Medical Office Building Appraisals: Common Errors That Lead to Overassessment

Medical office buildings (MOBs) are among the most consistently overappraised commercial property types in Texas. County appraisal districts face a specialized challenge when valuing healthcare real estate — one that their standard mass appraisal models are not well-equipped to handle. The result is a category of property where overassessment is the rule rather than the exception, and where the evidence for successful protest is often clearer than in other commercial property types.

Understanding why MOBs are overvalued — and what evidence most effectively corrects that overvaluation — is the foundation of a successful protest strategy for medical office property owners.

The Personal Property Contamination Problem

The most common and most correctable error in medical office building appraisals is the inclusion of personal property value in the real property assessment.

In a typical commercial property, personal property — equipment, furniture, moveable fixtures — represents a relatively small portion of total value and is taxed separately on the personal property rolls. In a medical office building, the situation is different: the cost to build out a medical office space for clinical use involves enormous amounts of specialized equipment, fixtures, and improvements that are personal property in nature:

Moveable medical equipment: Examination tables, diagnostic equipment, imaging machines (X-ray units, ultrasound systems, fluoroscopy equipment), infusion chairs, and procedure room equipment are personal property. They can be moved, they are not permanently attached to the structure, and their value belongs on the personal property roll — not in the real estate assessment.

Tenant improvements that revert to the tenant: Many medical office leases provide that specialized tenant improvements — custom cabinetry, medical gas systems installed for a specific tenant, radiation shielding for imaging suites — remain the property of the tenant rather than the landlord. These improvements should not be included in the real property assessment.

Leasehold improvements versus building improvements: The distinction between what the landlord installed (building improvements, permanently attached to the structure) and what the tenant installed (leasehold improvements, which may or may not revert to the landlord) is critical. Appraisal districts frequently fail to make this distinction properly, attributing the full cost of medical build-out to the real property value.

How to spot this error: Request the property record card from your county appraisal district. Review the cost approach data for your building. If the per-square-foot cost estimate for your medical office building significantly exceeds standard commercial office construction costs, the excess may reflect medical equipment or specialized fixtures that should be personal property. Compare your building’s estimated cost per square foot to general medical office construction costs — the difference is the potential personal property contamination.

Income Approach Errors for Medical Office Properties

The Wrong Comparable Set

Medical office real estate has a fundamentally different income profile than general commercial office space. Medical tenants pay higher rents, sign longer leases, and are more likely to build out their spaces at their own expense in exchange for rent concessions or longer lease terms. This means medical office cap rates tend to be lower than general office cap rates — but not in all markets and not for all property types.

Rural and suburban medical office vs. urban hospital campus MOBs: Medical office buildings on or adjacent to major hospital campuses in Houston’s Texas Medical Center, in DFW’s Frisco medical corridor, or in San Antonio’s Methodist Hospital area command premium cap rates because of their proximity to major healthcare facilities and their access to patient referral networks. These properties are distinct from:

• Stand-alone rural medical offices in counties far from major hospital systems
• Suburban medical office parks with multiple competing facilities
• Single-tenant medical office buildings in smaller Texas cities

When the appraisal district uses cap rates and income assumptions derived from hospital-campus MOB transactions to value your suburban or rural medical office, the income approach overvalues your property.

Vacancy Rate Assumptions

Medical office tenants have significantly lower turnover than general commercial office tenants — established medical practices typically maintain long leases and strong renewal histories. However, the medical office sector has also experienced significant disruption:

• Healthcare system consolidation has reduced the number of independent physicians who lease medical office space
• Telehealth has reduced the demand for in-person consultation space in some specialties
• Healthcare reimbursement changes have pressured practice margins and reduced some practices’ willingness to pay premium rents

If your medical office has experienced above-average vacancy due to these structural changes in the healthcare delivery market, document that vacancy specifically. The appraisal district’s standard vacancy assumption for medical office (often as low as 3% to 5%) may dramatically understate the vacancy risk appropriate for your specific property.

Operating Expense Ratio Errors

Medical office buildings have higher operating expense ratios than standard commercial office space. Specialized HVAC requirements, medical waste management, enhanced plumbing for clinical sinks and procedure rooms, higher insurance costs, and stricter maintenance requirements all push per-square-foot operating costs above general office norms. If the appraisal district applies a standard commercial office expense ratio (15% to 20%) to a medical office property with actual expense ratios of 25% to 35%, the net operating income — and therefore the capitalized value — is significantly overstated.

The Texas Medical Center Premium: When Location Doesn’t Help You

For medical office properties in Houston’s Texas Medical Center or similar major institutional healthcare complexes, the premium cap rates and robust comparable sales data make appraisal district values less likely to be dramatically overstated — the market is deep enough to calibrate.

But for medical offices outside these institutional anchors — in suburban locations, in mid-size Texas cities, or in rural counties — the “medical premium” that pushes cap rates lower applies with decreasing force as distance from major hospital systems increases.

Under Texas Tax Code §23.01, market value is determined by what a knowledgeable buyer would pay in an arm’s-length transaction. A physician practice in Waxahachie is a different investment from a physician practice in the Texas Medical Center. The former trades at higher cap rates, lower rents, and lower per-square-foot values — because the pool of buyers who value Texas Medical Center adjacency doesn’t apply to Ellis County.

If your county appraisal district is using hospital-campus MOB transactions as comparables for your suburban or rural medical office property, challenge those comparables directly under Texas Tax Code §23.0101, which requires the appraisal district to consider all relevant approaches and market evidence.

Construction-Cost Approach Errors

Outdated Cost Manuals

Medical office buildings are expensive to construct. Specialized MEP (mechanical, electrical, plumbing) systems, medical gas distribution, enhanced fire suppression, HVAC zoning for infection control, and procedure room specifications drive construction costs significantly above general commercial office. Replacement cost estimates for medical office buildings are often in the $250 to $450+ per square foot range depending on specification level.

The problem: if the appraisal district applies these replacement costs to older medical office buildings without adequate physical and functional depreciation, the cost approach significantly overstates value. A 1988 medical office building is not worth replacement cost. Standard depreciation tables for commercial buildings may not fully capture:

• Functional obsolescence in systems that no longer meet current medical standards (old HVAC systems, inadequate electrical capacity for modern equipment, non-compliant plumbing)
• External obsolescence from changes in the healthcare delivery market
• The difficulty of repositioning older medical office space for alternative uses

Superadequacy in Medical Improvements

Some medical office buildings were built with specialized improvements that exceed what the current tenant or market requires — a phenomenon called superadequacy. An older imaging center with shielded walls and specialized structural reinforcement that was originally designed for heavy imaging equipment may now be used for purposes that don’t require those specifications. The specialized improvements add cost but not market value — in fact, they may reduce value by creating an inflexible floor plan.

Document any superadequacy in your medical office building as functional obsolescence supporting a reduction in the assessed value.

Specific Evidence for MOB Protests

For the most effective medical office protest, compile:

Actual lease data. Rent roll, lease terms, renewal history, tenant improvement allowances, and any above-market or below-market lease concessions. This is the foundation of any income approach challenge.

Personal property inventory. Work with your building’s maintenance records and any equipment inventories to identify and document personal property included in the space. A formal personal property list with estimated values supports the separation argument.

Cost approach analysis with full obsolescence. Build a cost approach that accurately reflects the building’s age, condition, functional limitations, and the external market conditions affecting medical office demand in your specific location.

Healthcare market data. CBRE, JLL, and Newmark produce Texas medical office market reports. These reports document vacancy rates, rent trends, and cap rates for the Texas medical office market — and distinguish between hospital-adjacent and non-hospital-adjacent properties when the data is available.

Comparable MOB sales from similar markets. Arm’s-length sales of similar medical office buildings — matching your size, age, quality, and location type — from your county or neighboring comparable counties.

For county-specific guidance on filing and hearing procedures, see our pages for Harris County, Dallas County, and Travis County. For the complete Texas protest process, see our how-to-protest guide.

How We Help Medical Office Building Owners

LowerMyCommercialTax.com represents Texas medical office building owners on contingency — 30% of first-year savings, nothing if no reduction is achieved.

Our medical office practice focuses specifically on the errors described in this guide: personal property contamination, income approach calibration, and cost approach obsolescence. Contact us to schedule a free review of your medical office building’s 2026 assessment.

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About the Author

Mike VanVickle is the founder of LowerMyCommercialTax.com, helping Texas commercial property owners reduce their tax burden through professional protest representation. With deep expertise in Texas property tax law and appraisal district processes, Mike and his team have helped property owners across all 254 Texas counties achieve meaningful reductions on a contingency basis — no savings, no fee.

Sources & References

• Texas Comptroller of Public Accounts — Property Tax System Basics
• Texas Property Tax Code, Title 1, Subtitle D — Tax Code §41.41
• Texas Property Tax Code §23.01 and §23.0101 — Market Value and Appraisal Methods
• CBRE Research — Texas Medical Office Market Report 2025
• Appraisal Institute — The Appraisal of Medical Office Buildings
• Texas Taxpayers and Research Association — Property Tax Reports

This guide was last reviewed and updated on May 22, 2026. Tax rates, deadlines, and procedures are subject to change. Consult your county appraisal district for the most current information.