Chapter 2:
Findings of the Appraisal Standards Review
As part of the ASR process, PTAD provides the CAD's chief appraiser an opportunity to review a draft of the report to check for possible inaccuracies or misunderstandings of the issues. In a spirit of cooperation and out of a desire to make ASRs useful to the CADs, PTAD makes every effort to accommodate concerns expressed by the chief appraiser. Ordinarily, PTAD allows the chief appraiser seven days to review the draft. In the case of Delta CAD, however, the chief appraiser requested and PTAD granted 21 days to perform this review. Following are general comments made by the chief appraiser, and specific concerns are included throughout the findings in this chapter.
The chief appraiser felt that circumstances beyond the CAD's control played a part in the CAD's past performance and with the PVS, and will continue to affect future performance. The chief appraiser noted that the report does not seem to address many of the issues the CAD discussed with PTAD's consultant, such as chief appraiser and support staff tenures and overall instability at the time. She stressed her belief that much of the CAD input previously provided had not been considered or addressed in the report. The chief appraiser did not elaborate on what these issues were.
The chief appraiser added that the board of directors and staff are trying to meet all statutory requirements. She commented that the CAD was "a work in progress" and needed time to process all of the changes necessary to comply. The chief appraiser believes the CAD is making progress in accomplishing its goals and is receptive to recommendations to improve its work product.
This chapter of the report addresses commendations, findings and recommendations from the appraisal standards review of the Delta CAD in three sections:
2.1 Commendable Practice
2.2 Key Findings and Recommendations
2.3 Other Recommendations
2.1
Commendable Practice
As part of its review process, PTAD identifies the CAD's best practices. These commendable practices improve efficiency or, in some instances, address past operational weaknesses that can give other appraisal districts ideas for improving their own operations.
FINDING
Delta CAD balances public access requirements with internal data security.
Government Code Section 552 directs the chief appraiser, as custodian of appraisal district records, to do the following:
- ensure records are available for public inspection and copying;
- protect and preserve records from deterioration, loss, theft, alteration and destruction;
- repair, renovate and rebind records when necessary;
- provide public access to public appraisal district records without asking the person making the request for any information other than personal identification and a description of the records being requested; and
- provide a reasonably comfortable place for inspecting the records.
IAAO's Standard on Public Relations, Section 5, Public Records states the following:
"All records should be made available for public review unless access is specifically limited by law or unless confidential information is involved. Public access to assessment records is crucial to good public relations, and measures should be taken to ensure a climate of openness."
Delta CAD has a computerized assessment administration system and a computer assisted mass appraisal (CAMA) system. The CAD protects information in these systems by requiring each employee to have a profile and password determining rights to systems access. Systems have complete audit trails of all activities. While taking measures to protect confidential data, Delta CAD provides public access through its software vendor's Internet site. The CAD also provides public access to terminals in the office's public area. The CAD maintains its office building in good condition and its public access area is a comfortable space.
COMMENDATION
Delta CAD's computerized appraisal information is properly stored, maintained, backed-up and secured by user passwords while still publicly available and ensuring confidentiality of required information.
2.2
Key Findings and Recommendations
As part of the ASR process, PTAD makes recommendations to address challenges identified during a CAD review. The following recommendations address key challenges associated with Delta CAD's appraisal activities.
FINDING
Delta CAD appraisers do not consider the three valuation approaches to attain market value of property as required by Property Tax Code Section 23.0101 and IAAO standards, and do not perform model calibration tests of property values against verified sales.
Property Tax Code Section 23.0101 requires the chief appraiser to "consider the cost, income and market data comparison methods of appraisal and use the most appropriate method" when appraising property. Among other requirements, IAAO's Standard on Mass Appraisal Sections 1, 2 and 3 point out that in mass appraisal applications, the reliability of all three approaches is dependent upon the quality of the data used in the development of the applicable valuation equations or tables. The cost approach requires current and accurate estimates of land market values, cost data and accrued depreciation from all causes. The sales comparison approach requires adequate sales samples to provide accurate indications of current market values. The income approach requires reliable income and expense data, as well as objective evidence of the relationship between income to present value. Moreover, successful development and application of all three approaches is subject to the reliability of data on property characteristics determining value. Which technique works best in a given situation will vary with the type of property, availability of data, training and experience of appraisers and other factors.
Delta CAD primarily uses the cost approach, and seldom uses sales comparison and income approaches to appraise property. The chief appraiser disagrees with this finding, stating that the CAD uses cost schedules as a guide and uses market sales and ratio studies to adjust cost per square foot. The CAD uses the Multiple Listing Service (MLS) and other verified sales to adjust cost schedules after running ratio reports. Using an appraisal software system, the chief appraiser said the CAD combines cost schedules and sales to arrive at market value. While there is very little income producing property in Delta County, the chief appraiser indicated she uses spreadsheet software to process any income property for which the CAD has correct information to derive value based on the income approach. The CAD does not consider the highest and best use of property in regards to value, which would include all three approaches.
The CAD's appraisal manual does not contain procedures or guidelines for using the sales comparison and income approaches. The chief appraiser is working on getting manuals and written procedures for aspects of the CAD's appraisal functions. While the CAD uses the cost approach to appraise commercial property, it uses the income approach to defend individual commercial property values when taxpayers appeal their values to the appraisal review board (ARB).
The CAD's chief appraiser is responsible for market analysis and valuation cost schedules. There are no written guidelines for any appraisal approaches. Written guidelines for applying appraisal approaches provide a consistent process to follow and include structured steps for model calibration that, if followed, will measure, model and improve appraisal activities. Delta CAD's lack of written guidelines limits its use of sales comparison and income approaches to value.
Delta CAD does not consider the cost approach against the other appraisal approaches, a process it could use to gather information about the limitations between approaches or to update cost tables. The CAD could use its CAMA system to perform model calibration tests (a comparison test of property values against verified sales). Model calibration tests reconcile cost approach valuation tables against appraisal estimates from sales comparison or income approaches to improve the relationship of cost schedules to actual market values. When a CAD does not perform model calibration tests in a systematic process, unintended results may occur on ratio studies conducted to measure and monitor appraisal performance.
According to the IAAO's Standard on Automated Valuation Models, model specification and calibration is a repetitive process that entails the following steps:
- specifying a model;
- testing with calibration;
- adjusting to model specification;
- testing new specification with calibration; and
- repeating the process until statistically significant improvement is minimized.
Appraisers can calibrate building and improvement attributes separately and apply them to a model structure representing one of the following:
- the cost approach;
- sales comparison approach; and
- income approach, as applicable.
Calibrating models (cost, sales comparison and income approaches) directly against the market place confirms their accuracy. Since most CAMA systems have limited market analysis capabilities, CADs can supplement their CAMA systems with generic statistical software packages. There are two statistical software packages, designed to assist appraisers, which have built-in appraisal ratio studies and hybrid (non-linear) model structure subsystems. Software that is designed specifically as statistical software provides extensive graphics, selective reports and "what-if" edit capabilities to test assumptions before making changes in a CAD's appraisal systems. These appraisal tools, when properly used, improve the accuracy, equity and uniformity of appraisals and performance as measured by independent ratio studies.
In 2005, Nueces CAD, for example, published a comprehensive Commercial Procedures Manual, which discusses when and how to use the three approaches to value for commercial property and contains a classification guide showing pictures of various types of commercial buildings. This document assists the commercial appraiser to classify property uniformly and consistently.
RECOMMENDATION 1
Use statistical software to calibrate data, and determine which of three approaches to market value is appropriate, as required by Property Tax Code Section 23.0101 and generally accepted appraisal standards and practices.
FINDING
Delta CAD does not fully document appraisal manuals for each property category, which makes it difficult for the CAD to comply with Property Tax Code Section 23.01 and mass appraisal standards.
Property Tax Code Section 23.01 (b) states that, "The same or similar appraisal methods and techniques shall be used in appraising the same or similar kinds of property." According to IAAO's Standard on Mass Appraisal of Real Property:
- Mass appraisal requires complete and accurate data, effective valuation models and proper management of resources; it is the process of valuing a group of properties as of a given date using common data, standardized methods and statistical testing;
- In determining the value of a parcel, appraisers must rely upon valuation equations, tables and schedules developed through mathematical analysis of market data; and
- Values for individual parcels should not be based solely on the sale price of a property, but valuation schedules and models should be applied consistently to correct, complete and update property data.
Delta CAD's appraisal manuals are collections of cost schedules, property descriptions and selected copies of sold property to support its valuation and property characteristics descriptions by classification. The appraisal manual and records of sample property indicate the following deficiencies:
- lack of instructions for application of all appraisal procedures;
- limited descriptions of property classifications;
- lack of residential depreciation/percent good schedules;
- higher percent good than building age would suggest;
- no relation between year-built and effective year-built to percent good;
- 1900 as the CAD's default year-built and effective year-built;
- lack of commercial cost schedules; and
- lack of documentation of comparable sales and income approaches to value.
Property Tax Code Section 23.011 spells out the requirements CADs must follow in using the cost approach to value. If the chief appraiser uses the cost method of appraisal to determine the market value of real property, the chief appraiser is required to do the following:
- use cost data obtained from generally accepted sources;
- make any appropriate adjustment for physical, functional or economic obsolescence;
- make available to the public cost data developed and used by the chief appraiser as applied to all property within a category;
- state the reason for any variation between generally accepted cost data and locally produced cost data if the data vary by more than 10 percent; and
- make available to the property owner market data that demonstrate the difference between the replacement cost of the improvements to the property and the depreciated value of the improvements.
Without written directions for use of valuation approaches, the chief appraiser and contractor that perform appraisals may incorrectly apply cost tables or make inaccurate and inconsistent judgments about property values. This may lead to incorrect description of property classification, leading to incorrect application of value per unit tables (values per square foot), which will generate incorrect land and/or building values. By developing and using functional appraisal manuals, Delta CAD can provide guidelines to its appraisers for consistent application of valuation formulas and enable its appraisers to adequately develop, document and report a USPAP-compliant mass appraisal with a common set of procedures necessary to produce and communicate credible mass appraisals. If Delta CAD adds new appraisers, appraisal manuals can provide practical training aids to introduce new appraisers to Delta CAD's procedures.
Johnson CAD, for example, provides a systematic approach to property appraisal with well-written policy and procedures manuals and other written guides.
RECOMMENDATION 2
Include instructions in appraisal manuals for all categories of real and personal property to help ensure accurate mass appraisal models.
FINDING
Delta CAD does not fully use its CAMA automated functions, resulting in an inefficient process in which appraisers manually select unit values and apply percent good for each building and improvement.
In Delta CAD's, as in most CAMA systems, automated functions calculate land and building values from standardized sets of land and improvement cost tables. The system assigns land unit values by neighborhood. The system allows appraisers to fine-tune calculated values during field review by making standardized adjustments for size, shape, topography, etc. Delta CAD, however, does not use this feature of the system. The chief appraiser said the CAD relied heavily on previously contracted appraisal personnel to adjust the schedules. The CAD is entering MLS schedules, adjusted with local modifiers and based on sales, into its automated appraisal system.
The system calculates the replacement cost new from building classification schedules, adjusted by the unit value for size. It bases depreciation or percent good on an age-life scale. Delta CAD's CAMA subprograms should permit the expansion of depreciation/percent good schedules to consider a building's classification or condition. Most properties in the Delta CAD sample of property records did not have condition ratings.
In the sample of Delta CAD's property records, critical data for year built is defaulted to the year 1990 in some property improvement records. Other improvement records use 1900 for year and effective year built, but do not have corresponding low percentage of percent good. Based on the reviewer's field inspections, these improvements did not appear to be of a construction type or style typical of this period. Percent good is not a calculated function of year-built or effective year-built. Exhibit 1 presents the year built to percent good of randomly selected property in Delta CAD.
Exhibit 1
Sample of Delta CAD Property Records
Comparison of Year-Built to Percent Good
| Account # | Year-Built | Effective Year-Built | Percent Good |
|---|---|---|---|
| 1447 | 1900 | 1900 | 80% |
| 1898 | 1900 | 1900 | 90% |
| 2362 | 1900 | 1976 | 85% |
| 2540 | 1900 | 1900 | 80% |
| 3501 | 1900 | 1900 | 85% |
| 3891 | 1938 | 1937 | 95% |
| 4266 | 1957 | 1987 | 65% |
| 5169 | 1970 | 1970 | 80% |
| 5246 | 1981 | 1981 | 80% |
| 5294 | 2002 | 2002 | 99% |
| 5524 | 1900 | 1900 | 65% |
| 5614 | 1900 | 1900 | 50% |
| 5649 | 1900 | 1900 | 40% |
| 6550 | 1979 | 1979 | 90% |
| 6729 | 0 | 1999 | 95% |
| 7168 | 0 | 2000 | 67% |
| 8074 | 0 | 2007 | 100% |
| 8102 | 2006 | 2007 | 100% |
Source: Sample of Delta CAD Property Records.
Year-built is the known, or estimated, construction year of the buildings. Effective year-built is a modification of year-built that an appraiser uses to describe substantial updates or improvements. Effective year-built can be based on current conditions of buildings or estimates of approximate year-built. Age is the year of reappraisal minus effective year or actual year-built.
A measurement of age is required for automated calculation of depreciation in the cost approach, which is Delta CAD's primary appraisal approach. Without year-built, or effective year-built (age) for improvements, a computer-generated standardized calculation of building depreciation factors cannot be derived and applied to building valuations. In applying the cost approach to value, Delta CAD uses percent good to quantify the improvement value remaining after depreciation is factored out. For example, a building with 20 percent depreciation has 80 percent remaining life (percent good).
Delta CAD has several property record variables that represent depreciation/percent good in its variables of depreciation, functional, economical and completion percentages. It expresses all of these variables in the product variable called "adjustment." The IAAO Glossary defines the standard set of depreciation functions as:
- Physical deterioration – cause of depreciation that is a loss in value due to ordinary wear and tear and the forces of nature;
- Functional obsolescence – loss in value of a property resulting from changes in tastes, preferences, technical innovations or market standards; and
- Economic obsolescence – cause of depreciation that is the loss in value because of impairment in utility and desirability by factors outside the property's boundaries.
Appraisers should tie physical deterioration in the form of percent good to year-built or effective year-built through an automated calculation. Functional and economic obsolescence can provide the appraiser with additional judgment adjustments based on the appraiser's experience. Completion percentage is a variable for the percent of new construction completed on a property on the taxable status date.
On the improved properties, Delta CAD land values are low in comparison to the total assessed values. For sample property that are smaller than one acre, most ratios of land-to-total values are less than 10 percent of the total values (Exhibit 2).
Exhibit 2
Comparison of Ratios Land-to-Total Values
Sample of Delta CAD Property Records
| Account # | 2007 Land Value | 2007 Local Value | Ratio Land Value to Total Value | Land size in Square Footage |
|---|---|---|---|---|
| 5169 | $3,700 | $80,130 | 0.05 | 9,479 |
| 5246 | $3,000 | $62,820 | 0.05 | 11,548 |
| 5294 | $1,700 | $28,380 | 0.06 | 6,787 |
| 5524 | $1,810 | $44,910 | 0.04 | 7,236 |
| 5614 | $5,510 | $34,190 | 0.16 | 22,050 |
| 5649 | $2,230 | $16,300 | 0.14 | 8,925 |
| 6550 | $2,090 | $36,530 | 0.06 | 8,375 |
Source: Audit Sample of Delta CAD Property Records, 2006.
Six of the 29 sample parcels (Exhibit 3) have the same land values for 2007 that the property had in the 1999 assessment roll.
Exhibit 3
Property Where Land Values
are the same in 2007 as 1999
| Account # | 1999 Land Value | 2007 Land Value |
|---|---|---|
| 5169 | $3,700 | $3,700 |
| 5246 | $3,000 | $3,000 |
| 5524 | $1,810 | $1,810 |
| 6550 | $2,090 | $2,090 |
| 5649 | $2,230 | $2,230 |
| 6729 | $6,000 | $6,000 |
Source: True Automation Internet site Delta CAD Audit Sample Property Records.
Land value increases in the other 23 properties ranged from a small amount to doubling the 1999 land values. In all cases with buildings, improvement values changed during this nine-year period. All these property are within Cooper ISD, suggesting the CAD has not used land tables to calculate land values automatically within the appraisal system.
According to The Appraisal of Real Estate (American Institute of Real Estate Appraisers, Ninth Edition), in the cost approach, the estimated market value of the land is added to the estimated cost of the structure after applying accrued depreciation to the improvement only. Potential highest and best use significantly influences land value. Therefore, the cost approach is especially persuasive when separate land values are well supported.
Brown CAD's automated appraisal system, for example, produces ratio studies on demand; staff need only input the property sales information and identify the area for study. The CAD adjusts sales used in valuation analyses to the valuation date of January 1 and uses resale to calculate and justify modifiers for neighborhoods or subdivisions and, on occasion, property types. This type of analysis is useful as a defense for increases on property that have not sold. Brown CAD groups residential property by neighborhoods. Staff conducts an annual ratio study at each appraisal season's end to see if it needs to make schedule changes, location modifiers or other changes. The CAD conducts additional ratio studies following change implementation.
RECOMMENDATION 3
Develop and document a coordinated set of detailed land and improvement schedules that track local market values and use them in the CAD's automated appraisal system.
FINDING
Delta CAD lacks written procedures for gathering and verifying market sales data, as required by generally accepted appraisal methods.
According to IAAO's textbook, Property Appraisal and Assessment Administration, Chapter 5, Data Collection and Management, sales data must be collected, edited and adjusted to obtain valid indicators of market value. The CAD needs accurate sales data for specifying and calibrating valuation models and for sales ratio studies.
The chief appraiser acknowledged that Delta CAD does not have written procedures for sales validation, but added as the only appraiser and with the constraints of time, deadlines and other issues she has to rely on experience and knowledge. The chief appraiser describes the CAD's process as follows:
- gather sales transactions from deeds from county clerk;
- mail sales questionnaires and make follow-up calls for non-responsive buyers;
- load sales into CAMA system (separate sales property characteristics file as of date of sale); and
- review sales and provide sale verification codes.
Delta CAD contracts with an appraisal company to measure and appraise selected property.
The IAAO recommends collecting the following sales data if it is available:
- sales price – single most important information about any sale;
- names and addresses of buyers and sellers, which allows appraiser to contact for additional information on the sale;
- relationship of buyer and seller, which helps distinguish an arms-length transaction;
- property address, parcel identifier and legal description, which links sales to CAD records;
- type of transfer and deed, which also helps identify an arms-length transfer;
- interest transferred, or what property rights are included in the sale;
- instrument number, which is a unique identifier that helps identify subject property;
- personal property value, the price of which needs to be deducted from the sales price;
- financing, the terms of which can affect sale price and require adjustments; and
- date of transfer, which is needed for determining time of sale adjustments.
Three basic sources of sales data are deeds, contracts or agreements of sale and affidavits of property value. When this information is unavailable, incomplete or requires verification, the CAD can obtain sales information from buyers and sellers by mail questionnaire, telephone inquiry or face-to-face interviews. As a final resource, real estate agents, multiple listing services, title companies, private appraisers, leasing agents and certified property managers are good informational sources. Built-in levels of quality control must be part of the sales validation process.
Johnson County CAD, for example, identified and implemented ways to improve appraisal accuracy by assigning one employee the responsibility of gathering and recording sales and distributing that information to the appraisal staff. The sales information system supplies the raw data for periodic sales ratio studies and the sales comparison approach, and is an integral part of the appraisal model.
RECOMMENDATION 4
Develop and implement written procedures for sales verification; procedures for comparing sold property with existing CAD property characteristics; and procedures for use of sales verification codes.
FINDING
Delta CAD does not have written procedures for the performance and use of ratio studies as set out in IAAO's Standard on Ratio Studies.
The IAAO's Standard on Ratio Studies sets quality standards for the following statistical measures:
- Central tendency is the tendency of most kinds of data to cluster around some typical or central value, such as the mean or median.
- Coefficient of dispersion (COD) is the average deviation of a group of numbers from the median, expressed as a percentage of the median; in ratio studies, the average percentage deviation from the median ratio.
- Price-related differential (PRD) is the mean divided by the weighted mean.
Exhibit 4 quantifies these measures, which provide guidance only and may not represent jurisdictional requirements.
Exhibit 4
IAAO'S Standard on Ratio Studies
Quality Standards
| Type of Property | Measure of Central Tendency | COD | PRD |
|---|---|---|---|
| Single Family Residential, Newer, Homogenous | 0.90 - 1.10 | 10 or less | 0.98-1.03 |
| Single Family Residential, Older, Heterogeneous | 0.90 - 1.10 | 15 or less | 0.98-1.03 |
| Rural Residential | 0.90 - 1.10 | 20 or less | 0.98-1.03 |
| Income-Producing Property, Large Urban Jurisdictions | 0.90 - 1.10 | 15.or less | 0.98-1.03 |
| Income-Producing Property, Smaller, Rural Jurisdictions | 0.90 - 1.10 | 20 or less | 0.98-1.03 |
| Vacant Land | 0.90 - 1.10 | 20.0 or less | 0.98-1.03 |
| Other Real and Personal Property | 0.90 - 1.10 | Varies with local conditions | 0.98-1.03 |
Source: IAAO Standard on Ratio Studies, Approved July 1999.
The chief appraiser describes the CAD's ratio studies process as follows:
- load sales into CAMA system (separate sales property characteristics file as of date of sale);
- run ratio studies; and
- use ratio study results to adjust cost tables and land schedules.
Delta CAD runs ratio studies with summary quality statistics for neighborhood, class, date, range price, ISDs and the whole county. The ratio report program has parameters at the beginning of each report to vary the selection process. The CAD submitted two ratio study reports to the Comptroller, one sorted by building classification in the cost manual and one list of the entire Delta CAD's sales.
The PVS, containing sold property from 2005 and 2006, shows the CAD appraises lower-valued property in Cooper ISD at a lower percentage of market value than higher-valued property (Exhibit 5).
Exhibit 5
PVS Single Family Residential
Category Stratum Ratios
2006 PVS, Cooper ISD
| Category | Sample Size | Number of Sales | Stratum Ratio |
|---|---|---|---|
| Stratum 2 | 15 | 9 | 0.76 |
| Stratum 3 | 15 | 10 | 0.85 |
| Stratum 4 | 14 | 6 | 0.99 |
| Stratum 5 | 14 | 5 | 0.96 |
Source: Comptroller Property Value Study 2006.
The CAD's cost manual ratio study represents 11 years of sales. Using such a long period for selection of sold property helps generate more sales for lower-quality construction categories, but hinders the appraiser's ability to adjust its cost schedules properly. Using old sales may prove unreliable in determining current values. The potential problem with 11 years of sales is that inflation rates for lower and higher appraised property may be different.
As seen in Exhibit 6, most of the median and weighted mean ratios are more than 100 percent, indicating the cost approach value, on average, is above the sale price.
These CODs and PRDs indicate wide variance in ratios and indicate assessment regressivity, as both are outside IAAO's recommended guidelines. Exhibit 6 shows over-appraisal in the lower-stratum residential property, as evidenced by the median and weighted mean ratios.
Exhibit 6
Delta CAD 2007 Ratio Studies, Cost Manual
Overall Ratio Study Quality Statistics
| Building Classification | Count | Median Ratio | Weighted Mean | COD | PRD |
|---|---|---|---|---|---|
| 1F Wood Frame Low Quality | 2 | 4.83 | 1.77 | 79.65 | 2.74 |
| 2F Wood Frame Low Quality | 3 | 1.19 | 1.74 | 64.20 | 1.06 |
| 3F Wood Frame Fair Quality | 8 | 1.72 | 1.29 | 33.21 | 1.19 |
| 4F Wood Frame Average Quality | 44 | 1.28 | 1.38 | 42.06 | 1.14 |
| 5F Wood Frame Good Quality | 106 | 1.17 | 1.20 | 91.69 | 1.69 |
| 6F Wood Frame Very Good Quality | 37 | 0.98 | 1.20 | 38.45 | 0.98 |
| 7F Wood Frame Excellent Quality | 13 | 0.93 | 0.95 | 47.61 | 1.28 |
| 4B Brick Veneer Frame Average Quality | 8 | 1.24 | 1.29 | 60.74 | 1.37 |
| 5B Brick Veneer Frame Good Quality | 23 | 1.04 | 1.06 | 109.43 | 1.93 |
| 6B Brick Veneer Frame Fine Quality | 79 | 1.05 | 1.16 | 48.80 | 1.24 |
| 7B Brick Veneer Frame Very Good Quality | 94 | 1.04 | 1.19 | 109.20 | 1.75 |
| 8B Brick Veneer Frame Excellent Quality | 22 | 0.93 | 1.04 | 295.83 | 3.43 |
Source: Delta CAD 2007 Sales Ratio Study.
In a newer ratio study, the CAD used property sold between Jan. 1, 2007, and Jan. 9, 2008. This study includes many property classes, but the CAD summarizes ratio statistics at the county level. Exhibit 7 shows the quality statistics for this ratio study.
Exhibit 7
Ratios Study Quality Statistics
for 2008 Appraised Values in Delta CAD
| Ratio Statistics | Quality Measurements |
|---|---|
| Median | 0.98 |
| Weighted Mean | 0.90 |
| Standard Deviation | 0.62 |
| Coefficient of Dispersion | 35.33 |
| Price Related Deferential | 1.21 |
| Number of Observations | 77 |
Source: 2008 Delta CAD Ratio Study.
The median is within acceptable range, but the weighted mean indicates appraisal problems. The COD is considerably above the IAAO's recommended guidelines. The PRD confirms the problem identified in the weighted mean; it indicates a high level of assessment regressivity, meaning that the CAD appraises lower-valued property at a greater value than higher-valued property. The middle ratio (median) is within acceptable ranges, but the weighted mean is outside of the accepted range because, generally, the CAD appraises higher-valued property below their sale prices.
The PRD and COD indicate procedures for ratio studies are not systematically applied and that the ratio study's parameters are too widely set. Delta CAD's ratios studies also may have incorrect sale prices or prices that are not representative of property characteristics listed on Delta CAD's CAMA system at the time of sale. High CODs and PRDs also suggest that the CAD is not calibrating the cost approach table's land and building unit prices properly to the Delta County market.
CODs and PRDs that are outside acceptable statistical parameters indicate appraisal problems within the CAD. With respect to the Comptroller's PVS, this high variance in the CAD's ratios could generate median levels of assessment that are too low, too high or within acceptable range, depending on which property is included in the PVS sample. When COD and PRD statistics are within IAAO's recommended guidelines, the CAD need not be concerned about the property records that PTAD selects for the property value study because it will consistently appraise sold and unsold property.
Brown CAD, for example, has software technology for ratio studies that is adequate to their needs and the frequency with which they are used adequately address IAAO valuation procedures and standards.
RECOMMENDATION 5
Develop written procedures for internal ratio studies; run the sales ratio program with the more-detailed parameters for various sub-markets; correctly apply results to appraisal valuation approaches; and use ratio studies after field seasons for quality control of appraisals.
FINDING
Delta CAD does not have the written data collection procedures necessary to appraise property equally and uniformly.
According to IAAO's Standard on Personal Property, Section 4, personal property discovery:
- is critical to the appraisal of personal property;
- requires adequately trained staff and supporting resources; and
- requires [appraisal] agencies to issue binding rules and regulations covering the discovery of personal property.
Delta CAD uses building permits from cities, septic permits from the county and appraiser drive-bys to discover potential new real property inventories. Potential new personal property discovery sources include newspaper ads, assumed name certificates, telephone books and information reported by owners on renditions.
This short, written list of sources of business personal property is the only information about business personal property in the CAD's appraisal manual and is not sufficient. The appraisal manual lacks crucial information such as how to determine property condition. The CAD recorded property condition information on only two property record cards in the audit sample. It lists both as excellent. No other property records included references to condition. Effective year built is another way to identify differences in property condition from the building's age. As indicated earlier, most Delta CAD property records have the same year built and effective year built, with 1900 as the default year.
The CAD has no written procedures directing appraisers to add condition to the records with missing condition variables; to correct the default year-built records; or to estimate effective year built. Lack of procedure manuals detailing how to collect data limits Delta CAD's ability to use its valuation software automatically. This issue can lead to inconsistencies from year-to-year in data collection and application of valuation formulas, which may generate invalid findings in the PVS. Without written data collection procedures, Delta CAD's appraisers may not consistently collect data or discover new property or modification to existing property, which can lead to incomplete appraisal records in which property listings are inconsistent or missing from the appraisal roll. Lack of detailed data collection procedure manuals can lead to value inequities that increase dispersion (COD) around median assessment-to-price ratios, as indicated in Exhibit 7.
Brown CAD, for example, has continuous data gathering procedures in place that conform to IAAO and USPAP standards and contribute to effective property assessment. The CAD conducts annual property inspections for appraisal maintenance and uses a computer software program for retrieval of records for property appraisals. Property data collection is one part of mass appraisal applications, and good data gathering can assist the CAD in its efforts to achieve acceptable local appraisal values.
RECOMMENDATION 6
Prepare and use a detailed procedures manual for all functions of property data collection.
FINDING
Delta CAD's reappraisal plan is general in nature and does not have the necessary information to document the planning process needed to conduct the appraisal activities outlined in Property Tax Code Section 25.18.
Property Tax Code Section 25.18(b) defines what should be contained in CAD's reappraisal plans as follows:
(b) The plan shall provide for the following reappraisal activities for all real and personal property in the district at least once every three years:
(1) 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;
(2) identifying and updating relevant characteristics of each property in the appraisal records;
(3) defining market areas in the district;
(4) identifying property characteristics that affect property value in each market area, including:
(A) the location and market area of property;
(B) physical attributes of property, such as size, age and condition;
(C) legal and economic attributes; and
(D) easements, covenants, leases, reservations, contracts, declarations, special assessments, ordinances or legal restrictions;
(5) developing an appraisal model that reflects the relationship among the characteristics affecting value in each market area and determines the contribution of individual property characteristics;
(6) applying the conclusions reflected in the model to the characteristics of the properties being appraised; and reviewing the appraisal results to determine value; and
(7) reviewing the appraisal results to determine value.
The chief appraiser joined the CAD in March 2006 and had approximately two months to write a reappraisal plan. The chief appraiser is working on a comprehensive reappraisal plan for 2009-2010.
Delta CAD's reappraisal plan contains some specifics about CAD operations, but most of its plan is a mass appraisal report that supports prior reappraisals. The plan neither provides nor plans for future reappraisals, as the law requires. The contractor's reappraisal plan is also very general and supports its mass appraisal activities, rather than plan its future reappraisal activities. The chief appraiser said the reappraisal plan is a work in progress, and is how the CAD plans to appraise property for those years. A plan that complies with Property Tax Code Section 25.18 consists of steps the CAD needs to perform future reappraisals.
Delta CAD's reappraisal plan briefly describes its geographic valuation process, but omits specific steps in the valuation process that are actually used to reappraise property. The CAD's reappraisal plan does not identify market areas as required by Property Tax Code Section 25.18. Delta CAD clearly has various market areas and neighborhoods but these are not part of the reappraisal plan. There is no specific list or descriptions of delineated market areas or neighborhoods. Internal ratio studies indicate the ability to run ratio reports by building class and county, but the CAD does not list neighborhoods in its ratio reports or use neighborhoods for its ratio selection process.
Generalizations in the reappraisal plan make it less effective than a plan specifically written and organized to assist Delta CAD's reappraisal. The reappraisal plan has sections on performance analysis and statistical analysis, but does not identify any statistical numeric goals. It mentions the mean, median and weighted mean, but does not indicate the use of a COD or PRD. The reappraisal plan includes a land analysis section that mentions computerized land tables, but does not discuss if the CAD appraises land by front foot, square footage or acreage, or state when the CAD will use these units of value to appraise property. The plan mentions various land influences, but Delta CAD does not have any written procedures for using these influences.
The reappraisal plan's cost schedules indicate that the CAD may index property for neighborhood factors and influences, but most records in the sample property do not identify neighborhoods or have any percentage in the four neighborhood variables of land, which are subdivision, land neighborhood, building subdivision and building neighborhood. Those few records that identify a neighborhood have 100 percent as the adjustment percentage.
The CAD's reappraisal plans are not specifically oriented to Delta CAD and its operations. Under market and cost reconciliation and valuation in the reappraisal plan, the cost formula is generic and does not identify specifics in Delta CAD's cost approach. For example, it identifies accrued depreciation, but Delta CAD uses percent good to reduce the replacement cost new value of buildings. The reappraisal plan's commercial property valuation process indicates that commercial property is subject to the income and sales comparison approaches. Yet, the chief appraiser indicates that the CAD primarily uses the cost approach to value commercial property. The CAD only uses the income approach to defend its values in ARB protests.
By requiring appraisers to consider the effect of individual characteristics on a property's market value, the Property Tax Code Section 23.01, in effect, requires CADs to develop an appraisal model that determines the contribution of individual property characteristics to the property's market value. It also requires the reappraisal plan to reflect the relationship among the characteristics affecting value in each market area and determine the contribution of individual property characteristics to value. Since Delta CAD relies primarily on the cost approach to value, the reappraisal plan needs to show the relationship among property characteristics that affect values for each market area.
Lack of proper reappraisal planning and documentation can result in valuation inconsistencies and impede planned activities within the annual reappraisal cycle. By revising its reappraisal plan to conform to the Property Tax Code, Delta CAD can improve its reappraisal planning and activities to appraise all property equitably and uniformly.
Jefferson CAD, for example, adopted a detailed reappraisal plan that explains how and when reappraisals take place and how it allocates sufficient resources in support of the plan.
RECOMMENDATION 7
Comply with Property Tax Code Section 25.18 by revising the reappraisal plan to include CAD-specific details on items such as the property characteristics involved in valuation formulas, identification of market areas, delineation of neighborhoods and valuation models.
2.3
Other Recommendations
During the course of the review process, PTAD identified a management and operational issues not directly related to the appraisal process, but could indirectly affect the CAD's ability to conduct appraisals accurately and consistently. Delta CAD is not obligated to implement this recommendation, but the Comptroller provides it here for consideration as additional ways to enhance operational effectiveness and efficiency. Appraisal districts, as Texas governmental entities, are required to comply with all applicable laws.
FINDING
Delta CAD contracts with two appraisal firms to value real and personal property but does not monitor the contractors' work or require them to provide it with supporting appraisal information.
IAAO Standard on Contracting for Assessment Services, Section 5.1 generally requires that contracts have monitoring provisions:
Agency personnel must work closely with the contractor throughout the project to ensure full understanding and confidence in the system. They must be able to operate, maintain, and support the system once the contract is completed. Similarly, the assessment agency must possess, train, or acquire an internal staff that can use the contractor's products and services effectively.
The chief appraiser relies on the contracted professionals who have always given the CAD any information needed to substantiate their work.
Delta CAD had a contract with a private vendor to value mineral, utility and industrial property for 2006-07. Delta CAD does not have any mineral property, and only has a small number of utility and industrial property. This contract has four payment dates, but no delivery date. The contract calls for the contractor to list, value and defend its values at the ARB, and for the delivery of the following:
- one copy of property record card;
- two copies of notice of appraised value to taxpayers;
- one copy of the appraisal roll to the CAD;
- computer tapes of such values;
- one copy of the appraisal roll by taxing unit to the units; and
- one copy of division orders.
The chief appraiser attends all hearings, including those defended by the contractor.
The contractor provides printouts with single lines of account, value and leasing information. The contractor returns business personal property renditions to Delta CAD, appraises the property and returns values to the CAD; the CAD then checks values, performs data entry and returns the list to the contractor for additional quality control. The contractor does not deliver detailed appraisal records, appraisal manuals, appraisal schedules of income and expense used to appraise property or the market analysis the appraisal company uses in the valuation process. The chief appraiser indicated this information is available from the appraisal vendor. The vendor delivers a compact disc (CD) and a printed copy of the total they are under contract to appraise.
Delta CAD has another contract with a private vendor to measure and classify residential property in specified locations within the county. Under this contract, which is binding from 2006-08, the contractor agrees to complete appraisal work by May 10. The contract provides for three payment periods: Jan. 1, April 1 and after certification of the appraisal roll. The contract has no monitoring or quality review provisions. Under the assignment provisions, the contractor will attempt to work in additional assignments at no additional costs to the CAD.
The chief appraiser states that the contract appraiser and services provided under this contract provide 33 percent of the CAD's annual fieldwork and maintenance. The chief appraiser makes assignments each year based on annual maintenance requirements and the area of the county that needs reappraisal. The vendor lists and appraises the commercial property. In 2007, this contract appraiser raised the land-unit value schedules in the CAMA system. The chief appraiser and the vendor appraise residential inventory property. After 2008, the chief appraiser will be responsible for all fieldwork and will no longer contract for this service. As of 2007, Delta CAD does not collect taxes and will concentrate solely on appraisals. The chief appraiser will appraise all property for 2009 except industrial, pipelines and other pertinent business personal property accounts, which a contractor will appraise.
Hansford CAD's process, for example, for managing and monitoring contracted services provides continual oversight in compliance with IAAO standards. The chief appraiser is responsible for supervising all contracts; contracts exceed the IAAO standard by explaining what services each vendor performs, what the CAD received and the expected delivery dates of services.
RECOMMENDATION 8
Improve appraisal contract management and require vendors to provide more appraisal support documentation.