Chapter 2
Findings of the Appraisal Standards Review
This chapter of the report addresses findings and recommendations from the ASR of the Bowie CAD in two sections:
- 2.1 Generally Accepted Appraisal Practices
- 2.2 Other Recommendations
2.1
Generally Accepted Appraisal Practices
A CAD must consider three general appraisal methods or approaches – cost, income or market – in determining the market value of property. The chief appraiser must use the method most appropriate to a particular property.
Appraisal textbooks such as the Property Appraisal and Assessment Administration – the Red Book – provide additional information about the approaches to determining or appraising value. Appraisers usually determine the value of producing mineral deposits, such as oil, gas and coal, and the value of many utility and commercial properties by using the income approach to value. Most appraisal districts contract with consultants to appraise mineral and utility properties. The chief appraiser can provide information concerning the method used to appraise mineral and utility properties.
FINDING
Bowie CAD's reappraisal plan does not have the information necessary to perform appraisal duties effectively as outlined in Standard 6 of the Uniform Standards of Professional Appraisal Practice or to conform to IAAO recommended appraisal practices.
Property Tax Code Section 25.18 requires an appraisal district to implement a reappraisal plan approved by the board of directors. The law states that the plan "shall provide for" the reappraisal of all real and personal property in the district at least once every three years. The Bowie CAD Reappraisal Plan for Tax Years 2007 & 2008, dated Sept. 15, 2006, is a 17-page reappraisal plan, and the Biennial Reappraisal Plans is a generic Mass Appraisal Report for Bowie CAD that lacks specifics.
The reappraisal plan provides a basic overview of functions associated during a reappraisal year. The plan briefly outlines the revaluation decision, scope of responsibility, performance analysis, analysis of available resources, planning and organization, mass appraisal system, data collection requirements, performance tests, valuation by tax year, the mass appraisal report and value defense.
The planning and organization section contains calendars of key events for 2007 (Exhibit 6).
Exhibit 6
Bowie CAD 2007 Calendar of Key Events
September 2006
| Activities to be Performed |
|---|
| Statutory appraisal date for certain inventory properties |
| Begin field appraisal of last 1/3 real properties |
| Statutory deadline for Board of Directors to approve 2007 Budget and 2007-2008 Reappraisal Plan |
| Rollover of data records to begin appraisal Year 2007 |
| Continuance of 2006 Appraisal Review Board Hearings |
October 2006
| Activities to be Performed |
|---|
| 2006 tax statements mailed |
| Begin review of preliminary land ratio study |
| Begin review of real neighborhood delineations |
| Comptrollers Annual Conference on Property Taxation – Austin |
November 2006
| Activities to be Performed |
|---|
| Begin 2007 reappraisal/permit field review |
| Review and return PTD clerical error report for 2006 PVS |
December 2006
| Activities to be Performed |
|---|
| Performance reviews |
| Mail business personal property renditions |
January 2007
| Activities to be Performed |
|---|
| January 1 – statutory appraisal date or most categories of taxable property |
| Residential and commercial market and statistical analysis begins |
| Analysis and preparation for final value edits |
| New construction ready for data entry |
| PVS results from property tax division – begin appeals preparation if necessary |
| Begin property rendition period |
February 2007
| Activities to be Performed |
|---|
| Begin application of residential neighborhood market adjustments |
| Roundtable discussion with appraisal staff |
| TAAD conference Feb. 18-21 in Austin |
| Field verification activity completed for personal property and mobile home parks |
| Begin working property renditions |
March 2007
| Activities to be Performed |
|---|
| Deadline to submit 2006 PVS appeals evidence |
April 2007
| Activities to be Performed |
|---|
| Begin budget preparation for 2008 |
| Finalize residential and commercial changes prior to first test notice run |
| Business personal property rendition deadline– April 15 |
| Deadline to file abatement application |
May 2007
| Activities to be Performed |
|---|
| Mail 2007 real estate value notices |
| Begin informal appeals |
| Property value study appeal hearings – Austin |
| Mail 2007 business personal property value notices |
| Mail 2007 industrial, railroad, utility value notices |
| Statutory deadline to file appraisal review board protest for 2007 value issues |
June 2007
| Activities to be Performed |
|---|
| Chief Appraiser certifies estimated 2007 value to ISD's with July 1 year |
| Chief Appraiser submits 2007 completed appraisal records to ARB |
| 2007 Appraisal Review Board hearings begins |
| Prepare Mass Appraisal Report |
July 2007
| Activities to be Performed |
|---|
| Appraisal Review Board approves 2007 appraisal records |
| Chief Appraiser certifies 2007 appraisal roll to taxing units |
August 2007
| Activities to be Performed |
|---|
| Begin cost, sale & income data collection for 2008 appraisal year |
| Review ratio study results – identify key areas for 2008 value review |
| TAAO Annual Conference |
September 2007
| Activities to be Performed |
|---|
| Statutory appraisal date for certain inventory properties |
| Continuance of 2007 Appraisal Review Board hearing |
| Statutory deadline for district Board of Directors to approve 2008 budget |
| Begin 2008 appraisal field work for new construction |
| Rollover of data records to begin appraisal Year 2008 |
| Begin field reappraisal of first 1/3 real properties for next reappraisal |
October 2007
| Activities to be Performed |
|---|
| 2007 Tax Statements mailed |
| Begin review of preliminary land ratio study |
| Begin review of neighborhood delineations |
| Comptrollers Annual Conference on Property Taxation – Austin |
November 2007
| Activities to be Performed |
|---|
| Begin 2008 reappraisal/permit field review |
| Review and return PTD clerical error report for 2007 PVS |
December 2007
| Activities to be Performed |
|---|
| Performance reviews |
| Mail business personal property renditions |
Source: Bowie CAD Reappraisal Plan – Tax Years 2006-07.
While the calendar provides a good outline of events involved throughout the tax year, it does not offer the necessary elements or planning needed to perform the required property inspections, analysis or reconciliation of ratio study results. For example, in September 2006 staff is to "Begin Field Reappraisal of last 1/3 of Real Properties." The plan defines neither the properties nor the market area, nor does it describe the required associated staff or identify specific resources.
As another example, the analysis of available resources section of the plan does not provide a complete analysis of who will execute the appraisal assignments, nor is there thorough analysis of the amount of staff or resources needed to complete the reappraisal. This section of the plan simply states in part that staffing and budget requirements are detailed in the budget as adopted by the board and that the reappraisal plan is adjusted to reflect the available staffing for the tax year.
A reappraisal plan, however, "provides for a reappraisal" only if it states how the statutorily required activities are to be accomplished. IAAO and USPAP standards on reappraisal set out the generally accepted requirements for an effective reappraisal.
Property Tax Code Section 23.01(b) requires appraisal districts to determine the market value of property "by the application of generally accepted appraisal methods and techniques." Further, "if the appraisal district determines the appraised value of a property using mass appraisal standards, the mass appraisal standards must comply with the Uniform Standards of Professional Appraisal Practice" (USPAP). USPAP Standard 6: Mass Appraisal, Development and Reporting calls for, among other requirements, that "In developing a mass appraisal, an appraiser must be aware of, understand, and correctly employ those recognized methods and techniques necessary to produce and communicate credible mass appraisals." It must:
- identify properties to be appraised;
- define market area of consistent behavior that applies to properties;
- identify characteristics (supply and demand) that affect the creation of value in that market area;
- develop a model structure that reflects the relationship among the characteristics affecting value in the market area;
- calibrate the model structure to determine the contribution of the individual characteristics affecting value;
- apply the conclusions reflected in the model to the characteristics of the property(ies) being appraised; and
- review the mass appraisal results.
Property Tax Cod, Section 5.05 moreover, authorizes the Comptroller to:
prepare and issue publications relating to the appraisal of property and the administration of taxes, or may approve other publications relating to those matters, including materials published by The Appraisal Foundation, the International Association of Assessing Officers, or other professionally recognized organizations, for use in the administration of property taxes . . .
In a letter directive mailed to all appraisal districts in Texas in 1992, the Comptroller designated the IAAO publication entitled Property Appraisal and Assessment Administration, 1990 edition, commonly known as the "Red Book," as the official appraisal guide. IAAO's Standard on Mass Appraisal of Real Property "defines requirements for the mass appraisal of real property" and "addresses mass appraisal procedures by which property can be appraised at market value." The standard aims to bolster and enhance the USPAP Standard 6 on Mass Appraisal. Chapter 13 in the Red Book further explains this practice, pointing out that periodic reappraisals are a basic function in maintaining a mass-appraisal system.
The Red Book lays out the following steps in performing a reappraisal:
- Performance analysis: using annual ratio studies to determine whether values are equitable and consistent with the market;
- Reappraisal decision: may be imposed by statutory requirements and requires extensive planning and a major commitment of resources;
- Analysis of available resources: take into account "available staff, budget, existing systems and practices, data processing support, and existing data and maps";
- Planning and organization: identify expected completion date and performance objective, develop specific action plan and schedule to achieve its objective on time, define critical activities and their completion dates, assign responsibilities and set production standards for data collection and field work;
- System development: develop procedures, methods, manuals, forms and software for collecting and processing property characteristics, sales and income data;
- Pilot study: test procedures in one or two neighborhoods to determine if the system produces accurate and reliable values and modify procedures, if needed;
- Data collection: to maintain quality control; the data should be edited and tested before using it for valuation;
- Production of values: production of values includes market analysis, model development and calibration, calculation of preliminary values, evaluation for accuracy and consistency and review by office and field staff;
- Preparation of the assessment roll: should prepare for informal and formal appeals, review individual values in detail and make necessary corrections, list values on the assessment roll in a form satisfying legal requirements and certify the roll; and
- Final performance analysis: conduct a final ratio study to measure and evaluate the accuracy and uniformity of the new values.
Lack of an adequate reappraisal plan may hinder staff from fully executing a reappraisal by failing to provide the information they need to perform tasks successfully. A thorough reappraisal plan discusses in detail how and when an appraisal district plans to perform each of the activities and provides for a physical inspection of the properties appraised. Alternatively, the plan can include reliance on sources of property information instead of physical inspections. Such sources include deeds or other legal documentation, aerial photographs, land-based photographs, surveys, maps and property sketches. A complete plan would indicate instances or types of properties that will be appraised using sources of information other than physical inspection.
Property Tax Code Section 6.05(i) requires appraisal districts to develop a biennial written appraisal plan; to hold a public hearing to consider the plan; and approve the plan before Sept. 15 of even-numbered years. The board of directors must approve the plan, distribute it to the taxing units and submit a copy to the Comptroller within 60 days after approval. The CAD submitted the reappraisal plan to Comptroller on Sept. 28, 2006. The Comptroller received it on Dec. 28, 2006.
Before developing the reappraisal plan, the CAD used a Calendar of Key Events as shown above in Exhibit 6. The CAD incorporated this calendar into its reappraisal plan. A comprehensive reappraisal plan, if executed properly, helps ensure that the CAD appraises properties on a timely basis, allocates appropriate resources and keeps up with market changes.
Jefferson CAD, for example, has a detailed reappraisal plan that explains exactly how and when reappraisals take place and how the CAD allocates sufficient resources to follow the plan. The reappraisal plan help with timely and accurate reappraisals on an annual basis, and the CAD review and updates the plan each year or as needed.
RECOMMENDATION 1
Revise the reappraisal plan to include specific details on items such as the properties involved in the reappraisal, costs, staffing, management and other details necessary to complete a successful reappraisal.
FINDING
Bowie CAD lacks detailed ratio study procedures and policies that outline and define the CAD's analysis and implementation of ratio study results, as recommended by IAAO standards.
The IAAO Standard on Ratio Studies points out that two major aspects of appraisal accuracy are "level" and "uniformity." "Level" refers to the overall ratio of appraised values to market values, while "uniformity" refers to the degree to which different properties are appraised at equal percentages of market value. The standard also provides "recommendations on the design, preparation, interpretation and use of ratio studies for equalization, the evaluation of appraisal performance and the quality control operations of an assessor's office." Finally, the standard provides for design considerations and outlines the steps taken in ratio studies, including:
- defining purpose and objectives;
- collecting and preparing market data;
- matching appraisal and market data;
- stratification;
- timing of stratification for equalization studies;
- stratification for equalization of funding distributions;
- statistical analysis; and
- evaluation and use of results.
The CAD briefly outlines "Performance Tests" in the Bowie CAD 2007-2008 Reappraisal Plan, drafted in 2006. The document, however, does not define content, scope, required variances or when and how often staff should run ratio studies. The CAD does not provide staff with a definition of purpose and objectives of the ratio studies, which, according to the IAAO Standard on Ratio Studies, is the first step in any ratio study.
The CAD has computerized sales-analysis capability with the computer assisted mass appraisal (CAMA) system. The CAD provided ratio studies produced by the software but did not retain previous in-house ratio studies used in the prior appraisal period. The chief appraiser and the six staff appraisers are responsible for running and analyzing ratio study results. The staff indicated that each appraiser is responsible for a portion of the CAD's jurisdiction with each responsible for fieldwork, gathering sales data and ultimately reconciling values for their area. The chief appraiser indicated that staff works well together, and they hold informal meetings throughout the year.
The 2005 PVS weighted mean ratio for single-family residences for the 13 ISD's in the CAD ranged from a low of 0.9078 in DeKalb ISD to a high of 0.9879 in Pleasant Grove ISD. Commercial properties' weighted mean ratios ranged from a low of 0.8587 in DeKalb ISD to a high of 0.9720 in Texarkana ISD. A generally acceptable range for ratio study results is 0.95 to 1.05. The wide range of results tends to indicate that staff responsible for running ratio studies and applying the results are not analyzing and applying the results in a similar manner.
By developing more formal ratio study policies and procedures, the CAD could improve consistency among the staff appraisers when analyzing sales, developing schedules and adjustment factors, modifiers or depreciation factors. Frequent ratio studies and the appraisal maintenance that follows enable an appraisal district to keep its values at or near the market values. By continuing to apply ratio study results in an inconsistent or inappropriate manner, the CAD runs the risk of not properly recognizing and adjusting schedules for market changes and unequally valuing market areas. Furthermore, it jeopardizes consistency and accuracy of appraised values.
Tom Green CAD, for instance, is using value stratification as a tool to identify and eliminate unequal levels of appraisal. The CAD runs ratio studies, at least quarterly, by ISD and county to determine appraisal performance and considers class, age, condition, size and value needed to promote uniformity and eliminate unequal levels of appraisal. The CAD began using value stratification in 2004 as an analytical tool in its ratio studies. By implementing the stratification process into its ratio study procedures, the CAD was better able to identify value ranges in single-family homes that needed attention.
RECOMMENDATION 2
Establish comprehensive, written ratio study procedures that allow for generally accepted appraisal practices for reappraisal and maintenance planning as recommended by the IAAO Standard on Ratio Studies.
FINDING
Bowie CAD does not have an agricultural advisory board.
The chief appraiser advised that the CAD has never had an agricultural advisory board in place. The CAD has agricultural schedules for various categories of land such as rangeland, tillable land and timberland. There are various classes of land within these categories. The CAD obtains lease information from the local Texas Agricultural Extension agent. Staff in the New Boston office gathers lease information for the western portion of the county by annually mailing questionnaires in January to area agricultural producers.
Property Tax Code Section 6.12 requires the chief appraiser, with the board's advice and consent, to appoint an agricultural advisory board. The board must meet at least three times per year. Its function is to advise the chief appraiser on the valuation and use of land designated for agricultural use.
Land classified as native pasture on the 2005 PVS accounts for approximately 35 percent of the CAD's total land area. The 2005 PVS indicated a ratio of 0.86 when compared with PTD estimates. The difference results in an approximate $1.3 million difference in overall value. While only representing 8 percent of the overall number of acres, the resulting 0.72 ratio in the 2005 PVS resulted in a difference of more than $1.8 million in value.
Exhibit 7 indicates Bowie CAD's calculated productivity values in native pastureland are significantly different from corresponding values in a sample of neighboring counties that are uniform and in line with the PTD values.
Exhibit 7
2005 Native Pastureland Values for Bowie and Surrounding Counties
| County |
Percent of Total Productivity Acres in Native Pastureland |
Reported Value/Acre | PTD Value/Acre | Appraisal Ratio |
Number of Ag Board Members |
|---|---|---|---|---|---|
| Bowie | 35% | $57.78 | $67.30 | 0.86 | 0 |
| Fannin | 47% | $65.42 | $67.10 | 0.97 | 4 |
| Red River | 34% | $83.10 | $72.50 | 1.15 | 3 |
| Cass | 5% | $89.23 | $85.00 | 1.05 | 3 |
| Average of surrounding counties | 29% | $79.25 | $74.87 | 1.06 | 3 |
Source: 2005 Property Value Study.
Neighboring counties all have agricultural advisory boards. Bowie CAD's reported value per acre is $57.78 compared with an average of $79.25 per acre in neighboring counties. The PTD value for Bowie CAD was $67.30 per acre while PTD's average value for surrounding counties averaged $74.87 per acre. The appraisal ratio for Bowie CAD's native pastureland was 0.86, while neighboring counties average an appraisal ratio of 1.06.
Since native pastureland received a ratio of 0.86, the CAD's lack of an agricultural advisory board may have contributed to its falling out of the confidence interval. An agricultural advisory board with members who are familiar with land characteristics and management activities or are in the agriculture business could provide the CAD with more local industry specific details than obtained from outside or publicized information. These qualified individuals could also offer advice on agricultural trends and practices taking place in the county that could affect present and future CAD policies regarding the valuation of agricultural properties in the jurisdiction.
RECOMMENDATION 3
Appoint, with the board's consent, an agricultural advisory board consisting of local experts, to assist staff with agricultural valuations and guidance.
FINDING
Bowie CAD does not have a written timeline or implementation plan for converting paper maps to a computerized or integrated geographic information system (GIS).
The CAD currently uses paper maps. It updates these maps with ownership information as well as property divisions or splits. The CAD also maintains files of platted subdivisions in the jurisdiction. The CAD has a process in place in which the New Boston office obtains and forwards deeds to the office in Texarkana. The CAD then incorporates the deeds' information in its maps with ownership changes. The CAD maintains a listing of subdivisions as well as abstract numbers that allow field appraisers to identify specific parcels or tracts of land. Additionally, the staff keeps a listing of abstract numbers that they subdivide into recognized lots, thus aiding in identification of parcels.
At the Jan. 3, 2006, board meeting, the CAD agreed to enter into an interlocal agreement with the Red River Redevelopment Authority and/or Texarkana Water Utilities and/or Bowie County for the purchase of a GIS. The purpose of the agreement is to share the costs of the GIS. The CAD still does not have a signed contract but is currently negotiating with the other parties and may sign one this year. The CAD attorneys are in the process of following up on it but at this point the CAD does not know who it will make the agreement with or when it will be made. The chief appraiser estimates it may take three to five years to enter all data into the system.
A GIS can help the CAD analyze and verify sales information as well as assist field appraisers and appraisal staff. The system can allow the CAD to respond to requests by the public and allow the CAD staff and appraisal review board members access to more comprehensive information. A GIS can contribute to a timely and more efficient reappraisal and help maintain consistent property valuation. By not developing timelines and implementing procedures for development and utilization of a GIS, the CAD runs the risk of falling behind in technology as well as sacrificing the efficiencies a GIS can provide relating to CAD appraisal activities.
For example, Kendall County CAD has integrated its automated appraisal system with its computerized mapping system. The resulting GIS capabilities enable the district to download information and link that information to parcel data on the map. Their appraisers now have access to all the data needed to analyze sales and make comparisons to other similar properties.
RECOMMENDATION 4
Develop and implement a plan and timeline for completion and integration of maps into the GIS.