Chapter 2:
Findings of the Appraisal Standards Review
This chapter of the report addresses findings and recommendations from the ASR of the Donley CAD in two sections:
2.1 Key Recommendations
2.2 Other Recommendation
Donley CAD was formed in 1981 and became active in 1982. As of January 2009, Donley CAD had three full-time employees, two of which were supervisory positions and none are full-time appraisers. Donley CAD contracts with a professional appraisal services firm to appraise all property; however, it performs business personal property appraisals in-house.
Four of Donley CAD's five board members responded to PTAD's Appraisal District Board of Directors Questionnaire regarding board policies and procedures and chief appraiser and staff effectiveness. All respondents indicated a favorable opinion of the CAD's administration and appraisal performance.
2.1
Key Recommendations
As part of the review process, PTAD makes recommendations to address challenges identified during its review of a CAD. Below are recommendations addressing key challenges associated with Donley CAD's appraisal activities.
FINDING
Donley CAD does not effectively use internal ratio studies to produce a reliable market value.
Ratio studies compare the market value of property in a representative sample with the local appraised value for similar property.
Property Tax Code Section 23.01 states the following:
(a) Except as otherwise provided by this chapter, all taxable property is appraised at its market value as of January 1.
(b) The market value of property shall be determined by the application of generally accepted appraisal methods and techniques. 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. The same or similar appraisal methods and techniques shall be used in appraising the same or similar kinds of property. However, each property shall be appraised based upon the individual characteristics that affect the property's market value.
IAAO's Standard on Ratio Studies, Section 3, identifies seven basic steps involved in a ratio study:
- define the purpose, scope and objectives;
- design;
- stratification;
- collection and preparation of market data;
- matching of appraisal and market data;
- statistical analysis; and
- evaluation and use of results.
Clarendon and Hedley ISDs fell outside the confidence interval in the 2007 PVS. Categories A, D, F and J were tested in Clarendon ISD and Categories A, D, J and L1 were tested in Hedley ISD. Results of the 2007 PVS identified specific categories where Donley CAD is not appraising property at market value.
After reviewing the draft report, the chief appraiser stated that "Clarendon and Hedley ISDs were in compliance in the 2008 PVS, therefore indicating necessary corrections were made." The PVS is a statistical study used to measure appraisal accuracy and does not evaluate the procedures, methods or standards used by a CAD to reach property values. Valid PVS findings are not an indicator of how effectively a CAD uses ratio studies. The chief appraiser did not elaborate on what "necessary corrections" were made.
In the 2007 PVS, Category A had a weighted mean ratio of 0.8946 in Clarendon ISD. Hedley ISD had a weighted mean ratio of 0.9625. Exhibit 1 shows the results of the 2007 PVS in Category A for Clarendon ISD.
Exhibit 1
2007 PVS Category A
Clarendon ISD
| Category A Stratum |
2007 PVS |
Parcel Count | Number of Sales |
|---|---|---|---|
| Stratum 1 | Not Tested | 0 | 0 |
| Stratum 2 | 0.8040 | 14 | 7 |
| Stratum 3 | 0.9265 | 14 | 7 |
| Stratum 4 | 0.9131 | 15 | 7 |
| Stratum 5 | 0.9280 | 15 | 4 |
| Overall Ratio/Total | 0.8946 | 58 | 25 |
Source: Texas Comptroller of Public Accounts, 2007 PVS.
Donley CAD analyzes sales by property classification for Category A. The chief appraiser provided sales data for Clarendon ISD that includes a list of 2004-07 sales for Category A and Category D properties. Category A property has nine classifications based on quality of construction and other factors, one of which is exterior material. Category D property is organized by account number, property ID number, sale date, ratio, sale price, local land value, local improvement value and price per acre within each ISD.
Property sales in Category A are organized by ISD and quality of construction of the main improvement. The spreadsheet of sales used for property reappraisal assists the contract appraiser in performing the sales comparison approach.
Exhibit 2 shows a property in Category A in Clarendon ISD with a low ratio in the 2007 PVS. The same sale was used in the 2008 PVS.
Exhibit 2
Clarendon ISD - Category A
Local Value Compared with Sale Price
2007 PVS and 2008 PVS
| Property ID | PVS Year | Local Value | Sale Price/Sale Date | PTAD Value | Ratio |
|---|---|---|---|---|---|
| 8570 | 2007 | $39,187 | 6/15/07 | $102,000 | 0.3842 |
| 8570 | 2008 (preliminary) | $66,294 | 6/15/07 | $102,000 | 0.6500 |
Source: Texas Comptroller of Public Accounts, 2007 PVS and Preliminary 2008 PVS Results.
The property is identified by the CAD in the 2007-08 reappraisal plan as Area Two and includes the city of Howardwick. The property sold in June 2007 for $102,000. The CAD had the information on the sale, yet the reappraised value increased only 69 percent from 2007-08 instead of closer to the actual sale price.
After reviewing the draft report, the chief appraiser stated, "The CAD was told by [the] state appraiser ... of the sales price and it was put in our ratio study. However, the CAD had nothing in writing, only hearsay." The CAD did not appeal this property in a formal hearing, thereby accepting the PTAD value. The chief appraiser provided a photograph of the property, but no other documentation.
By not efficiently monitoring sales activity and not thoroughly evaluating and identifying problem areas for reappraisal, the CAD risks appraising property at less than market value.
Though the CAD performs business personal property appraisals in-house, it outsources the appraisal of all property to a contracting firm, and the contracting representative on-site the day of the ASR interview stated that the company conducts ratio studies based on property classification within an ISD. The contract appraiser stated that sales are classified by construction type and quality of the main improvement and sales are categorized based on this characteristic. Appraisal of Category A property is based on sales analyzed and the cost approach.
The chief appraiser stated that the contract appraisal firm uses sales in the ratio studies and Marshall & Swift to appraise property. Marshall & Swift is used for the cost approach in appraising Category A and F1 properties. After reviewing the draft report, the chief appraiser stated, "Local adjustments needed are made using Marshall & Swift."
Exhibit 3 presents the ratio of Category F1 properties in Clarendon ISD in the 2005-07 PVS.
Exhibit 3
Donley CAD
Clarendon ISD
Category F1 Historical Trend Detail
| Category | 2005 PVS | 2006 PVS | 2007 PVS | 2008 Preliminary PVS |
|---|---|---|---|---|
| F1 | 1.0597 | 1.0837 | 0.9408 | 0.9470 |
Source: Texas Comptroller of Public Accounts, 2007 PVS and Preliminary 2008 PVS.
The Category F1 parcel count was 29 and three sales were used in the 2007 PVS. The Category F1 parcel count was 20 and two sales were used in the 2008 PVS, which is a typical parcel and sale count since 2005. Of the three sales used in the 2007 PVS, all had low ratios. Exhibit 4 compares the sale price of these properties with the local value in the 2007 PVS for Clarendon ISD.
Exhibit 4
Donley CAD
Clarendon ISD
Category F1 Comparison of Sale Price with Local Value
2007 PVS
| Property ID | Sale Price | Local Value | Ratio |
|---|---|---|---|
| 3586 | $65,000 | $48,423 | 0.7450 |
| 5753 | $71,000 | $54,587 | 0.7725 |
| 5784 | $203,271 | $182,532 | 0.8975 |
Source: Texas Comptroller of Public Accounts, 2007 PVS.
These three sales affected the ratio for Category F1 property and resulted in a ratio of 0.9408 in the 2007 PVS.
IAAO Property Appraisal and Assessment Administration, Chapter 20, Sales Analysis and Mass Appraisal Performance Evaluation, states that stratification, "permits analysis of mass appraisal performance within and between property groups." Other criteria include the "valuation model (cost income, or sales comparison), construction class, neighborhood, size, and age."
Implicit in the valuation of real property is understanding and implementation of the three approaches to value, when applicable. In valuing income-producing property, it is important to consider the fact that long-term leases significantly impact value. IAAO Property Appraisal and Assessment Administration, Chapter 20, discusses that "the income approach can be automated at two levels. At the simplest level, the computer can automate the computations involved in applying the various income techniques and capitalization methods." For more complicated valuation models, "income models are developed and selected on the basis of the property's location and use. Multiple regression analysis (MRA) and other modeling techniques can be used to develop income models if sufficient data are available."
Both the 2007-08 and 2009-10 reappraisal plans state, "real property market areas, by property classification, are tested for low or high ratio sales and/or high coefficients of dispersion. Market areas that fail any or all of these tests are determined to be problematic. Field inspections are scheduled to verify and/or correct property characteristic data. Additional sales data is researched and verified."
After review of the draft report, the chief appraiser stated that Donley CAD does "effectively use internal ratio studies to produce a reliable market value. In the 2007 study one property sold for an extremely high value. However, adjusting the value schedule for all properties within the same classification would have made the entire class inequitable." The chief appraiser did not provide any supporting data.
The IAAO Standard on Ratio Studies, Section 3.7, Evaluation and Use of Results, states the following:
A properly designed ratio study is a powerful tool for analyzing appraisal performance, evaluating CAMA system models, and suggesting strategies for improvement. A ratio study also can identify weaknesses in appraisal system performance. Unexpected study results may indicate a need to respecify or recalibrate an appraisal model or to reevaluate the data elements used in the valuation process. However, users of ratio studies should recognize the inherent limitations of this tool, as follows:
- A ratio study cannot provide perfect information about appraisal performance. Lack of sufficient sales or overrepresentation of one area or type of property can distort results.
- Ratio study validity requires that sold or unsold parcels be appraised at the same level and in the same manner. Violation of this condition seriously undermines the validity of the study.
- Findings should be used only in ways that are consistent with the intended use(s) for which the study was designed.
- Ratio study data are subject to statistical sampling errors and other processing (non-sampling) errors (see Lessler and Kalsbeek), but these limitations do not invalidate their use for informed decision-making.
To ensure that ratio studies are effective tools in measuring appraisal performance, a CAD should routinely conduct ratio studies, confirm sales data and research county deed records for recent market transactions. Sales data for all categories should be stratified and categorized based on location and physical characteristics, and analysis should be performed to determine if there is any lack of uniformity among property types.
Improving ratio study methods and implementing procedures to perform internal ratio studies assists CADs in remaining abreast of market changes in order to appraise at market value.
Methods of improving ratio studies include researching arm's-length transactions, stratifying sales by property type, sales price, class, location, size and age. If the results for a stratum do not reflect market value, CADs that use ratio studies effectively appraise a sample of property in the stratum to develop a market adjustment factor. A comparison and reconciliation with a reliable data source, such as Marshall & Swift, can support a local modifier applied to a property schedule.
Brown CAD, for example, frequently uses its software technology for ratio studies and complies with IAAO appraisal procedures and standards. The automated appraisal system 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 analysis to Jan. 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 in appraised value on property that has not sold. Brown CAD groups residential property by neighborhoods. Staff conducts a ratio study at each appraisal season's end to determine schedule changes, location modifiers or other changes. The CAD conducts additional ratio studies following change implementation.
RECOMMENDATION 1
Develop internal ratio studies that include stratifying property by ISD and property category.
FINDING
Donley CAD's guidelines for the appraisal of real and personal property are outdated.
IAAO's Property Appraisal and Assessment Administration, Chapter 1, The Ad Valorem Tax System, describes the importance of written procedures or practice standards and states that they may incorporate or be contained in laws, regulations, policy memoranda, procedural manuals and guidelines, appraisal manuals and schedules, and that they are required for monitoring the quality of appraisals, editing data and reviewing appraisals.
Though the appraisal contract indicates that Donley CAD outsources all appraisal work, the deputy chief appraiser handles business personal property in-house.
The chief appraiser stated that business personal property owners are required to file a confidential rendition that describes, quantifies and estimates the value of business personal property owned by the business as of Jan. 1. Property owners who do not render by April 15 are subject to a 10 percent penalty of the taxes due for that year as described in Property Tax Code Section 22.28.
The chief appraiser estimated that the CAD has a 95 percent response rate from renditions mailed to business owners. Renditions are used for the appraisal of personal property, but the cost approach is used if the deputy chief appraiser believes it is needed.
The CAD has a depreciation schedule, but the deputy chief appraiser stated that it is outdated. The schedules and depreciation table provided at the on-site inspection range in date from 1996-2001.
After reviewing the draft report, the chief appraiser stated, "The CAD has access to the state's depreciation schedule, but the deputy chief appraiser stated that it is outdated. The schedules and depreciation table provided at the onsite inspection range in date from 1996-2001. Therefore the CAD makes appropriate adjustments for time and location. (see CAD's cost and depreciation schedule)." The chief appraiser provided a one-page table containing cost and depreciation guidelines for various business types that is a percent good table. Since it is not dated, necessary adjustments would be difficult to determine.
The appraisal manual for appraising real property is a three-page document that discusses education requirements for appraisers, the three approaches to value, property discovery methods and several paragraphs on the sales comparison approach. Category D property is described in a general manner with instruction that an appraiser must learn the intent and principal use of a property for five of the last seven years.
The chief appraiser stated that additional instruction for appraising property is mentioned in the reappraisal plan.
During the on-site visit, 33 accounts were inspected: 20 Category A accounts, 10 Category D accounts and seven Category F1. The accounts were selected from the larger sample used in the 2007 PVS and all were from Clarendon and Hedley ISDs. Because the CAD uses limited appraisal instructions, classification of land and land schedules, the reviewer was unable to duplicate any of the CAD's property values. The information provided was a three-page document describing the three approaches to value and how each property category is appraised.
The CAD appraises business personal property in-house, it contracts all appraisal functions to an appraisal firm and the contractor stated that the appraisal firm uses Marshall & Swift in developing a cost approach value for improved property and provides a disk with this information to the CAD for reference.
Although the schedule provided by the contractor coincided with the base cost shown on the appraisal card, an additional discount is made to properties for percent good. The discount range for those properties inspected in Category A was 20-85 percent. This means the base costs ranged from $6.60-$29.03 per square foot, which is very low. Because the appraisal cards did not identify the year of construction or effective age of the improvements, determining the depreciation amount for all property in Category A is not possible.
During the field inspection, the PTAD reviewer verified property characteristics and data on appraisal cards such as age, condition and size for accuracy and reasonableness. Using descriptions of property classifications found in the CAD's appraisal manuals, the reviewer found that appraised property in Category A is classified by the appraiser's conclusion of the property type and quality, based on that appraiser's experience and education. The reviewer checked the accounts for consistency in classification. While the appraisal cards show consistency with the schedule for base costs value by property classification, the resulting base costs are very low.
Category F1 property is similarly appraised. For example, a Category F1 property inspected is a motel in Clarendon ISD. The size of the motel noted on the CAD tax card is 7,655 square-feet. A visual inspection of the motel identified 23 motel rooms and the adjoining main lobby or administration area. The square-footage shown on the tax card seems very low for a 23-room motel. The base cost for a motel, according to the online version of Marshall & Swift, is $38.68 per square-foot, as compared with the CAD base cost of $27 per square-foot.
The schedule for commercial improvements shows the corresponding values for the accounts reflected a low base cost per square-foot when the reviewer compared that figure with the online service for Marshall & Swift.
Since the CAD contracts this function to an appraisal firm, the CAD does not have an appraisal manual for commercial property. A detailed and developed appraisal manual would assist the CAD in achieving consistent property classifications for all real property that the public can follow for verification.
IAAO's Property Appraisal and Assessment Administration, Chapter 1, The Ad Valorem Tax System, states, "[s]tandards of practice may incorporate or be contained in laws, regulations, policy memoranda, procedural manuals and guidelines, appraisal manuals and schedules, standard treatises on property appraisal and taxation, and forms. Repeated tasks, particularly those done by more than one person, should be described in guidelines or manuals. There should be a procedure for establishing standards of practice and maintaining them (for example, updating manuals)."
An effective appraisal manual contains fundamental steps on protocol for fieldwork; support for development of local modifiers based on a systematic approach that includes market transactions and construction costs; methodology for developing support of accrued depreciation, a property and classification guide and procedures to help the appraiser develop reliable values for similar types of property.
A comprehensive appraisal procedures manual can help ensure the CAD complies with legal and professional appraisal standards and requirements are fulfilled. Property Tax Code Section 23.01 (b) mandates that the market value of property be determined by using appraisal methods and techniques of generally accepted mass appraisal standards. The CAD's manual must comply with USPAP Standard 6, requiring similar appraisal methods and techniques be applied to the same or similar property.
Kaufman CAD, for example, has appraisal procedure manuals that describe field procedures, processing of cards, reviewing sales data and appeals procedures. Kaufman CAD also has a residential classification guide with photos and descriptions in conjunction with the appraisal manual.
RECOMMENDATION 2
Develop a comprehensive appraisal manual that includes detailed procedures, instructions and protocols for fieldwork activities, methods for appraising property and guidelines for property classification.
FINDING
Donley CAD's reappraisal plan is general in nature and lacks specific procedures required by Property Tax Code Section 25.18.
Property Tax Code Section 25.18(b) states the following:
(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:
- 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;
- identifying and updating relevant characteristics of each property in the appraisal records;
- defining market areas in the district;
- identifying property characteristics that affect property value in each market area, including:
- 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;
- 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;
- applying the conclusions reflected in the model to the characteristics of the properties being appraised; and reviewing the appraisal results to determine value; and
- reviewing the appraisal results to determine value.
Exhibit 5 identifies elements required in a reappraisal plan and is compared with the information in Donley CAD's existing reappraisal plan.
Exhibit 5
Required Elements of Property Tax Code Section 25.18
Compared to Donley CAD's 2009-10 Reappraisal Plan
| Property Tax Code Section 25.18(b) Requirements | Activity in Plan | Extent to Which Activity Performed |
|---|---|---|
|
The plan shall provide for the following reappraisal activities all real and personal property in the district at least once every three years: (1) identifying property 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; |
States that CAD will appraise one-third of all real property every year. Personal property is reappraised every year. |
Appraisal of property is contracted to an appraisal firm and the contractor stated that he adheres to this schedule. |
| (2) identifying and updating relevant characteristics of each property in the appraisal records; | States that the CAD will physically inspect property each year. The reinspection includes "photographing and verifying the accuracy of the existing data." | The specific requirements set forth in the reappraisal plan are not evident from the files reviewed during the on-site visit at the CAD. |
| (3) defining market areas in the district; | Three areas are identified in the 2009-10 reappraisal plan. | The contract appraiser stated that it adheres to the reappraisal of the areas identified in the reappraisal plan. |
|
(4) identifying property characteristics that affect property value in each market area, including: (A) the location and market area of property; |
Property to be reappraised is identified by one of the three areas to be reappraised. | The contract appraiser stated that it reappraises property based on the areas identified in the reappraisal plan and performs the appraisals on a subdivision by subdivision basis. |
| (B) physical attributes of property, such as size, age, and condition; | Provides a detailed explanation of property characteristics, including size. | CAD gathers sales and classifies the information by category and improvement description. |
| (C) legal and economic attributes; | No. | None provided. |
| (D) easements, covenants, leases, reservations, contracts, declarations, special assessments, ordinances, or legal restrictions; | No. | None provided. |
| (5) developing an appraisal model that reflects the relationship among the property characteristics affecting value in each market area and determines the contribution of individual property characteristics; | No. | None provided. |
| (6) applying the conclusions reflected in the model to the characteristics of the property being appraised; | Provides a general explanation about "revisions to cost models, income models, and market model." | The appraisal firm only uses the cost approach in the valuation of real property. |
| (7) reviewing the appraisal results to determine value. | No. | Plan states, "cost schedules are tested with market data (sales) to insure that the appraisal district is in compliance with Texas Property Tax Code, Section 23.011." |
Source: Property Tax Code Section 25.18(b) and Donley CAD 2009-2010 Reappraisal Plan.
The reappraisal plan for Donley 2009-10 includes the following sections:
- Tax Code Requirement - references Property Tax Code Section 6.05 relating to the requirement of reappraisal and the plan for periodic reappraisal from Section 25.18.
- Revaluation Decision - states the CAD "reappraises at least one-third of all real property in the district every year" and discusses that 2009 and 2010 are reappraisal years. Personal property is reappraised every year.
- Performance Analysis - discusses the CAD's use of ratio studies.
- Analysis of Available Resources - discusses staffing and budget requirements and how budget restraints can impact the cycle of real property; updating the computer system and maps; and that these items are continually updated.
- Planning and Organizing - references calendar of key events and completion dates prepared for each area of work.
- Personnel Assignments - presents each employee by name, title and an abbreviated job description.
- Mass Appraisal System - recapitulates Donley CAD's acknowledgement to appraise all taxable real and business personal property located within its boundaries and discusses that cost and land schedules are tested with market data and updated.
The 22-page Donley CAD 2009-10 reappraisal plan only addresses general functions and steps taken during a reappraisal and lacks the detail required to plan and complete a reappraisal and comply with Property Tax Code Section 25.18(b).
The reappraisal plan includes planning and organization information, including a calendar of key events with critical completion dates for the appraisal of real and personal property. Re-inspection of problematic market areas is discussed and "market areas that are to be scheduled to verify and/or correct property characteristic data" will be re-inspected.
The 2007-08 reappraisal plan shows Howardwick ISD scheduled for reappraisal, but the local value does not reflect the sales price. The 2009-10 reappraisal plan states that Howardwick will be appraised in 2011. The CAD is not following the reappraisal plan since property is not reappraised when it is below the statutory requirement and the sales in the CAD's sales spreadsheet do not reflect current market transactions.
For example, three sales in Howardwick used in the 2007 PVS are not shown in the CAD's sales spreadsheet. Exhibit 6 shows each sale and the corresponding sale price, along with the CAD's assigned value for 2007, 2008 and the preliminary value for 2009.
Exhibit 6
Donley CAD - Clarendon ISD
Comparison of Local Value with Sales Price
| Property ID | Category | Date of Sale | Sale Price |
2007 Local Value |
Ratio | 2008 Local Value | 2009 Local Value - Preliminary |
|---|---|---|---|---|---|---|---|
| 8570 | A | 6/07 | $102,000 | $39,187 | 0.3842 | $66,294 | $66,294 |
| 8559 | A | 2/07 | $46,500 | $24,223 | 0.5209 | $33,915 | $33,915 |
| 8582 | A | 12/06 | $40,000 | $21,453 | 0.5363 | $37,448 | $37,448 |
Source: Donley CAD, 2009.
Although the CAD has access to information regarding these sales, the reappraisal of Howardwick in 2008 did not bring these property values to market levels.
IAAO Property Appraisal and Assessment Administration, Chapter 13, Mass Appraisal, states, "...the most important aspect of a reappraisal is planning and organization. The jurisdiction identifies its target completion date and performance objective, and then develops a specific action plan and schedule to achieve its objective on time. The plan defines critical activities and their completion dates, assigns responsibilities, and sets production standards for data collection and field work."
The IAAO Standard on Ratio Studies, Section 3.2.2.2, states, "the findings of a ratio study can only be as accurate as the data used in the study. Personnel involved in the collecting, screening and adjusting sales data or making appraisals should be familiar with real estate conveyance practices in their region."
An ineffective reappraisal plan can compromise the value conclusions in mass appraisal. By not developing a detailed reappraisal plan, the CAD may be omitting certain market areas in the jurisdiction. A thorough reappraisal plan details the property to reappraise, employees responsible for the reappraisal and imposes timelines for completion of the work.
RECOMMENDATION 3
Amend the existing reappraisal plan to comply with Property Tax Code Section 25.18.
2.2
Other Recommendation
During the course of the review process, PTAD identified a management and operational issue that may not be directly related to the appraisal process, but could indirectly affect the CAD's ability to conduct appraisals accurately and consistently. Donley CAD is not obligated to implement this recommendation, but it is provided here for consideration as an additional way to enhance operational effectiveness and efficiency. Appraisal districts, as Texas governmental entities, are required to comply with all applicable laws.
FINDING
Donley CAD does not monitor its contractor's work or require the contractor to provide supporting documentation for deliverables.
The chief appraiser is responsible for the CAD's appraisals. Chief appraisers need sufficient knowledge to develop appraisal formulas and appraisal calculations of all taxable property within the CAD. Property Tax Code Section 25.01 (c) states the following:
(c) A contract for appraisal services for an appraisal district is invalid if it does not provide that copies of the appraisal, together with supporting data, must be made available to the appraisal district and such appraisal and supporting data shall be public record. "Support data" shall not be construed to include personal notes, correspondence, working papers, thought processes, or any other matters of a privileged or proprietary nature.
Property Tax Code Section 5.16 establishes the (Comptroller's) authority to examine a CAD contractor's supporting appraisal information in conjunction with an Appraisal Standards Review:
(a) The Comptroller may inspect the records or other materials of an appraisal office or taxing unit, including the relevant records and materials in the possession or control of a consultant, advisor, or expert hired by the appraisal office or taxing unit, for the purpose of:
(1) establishing, reviewing, or evaluating the value of or an appraisal of any property; or
(2) conducting a study, review, or audit required by Section 5.10 or 5.102 or by Section 403.302, Government Code.
(b) On request of the Comptroller, the chief appraiser or administrative head of the taxing unit shall produce the materials in the form and manner prescribed by the Comptroller.
Though business personal property appraisals are performed in-house, Donley CAD has maintained a contract with the same private firm to appraise real, personal, mineral, utility and industrial property for 10 years. It is a six-page document that identifies the scope of work for tax years 2006-08 at a cost of $95,840. The scope of work includes appraisal of all real property for Donley CAD.
The contractor agrees to:
- reappraise approximately one-third of the real property each year;
- appraise all new construction during the term of the agreement;
- reappraise altered, remodeled or enlarged structures, new property and rezoned property;
- appraise new commercial or industrial business property; and
- review all commercial and industrial business personal property accounts each year.
The contract has no monitoring or quality-control provisions that hold the contractor accountable for deliverables. The CAD has no procedures for contract monitoring. The chief appraiser relies on contracted professionals to give the CAD the information needed to substantiate the work completed. After reviewing the draft report, the chief appraiser stated, "The contract specifies quarterly payments made to the appraisal firm in conjunction with specific job fulfillments." A copy of the contract was provided, but the deliverables are generally discussed and not specific enough to hold a contractor accountable.
After reviewing the draft report, the chief appraiser stated:
The chief appraiser speaks with the appraisal supervisor for the appraisal firm at least weekly and more often during peak appraisal times. The appraisal firm verifies all changes being made to the schedules with the chief appraiser. The chief appraiser enters all data provided by the appraisers into the computer system in order to have hands-on knowledge of changes being made to individual properties.
While it appears that the chief appraiser is aware of the contractor's actions, the chief appraiser did not provide documentation regarding monitoring the deliverables or determining quality of the deliverables.
A binding contract establishes the legal obligation of all parties, with respect to the project, and should incorporate IAAO's Standard on Contracting for Assessment Services, Section 4.2, requirements as follows:
- a detailed description of the work to be performed;
- the time frame, delivery date and other requirements of the project;
- the amount and terms of the contract delineating all expenses (travel and other expenses), including all billable expenses;
- authorized signatures of the assessment agency and other parties;
- performance standards;
- testing standards and procedures;
- performance bonds and other insurance coverage, including indemnification and hold harmless clauses;
- required documentation;
- implementation, installation and delivery dates;
- responsibility for maintenance and upgrades;
- payment provisions;
- termination rights and compensation or penalty payments to the agency in the event of failure to perform, unavailability of funds, liquidation or other factors;
- arbitration of contractual and other disputes;
- confidentiality agreements; and
- other relevant considerations.
Contractors who do not meet requirements of the Property Tax Code, USPAP, and IAAO standards can cause a CAD's values to be inequitable and not uniform and result in negative changes in school funding. Without contractually requiring contractors to provide supporting information and documentation for deliverables, the CAD is at a disadvantage in defending values to the public and for demonstrating compliance with Property Tax Code Sections 25.01(c) and 5.16(a)(2).
Hansford CAD, for example, has a process for managing and monitoring contracted services and 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 4
Adopt an appraisal contract administration policy that complies with Property Tax Code Sections 25.01(c) and 5.16(a) (2).