How Property Taxes Affect Home Sales in Texas

Buying or selling a home in Texas? One of the biggest considerations—often lurking in the background—is property taxes. While they’re easy to overlook amid the excitement of closing a deal, property taxes in Texas have a major impact on home sales, both for buyers and sellers. So let’s get into it and explore how property taxes shape the real estate landscape in Texas and what that means for you.

How Property Taxes Work in Texas

Property taxes are one of the primary sources of funding for Texas schools, roads, and local services. Unlike some other states, Texas doesn’t have a state income tax, so local governments rely heavily on property taxes. These taxes are calculated based on the assessed value of your property, and every county in Texas determines the tax rate differently, meaning tax bills can vary widely depending on where your home is located.

This makes property taxes a critical consideration for homebuyers and sellers because they directly affect the overall affordability and long-term costs associated with any given property.

For Buyers: Why Property Taxes Matter in Texas

When you’re buying a home, it’s tempting to focus on the mortgage payment, but property taxes are a crucial factor in your overall monthly cost. Here’s why they matter:

1. Higher Monthly Payments
   Property taxes are typically paid annually, but most people roll them into their monthly mortgage payments. A higher property tax rate means a higher monthly payment, which can make a seemingly affordable house stretch your budget to the limit. For example, the effective property tax rate in Texas hovers around 1.8%, one of the highest in the country. This can add hundreds to your monthly costs, which can affect what you qualify for in a mortgage.
2. Qualification for a Mortgage
   Since property taxes are included in your debt-to-income ratio, a high property tax rate could potentially affect your ability to qualify for a loan. Lenders take the total housing cost into account, so property taxes can impact how much you’re approved to borrow.
3. Impact on Overall Affordability
   If you’re eyeing properties in high-tax areas like Dallas or Austin, you may want to consider how much you’ll be paying annually. The tax rate in some urban areas can be more than double what you’d pay in rural counties. This makes understanding Texas property tax rates essential to homebuying, as the difference in taxes can add thousands to your annual expenses.

For Sellers: How Property Taxes Impact Home Sales

Property taxes can also influence how sellers price their homes and negotiate with potential buyers. Here’s what Texas homeowners looking to sell should know:

1. Market Appeal
   In high-tax areas, potential buyers may be hesitant to purchase due to the added expense. If your home is located in an area with higher-than-average property taxes, you might face some buyer hesitation, and it might require more effort to highlight other benefits of the location or property.
2. Pricing Strategy
   If your property taxes are notably high, it may affect your home’s list price. In many cases, homes in high-tax areas need to be priced competitively to attract buyers who might be deterred by the tax burden.
3. Transferability of Tax Exemptions
   Some Texas tax exemptions, like homestead exemptions, only apply if the property is the buyer’s primary residence. Additionally, exemptions based on age, disability, or veteran status won’t transfer to the new homeowner unless they also qualify, potentially leading to a higher tax bill for the buyer post-sale. Being transparent about the current tax rates and any exemptions can help manage buyer expectations.

The Role of Property Taxes in Competitive Markets

In Texas’ competitive housing markets, especially in cities like Austin and Houston, property taxes play a key role in shaping affordability. Rising property values and tax rates can drive up property taxes, making certain areas less appealing to cost-conscious buyers. This can lead to a slower market for higher-tax neighborhoods, as buyers are increasingly aware of the long-term costs associated with property ownership.

How to Make Property Taxes Work for You: Tips for Buyers and Sellers

1. Buyers: Use Property Taxes to Your Advantage
   When looking at homes, research the tax rate in each area. Compare neighborhoods to identify where you might get a more favorable rate. Also, check with your lender to see how property taxes affect your loan qualification.
2. Sellers: Highlight Local Benefits
   If you’re in a high-tax area, focus on the benefits your local taxes bring, like great schools or superior public services. Buyers are more likely to accept a higher tax rate if they feel they’re getting value in return.
3. Appeal the Appraisal
   Whether you’re buying or selling, it’s always worth checking the appraisal value to see if it aligns with market value. Texas homeowners have the right to appeal their property tax assessment, which could result in a lower tax bill—something that benefits sellers looking to attract buyers with a more affordable tax rate.

Top Counties by Property Tax Rate: What to Know

Property tax rates can vary greatly between counties in Texas, with some urban areas carrying significantly higher rates than rural ones. Here’s a quick look at some of the most notable rates across popular counties in Texas:

• Harris County (Houston) – 2.09%
• Dallas County (Dallas) – 1.99%
• Bexar County (San Antonio) – 1.97%
• Travis County (Austin) – 1.98%
• Collin County (Plano) – 1.86%

Understanding these rates can guide your decision on where to buy or sell, and knowing the rate in your county can help you budget accordingly.

Property Tax in Texas: Top 10 Property Tax by County 

1. Property Tax in Harris County 
2. Property Tax in Dallas County  
3. Property Tax in Tarrant County (Fort Worth)
4. Property Tax in Bexar County (San Antonio)
5. Property Tax in Travis County (Austin)
6. Property Tax in Collin County (Plano)
7. Property Tax in Denton County (part of the DFW metroplex)
8. Property Tax in El Paso County (El Paso)
9. Property Tax in Fort Bend County (suburb of Houston)
10. Property Tax in Montgomery County (north of Houston)

Can You Lower Your Property Taxes?

Yes, Texas homeowners can appeal their annual property assessment if they believe it’s too high. Here are some steps:

1. File a Protest with Your Local Appraisal District
   Texas appraisal districts have a straightforward process for homeowners to contest their assessed property value.
2. Check for Exemptions
   Texas offers homestead exemptions for primary residences, senior exemptions, and veteran exemptions, all of which can lower your taxable property value.
3. Consider Working with Abode
   Navigating Texas property taxes can be complex, but Abode offers resources and expert guidance to help you understand your tax bill, appeal your assessment, and maximize savings.

Key Takeaways

For both buyers and sellers, property taxes are a critical part of the homeownership experience in Texas. They influence everything from monthly payments to the list price of a home. By understanding how property taxes work and how they impact home sales, you can make smarter decisions and potentially save thousands in the long run.

At Abode, we’re here to help you navigate the nuances of Texas property taxes, whether you’re buying, selling, or just looking to lower your bill. Ready to make property taxes less daunting? Get in touch with Abode and let us help you make the most out of your Texas homeownership journey.