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Chapter 2:
Findings of the Appraisal Standards Review

This chapter of the report addresses a commendation, as well as findings and recommendations from the appraisal standards review of the Angelina CAD in two sections:

2.1 Commendable Practice
2.2 Key Findings and Recommendations

2.1
Commendable Practice

As part of its review process, PTD identifies best practices used by each CAD under review. This commendable practice improves efficiency, or in some instances, addresses past operational weaknesses. We commend Angelina CAD for its efforts and hope this commendation gives other appraisal districts ideas for improving their own operations.

FINDING
Angelina CAD's geographic information system (GIS) exceeds mapping requirements established by Comptroller Rule 9.3002.

The Texas Comptroller's Property Tax Rules Section 9.3002 addresses mapping as follows:

Exhibit 1 shows the requirements of Comptroller Rule 9.3002 and the current status of the CAD's mapping system.

Exhibit 1
Comparison of Comptroller Rule 9.3002 Requirements
and Angelina CAD's Current Mapping Status

Rule 9.3002 Mapping Requirement	CAD Mapping Status
All appraisal offices and all tax offices appraising property for purposes of ad valorem taxation shall develop and maintain a system of tax maps covering the entire area of the taxing units for whom each office appraises property.	The CAD's mapping system covers the entire area of the taxing units for whom it appraises property. The system consists of automated digitized maps with several layers of data, including parcels, ownership, legal descriptions, roads, jurisdictional boundaries, rivers, flood zones, voter precincts and aerial photos.
Each tax map system shall be drawn to scale and delineated for lot lines or property lines or both, with dimensions or areas and identifying numbers, letters, or names for all delineated lots or parcels.	Each map is drawn to scale, delineated for property lines and contains identifying numbers, letters or names for all parcels.
Each tax map shall be divided into sections drawn at a scale large enough to serve the purposes of property assessment. Developed or subdivided areas may be drawn at a different scale than undeveloped or unsubdivided tracts.	Each CAD map is divided into sections and is drawn to scale, including subdivided areas.
The tax map, each section thereof, and each parcel thereon shall be assigned numbers in accordance with a parcel identification numbering system. Such numbers shall be recorded on the tax map, section, and parcel. The identifying number for each parcel as recorded on the tax map shall also be recorded on the appraisal card maintained for that parcel.	All CAD maps have parcel identification numbers corresponding to parcel identification numbers on appraisal cards.
The tax map system shall be annually updated to incorporate any new subdivisions or property transfers as indicated by the filing of subdivision plats or deeds with the county clerk's office of the county or counties in which the taxing units for whom each office appraises property are located.	The CAD's maps are updated daily for splits and combinations as indicated by instruments filed with the county clerk.
Any information required by these sections may be maintained in electronic data processing records rather than physical documents.	The CAD's electronic maps are integrated with the appraisal system and available for viewing and printing on the CAD's Web site.
Development of tax map systems (or substantial progress toward development) shall be completed by January 1, 1983.	The CAD has developed a system of tax maps that complies fully with Comptroller Rule 9.3002.
Appraisal offices and tax offices failing to establish a tax map system as required in this section may be judged to be in compliance upon a showing to the board that a tax map system substantially equivalent to that required in this section has been established.	The CAD has established a tax map system that exceeds the requirements of Comptroller Rule 9.3002.

Source: Comptroller Rule 9.3002 and Angelina CAD Mapping System.

The CAD purchased mapping software in 1991 and digitized all of its paper maps. The CAD has upgraded its mapping software, integrated the mapping and appraisal systems and provided access to CAD maps via its Web site.

The mapping department's three staff members update CAD maps daily, using information from newly filed deeds for parcel splits and combinations. New subdivisions recorded with the county are also mapped.

According to the mapping supervisor, the CAD's maps are 100 percent complete and all areas within the CAD are mapped. Angelina CAD's maps show parcels for each real property account in the CAD, along with its property identification number linked to the appraisal system. All maps are drawn to scale and can be accessed through the automated appraisal system.

In addition to parcel coverage, Angelina CAD's GIS data layers include:

• Subdivision boundaries;
• Survey/abstract boundaries;
• Taxing entity boundaries;
• Roads and streets;
• Ownership and deed references;
• Legal descriptions;
• Rivers, streams and creeks;
• Flood zones;
• County commissioner precincts;
• Voter precincts; and
• Aerial photography.

The chief appraiser said the mapping system is used in the reappraisal process by plotting sales electronically to determine market areas. Sold parcels can be color-coded, making it easier to define market areas. The GIS provides appraisers with an efficient and quick reference for locating property. Appraisers can print maps on demand from their computers and taxpayers can view and print maps from the CAD's Web site.

The mapping supervisor said the GIS data is backed up daily on magnetic tapes and kept in a fireproof vault. Providing maps on the CAD's Web site has improved customer service by not requiring taxpayers to submit individual map requests and allowing department staff to devote more time to maintaining the GIS. Compact discs of the CAD's entire map coverage are available to the public.

According to IAAO, a good mapping system is essential for the location, identification and inventory of all parcels within a jurisdiction.

COMMENDATION
Angelina CAD has developed a geographic information system that exceeds industry standards and improves customer service and work productivity.

2.2
Key Findings and Recommendations

As part of the review process, PTD makes recommendations to address challenges identified during its review of a CAD. Below are recommendations addressing key challenges associated with Angelina CAD's appraisal activities.

FINDING
Angelina CAD's appraisal manuals lack local procedures and directives for completing appraisals and calculating building cost modifiers.

IAAO's Property Appraisal and Assessment Administration, describes the importance of written procedures or standards of practice, and states that procedures may incorporate or be contained in laws, regulations, policy memoranda, procedural manuals and guidelines, appraisal manuals and schedules. According to the Red Book, repeated tasks, particularly those done by more than one person, should be described in guidelines or manuals. IAAO recommends a procedure for establishing standards of practice, including regularly updating manuals. Procedures are required for monitoring the quality of appraisals, editing data and reviewing appraisals.

Property Tax Code Section 23.01 requires the CAD to appraise property by applying generally accepted appraisal methods and techniques. This section also requires appraisal districts to comply with USPAP's standard on mass appraisal, and to apply similar appraisal methods and techniques to the same or similar property. Appraisal districts are required to account for the contributions of individual property characteristics to value. A comprehensive appraisal procedures manual will help ensure that these legal standards and requirements are attained.

Through fieldwork, the CAD's six real property appraisers gather specific information, such as the property's condition, age, construction details and physical dimensions. The appraisers also gather information about the land on which real property is located, including dimensions of the land, shape and location. The appraisers gather the same information for vacant land, whether a vacant lot or a rural tract. Instructions for transforming the field data into an appraisal, however, are lacking.

The appraisers record the accumulated property characteristics on appraisal cards and draw diagrams of all improvements. Using the CAD's appraisal manuals and their appraisal knowledge, the appraisers determine the property type and class, unit costs and depreciation. Data gathered in the field is given to data entry clerks to enter into the CAD's automated appraisal system (model). Separate values for land and improvements are calculated. The model, when directed, produces a market value for each property based on the property's characteristics. The field cards and newly calculated appraisal cards are returned to the appraisers for their review and to determine the accuracy of the data that was entered.

Residential property is appraised using market-based schedules developed from local sales and cost data obtained from area builders. The residential appraisal manual, which was last updated in 2007, includes current residential building schedules; a depreciation table; descriptions of typical classification characteristics for residential building classes one through seven; descriptions of building appurtenance codes, such as flooring, interior finishes and heating and air conditioning; and representative pictures for each residential class, one through 12. The residential manual lacks detailed descriptions of typical classification characteristics for residential building classes eight through 12, and detailed instructions on its use. To be an effective manual and training tool for new appraisers, and to promote appraisal consistency among all appraisers, procedures included in the manual should focus on measuring classification, identifying property attributes, applying depreciation and site appraisal.

The CAD uses market data to appraise land. Size, location and use are factors affecting land values. The CAD values land by the acre, square foot, front foot or flat-appraised lots based on the factors. Land schedules were updated in 2007, including a new commercial land schedule for property located on Loop 287, which goes around the City of Lufkin. The appraisal manual has numerous schedules based on square footage, front footage, acreage and subdivision lots, but lacks instructions for determining which appraisal method to use and when.

The CAD primarily uses the Marshall & Swift Commercial Valuation Guide (Marshall & Swift) to appraise commercial property. The chief appraiser said the CAD receives updates annually. The commercial property appraiser said about one-half of all commercial property in the county located outside the City of Lufkin and two-thirds of the commercial property within the City of Lufkin are appraised using Marshall & Swift. The remaining commercial property, which is typically older or more rural, is appraised using a schedule developed by the CAD based on a combination of Marshall & Swift and local sales and building costs. The schedule has not been updated recently because commercial sales information is lacking. According to the assistant chief appraiser, the CAD in 2006 adjusted Marshall & Swift's building costs by applying a 0.80 building cost modifier. It was developed from Marshall and Swift's published building cost modifier for Smith County, located 85 miles north of Angelina County.

A building cost modifier adjusts base building costs for local market conditions. In January 2006, Marshall & Swift's building cost modifiers for the Tyler area ranged between 0.86 and 0.87, depending on the building class. Using Smith County's building cost modifiers as starting points, Angelina CAD began testing the cost modifiers by applying them to the CAD's commercial schedules and comparing the results to verified commercial sales or construction costs obtained from building permits filed with the City of Lufkin. According to the assistant chief appraiser, a 0.80 building cost modifier yielded appraisals closer to sales prices and construction costs than did 0.86 or 0.87.

For the 2006 PVS, PTD field appraisers used Marshall & Swift's Commercial Valuation Guide, an automated service for appraising commercial property that accesses Marshall & Swift's commercial cost schedules. The cost estimator uses building cost modifiers determined by Marshall & Swift based on a property's postal zip code. PTD staff said cost modifiers for Angelina CAD, based on area zip codes, ranged between 0.86 and 0.88 in 2006. When published cost modifiers appear not to be adequate for a given region, IAAO recommends appraisers develop cost modifiers based on local construction costs.

Results of the 2006 PVS suggest the CAD should examine how it develops commercial building costs modifiers. Within Lufkin ISD, sale-to-appraisal ratios ranged from a low of 0.4343 to a high of 1.5329 for commercial sales. The CAD lacks locally written procedures and directives for determining commercial cost modifiers, how and when to use its commercial schedules and detailed instructions for completing appraisals.

In 2006, Angelina CAD's 852 business personal property accounts made up 7.5 percent of the CAD's total reported appraised value. The CAD has one personal property appraiser. According to the personal property appraiser, personal property values are reviewed every year by examining renditions filed by business owners and estimates 75 percent of all businesses in Angelina CAD render their personal property. Each year, business personal property owners are required to file with the CAD a confidential rendition that describes, quantifies and estimates the value of business personal property that was on hand on Jan. 1 of that year. Property owners who do not render by April 15 are subject to a penalty of 10 percent of the taxes imposed on the property for that year, as required by Property Tax Code Section 22.28.

The personal property appraiser reviews these renditions for accuracy and reasonableness based on the appraiser's knowledge and experience. The CAD does not have a manual to guide the personal property appraiser in the review of renditions or in making the reasonableness determination. To appraise personal property that has not been rendered, the personal property appraiser uses the schedule found in the out-of-print Comptroller's Field Appraisers Guide and compares values of similar businesses. This guide is outdated and not sufficient for use in valuing personal property. Depreciation is calculated using a schedule based on industry standard estimates of economic lives for various types of business personal property. The CAD lacks a comprehensive personal property appraisal manual that includes instructions and guidelines for appraising and discovering personal property and evaluating renditions.

The appraisal district contracts with an outside appraisal vendor to appraise the CAD's industrial, utility and mineral accounts. Utilities are appraised using the unit appraisal technique. The unit appraisal technique requires the appraiser to determine the entire utility company's market value. The utility company's value is then apportioned to each taxing unit based on an agreed measure of the company's presence in the taxing unit, such as miles of track, historical cost or number of meters. The unit appraisal method is widely accepted as the preferred technique for appraising utility property. Industrial property are typically appraised using the cost approach and minerals are appraised using the income approach. The vendor provides a general explanation of the methods used to appraise this property in the CAD's reappraisal plan.

During the ASR, the onsite reviewer examined 73 randomly selected properties from Lufkin ISD's 2006 PVS. Sixty-one Category A, Single-Family Residential, seven Category F1, Commercial Real and five Category L1, Commercial Personal, were evaluated. The reviewer conducted onsite visits to the real properties and appraised them using the CAD's appraisal manuals and oral instructions from the chief appraiser and appraisal staff, when needed. Personal property was appraised using renditions filed by the business owners. The reviewer did not find any material discrepancies and was able to arrive at the same or similar appraised values as the CAD.

With the assistance of a CAD appraiser, the reviewer conducted an onsite inspection of each property. The reviewer examined information pertaining to property characteristics contained on the CAD's appraisal cards and reviewed age, condition and size for reasonableness. Using descriptions of property classifications found in the CAD's appraisal manuals, the reviewer classed each property based on type and quality. The reviewer classified residential property as either frame or masonry, with quality ratings from one to 12, one being lowest quality and 12 being the highest quality. Using the CAD's calculated square footages for each building component, such as living area, porches and garages, the reviewer applied the corresponding costs-per-square foot from the appraisal manual and calculated a replacement cost new.

For example, a brick Class 4 house in Lufkin ISD with 1,340 square feet of living area has a base cost-per-square foot of $62.39. The effective age of the improvement was estimated and the CAD's depreciation table was used to determine a percent good factor. The reviewer applied the factor to the replacement cost new to calculate the current value of the improvement. The reviewer calculated land values by applying the appropriate unit value from the CAD's land schedule for the land code found on the appraisal card. For example, if the appraisal card showed a land code of SFT-SF4, the land was appraised at 0.15 per-square foot, the unit cost-per square foot for land table SFT-SF4. The improvement and land values were combined for total property value.

The reviewer used the same methods to appraise seven Category F1, Commercial Real properties, and, as stated above, used business personal property renditions to appraise five Category L1, Commercial Personal accounts.

The reviewer's appraised values, reached by using the CAD's manuals, were not materially different from the CAD's appraised values.

Exhibit 2 shows the weighted mean ratios between the reviewer's appraised values and CAD's appraised values for the three categories of property that were reviewed.

Exhibit 2
Sample Appraisal Results, Lufkin ISD

Category	Number of Parcels	Audit Sample Value	CAD Sample Value	Ratio
A	61	$6,186,249	$6,192,410	100.10
F1	7	$17,646,196	$17,354,102	0.9834
L1	5	$19,284,444	$19,184,960	0.9948

Source: ASR Sample Appraisals & Angelina CAD.

Because the reviewer was an experienced appraiser, he was able to use the CAD's appraisal manuals, without written instructions, to complete the appraisals. It is unlikely, however, that an appraiser without extensive appraisal experience could correctly use the CAD's appraisal manuals. Angelina CAD staff and taxpayers would benefit by having written procedures that explain each step in the appraisal process and have instructions detailing how and when to use the CAD's appraisal manuals, guides, schedules and tables.

More complete procedures are needed because, should the CAD experience a change in appraisal personnel, the lack of detailed appraisal procedures manuals may cause inconsistent
appraisals and may cause property values to deviate from market value. This market value deviation may cause school districts in Angelina CAD to receive an invalid finding in the state's PVS. If the level of appraisal (percentage of market value) varies between property categories, or from taxpayer to taxpayer, some taxpayers may bear more than their fair share of the local tax burden. Complete written procedures help make the training process more efficient by giving new appraisers written instructions to consult for answers when experienced staff are not available or have other duties to fulfill. In addition, instructions on how to use the CAD's appraisal manuals will help interested taxpayers to better understand the appraisal process.

Nueces CAD, for example, has developed several policy and procedure manuals for appraisal: Real Estate Procedures and Operations, Personal Property Procedural Manual, Records Exemptions and Information Procedural Manual and a Policy Manual. A copy of each manual is given to each appraiser in the CAD. Each manual contains a schedule of the work to be performed in a given year and is updated annually.

RECOMMENDATION 1
Develop appraisal procedures manuals that provide instructions and local procedures for completing appraisals, including how to calculate cost modifiers.

FINDING
Angelina CAD does not have written procedures for analyzing and adjusting sales.

IAAO's Standard on Ratio Studies, Section 6.4, Screening Sales, discusses the importance of analyzing and adjusting sales and states the following:

To help analysts make wise and uniform judgments, screening procedures should be in writing, and each sales analyst should be thoroughly familiar with these procedures as well as underlying real estate principles.

The CAD's deed clerks routinely mail sales surveys to grantors and grantees for all recorded deed transactions. When responses to the sales surveys are received, the chief appraiser and senior appraisal staff enter the information into the sales database. The surveys request information such as the sales date, sales price, type of improvement or personal property included in the sale, cause of the sale, whether foreclosure or liquidation of assets and if the purchase was between relatives. The appraisers use this information to determine if a sale needs adjusting and meets the requirements of a market transaction.

The chief appraiser said the CAD mails about 12,000 sales surveys annually and receives a "pretty good response," but he feels many local taxpayers are reluctant to share sales information with the CAD because of their belief that the information will cause taxes to increase. The CAD does not track the actual response ratio. Because Texas does not require full disclosure of sales information, the chief appraiser said the CAD is not able to conduct the degree of market research required by the Property Tax Code. Other sources of sales information are Realtors, fee appraisers and the local multiple listing service (MLS). The CAD makes its sales information available to the Comptroller.

The chief appraiser said he and senior appraisers analyze sales to determine if they are arms-length transactions and if they need to be adjusted to reflect market conditions. The assistant chief appraiser said, if a sale needs to be adjusted, but the value of the adjustment cannot be verified, the sale is considered invalid and not included in ratio studies. Guidelines for analyzing and adjusting sales are not written, but based on each appraiser's knowledge and experience. According to the chief appraiser, sales are used during the appeals process to help support the CAD's appraised values and to produce ratio studies to measure appraisal performance and conduct appraisal schedule maintenance.

According to IAAO's Property Appraisal and Assessment Administration Chapter 5, "Data Collection and Management," examples of non-market sales include the following:

• Sales involving government entities and public utilities;
• Sales involving charitable, religious or educational institutions;
• Sales involving financial institutions;
• Sales between relatives or corporate affiliates;
• Sales of convenience;
• Sales settling an estate;
• Forced sales; and
• Sales of doubtful title

Also listed in Chapter 5, is the sales data that should be collected whenever necessary:

• sales price - single most important information about any sale;
• names and addresses of buyers and sellers-allows appraiser to contact for additional information on the sale;
• relationship of buyer and seller - helps distinguish an arms-length transaction;
• property address, parcel identifier and legal description - links sale to CAD records;
• type of transfer and deed - also helps identify an arms-length transfer;
• interest transferred - what property rights are included in the sale;
• instrument number - unique identifier helps identify subject property;
• personal property - the price needs to be deducted from the sales price;
• financing - the terms can affect the price and need to be accounted for; and
• date of transfer - needed for determining time of sale adjustments.

Without common guidelines on how to verify, confirm and adjust sales, the CAD risks using sales for appraisal maintenance that do not accurately reflect current market value. Confirmation and validation of sales is critical in determining local market values, particularly among commercial property.

Written guidelines help appraisers select and adjust sales for assigning values and serve as evidence before the appraisal review board. Knowing what analysis needs to be done, when to perform the analysis and how to perform it is key to maintaining continuity and a high level of appraisal accuracy. By providing comprehensive, written guidance to appraisal staff, Angelina CAD can help ensure that sales data is applied consistently as valid indicators in achieving market value.

Nueces CAD, for example, has a written market analysis procedures manual that describes the processes used to obtain sales information and the procedures necessary for sales confirmation. Written procedures assure the market analyses are done consistently, regardless of personnel changes.

RECOMMENDATION 2
Establish written procedures for analyzing and adjusting sales data, based on IAAO standards.

FINDING
Angelina CAD does not effectively use ratio studies to measure appraisal performance and produce market value appraisals.

Property Tax Code Section 23.01 states:

IAAO's Standard on Ratio Studies, Section 4.6, Evaluation and Use of Results, states the following:

A properly designed ratio study is a powerful tool for analyzing appraisal performance and suggesting strategies for improvement.

Results of the 2006 PVS indicate the CAD is not appraising commercial real property and rural land at market value. Exhibit 3 lists 2006 PVS results for Subcategory D3, Rural Real, in all ISD's within the CAD.

Exhibit 3
Subcategory D3, Rural Real
2006 PVS Results, Angelina CAD, all ISD's

School District	2006 PVS Ratio
Hudson	0.9177
Lufkin	Not Tested
Huntington	0.9562
Diboll	0.8719
Zavalla	0.9230
Central	0.8760

Source: Texas Comptroller of Public Accounts, 2006 Property Value Study.

Huntington ISD was the only school district in the CAD to receive an acceptable appraisal ratio for Subcategory D3, Rural Real, in the 2006 PVS. Market values of rural land were tested in four other school districts with assigned category ratios ranging from 0.8719 to 0.9230.

The Real Estate Center at Texas A&M University, in its report Texas Rural Land Price by Land Market Areas, found rural land prices in Angelina and surrounding counties increased eight percent from 2005 to 2006 and 17.6 percent from 2004 to 2006.

Category F1, Commercial Real, was tested in three school districts within the CAD. Exhibit 4 shows the 2006 PVS results for Category F1, Commercial Real, for the three school districts tested.

Exhibit 4
Category F1, Commercial Real
2006 PVS Results for Hudson,
Lufkin and Diboll ISDs

School District	2006 PVS Ratio
Hudson	0.8058
Lufkin	0.8707
Diboll	0.8552

Source: Texas Comptroller of Public Accounts, 2006 Property Value Study.

Commercial property comprises 15.4 percent of Lufkin ISD's total appraised value. Below market appraisal of commercial property contributed to Lufkin ISD receiving an invalid finding in the 2006 PVS.

Lufkin ISD's commercial property appraisal ratios have declined over the past three years, indicating inadequate appraisal schedule maintenance. Exhibit 5 lists PVS results for Category F1 from 2004 through 2006 for Lufkin ISD.

Exhibit 5
Category F1, Commercial Real
2004-06 PVS, Lufkin ISD

Category	2004 PVS Ratio	2005 PVS Ratio	2006 PVS Ratio
F1	0.9735	0.9362	0.8707

Source: Texas Comptroller of Public Accounts, 2004, 2005 and 2006 Property Value Studies.

Exhibit 6 shows the 2006 PVS weighted mean ratios by value stratum for commercial property in Lufkin ISD and indicates a lack of appraisal uniformity between value strata. IAAO recommends stratification as a means to measure appraisal performance within and between property groups.

Exhibit 6
Weighted Mean Ratios by Value Stratum
Category F1, Commercial Real,
2006 PVS Results, Lufkin ISD

Stratum	Weighted Mean Ratio
Stratum 2 $58,731 - $321,740	0.9137
Stratum 3 $321,741 - $912,061	0.9807
Stratum 4 $912,062 - $3,371,058	0.8921
Stratum 5 $3,371,059 - $999,999,999	0.7145

Source: Texas Comptroller of Public Accounts, 2006 PVS.

The chief appraiser said commercial sales are not prevalent in Angelina County and are difficult to verify. The 2006 PVS Category F1 sample in Lufkin ISD contained 26 parcels, 10 of which were sales. Nine sales were in stratum two and one sale occurred in stratum three. The 2006 PVS Category F1 samples in Diboll and Huntington ISD contained no sales.

The 2007 PVS indicates Category F1, Commercial Real, continues to be appraised below market value in Hudson, Lufkin and Diboll ISDs. Below market value appraisal ratios in Subcategory D3, Non-Qualified Acres and Farm and Ranch Improvements, were assigned in Diboll and Huntington ISDs and Category A, Single-Family Residences, were appraised below market value in each of the CAD's school districts.

Ratio studies compare the market value of individual property in a representative sample of similar property to the local appraised value for each property in the sample.

The CAD's current reappraisal plan states ratio studies are used to determine levels of appraisal, market influences, neighborhood factors and serve as the basis for updating property values.

The chief appraiser and his senior appraisal staff said ratio studies generated from the CAD's automated appraisal system are not properly calibrated and produce unreliable results. For example, if a property sells with a brick masonry home and a detached frame garage, the sale will appear in both ratio studies for masonry construction and frame construction. The sale should only appear in the ratio study for masonry construction because the brick home is the primary structure. The ratio study for frame construction is then flawed because it contains a sale that consists primarily of a brick masonry house.

Parcel R36906 sold in January 2007 for $97,500. The primary residence is a class four, wood frame house with a class three-room addition. The residence has an appraised value $73,080. Included in the sale was a class three-frame utility building with a total appraised value of $140. The sale appears in the ratio study for class four frame homes and in the ratio study for class three frame homes.

Another issue exists when a sale includes multiple categories of property. For example, if a single-family residence sells along with an adjoining vacant lot, the ratio study program places the sale in the ratio study for single-family residences and in the ratio study for vacant lots. Exhibit 7 shows an example of the impact that misplaced sales have on a 2007 ratio study for Category C, Vacant Lots, in Lufkin ISD.

Exhibit 7
2007 Ratio Study - Uncorrected
Category C: Vacant Lots, Lufkin ISD

Parcel ID	Category Code	Sale Date	CAD Value	Sale Price	Ratio
R43747,43752	A,C	4/2006	$23,410	$67,500	0.3468
R52071,52072,52074	C	10/2006	$9,210	$25,000	0.3684
R86614	C	2/2006	$6,260	$15,000	0.4173
R25578,25579,25581	C	9/2006	$20,860	$49,000	0.4257
R38817	C	6/2006	$11,830	$23,000	0.5143
R90109	C	1/2006	$83,100	$135,000	0.6155
R87728	C	10/2006	$23,540	$35,000	0.6725
R98359	C	11/2006	$11,430	$13,900	0.8223
R19813	C	7/2006	$7,000	$8,500	0.8235
R81763	C	12/2006	$171,520	$200,000	0.8576
R58181,58182	A,C	6/2006	$111,620	$126,000	0.8858
R39530,39531,89547	A,C	4/2006	$134,050	$149,000	0.8996
R54135,54136	A,C	11/2006	$53,340	$59,000	0.9040
R88899	C	4/2006	$79,540	$85,000	0.9357
R50438,70101	A,C	7/2006	$30,420	$32,000	0.9506
R31396	A,C	7/2006	$147,140	$152,000	0.9680
R43418,43419,43421,8863	A,C	1/2006	$63,140	$65,000	0.9713
R54298,73410	A,C	5/2006	$81,340	$82,000	0.9919
R52889,52891	A,C	4/2006	$104,000	$104,000	1.0000
R21007,50446	A,C	3/2006	$145,720	$142,500	1.0225
R88898	C	1/2006	$51,220	$50,000	1.0244
R78336	C	11/2006	$23,810	$23,000	1.0352
R57140,57141	A,C	7/2006	$149,450	$137,200	1.0892
R58240,58241	A,C	5/2006	$190,750	$167,000	1.1422
R16459,96576	A,C	12/2006	$95,600	$82,000	1.1658
R45512,45513	A,C	10/2006	$75,610	$64,000	1.1814
R36604,36605	A,C	1/2006	$39,170	$30,000	1.3056
R21002	C	10/2006	$26,950	$20,000	1.3475
R23103,46390,46391	A,C	10/2006	$51,700	$37,000	1.3972
Total	N/A	N/A	$2,022,730	$2,178,600	0.9284

Source: Angelina CAD Ratio Study, Lufkin ISD Category C, April 2007.

Exhibit 8 shows the results of the same 2007 ratio study for Category C, Vacant Lots, in Lufkin ISD, after the CAD removed the misplaced sales.

Exhibit 8
2007 Ratio Study - Corrected
Category C: Vacant Lots, Lufkin ISD

Parcel ID	Category Code	Sale Date	CAD Value	Sale Price	Ratio
R52071,52072,52074	C	10/2006	$9,210	$25,000	0.3684
R86614	C	2/2006	$6,260	$15,000	0.4173
R25578,25579,25581	C	9/2006	$20,860	$49,000	0.4257
R38817	C	6/2006	$11,830	$23,000	0.5143
R90109	C	1/2006	$83,100	$135,000	0.6155
R87728	C	10/2006	$23,540	$35,000	0.6725
R98359	C	11/2006	$11,430	$13,900	0.8223
R19813	C	7/2006	$7,000	$8,500	0.8235
R81763	C	12/2006	$171,520	$200,000	0.8576
R88899	C	4/2006	$79,540	$85,000	0.9357
R88898	C	1/2006	$51,220	$50,000	1.0244
R78336	C	11/2006	$23,810	$23,000	1.0352
R21002	C	10/2006	$26,950	$20,000	1.3475
Total	C	N/A	$526,270	$682,400	0.7712

Source: Angelina CAD Ratio Study, Lufkin ISD Category C, April 2007.

According to the assistant chief appraiser, when ratio studies are generated, he must review them, remove the misplaced sales and recalculate the studies before performing any appraisal schedule maintenance. The chief appraiser said that correcting the ratio studies is a tedious and time-consuming process and impairs the CAD's ability to properly maintain its appraisal schedules. According to the chief appraiser, accurately calibrating the ratio studies is an ongoing issue between the CAD and the appraisal software vendor, a problem that has persisted since 2005. The chief appraiser stated that the vendor provides corrective software patches, but the results are not satisfactory. The chief appraiser and CAD board chair said that serious consideration is being given to changing software vendors this year.

To ensure that their ratio studies are effective tools in measuring appraisal performance, effective appraisal districts ensure that data contained in ratio studies is as accurate as possible. In addition, these districts review property characteristics such as class, size, age and value. Effective districts find that stratifying sales information according to property characteristics is useful in identifying lack of appraisal uniformity among property types.

IAAO's Property Appraisal and Assessment Administration, Chapter 8, states ratio studies should be stratified to ensure appraisal accuracy. Stratifying by construction class tests the accuracy of base building costs, stratifying by building size determines if size affects building costs and stratifying by age evaluates the accuracy of depreciation schedules.

Because they do not comply with generally accepted mass appraisal standards used for conducting ratios, as specified in IAAO's Standard on Ratio Studies and USPAP Standard 6: Mass Appraisal, Development and Reporting, and rely on flawed computer programs, Angelina CAD's ratio studies may not be sufficiently reliable for use in calibrating schedules, deciding where to reappraise or for defending appraised values.

By improving ratio study methods and repairing ratio study software programs, the CAD will ensure necessary adjustments are made to produce values at or near the market.

Nueces CAD, for example, has a computerized appraisal system and conducts ratio studies within property classes by school district and county to determine appraisal performance. The CAD bases reappraisal and value maintenance decisions for some property or locations on the ratio study results.

RECOMMENDATION 3
Eliminate ratio study program errors and improve methods of using ratio studies to eliminate unequal levels of appraisal and make certain all categories of property are being appraised at current market value or purchase new software to eliminate deficient ratio studies.

Methods of improving ratio studies should include stratifying sales by value, class, location, size and age.

FINDING
Angelina CAD's reappraisal plan lacks specific data required by the Property Tax Code Section 25.18, and recommended by IAAO and USPAP.

Property Tax Code Section 25.18, states:

IAAO's Property Appraisal and Assessment Administration, Chapter 13, "Mass Appraisal," states that the required activities for all reappraisals must include the following steps in the order given:

• Performance Analysis − Determines whether or not the values are consistent with the market and if the values are equitable and that ratio studies are the primary tool for the analysis.
• Reappraisal Decision − Use statutes or administrative rules. This may include a cyclical schedule in which jurisdictions are physically reviewed and revalued. It is also noted that the reappraisal requires careful planning along with a major commitment of resources.
• Analysis of Available Resources − This step is performed before defining goals and objectives. This includes evaluating the staff, budget, existing systems and practices, data processing support and existing data and maps. The publication also stresses that an adequate budget is crucial in that it can overcome deficits in other areas.
• Planning and Organization − IAAO emphasizes that this is the most important aspect of reappraisal as it identifies the target completion date and performance objective, specific plan of action and timeline. The plan should also include definitions of critical activities with completion dates, assignment of responsibilities, and establishes data collection and field work standards.
• System Development − This produces the procedures, methods, manuals, and software for the mass appraisal system.
• Pilot Study − This study tests procedures in several portions of the jurisdiction. It should include a ratio study to verify if the system produces reliable and accurate values and point out needed modifications.
• Data Collection − After procedures and forms are made, tested and approved the data collection can start. IAAO stresses that quality control is essential.
• Production of Values − This begins with a market analysis, model development, model calibration and calculation of preliminary values. The ratio study then assesses the consistency and validity of the values between each property type and area. After the models provide acceptable results, they can be used to produce values.
• Preparation of Appraisal Roll.
• Final Performance Analysis.
• Data Maintenance.
• Value Updates.

USPAP Standard 6 requires appraisal districts to prepare annual mass appraisal reports to provide the public a better understanding of what an appraisal district does and how it performs appraisals. A mass appraisal report describes, in general terms, the mass appraisal techniques used by an appraisal district to appraise property for ad valorem tax purposes. A reappraisal plan, on the other hand, as required by Property Tax Code sections 6.05(i) and 25.18, should describe what an appraisal district plans to do in each year of the reappraisal cycle and contain at least the required statutory elements.

IAAO provides vital elements for an effective work plan, such as inclusion of a timeline or calendar for performing reappraisal tasks. The work plan needs definitions of critical activities, with completion dates, assignment of responsibilities and established data collection and fieldwork standards. The plan should explain specifically how and when the mass appraisal techniques described in the mass appraisal report will be implemented. The chief appraiser said a reappraisal plan needs to be flexible and allow for interruptions and deviations to work activities.

Exhibit 9 shows a comparison of the CAD's 2007-08 reappraisal plan with Property Tax Code Section 25.18(b).

Exhibit 9
Property Tax Code 25.18(b) Requirements and Angelina CAD's Reappraisal Plan

The plan shall provide for the following reappraisal activities all real and personal property in the district at least once every three years:	Activity in Plan? Yes/No	Activity Performed? Yes/No
identifying properties to be appraised through physical inspection or by other reliable means of identification, including deeds or other legal documentation, aerial photographs, land-based photographs, surveys, maps, and property sketches;	No. The plan does not specifically identify property or areas to be reappraised in a given reappraisal year.	Unable to determine. Unable to identify which property was selected for reappraisal in 2007.
identifying and updating relevant characteristics of each property in the appraisal records;	Yes. The plan requires identifying and updating relevant property characteristics during field inspections.	Unable to determine. Relevant characteristics are listed on appraisal cards, but unable to identify which property was updated in 2007 because last inspection dates are not always updated.

Identifying property characteristics that affect property value in each market area, including:	Activity in Plan? Yes/No	Activity in Plan? Yes/No
the location and market area of property;	Yes. The plan requires analyzing ratio studies and conducting field inspections to determine the effect of location and market area on value.	Unable to determine. Location and market area are shown on appraisal cards, but unable to identify which property was updated in 2007 because last inspection dates are not always updated.
physical attributes of property, such as size, age, and condition;	Yes. The plan requires analyzing ratio studies and conducting field inspections to determine if physical attributes effect value.	Unable to determine. Physical attributes are listed on appraisal cards, but unable to identify which property was updated in 2007 because last inspection dates are not always updated.
legal and economic attributes;	Yes. The plan requires analyzing ratio studies and conducting field inspections to determine the effect of legal and economic attributes on value.	Unable to determine. Legal and economic attributes are shown on appraisal cards, but unable to identify which property was updated in 2007 because last inspection dates are not always updated.
easements, covenants, leases, reservations, contracts, declarations, special assessments, ordinances or legal restrictions;	Yes. The plan requires analyzing ratio studies and conducting field inspections to determine the effect of easements, covenants, leases, reservations, contracts, declarations, special assessments, ordinances, or legal restrictions on value.	Unable to determine. Easements and legal restrictions are shown on appraisal cards, but unable to identify which property was updated in 2007 because last inspection dates are not always updated.
developing an appraisal model that reflects the relationship among the property characteristics affecting value in each market area and determines the contribution of individual property characteristics;	Yes. Accomplished via an automated appraisal system using ratio study results.	Yes, via appraisal manuals, classification guides and an automated appraisal system.
applying the conclusions reflected in the model to the characteristics of the properties being appraised; and	Yes. Accomplished via an automated appraisal system using ratio study results.	Yes, via an automated appraisal system.
reviewing the appraisal results to determine value.	Yes. Accomplished via an automated appraisal system using ratio study results.	Yes, via ratio studies.

Source: Property Tax Code Section 25.18(b) and Angelina CAD Reappraisal Plan 2007-08.

The Angelina CAD reappraisal plan follows the format of a mass appraisal report. The Angelina CAD reappraisal plan describes, in general terms, how appraisal staff appraise residential, land, commercial and business personal property using the three approaches to value - market, cost and income. The plan states the CAD conducts a general reappraisal of all taxable property every year by updating appraisal schedules based on market research. Physical inspection of residential property is required once every three years and the plan states commercial and business personal property is inspected annually. Because the CAD does not regularly update the last inspection date on its appraisal cards, the reappraisal plan's physical inspection requirements cannot be verified. The CAD contracts for the appraisal of minerals, utilities and industrial property. Included in the CAD's reappraisal plan are summary reports prepared by the contractor describing in general terms how minerals, utilities, industrial and associated business personal property are appraised.

Without a reappraisal plan that meets legal requirements and provides sufficient detail, Angelina CAD does not have a reappraisal plan that "provides for ... the reappraisal activities" required by Property Tax Code Section 25.28(b). A systematic explanation of how the CAD will accomplish its reappraisal activities is needed to accomplish the reappraisal activities contemplated by subsection (b). The CAD's plan fails to provide a timeline for completing reappraisal activities - when appraisers must complete fieldwork, when data entry must be complete or when appraisal notices will be generated and appraisal review hearings held. Given the generic nature of Angelina CAD's reappraisal plan, one cannot determine if all of the required elements of a reappraisal plan are being followed.

A detailed reappraisal plan, if executed properly, provides a roadmap to ensure that school districts receive valid values in the PVS. It could preclude a school district from receiving less than the expected amount of funding from the state. Effective appraisal districts develop and properly execute a complete reappraisal plan, helping ensure that taxpayers are treated equitably in assigning property values. A reappraisal plan is also a communication tool that demonstrates to the board the methods used by appraisal staff.

Jefferson CAD, for example, has a detailed reappraisal plan that explains exactly how and when reappraisals take place and how sufficient resources will be allocated to follow the plan. The reappraisal plan ensures the execution of timely and accurate reappraisals on an annual basis and is reviewed each year and updated when changes are needed.

RECOMMENDATION 4
Develop and adopt a reappraisal plan that complies with the Property Tax Code, USPAP and IAAO.

FINDING
Angelina CAD's appraisal cards lack some of the information required by Comptroller Rule 9.3001.

Comptroller Rule 9.3001 sets out the data required on appraisal cards for all appraisal districts and states the following:

The CAD's appraisal cards are designed to comply with the data required by Comptroller Rule 9.3001, but the data fields designating the date of appraisal (or last inspection date) and appraiser's initials, required by Section C.3 of the rule, are not regularly updated. An audit of 68 randomly selected real property appraisal cards from the Lufkin ISD 2006 PVS found last appraisal inspection dates as far back as 1996 and as recent as 2007. Two appraisal cards did not show an appraisal date and one card did not identify the appraiser. All appraisal cards indicate the applicable tax year. Exhibit 10 shows the distribution of last inspection dates for the randomly selected appraisal cards.

Exhibit 10
Last Recorded Appraisal Inspection Dates
Randomly Selected Real Property Cards, 2006 PVS Lufkin ISD

Category	2003 and prior	2004	2005	2006	2007	No Year
A	39	1	3	6	10	2
F1	2	2	1	1	1	0

Source: Angelina CAD Appraisal Card Sample.

The CAD's reappraisal plan states all taxable property is generally reappraised annually by updating appraisal schedules to reflect current market condition. According to the plan, residential property is to be inspected once every three years and commercial property inspected annually. The chief appraiser said appraisers carry working copies of appraisal cards into the field and make changes to property characteristics on the cards. The appraisers date and initial the working copies. Data entry clerks enter the appraisal changes from the working copies into the automated appraisal system, but do not always record the appraisal inspection date or appraiser initials.

Staff appraisers explained that inspection dates and appraiser initials are kept in a separate database and require access through a different menu screen. Switching between the property appraisal detail screen and the database containing last inspection dates and appraiser initials can be time-consuming because the automated appraisal system has a tendency to slow down when searching for different databases. In an effort to save time and return the working copies and new appraisal cards to the appraisers for review as quickly as possible, data entry clerks often forego the additional step of entering inspection dates and appraiser initials.

An examination of the appraisal histories from 2004 through 2007 for each of the sample properties was conducted and each property had changes in appraised values during the four-year time period, but the date the appraisal changed was not always apparent. For example, parcel number R42643 had an appraised value of $370,230 in 2004. The value increased to $402,874 in 2005 and to $433,806 in 2007. The last appraisal inspection date on the appraisal card is shown as March 13, 2003.

While Comptroller Rule 9.3001 does not address personal property, the best practice would be for appraisal dates and appraiser initials to be included on all appraisal cards. Five business personal property accounts were randomly selected for review from the 2006 PVS. One account showed a last inspection date of 2002 and four did not show a last inspection date. The CAD's reappraisal plan states personal property will be reappraised each year.

Appraisal cards summarize how appraisal districts arrive at a property's appraised value and serve as the CAD's appraisal records. Recording appraisal dates is critical to the reappraisal process. The date signifies the year in which the appraisal applies and confirms a reappraisal occurred. By generating records showing appraisal dates, appraisal districts can determine if all property subject to a reappraisal has been reviewed and if reappraisal plans were followed. Without appraisal dates, property owners have no way of knowing when their property was last appraised or if the appraisal represents current market value.

An appraiser's initials provide further validation of the reappraisal process by establishing a contact person for appraisal questions relating to specific property.

By omitting the date of the inspection and the appraiser's name from the appraisal card, the CAD cannot ensure the integrity of its appraisal data records and does not comply with statute. Given a reappraisal plan that requires annual reappraisals of all taxable property and physical inspections once every three years for residential property and every year for commercial property, Angelina CAD cannot show when reappraisals or reinspections occurred or if a qualified appraiser performed the appraisal.

USPAP Standard 6: Mass Appraisal, Development and Reporting requires the disclosure of appraisers and appraisal dates on all mass appraisals, as does Comptroller Rule 9.3001. Appraisal districts are required by Property Tax Code Section 23.01 to comply with USPAP Standard 6. Comptroller rules have the force of law. By omitting the inspection date and the appraiser's name from the appraisal card, the CAD cannot ensure the integrity of its appraisal data records and does not comply with the Property Tax Code, USPAP Standard 6 or Comptroller rule 9.3001. Further, the CAD has a reappraisal plan that requires annual reappraisals of all taxable property and physical inspections once every three years for residential property and every year for commercial property, but it cannot show when the required reappraisals or re-inspections occurred or if a qualified appraiser performed the appraisal.

RECOMMENDATION 5
Maintain appraisal cards in compliance with Comptroller Rule 9.3001.

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