal district wins. The Texas comptroller's office administers qualifications and appointments of arbitrators.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® supports proposals that enhance the binding arbitration process currently available for property taxpayers as an alternative to litigation, specifically:
• Allowing a property owner to appeal an ARB decision to the binding arbitration process;
• Enhancing the requirements of an arbitrator by requiring at least five years of experience before being qualified to serve;
• Allowing a certified public accountant to represent a party in a binding arbitration hearing;
• Requiring arbitrators to complete at least eight hours of continuing education for renewals;
• Lowering the application fee from $500 to $250;
• Restricting a binding arbitration hearing to no more than two hours; and
• Allowing more taxpayers to take advantage of the binding arbitration hearing process by removing the current $1 million cap and replacing it with a new qualification measure based on tax liability.
3. Business vehicle exemption form
Issue
During the last legislative session, HB 1022 and HJR 54, which permanently exempted from ad valorem taxation personally owned vehicles used for both personal and business purposes, were passed. Voters approved the resulting constitutional amendment in November 2007. While HB 1022 clarified that these vehicles were exempt from taxation, the bill required an exemption form to be filed on an annual basis with appraisal districts in Texas. Most personally owned vehicles used for business change ownership every three years. Requiring annual exemption forms creates inefficiencies with the appraisal districts and places a burden on many small businesses.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® supports legislation that will allow an exemption form to be filed once and is valid until that vehicle changes ownership. This process would mirror the current one for residential homestead exemptions.
4. County rulemaking authority
Issue
Counties in Texas have various powers and duties related to regulating land use, regulating structures, platting and subdividing land, and providing and regulating water, sewer, and other utility service to residential property. Despite these powers, many fast-growing counties do not have the capacity to regulate county-specific issues due to unprecedented growth rates.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® does not support wholesale expansion of county rulemaking authority to Texas counties. In limited circumstances, especially high-growth counties, justification may be warranted. If so, the association may support limited expansion of county powers to alleviate certain specific problems, but only as long as citizens vote in a county-wide referendum to approve the expansion of the powers and duties of the county
5. Eminent domain
Issue
The Texas Legislature in 2005 passed SB 7, which prohibits entities with the authority to use eminent domain from condemning private property for economic purposes. Despite this action, many related issues remain unresolved, such as who should have the burden of proof and how to define public use and public purpose.
The Texas Constitution limits the use of eminent domain by requiring adequate compensation for the land on which eminent domain is used. The exercise of this power, while considered a necessary tool of government by some, has been argued to have been expanded and used in improper ways by others. Reform of the power of eminent domain may be necessary to limit the possibilities for abuse.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® supports legislation that provides for changes to various codes and provisions in Texas law in order to reform the limitations, process, and other aspects of the power of eminent domain and condemnation in this state. Other areas of support to enhance the rights of property owners as they relate to eminent domain proceedings for pipeline placement include:
• Property owners shall receive engineering reports, appraisals, and any other discovery reports performed by the condemning entity that are relative to value and have 45 days to prepare for the condemnation hearing;
• Attorney fees shall be reimbursed to a property owner if they prevail in a higher property value in a condemnation hearing;
• Easements are limited to the width, depth, and use specified by the condemning entity.
6. Professional Liability (E&O) Insurance
Issue
One of the tools used by brokers to manage the risk exposure for their firms is insurance. Typically, all kinds of companies carry many types of insurance, but errors and omissions insurance is unique to the professional-services industry. E&O insurance covers a company or an individual in the event that a client does not receive the level of service expected or a promised result. Most E&O policies cover judgments, settlements, and defense costs. Even if a client's allegations are found to be groundless, thousands of dollars may be needed to defend the lawsuit. In Texas, there is little regulation of E&O insurance providers. The Texas Department of Insurance mandates that E&O carriers register with the agency, but no information is given to TDI with regard to rates, types of coverage, or the number of active policies held by people in Texas. Insurance rates for E&O coverage have increased over the last decade and are currently at all-time highs.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® supports legislative efforts to regulate E&O insurance carriers. At a minimum, these insurance carriers should be required to file with TDI basic information, such as rates, total claims paid, profit margins, claims filed, exclusions, and type of coverage offered.
7. Green power and energy efficiency
Issue
Utility providers can't expand their output fast enough to keep up with the growing population in Texas. The steps toward improving our energy efficiency are an important protection of the state's housing market and our environment. Some municipalities, such as Austin, have considered mandating energy-efficiency upgrades in existing housing stocks to lower energy consumption. However, such mandates can have devastating consequences to the local and state economy. For example, the Texas Association of REALTORS® commissioned a study to determine the economic impact of the proposed mandated energy-efficiency upgrades to existing homes in Austin. The study concluded that such measures would cost Austin more than $80 million in economic output. City officials have since steered away from mandatory upgrades in favor of consumer education and financial incentives to promote energy efficiency. A recent study by the State Energy Conservation Office found that Texans pay 56% more per kilowatt hour than the national average. If the cost of the kilowatt hour continues to rise, these high utilities could become a barrier to homeownership in Texas.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® supports efforts at the state level to provide incentives for compliance with voluntary green standards for homes and commercial buildings. Through varying incentives and broad consumer education, the state can create more informed homeowners and homebuyers who will have an interest in cutting their energy consumption. More important, by providing incentives for energy efficiency upgrades in existing homes and buildings, local economies and the state economy will not be affected.
8. Homeowners associations
Issue
Homeowners associations (HOAs) are created to enhance neighborhoods and increase property values. Increasingly, HOAs have taken on functions that local governments traditionally provide. The Legislature has addressed HOA issues a number times, yet property owners and property buyers still voice concern over actions taken by HOAs. Most of the problems with HOAs generally fall into three categories: money or collection issues, deed restriction enforcement, and lack of responsiveness from the HOA.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® supports efforts to ensure HOA operations are transparent and consumer-friendly, specifically:
• Requiring transparency of all fees associated with the transfer of a property within the boundaries of an HOA, including the disclosure of the fee amount and the recipient of the fee;
• Encouraging new methods of voting to eliminate the need for proxy voting;
• Extending statutory homeowner protections to include maximum fine amounts and reasonable payment schedules, among others; and
• Setting minimum requirements for bylaws and prohibiting the bylaws from expanding the powers of the association beyond those powers specifically granted in the dedicatory instrument.
9. Mandatory sales-price disclosure
Issue
Some appraisal districts, cities, and counties have argued for sales-price disclosure for all real estate transactions to establish a true market value of real property in Texas and more accurate appraisals. However, the Texas comptroller of public accounts reported that real property in Texas is valued at 99% of market value. In addition, testimony during hearings of the House Select Committee on Property Tax and Appraisals revealed that current sales information shared with appraisal districts in Texas is being misused. Central appraisal districts (CADs) do not back out seller concessions, such as the seller paying for the buyer's closing costs. Thus, CADs may use an inflated sales price on one property to justify raising values in a given neighborhood. Finally, Florida repealed their 20-year-old sales-disclosure law in 2008 because the information obtained was deemed "insufficient, incomplete, or too inaccurate to provide a reliable and credible source of information on real property transactions." Florida concluded that other and more reliable resources are available for the county appraisers, such as the appraiser contacting the buyer or seller directly or using the multiple listing services. Texas CADs currently contact the buyer through a sale- price questionnaire and use information contained in the MLS.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® opposes all efforts to require the disclosure of sales-price information.
10. Mortgage Finance: Fraud
Issue
The consequences of mortgage fraud are higher loan rates and fees, stolen identities, and lower credit ratings. In 2007, the Texas Legislature took the first steps to combat mortgage fraud by passing HB 716, which requires each applicant for a home loan be notified of penalties for making false or misleading written statements, requires the reporting of suspected fraudulent activity, establishes a residential mortgage fraud task force, and makes other statutory changes to combat mortgage fraud. This bill for the first time allowed local, state, and federal authorities to share information relating to mortgage fraud.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® supports continued efforts to curb mortgage fraud, including:
• Adding the Texas Department of Housing and Community Affairs to the Texas Mortgage Fraud Task Force;
• Providing additional information to the Texas Appraiser Licensing and Certification Board so the board may conduct investigations of mortgage fraud by appraisers; and
• Clarifying when certain disclosure notices are required under HB 716, as passed by the 80th Legislature and any potential penalties to a lender, mortgage banker, or mortgage broker for failure to provide the notices.
11. Mortgage finance: home equity loans
Issue
In 1997, the Texas Association of REALTORS® was very involved in passing a constitutional amendment allowing Texans access to the equity in their homestead. While the state's home equity laws are conservative, Texas leaders did not want to experience problems other states have seen. Some of the consumer protections placed in the Texas Constitution are a 12-day waiting period, a three-day right to rescind the loan, an 80% loan-to-value ratio maximum, and a one-year wait to refinance as long as the refinance maintains the same characteristics of the original loan. The consumer protections appear to be working. Economists believe that Texas is not experiencing some of the downturn in the real estate market due to state laws that restrict home equity lending. Other states, for example, allowed 120% loan-to-value ratios, which created situations where from the start homeowners owed more to the bank than their home was worth. As real estate prices dipped, some homeowners walked away from their obligations.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® opposes any changes to the home equity constitutional provisions, specifically any attempt to allow a seasoned loan refinance or to increase the loan-to-value ratio. The recent mortgage crisis shows that watering down consumer protections like the current constitutional protections can have disastrous results.
12. Property-tax appraisal caps
Issue
A limit on property-tax appraisals was enacted by the Texas Legislature in 1997 and was fully implemented for the 1998 tax year. The cap on appraised values is currently applicable only to residential homesteads. While the political pressure may be great to lower the cap percentage, there are consequences for doing so. Appraisal caps are discriminatory, ill-advised, and controversial. Taxpayers' gripes with any taxing system are usually rooted in the belief that they are paying a disproportionate share of a tax. While capping property-tax appraisals is attractive to many, the consequence of doing so causes more taxpayer resentment toward the taxing structure. Lowering the property-appraisal cap creates havoc within the appraisal system, and experience and research back up our claim. The Real Estate Center at Texas A&M University published a report outlining the detrimental impacts various tax plans would have on the Texas economy. The report stated that lowering the property-tax cap "would work to distort housing purchase decisions by keeping property taxes low for long-term residents. ... These measures threaten to impact the marketability of new homes and retard demand for new development by increasing the burden of purchasing new homes or even moving to another existing home. As time passes that impediment would continue to grow into a sizable distortion of the housing market."
The Texas Association of REALTORS® position
The Texas Association of REALTORS® opposes efforts to reduce the property-tax appraisal cap from its current level of 10%.
13. Real estate transfer tax
Issue
A real estate transfer tax is a tax assessed when ownership of property is transferred from one party to another. Some states also assess such a tax on long-term leases. This type of tax typically comes in the form of a percentage of the value of the property. The National Association of REALTORS® commissioned a study to analyze the effects of a transfer tax on real estate. The report assumed a tax rate of 0.5% and a $125,000 purchase price. Based on these assumptions, the cost of buying a home would increase by about $600, and home sales would decline by almost 3%. In addition, the Real Estate Center at Texas A&M University concluded that the creation of a transfer tax on real estate may create more problems than it solves. This type of tax could cost Texas $955.5 million in lost economic activity with 11,575 jobs lost
The Texas Association of REALTORS® position
The Texas Association of REALTORS® opposes efforts to create a transfer tax on real estate. Real estate transfer taxes and fees are an unnecessary burden to buyers and sellers, and negatively affect housing costs and economic development. Because of their volatility, these taxes are a poor revenue source for governments.
14. Taxing professional services
Issue
Some discussions related to funding public schools have included expanding the state sales-tax base to include professional services. All services, including real estate services, would be taxed. The National Association of REALTORS® studied the effects of expanding sales-tax bases to include real estate services. The report assumed a 6% sales tax rate and included the most common services associated with the purchase of residential property. Based on the preliminary results, homebuyers would experience a $621 increase in the cost of buying a home. Using the 6.25% sales-tax rate in Texas brings that increase to $775. If the local option of 2% was added, the cost of purchasing a home would increase by $1,022. According to the report, home sales in Texas would decline by 3% when real estate services are taxed at a rate of 6%. In addition, the Real Estate Center at Texas A&M University concluded in a similar report that expanding the sales-tax base to include professional services would cause irreparable harm to the real estate industry and the Texas economy.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® opposes efforts to expand the state sales-tax base to include professional services. Such an action may quickly increase revenue; however, the effect of a sales tax on real estate services is likely to hinder economic recovery.
15. Texas Real Estate Commission
Issue
The Texas Real Estate Commission regulates real estate brokers, salespeople, inspectors, and other related professionals. On occasion, real estate license law is reviewed for outdated sections. Certain provisions in the Real Estate License Act make regulating real estate professionals inefficient.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® supports legislation that will facilitate the administration of the Texas Real Estate Commission and eliminate certain inefficient provisions in the law.
16. Transportation
Issue
The population of Texas is likely to double in the next 50 years, and all of these people will need ways to travel efficiently. Building the necessary infrastructure to keep people moving in Texas is a major challenge. A recent survey of prospective homebuyers conducted by the National Association of REALTORS® revealed that the majority of respondents wanted their home within a 45-minute drive of their office and close to schools, retail establishments, parks, and public transportation.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® supports statewide transportation initiatives that will increase mobility in Texas, including:
• Stopping all non-transportation diversions from Fund 6;
• Indexing the state gas tax to an inflationary measure;
• Raising the current state gas tax from its current 20 cents; and
• Adding accountability, transparency, and public involvement in the transportation planning process.
17. Windstorm Insurance
Issue
The Texas Windstorm Insurance Association (TWIA) was created by the Texas Legislature in 1971 to provide windstorm and hail coverage to those who are unable to obtain insurance from the voluntary insurance market. The TWIA issues insurance policies like an insurance company; however, it also functions as a pooling mechanism that allocates losses back to the insurance industry. All property insurers licensed in Texas are required to become TWIA members as a condition of doing business in the state. Excess TWIA losses are assessed back to the member insurers. While the TWIA has $1.5 billion to pay claims, a major hurricane could cost the TWIA over $3 billion. Private insurers recently have stopped writing wind insurance policies along the coast, increased the TWIA's potential liability in the event a major hurricane. The TWIA now provides windstorm insurance to about 60% of coastal homeowners.
The Texas Association of REALTORS® position
The Texas Association of REALTORS® supports comprehensive legislative reform of the TWIA to ensure its long-term viability. The TWIA program must become an insurer of last resort, as originally intended, in order for the TWIA to be effective at meeting its objectives.
Please visit http://www.danfrankrealty.com/ or my blog at http://www.pearlandrealtyblog.com/
Information from the TAR 2009 Public Policy Statement
