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Chapter 2:
Findings of the Appraisal Standards Review

This chapter of the report addresses commendations, findings and recommendations from the appraisal standards review of the Chambers 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. These commendable practices improve efficiency or in some instances address past operational weaknesses. We commend Chambers CAD for its efforts and hope this commendation gives other appraisal districts an idea for improving their own operations.

FINDING
Chambers CAD incorporated the use of laptop computers to gather information while performing field work as a part of the overall data collection and reappraisal process.

The IAAO Property Appraisal and Assessment Administration textbook states in part that "Field data collection is often the major activity of a reappraisal project, especially one being done for the first time in several years. The data collection program therefore requires organization, planning, and close supervision."

The chief appraiser stated that the CAD has at least three appraisers working in the field all year, except during the Appraisal Review Board (ARB) sessions. The CAD began using laptop computers in the field in 2003. It uses the computers to enter all data, including a photograph, while on-site. The appraisers begin the workday at 7 a.m. by downloading appraisal records in the office and usually beginning field work around 8 a.m. At around 4 p.m., appraisers return to the office to upload information gathered during the day. In addition to appraisal records, the laptops contain an updated set of maps to use while in the field.

Scheduling of field work is coordinated with the senior appraiser who, along with each field appraiser, maintains a calendar showing areas and subdivisions scheduled for inspection. In addition, appraisers keep a map of their assigned areas and mark areas where work is completed. The chief appraiser stated that all subdivisions are generally worked annually while abstracts and rural properties are worked at least every other year.

The senior appraiser and administrative assistant provide oversight by randomly checking recently updated property accounts. These senior staff members print cards and visit the property to ensure that the data collected is accurate and consistent with property classifications. The chief appraiser stated that senior staff tours the county monthly to look for changes to properties, and the appraiser assigned to this area inspects the properties coded for a "re-check." In addition, the administrative assistant reviews and corrects weekly error reports.

COMMENDATION
Chambers CAD developed a property inspection and data collection process that is efficient and allows for checks and balances to take place, which all contribute to more accurate appraisal records.

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 Chambers CAD's appraisal activities.

Chambers CAD develops appraisal rolls for Anahuac ISD, Barbers Hill ISD, East Chambers ISD and Goose Creek CISD (split ISD). The CAD received an invalid finding in the 2006 PVS for the Barbers Hill ISD. The 2006 PVS indicated a 0.9400 ratio in Category A, Single-Family Residential properties, a 0.9196 ratio in Category D, Rural Real and a 0.9189 ratio in Category F1, Commercial Real properties. The chief appraiser felt the low ratios in these categories were a combined result of an increasing real estate market, more recent sales used in the 2006 PVS and a reduction of values by the Appraisal Review Board.

FINDING
The Chambers CAD reappraisal plan lacks specific local information and does not comply with the requirements of Property Tax Code Section 25.18.

Property Tax Code Section 6.05(i) requires the CAD's board to develop, every two years, a written plan for the periodic reappraisal of all property within its boundaries, "according to the requirements of Section 25.18." Sections 25.18(a) and (b) require that:

According to USPAP Standard 6, a functional mass appraisal includes:

• identifying properties to be appraised;
• defining market areas;
• identifying property characteristics that affect property value in each market area;
• developing an appraisal model that reflects the relationship among the property characteristics affecting value in each market area;
• calibrating the model to determine the contribution of the individual property characteristics affecting value;
• applying the conclusions reflected in the model to the characteristics of the properties being appraised; and
• reviewing the mass appraisal results.

The 37-page reappraisal plan for Chambers CAD is dated May 2006 and states that the CAD "prepared and published this reappraisal plan and appraisal report to provide our Board of Directors, citizens, and taxpayers with a better understanding of the district's responsibilities and activities."

The reappraisal plan includes the following sections:

• Introduction – lists scope of responsibility, personnel resources, staff education and training, data, information systems, independent performance test;
• Appraisal Activities – describes appraisal responsibilities, appraisal resources, appraisal frequency and method summary, data collection/validation, sources of data, data collection procedures, data maintenance, field review, performance test;
• Residential Valuation Process – addresses scope of responsibility, appraisal resources, land analysis, area analysis, neighborhood and market analysis, highest and best use analysis, cost schedules, sales information, statistical analysis, market and cost reconciliation and valuation, homesteads, field review, office review, sales ratio studies, management review process;
• Commercial Property Valuation Process – addresses appraisal responsibility, appraisal resources, market study, land value, area analysis, neighborhood analysis, highest and best use analysis, market analysis, data collection manuals, sources of data, cost schedules, income models, sales comparison approach, final valuation schedules, statistical and capitalization analysis, field review, office review, sales ratio studies;
• Business Personal Property Valuation Process – addresses appraisal responsibility, highest and best use analysis, data collection procedures, sources of data, cost schedules, statistical analysis, depreciation schedules and trending factors, office review, ration studies;
• CAD Plan for Periodic Reappraisal of Utility, Railroad and Pipeline Property;
• CAD Plan for Periodic Reappraisal of Industrial Property;
• CAD Plan for Periodic Reappraisal of Industrial Personal Property;
• CAD Plan for Periodic Reappraisal of Oil and Gas Property; and
• Listing of staff providing significant mass appraisal assistance.

The plan states that a physical examination of residential property is conducted at least every two years and in some instances annually. Commercial property is inspected annually and business personal property is inspected annually with appraisers actually going into businesses to develop quality and density observation. After examining appraisal records and interviewing CAD staff during the onsite review, the reviewer determined that this schedule appears to be consistent with actual practice.

While the plan does address the general functions and steps taken during a reappraisal, it does not clearly identify property characteristics that affect property values in each market area as required by Section 25.18 (b). Specifically, the following items in 25.18 (b) (4) are not adequately identified and defined in the plan:

• the location and market area of property;
• physical attributes of property, such as size, age, and condition;
• legal and economic attributes; and
• easements, covenants, leases, reservations, contracts, declarations, special assessments, ordinances or legal restrictions.

Additionally, the plan lacks a clear definition of market areas, as required by Section 25.18(b).

By not developing an adequately detailed reappraisal plan, the CAD risks failing to identify market areas and changes in market values in the jurisdiction. A reappraisal plan is a detailed roadmap for the CAD staff to follow. A thorough reappraisal plan details the properties to reappraise, who will do the work, how the work will be done and when it will be completed. The reappraisal plan will become a working guideline for staff to use throughout the tax year. Implementing a thorough reappraisal plan can help ensure that the CAD's appraised values are at market value.

Jefferson CAD, for example, has adopted a comprehensive reappraisal plan that ensures the execution of timely and accurate reappraisals on an annual basis. The CAD reviews the plan each year and updates it as needed. Furthermore, the reappraisal plan is a part of the CAD's policy and procedures manual adopted by the board. The plan gives details regarding the steps to perform, staffing levels, workflow and the costs associated with plans and goals. In addition, the CAD links the plan to its budget, training, contracting, market analysis, field inspections and data processing. The board adopted or reviewed the reappraisal plan and makes changes as necessary.

RECOMMENDATION 1
Adopt a reappraisal plan that contains the information necessary to comply with Property Tax Code Section 25.18.

FINDING
Chambers CAD does not have local personal property schedules or a personal property manual to use for appraisal of business personal property located in the CAD jurisdiction.

The IAAO's publication Property Appraisal and Assessment Administration, 1990 Edition (the Red Book) is the Comptroller's official appraisal guide. This book presents a comprehensive treatment of assessment administration.

Chapter One of the Red Book notes that standards of practice may incorporate or be contained in laws, regulations, policy memoranda, procedural manuals and guidelines, appraisal manuals and schedules. It adds that guidelines or manuals should include repeated tasks, particularly those done by more than one person. The publication further states that there needs to be a procedure for establishing standards of practice that include updating manuals on a regular basis. Performance and progress reviews contribute to effective and efficient operations of CADs. Procedures are required for monitoring the quality of appraisals, editing data and reviewing appraisals.

USPAP Standard 6: Mass Appraisal, Development and Reporting applies to all mass appraisals of real or personal property regardless of the purpose or use of such appraisals.

This standard states that a functional mass appraisal includes the following activities:

• identifying properties to be appraised;
• defining market areas;
• identifying property characteristics that affect property value in each market area;
• developing an appraisal model that reflects the relationship among the property characteristics affecting value in each market area;
• calibrating the model to determine the contribution of the individual property characteristics affecting value;
• applying the conclusions reflected in the model to the characteristics of the properties being appraised; and
• reviewing the mass appraisal results.

The assistant chief appraiser is responsible for gathering annual information for business personal property accounts. The CAD uses renditions, site inspections, permits and newspapers to gather information regarding new, changed or existing accounts. Appraisers also use trade publications for comparable values and the Internet as a research tool. The CAD reported that beginning in 2004, employees called non-rendering businesses prior to the rendition deadline as a courtesy and that non-rendered accounts are flagged for a re-check.

The CAD mails renditions to all businesses in January. The CAD has not developed local schedules or an appraisal manual and primarily relies on the rendered values received during the rendition period. The CAD also uses the Comptroller's Field Appraiser's Guide for business personal property schedules. This guide is outdated and was never intended as a stand-alone manual, only as a tool for establishing local procedures. Additionally, the chief appraiser stated that Marshall & Swift, Marshall Valuation Service is used when applicable.

The CAD risks producing inaccurate or unequal appraised results in the appraisal roll by using outdated and inaccurate schedules and not having detailed procedures for the appraisal staff to follow.

Titus CAD, for example, developed a comprehensive plan for appraising personal property that has improved the CAD's appraisal performance in this category. Titus CAD has one full-time appraiser whose sole responsibility has been inspecting, analyzing renditions and performing appraisals of all personal property within the CAD. The CAD uses values rendered by the property owner and Titus CAD schedules to appraise business personal property.

RECOMMENDATION 2
Develop local schedules and a detailed appraisal manual for the appraisal of business personal property and implement the manual and schedules.

FINDING
Chambers CAD lacks descriptive land classifications and written neighborhood or market area analysis to assist in consistent and proper land appraisal and classification.

USPAP Standard 6: Mass Appraisal, Development and Reporting states in part, "A mass appraisal includes defining market area of consistent behavior that applies to properties." USPAP Standard 6 lists seven criteria that a mass appraisal must include, three of which read as follows:

• defining market area of consistent behavior that applies to properties;
• identifying characteristics (supply and demand) that affect the creation of value in that market area; and
• developing a model structure that reflects the relationship among the characteristics affecting value in the market area.

In addition, the IAAO Standard on Automated Valuation Models (AVMs) states in part that "market areas are broad, somewhat homogeneous geoeconomic areas that appeal to buyers in similar economic brackets."

The Chambers CAD reappraisal plan describes in several areas how a CAD conducts land, area, neighborhood and market analysis, but does not define or illustrate any local land uses or categories of land in the CAD. The reappraisal plan contains general information about processes used to develop market areas and neighborhoods, but not specific information about land analysis or market area analysis in Chambers CAD.

The CAD assigns each subdivision and each abstract a specific identifying number and creates computerized schedules for each subdivision, abstract or group of abstracts. The CAD provided a land schedule listing schedules by abstract and CAD. The land schedules have a brief description on some abstracts and subdivisions, such as those with interstate highway frontage, other highway frontage, marsh, waterfront or bayfront. Staff divides sales for analysis by county, ISD, subdivision or abstract in an Excel spreadsheet.

The 2006 PVS Category D, Rural Real, ratio of 0.9196 in the Barbers Hill ISD contributed to the school district's invalid finding in that study. Additionally, the 2006 PVS indicated low Category D, Rural Real, ratios in Anahuac ISD (0.9196) and East Chambers ISD (0.8844), both in the Chambers CAD jurisdiction.

The CAD is experiencing growth, development and changes in the use of land, primarily in the western portion of Chambers County, bordering eastern Harris County. In addition, Interstate 10 traverses the northern section of the county.

By not having market areas clearly defined, analyzed and documented, the CAD relies heavily on the local market knowledge of the chief appraiser and appraisal supervisor when updates to appraised values are necessary. The CAD does not have any documentation showing which subdivisions share similar characteristics, land characteristics, land uses or areas considered to be in the same market area.

Not clearly identifying market areas can lead the CAD to inconsistently update values in a given market area and can lead to unequal values among similar land and residential classes. Clearly defining market areas allows the CAD to make schedule changes across similar subdivisions or market areas, not only when sales are available in a specific subdivision.

The IAAO Standard on Mass Appraisal of Real Property definition for an economic area or market area is:

A geographic area, typically encompassing a group of neighborhoods, defined on the basis that the properties within its boundaries are more or less equally subject to a set of one or more economic forces that largely determine the value of the properties in question.

In addition, the IAAO Property Appraisal and Assessment Administration textbook states that "[the] first step in land valuation is market analysis: stratification, determination of units of comparison, and data analysis."

RECOMMENDATION 3
Clearly identify, define and analyze market areas and land classifications within the CAD, incorporate the results into the reappraisal plan and appraisal manual and use the data to update schedules as needed.

FINDING
Chambers CAD lacks adequately detailed local ratio study procedures and policies that outline and define the analysis and implementation of ratio study results, as recommended by IAAO standards.

The IAAO Standard on Ratio Studies points out that the two major aspects of appraisal accuracy are level (of appraisal) 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 six steps generally involved in ratio studies:

• defining purpose and objectives;
• collecting and preparing market data;
• matching appraisal and market data;
• stratification;
• statistical analysis; and
• evaluation and use of results.

The CAD briefly outlines performance tests in the Chambers CAD reappraisal plan dated May 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 the purpose and objectives of the ratio studies, which, according to the IAAO Standard on Ratio Studies, is the first step in any ratio study plan.

The CAD has computerized sales analysis capability within the appraisal software and uses an Excel format to analyze sales data. The CAD provided ratio studies produced for 2004, 2005, 2006 and 2007. The chief appraiser and the assistant chief appraiser (senior appraiser) are responsible for running and analyzing ratio study results. The CAD reported that it gathers sales information through the multiple listing service (when available), brokers, real estate agents, homeowners and fee appraisers. The CAD also generates and mails sales questionnaires to the grantor and grantee. The chief appraiser stated that the CAD does not track the number of responses to its sales letters, but said the letters are the primary source of sales information, accounting for about 90 percent.

The 2006 PVS weighted mean ratio for Category A for the four ISDs in the CAD reported the following ratios: Barbers Hill ISD, 0.9400; East Chambers ISD, 0.9564; Anahuac ISD, 0.9397; and Goose Creek CISD (split ISD), 0.9641. The weighted mean ratios for Category D were: Barbers Hill ISD, 0.9196; East Chambers ISD, 0.8844; Anahuac ISD, 0.9186; and Goose Creek ISD, 0.9603. Category F was tested in Barbers Hill ISD (0.9189 ratio) and East Chambers ISD (0.9930 ratio). A generally acceptable range for ratio study results is 0.95 to 1.05.

The CAD runs ratio studies by ISD and then by neighborhoods within the four ISDs for residential and land properties. The Excel spreadsheet the CAD uses has columns for type (class), parcel, legal, acres, number of stories, square footage, improvement value, land value, total appraised value, total sale price, sale date, current ratio, adjustment percentage, total value after adjustment and final ratio. The formula calculates the current ratio; an adjustment percentage is applied to the improvement value; and the spreadsheet then calculates a total value for the parcel after the adjustment percentage is applied. The adjustment percentage is a variable used by the CAD to adjust the value of a neighborhood of properties. After an adjustment percentage is accepted as an appropriate value adjustment, the percentage is applied to the neighborhood or market area in CAMA software and values are recalculated. In short, sales are typically grouped by neighborhood or subdivision; an adjustment percentage is derived that calculates a more favorable ratio for the group of properties; and the adjustment percentage is eventually applied to residential or land schedules.

By developing more formal ratio study policies and procedures, the CAD could improve performance when analyzing sales, developing schedules and adjustment factors, modifiers or depreciation factors. Frequent ratio studies and the appraisal maintenance that follows enable a CAD to keep its values at or near the market values. By applying 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 example, 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 4
Establish comprehensive, written ratio study procedures that incorporate generally accepted appraisal practices for reappraisal and appraisal maintenance planning as recommended by the IAAO Standard on Ratio Studies and adjust schedules to reflect the results these ratio studies provide.

FINDING
Chambers CAD does not have a comprehensive appraisal manual that provides adequate property classification definitions, instructions and directives for staff to use to complete appraisals.

The IAAO Standard on Mass Appraisal of Real Property Section 3.3.2.3, Data Collection Manuals, states:

A clear, thorough, and precise data collection manual should be developed, updated and maintained. The written manual should explain how to collect and record each data item. Pictures, examples and illustrations are particularly helpful. The manual should be simple yet complete, with a high degree of standardization for uniformity. Data collection staff should be trained in the use of the manual and updates to maintain consistency. The manual should present guidelines for personal conduct during field inspections, and if interior data are required, should outline procedures to follow when the property owner has denied access or when entry might be risky.

The CAD provided a Residential Appraisal Manual and a Commercial Appraisal Manual.

The Residential Appraisal Manual, updated in June 2006, contains a depreciation definition, depreciation table, descriptions and photographs for residential classes used in the CAD. The descriptions explain the various features for residential homes for eleven classes of homes.

The Commercial Appraisal Manual is dated 1998 and includes a depreciation definition, depreciation schedule and descriptions of various commercial properties such as banks, convenience stores, day care centers, restaurants, etc. The manual also contains an outdated commercial cost schedule. The properties have general descriptions for low quality, average quality and good quality for each property type. The CAD uses Marshall & Swift as a resource for appraising commercial properties.

The Chambers CAD reappraisal plan includes general data collection procedures that provide basic information that would be of use to the public or an interested outside party. The data collection procedures do not provide the detail necessary for a field appraiser without significant appraisal knowledge to follow.

Chambers CAD contracts with an outside appraisal firm for the appraisal of some complex industrial, mineral and utility properties.

In lieu of a comprehensive appraisal manual, the CAD currently trains new appraisers in-house. During the onsite review, the CAD had two appraisers with RPA designations, in addition to the senior appraiser and chief appraiser. The CAD had one vacant appraiser position. The chief appraiser stated that the CAD invests a considerable amount of time training a new appraiser. A new appraiser rides with an RPA appraiser for at least six months for training in all aspects of procedures for field work. This includes training on measuring procedures, classing procedures, public relations procedures and so on. After the six month training period, the senior appraiser and/or administrative assistant reviews the new appraiser's work to ensure that CAD standards are met. The chief appraiser indicated that appraisers are well trained in CAD procedures and are capable of consistently classing properties to CAD standards.

As part of the ASR, the onsite reviewer examined 35 randomly selected properties within the Barbers Hill ISD. Twenty-five of the audited properties were Category A, Single-Family Residential, five were Category D, Rural Real properties, and five were Category F, Commercial Real properties. The reviewer conducted onsite visits to the properties and appraised them using the CAD's appraisal manuals and oral instructions from CAD staff. Exhibit 1 shows the values reached by the reviewer in comparison to the CAD values for each category.

Exhibit 1
Barbers Hill ISD
Sample Appraisal Results

Category	Audit Sample Value	CAD Sample Value	Ratio
A 25 Parcels	$4,042,660	$4,042,660	100.0%
D 5 Parcels	$223,780	$223,780	100.0%
F1 5 Parcels	$2,248,230	$2,250,790	100.1%

Source: ASR Sample Appraisals & Chambers CAD.

With the help of a CAD appraiser, the reviewer conducted an onsite inspection of each property. The reviewer checked property characteristics and data on appraisal cards, such as the age, condition and size for accuracy and reasonableness. Using descriptions of property classifications found in the CAD's appraisal manuals, the reviewer classed each property based on type and quality. Using the CAD's calculated square footages for each building component, such as living area, porches and garages, the reviewer applied the corresponding cost-per-square foot from the appraisal manual and calculated a replacement cost new. The effective age of the improvements and depreciation schedules were reviewed. 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. The reviewer found that the combination of land values and improvement values equaled the total value of the property.

The results of the audited appraisal sample did not show any material differences between the reviewer's appraisals, performed by using the CAD's manuals, and the CAD's values.

Because the reviewer was an experienced appraiser, he was able to use the CAD's appraisal manual without written instructions to verify accuracy and reasonableness of the appraisal data and results for the sample properties. It is unlikely that an inexperienced appraiser could use the CAD's appraisal manual without more thorough written instructions.

If the CAD experiences a change in appraisal personnel, the lack of adequately detailed appraisal procedures manuals may cause inconsistent appraisals and may cause property values to deviate from market value. This market value deviation may cause ISDs in Chambers CAD to receive an invalid finding in the 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. In addition, instructions on how to use the CAD's appraisal manuals can help taxpayers better understand the appraisal process.

Lack of an adequately detailed and comprehensive appraisal manual can lead to inconsistent classification of properties by field appraisers, irregular field procedures and varying property characteristic definitions. Lack of a manual can also result in relying heavily on senior personnel. If senior staff leaves, remaining staff could be left with few guidelines or locally developed knowledge of the area. A properly written, comprehensive appraisal procedures manual can help ensure the CAD complies with Property Tax Code Section 23.01 (b), mandating that the market value of property be determined by using generally accepted appraisal methods and techniques and that CADs comply with the mass appraisal standards of USPAP, which are found in Standard 6. The law also requires that similar appraisal methods and techniques be applied to same or similar properties.

Tom Green CAD, for example, has a comprehensive appraisal policies and procedures manual for appraising real, commercial and personal property. The Tom Green CAD has developed a residential classification guide to promote uniformity and consistency in the way appraisers classify residential properties. The guide includes pictures of local houses and a description of property characteristics and attributes common to each class. For commercial appraisals, the CAD uses a generally accepted appraisal guide, which also contains pictures and property descriptions.

RECOMMENDATION 5
Create a comprehensive appraisal manual that includes appraisal procedures and policies for properties appraised in house and update the commercial appraisal manual as needed to reflect current CAD properties.

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