In 12 Nondisclosure States, Releasing Real Estate Sale Prices May Be Disastrous For Owners, Tenants

To say Bethany Babcock was unpleasantly surprised when a listing agent publicly unveiled the sale price of a client’s recent commercial property acquisition might be an understatement.

The principal and co-owner of San Antonio-based Foresite Commercial Real Estate was displeased enough to take her complaint to social media, kicking off a lively thread that saw one commenter suggest the offending discloser should be “publicly tar[red] & feather[ed], put in stockade and pelted with rotten tomatoes."

Babcock's property was in Texas, one of 12 nondisclosure states with no law requiring the release of real estate sale prices to the public or assessment officials. To Babcock and others, the move was overly self-promotional at best, and in a worst-case scenario, could be financially disastrous to the property’s owner and tenants. 

“The agents want to brag about what they sold the property for … It’s noteworthy. It’s marketing,” Babcock told Bisnow. “There's nothing wrong with that in a normal state. But when you're in a nondisclosure state, you're putting your own desire to brand yourself and market yourself above the needs of the tenants in the center that you've sold.”

At issue is the danger of informing appraisal districts that property sold for much more than its appraised value. Proponents of nondisclosure say revealing that information could lead to far higher taxes for property owners. For tenants, it could potentially double triple-net leases, in which the lessee pays rent plus property expenses, including utilities and taxes, Babcock said.

But the practice has its detractors. Keeping sales data under wraps leads to errors in property tax assessments and could spark considerable under- or overappraisals of properties. In Texas, the nation's most populous nondisclosure state by far, opponents say keeping it secret puts an unfair strain on homeowners, forcing them to shoulder more than their fair share of the tax burden.

“There's already a housing crisis, there's an affordability crisis, and people are getting taxed out of the houses they own,” Texas Rep. Diego Bernal of San Antonio said. “We have to find as many means as possible to relieve that pressure and that strain, and I believe [disclosure] could be one of them.”

Texas, Alaska, Idaho, Kansas, Mississippi, Louisiana, Wyoming, Utah, North Dakota, New Mexico and Montana are also nondisclosure states. Some counties in Missouri also don’t require disclosure. 

Nondisclosure proponents say CRE sale prices are appropriately kept under wraps. In addition to the potential to drive up appraisals for owners and tenants, disclosure violates Texas' historic tradition of valuing privacy. Sales data often includes “intangible values” like business names and tenants that could subtly and unfairly boost values, Texas realty professionals told Bisnow.

What's more, Texas already levies higher property tax rates than most states, making any further disclosure a risky proposition, experts said. Though it varies by municipality, Texas’ effective property tax rate averaged 1.74%, well above the national average of 1.1%, according to Business Insider’s analysis of U.S. Census Bureau data.

Appraisal districts in Texas use complex algorithms that take into account the characteristics of properties and local real estate market trends to determine value instead of running sales comparables.

Disclosing sales data without reforming the tax system would leave commercial property owners and tenants in a lurch, Babcock said.

Texas Realtors has consistently lobbied against disclosure bills in the Texas Legislature. This is largely because price disclosure is typically tied to property transfer fees, which the Texas Constitution bans, Texas Realtors Vice President of Governmental Affairs Tray Bates said.

“The need to have that number in a deed record is therefore [moot],” Bates said.

Conversations about disclosure usually center around property taxes, but Bates said that discounts the fact appraisers have access to copious amounts of sales comparable data through multiple listing services and look at factors besides price, like concessions and fees, Bates said. 

“That’s why we’ve opposed just putting a number on a deed record, because that’s the lazy way to look at a number, and that’s not the real value,” Bates said. 

The Texas Realtor lobbyist argues that values are the wrong thing to focus on when trying to lower property taxes. Tax rates set by local municipalities are the issue, Bates said. 

“The hard part is to show up at the city council, school districts and county budget hearings. And no one shows up to those meetings … If the community would show up during those budget hearings, it would force people that are elected to listen to them about budget prioritization,” Bates said.

But some think those arguments let commercial property owners off too easily, and bills that aim to make Texas a price disclosure state have been introduced in the state legislature for decades.

Bernal, a Democrat, has consistently authored bills to study the practice or require disclosure of commercial real estate sale prices since being elected to the Texas House in 2015. He told Bisnow that commercial properties are often undervalued by about 20% to 50%, giving homeowners an unequal tax burden in funding the state's public schools.  

“I don’t look at businesses or people who own commercial real estate as villains by any means,” Bernal said. “But I do think that paying your fair share is important, and I’m interested in exploring a way to do that that keeps Texas as business-friendly as it’s been.”

Opponents of nondisclosure point to research suggesting nondisclosure states lead to “unequal and unfair” outcomes. A St. Mary's University study found that Texas commercial property and high-end residential real estate were often undervalued by appraisal districts, citing an 8.34-acre parking lot that was officially valued at $7.3M when the city of Dallas purchased it for $42M in 2008. 

A 2021 Montana State University thesis found that high-end residential real estate is more likely to be under-assessed than cheaper homes because of assessors’ lack of knowledge of homes’ amenities, wealthy homeowners’ ability to challenge the assessments and lower amounts of transactions for high-value homes.

Researchers have made similar arguments in New Mexico, according to a 20-year-old study in Social Science Quarterly. It found “legitimate public concerns attached to real estate sales price nondisclosure” due to inequities in effective tax rates, tax revenue leakages and lower-priced homes contributing more than their fair share of property taxes. 

Bernal said his top priority is having open conversations about the issue, and he’s open to being wrong. But even if Texas were to overhaul its system, it would be unlikely to curb accusations of unfair taxation. In both disclosure and nondisclosure states, appraisal values are often challenged to get the property owner relief on their tax bills. 

There are three ways to appeal a property value in Texas: the income approach, which considers the value based on the property’s income; the sales approach, which considers what it’s worth based on the transaction environment; or the equal uniform approach, which looks at peer properties that are similar in class, size and age range, said Tony Trahan, a Dallas-based director for KE Andrews, which does property tax consulting. 

The latter option comes in handy in nondisclosure states after a trade in which appraisers levy a higher-than-normal value in an attempt to get a buyer to reveal what they paid for it, Trahan said. The option prevents tax agents from finding out the sales price so it cannot be used against a buyer during appraisal negotiations.

“It’s kind of a game,” he said.

While assessors in disclosure states know the price a property sold for, the appraised value can still be disputed, said Igor Kozlovski, an Atlanta-based director for KE Andrews. When the sale price is not separated from the business immersed in the real estate, the taxable property value can be incorrectly inflated, Kozlovski said. 

“Car washes, for example, are just a shed with washing equipment,” he said. “The majority of the value, based on market data, about 40% to 50% of the value, is from business value and equipment.”

That intangible value is especially present in retail property transactions, Babcock said.

“You’re paying for the credit of the tenant and the likelihood to receive rents, not so much the actual construction of the building,” she said. “Specifically, retail is impacted more than others when [the appraised value] gets closer to that trade value. The taxes are just not sustainable and they’re not really reflective of the actual property itself anymore.” 

Bernal said he plans to continue to bring up the nondisclosure versus disclosure conversation in Texas. But Bates and others doubt it will ever gain traction.

“In states that have [disclosure], it is what it is,” Bates said. “But in Texas, we pride ourselves on our privacy and our independence … I think that’s something that’s going to be really hard to get past. Especially because there’s no motivating reason to do it.” 

In disclosure states, it doesn’t really come up, Kozlovski said.

“No one even pays attention here because it’s always been like that,” he said. “There are not many complaints or anything.”

Babcock said she doesn’t consider nondisclosure or disclosure states to be superior, though the impact of revealing a sales price is important to understand when making deals in nondisclosure states, Babcock said.

“It’s just different, and you need to know the context,” Babcock said. 

“There's a lot of talk about whether or not Texas should continue to be nondisclosure, and I don't have a strong opinion. Either way, the conversation has to go hand-in-hand. If we were no longer a nondisclosure state, the taxable rate needs to come down significantly along with it.”