Chapter 2:
Findings of the Appraisal Standards Review
This chapter of the report addresses findings and recommendations from the appraisal standards review of the Goliad CAD. 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 Goliad CAD's appraisal activities.
FINDING
The method of appraising oil, gas and mineral properties used by the CAD's contracting appraisal firm yielded 2006 appraised values generally lower than the state's appraised values in the 2006 PVS for Goliad ISD, and the CAD had no provisions in place to monitor the firm's work and results.
Goliad CAD contracts with an appraisal firm to assess the market value of its mineral property. Appraisal districts are responsible for the work of all contractors, and the same laws and standards applicable to appraisal districts apply to its contractors.
Category G: Oil, Gas and Other Minerals made up 40 percent of Goliad ISD's total appraised value in 2006. The 2006 PVS for Goliad ISD shows Category G: Oil, Gas and Other Minerals with a weighted mean ratio of 0.9341. PTD appraised 38 leases and determined the CAD's appraised value on 24 leases, or 63 percent of the sample, was more than 5 percent higher or lower than the PTD value. Of these, 18 leases, 47 percent of the sample, were more than 5 percent below the PTD value (Exhibit 1).
Exhibit 1
Category G: Oil, Gas and Other Minerals
2006 Final PVS Sample, Goliad ISD
Stratum 2: $238,038 - $1,512,628
| Property ID | Local Value | PTD Value | Ratio |
|---|---|---|---|
| TXG02 101605 | $681,948 | $671,920 | 1.0149 |
| TXG02 114719 | $339,442 | $324,814 | 1.0450 |
| TXG02 139306 | $356,939 | $316,209 | 1.1288 |
| TXG02 143109 | $771,709 | $795,716 | 0.9698 |
| TXG02 177512 | $509,885 | $553,943 | 0.9205 |
| TXG02 184289 | $378,157 | $497,306 | 0.7604 |
| TXG02 186759 | $264,343 | $224,820 | 1.1758 |
| TXG02 187502 | $381,680 | $531,223 | 0.7185 |
| TXG02 191190 | $481,858 | $493,949 | 0.9755 |
| TXG02 207665 | $489,784 | $635,210 | 0.7711 |
| TXG02 208125 | $294,518 | $269,733 | 1.0919 |
| TXG02 214303 | $1,208,794 | $1,564,319 | 0.7727 |
| TXG02 214460 | $242,451 | $243,781 | 0.9945 |
| TXG02 560636 | $406,382 | $427,050 | 0.9516 |
| Stratum 2 Totals | $6,807,890 | $7,549,993 | 0.9017 |
Stratum 3: $1,512,629 - $3,341,477
| Property ID | Local Value | PTD Value | Ratio |
|---|---|---|---|
| TXG02 105753 | $2,546,474 | $2,615,481 | 0.9736 |
| TXG02 167061 | $1,696,111 | $1,984,093 | 0.8549 |
| TXG02 175887 | $1,726,407 | $1,861,294 | 0.9275 |
| TXG02 178817 | $2,077,844 | $2,411,189 | 0.8618 |
| TXG02 179499 | $2,385,856 | $2,363,050 | 1.0097 |
| TXG02 187798 | $2,153,874 | $2,482,437 | 0.8676 |
| TXG02 188866 | $2,025,423 | $2,048,251 | 0.9889 |
| TXG02 195043 | $1,757,364 | $2,101,526 | 0.8362 |
| TXG02 195472 | $2,049,433 | $2,216,353 | 0.9247 |
| TXG02 207936 | $2,604,177 | $3,100,867 | 0.8398 |
| TXG02 216246 | $1,596,563 | $2,205,938 | 0.7238 |
| Stratum 3 Totals | $22,619,526 | $25,390,479 | 0.8909 |
Stratum 4: $3,341,478 - $6,799,780
| Property ID | Local Value | PTD Value | Ratio |
|---|---|---|---|
| TXG02 185702 | $3,368,462 | $3,295,867 | 1.0220 |
| TXG02 200715 | $4,716,709 | $5,499,819 | 0.8576 |
| TXG02 201842 | $6,046,760 | $5,309,682 | 1.1388 |
| TXG02 205521 | $6,470,282 | $6,294,687 | 1.0279 |
| TXG02 209545 | $3,707,223 | $4,439,606 | 0.8350 |
| TXG02 211159 | $4,570,071 | $3,130,367 | 1.4599 |
| TXG02 212169 | $3,789,725 | $3,302,247 | 1.1476 |
| TXG02 603144 | $4,413,488 | $4,358,569 | 1.0126 |
| TXG02 604453 | $5,528,419 | $6,020,112 | 0.9183 |
| Stratum 4 Totals | $42,611,139 | $41,650,956 | 1.0231 |
Stratum 5: $6,799,781 - $999,999,999
| Property ID | Local Value | PTD Value | Ratio |
|---|---|---|---|
| TXG02 207971 | $11,692,960 | $12,479,045 | 0.9370 |
| TXG02 208012 | $16,217,054 | $20,288,631 | 0.7993 |
| TXG02 212577 | $9,489,626 | $9,956,393 | 0.9531 |
| TXG02 605110 | $23,200,387 | $23,515,617 | 0.9866 |
| Stratum 5 Totals | $60,600,027 | $66,239,686 | 0.9149 |
Source: 2006 Final PVS, Goliad ISD.
Goliad ISD appealed the values of 22 mineral properties in the 2006 PVS sample. The ISD raised a number of factors, including:
- gas start rates;
- gas decline rates;
- oil start rates;
- oil decline rates;
- gas prices; and
- lease operating expenses.
The appeal did not achieve the desired result. PTD certified Goliad ISD an "eligible" school district. Goliad ISD fell outside the confidence interval by only $281,365. The CAD's local value for sampled mineral properties in Goliad ISD totaled $344.3 million, compared to PTD's estimate of $369.9 million or $25.6 million less.
The contractor uses a computer model in conjunction with appraisal judgment to determine market value of these properties and relies on its computer software to generate declines and start rates used to forecast future production. With the forecast and other appraisal parameters, such as price, tax rates, discount rate and lease operating expenses, the software calculates the net present value of future income from the property. This is essentially the same methodology used by other appraisal firms that perform mineral appraisals under contract with appraisal districts.
While a computer model is helpful in assisting appraisers, it cannot replace expert appraisal judgment. For example, new wells do not always have established decline rates, and a slight change in the start or decline rate of a high-volume well could have a major impact on the CAD's PVS results.
Individual property characteristics, such as pressure, porosity, permeability and reserves, vary from reservoir to reservoir and affect the production performance and ultimate recovery of a reservoir. Rock properties and completion/production techniques within a single reservoir may also vary from well to well, so production profiles may differ for wells producing within the same reservoir.
The results of the 2006 PVS suggest that the CAD may benefit by requesting its contractor to reassess the treatment of individual property characteristics in oil and gas property appraisals. The following are elements of the typical appraisal method for oil and gas property that individual property characteristics affect:
- calculation of start and decline rates for oil and gas properties;
- estimation of typical lease-operating expenses; and
- treatment of severance taxes and exemptions.
Each of these individual property characteristics may affect oil and gas property value, and appraisers must consider them individually in all oil and gas appraisals.
Accurate appraisal of Goliad CAD's oil and gas property is crucial because a large portion of Goliad ISD's tax base comes from oil, gas and mineral properties. Lack of adequate consideration of individual property characteristics on the value of oil and gas property may cause appraised values for that property category to fall below the category market value estimated by the PVS. The resulting finding of "invalid" local property values could eventually result in the state basing part of the school district's state funding on a higher state value, instead of on its lower, local property value. Under appraising property can also result in lost tax revenues and the adoption of higher tax rates to compensate for lower appraised values.
The CAD has used the same contractor since its creation in 1981, and this is the first year it has fallen outside the confidence interval. The contract for professional appraisal services, signed in November 2003, covers the three-year period 2004-06. The contract covers minerals, utilities and industrial properties. The contractor reports total individual property values to the CAD, a common practice when an appraisal district does not have the resources to maintain and display the technical appraisal details and property characteristics for minerals, utilities and industrial properties. In keeping with provisions of the appraisal contract, the contractor maintains detailed appraisal records at its headquarters and makes them available to the CAD. When its appraisals come into question, the contractor defends its values before the appraisal review board and in PVS appeals.
The 2006 contract, however, did not include a schedule of deliverables or provisions for the CAD to monitor the appraisal services. The contract also did not require the contractor to meet certain performance standards, such as achieving and maintaining a finding of valid property values in the categories of property the contractor appraises.
In December 2006, the CAD entered into a new contract with the same vendor for the years 2007-09. This contract includes the following monitoring schedule:
- inspections, October through April 1;
- evaluation, January through May 15;
- certification, May through July 20; and
- preliminary values, April 15 and May 1.
Additionally, the contract provides for the chief appraiser to perform periodic inspections of the contractor's work progression "at any time during the term of the agreement." The new contract also prohibits the vendor from using any appraisal methodology "that does not produce a realistic estimate of the true market value of the property." Finally, the new contract makes "materials used in the valuation process, whether paper or electronic format, and that are not proprietary" property of the CAD.
These new provisions afford the appraisal district a remedy if the contractor does not complete appraisals in time to certify values to the taxing units. The requirement that the contractor meet certain performance goals, such as producing realistic estimates of true market value, tells the contractor what level of performance the appraisal district expects.
RECOMMENDATION 1
Request the CAD's oil, gas and minerals appraisal firm to review its appraisal process to ensure it is using proper analysis techniques, and closely adhere to the monitoring and performance requirements contained in the new contract for appraisal of minerals.
The CAD could also assess the contractor's performance standards by contracting with a petroleum engineer or other oil and gas expert to perform a random audit of mineral properties and assess the contractor's appraisal software and methodology.
FINDING
Goliad CAD's automated appraisal system is not functional, which places the 2008 reappraisal at risk.
IAAO's Standard on Automated Valuation Models Section 2.3.3, "the reliability of any appraisal depends on accurate data." Section 2.3.6, Model Testing and Quality Assurance, further discusses the importance of accuracy of AVM value estimates by "...diagnostics and a ratio study in which value estimates are compared to actual values for the same properties."
In July 2006, the CAD entered into a contract for a new automated appraisal system (automated valuation model). The contract provides for software license fees and conversion of data and images to a personal computer format. The annual fee for the software is $18,900 and the CAD paid an additional $5,000 for the data conversion. The contract does not stipulate dates associated with the acquisition of the software and data conversion, but the contractor installed the software on the CAD's computers in fall 2006 and conversion of data from the old system to the new system began at the same time.
The CAD provided the vendor with an electronic data tape containing account numbers, ownerships, legal descriptions, appraised values and exemption information. The CAD does not maintain appraisal schedules, sales information and diagrams electronically. It provided these items to the vendor in paper form. The chief appraiser stated the vendor converted and loaded data from the electronic tape into the new system in mid-2007. The conversion of data provided to the vendor in paper form is not complete.
At the time of the ASR in January 2008, the CAD's automated appraisal system was missing data elements necessary to produce appraisals. The chief appraiser stated the conversion of land schedules, necessary for land appraisals, was not complete. The CAD is in the process of manually entering land schedules into the system's database. A former CAD employee is working part time on this project and an appraisal clerk is entering sales data into the system, but a completion date has not been determined.
The CAD had to use appraised values generated by its old system in 2007. The 2007 PVS indicates the CAD appraised single-family residences below market value. The 2007 PVS is still subject to appeal and this result may change.
The CAD cannot generate ratio studies from the system because the conversion of sales data is not complete. The old system could not generate ratio studies, but the CAD kept sales in an electronic spreadsheet that it used to produce ratios; no other statistical information was available from this program. According to the chief appraiser, the CAD no longer has access to the spreadsheets because the employee that kept them is no longer with the CAD.
The CAD has not converted diagrams of improvements, or images, and therefore cannot display them on the new system's appraisal cards, as required by Comptroller Rule 9.3001. Prior to the new system, the CAD manually drew diagrams of improvements on its appraisal cards. The new system requires diagrams be drawn electronically using one of the vendor's software applications. The chief appraiser has not determined a timeline for completing the diagrams, but has been in communication with the vendor to help resolve this issue.
Appraisal data in the system must be current and tested for accuracy. Currently, however, the CAD cannot use the new system to generate ratio studies for appraisal maintenance to ensure its 2008 appraisals are at market value. The system cannot produce land appraisals, generate ratio studies or depict diagrams of improvements. Diagrams must accurately reflect the property the CAD is appraising. In addition, taxpayers must be able to understand how the CAD arrives at its appraisals. The current situation makes this impossible.
IAAO's Standard on Automated Valuation Models (AVMs) states an automated appraisal system needs to have an accurate and current database that can be monitored for integrity to ensure credible estimates of market value.
RECOMMENDATION 2
Develop a work plan and timeline for converting appraisal data to the new automated appraisal system.
The timeline should include testing of the system using ratio studies and completion of diagrams for improvements.
FINDING
Goliad CAD's reappraisal plan does not have a systematic explanation of how the CAD will accomplish its reappraisal activities; it does not describe the type of properties or how many properties the CAD will appraise in a reappraisal year; and it does not describe in adequate detail how the reappraisal proceeds from one area to the next.
Property Tax Code Section 25.18 states, "Each appraisal office shall implement a plan for periodic reappraisal of property approved by the board of directors..." Additionally, the IAAO textbook, Property Appraisal and Assessment Administration, Chapter 13, Mass Appraisal, states that the required activities for all reappraisals must include the following steps in the order given:
- Performance Analysis – Determines whether the values are consistent with the market, if the values are equitable and that ratio studies are the primary tool for the analysis.
- Reappraisal Decision – This decision determines when and how often to reappraise and is driven in part by legal requirements and may include a cyclical schedule in which jurisdictions are physically reviewed and revalued. The text also notes that the reappraisal requires careful planning, along with a major commitment of resources.
- Analysis of Available Resources – This step is performed before defining goals and objectives. This analysis includes evaluating the staff, budget, existing systems and practices, data processing support and existing data and maps. The publication also stresses that an adequate budget is crucial in that it can overcome deficits in other areas.
- Planning and Organization – IAAO emphasizes that this is the most important aspect of reappraisal, as it identifies the target completion date and performance objective, specific plan of action and timeline. The plan should also include definitions of critical activities with completion dates; assignment of responsibilities; and establishes data collection and fieldwork standards.
- System Development – This produces the procedures, methods, manuals and software for the mass appraisal system.
- Pilot Study – This study evaluates procedures in several portions of the jurisdiction. It should include a ratio study to verify if the system produces reliable and accurate values and points out needed modifications.
- Data Collection – After the CAD develops, assesses and approves procedures and forms, it can start the data collection. IAAO stresses that quality control is essential.
- Production of Values – This step begins with a market analysis, model development, model calibration and calculation of preliminary values; the ratio study then assesses the consistency and validity of the values between each property type and area. After the models provide acceptable results, the CAD can use them to produce values.
- Preparation of Appraisal Roll.
- Final Performance Analysis.
- Data Maintenance.
- Value Updates.
The Goliad CAD board of directors approved the 2006 Goliad County Appraisal District Appraisal Policy/Plan in September 2006. The reappraisal plan does not comply with Property Tax Code Section 25.18 or generally accepted appraisal techniques as expressed by the IAAO publication discussed above. The plan summarizes IAAO's required reappraisal activities, but lacks information specific to Goliad CAD (Exhibit 2).
Exhibit 2
Comparison between Required Elements of a Reappraisal Plan
with Goliad CAD's Reappraisal Plan
|
Property Tax Code Section 25.18(b) Requirements |
Goliad CAD Reappraisal Plan Provision |
Goliad CAD's Implementation of Reappraisal Plan Provision |
|---|---|---|
| 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 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 | Plan requires all property to be physically inspected every three years | Appraisal cards indicate last inspection date |
| (2) identifying and updating relevant characteristics of each property in the appraisal records | Plan requires property characteristics be identified and updated on field cards | Field cards identify property characteristics and updates |
| (3) defining market areas in the district | Plan refers to 19 areas, but does not identify them | Lack of measurable data – documentation not available |
| (4) identifying property characteristics that affect property value in each market area, including: | ||
| (A) the location and market area of property | Plan requires property characteristics be identified and updated on field cards | Appraisal cards contain required data |
| (B) physical attributes of property, such as size, age, and condition | Plan requires property characteristics be identified and updated on field cards | Appraisal cards contain required data |
| (C) legal and economic attributes | Plan requires property characteristics be identified and updated on field cards | Appraisal cards contain required data |
| (D) easements, covenants, leases, reservations, contracts, declarations, special assessments, ordinances, or legal restrictions | Plan requires property characteristics be identified and updated on field cards | Appraisal cards contain required data |
| (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 | Plan requires sales and cost data to develop appraisal schedules | Lack of measurable data – documentation not available |
| (6) applying the conclusions reflected in the model to the characteristics of the properties being appraised | Plan requires ratio studies be conducted by market category to determine appraisal schedule maintenance | Lack of measurable data – ratio studies not available |
| (7) reviewing the appraisal results to determine value | Plan requires CAD to test each market category for accuracy and reliability and refine as necessary | Lack of measurable data – documentation not available |
Source: Property Tax Code Section 25.18(b) and Goliad CAD Reappraisal Plan 2007-2008.
Property Tax Code Section 25.18 requires a reappraisal plan to describe what an appraisal district plans to do in each year of the reappraisal cycle and to contain at least the required statutory elements. To be a useful document, the plan should explain specifically how and when the CAD plans to implement mass appraisal techniques required for reappraisal. IAAO provides vital elements for an effective work plan, such as inclusion of a timeline or calendar for performing reappraisal tasks. The work plan needs definitions of critical activities, with completion dates, assignment of responsibilities and established data collection and fieldwork standards.
Given the generic nature of Goliad CAD's reappraisal plan, one cannot determine if the CAD is following all of the required elements of a reappraisal plan. The 10-page reappraisal plan covers the 2007-08 two-year period and states that a reappraisal of all property in the CAD will occur every three years, with the CAD physically inspecting all property. The last reappraisal occurred in 2005 and the CAD has scheduled the next reappraisal for 2008.
The plan indicates the CAD will generate ratio studies annually to determine the accuracy of appraisal schedules and will appraise new construction each year. The CAD contracts for the appraisal of technical properties, and the contract appraiser developed a plan explaining how it appraises minerals, utilities and industrial properties. This plan, however, is not part of the reappraisal plan approved by the board of directors in 2006.
The Goliad CAD reappraisal plan summarizes IAAO's required reappraisal activities, but lacks information specific to Goliad CAD. IAAO provides vital elements for an effective work plan, such as inclusion of a timeline or calendar for performing reappraisal tasks. The Goliad CAD's work plan needs definitions of critical activities, with completion dates, assignment of responsibilities and established data collection and fieldwork standards.
Without a detailed reappraisal plan, Goliad CAD does not have an organized explanation of how the CAD will accomplish its reappraisal activities. The CAD's plan does not describe the type of properties or how many are to be appraised in a reappraisal year. It does not describe in enough detail how the reappraisal proceeds from one area to the next. For example, are properties in town appraised before moving to the rural areas? If so, what is the deadline for completing in-town appraisals?
A properly executed reappraisal plan serves as a roadmap to help a CAD ensure that its client school districts receive valid values in the PVS and that the school districts receive their expected state funding. Moreover, a well-developed and properly executed reappraisal plan helps ensure the equitable treatment of taxpayers. Finally, the CAD staff can use a reappraisal plan to demonstrate to the CAD's board and the public the process they use to appraise property accurately and fairly.
Jefferson CAD, for example, has a detailed reappraisal plan that explains exactly how and when reappraisals take place and how the CAD will allocate sufficient resources to follow the plan. The reappraisal plan ensures the execution of timely and accurate reappraisals on an annual basis and is reviewed each year and updated when changes are needed.
RECOMMENDATION 3
Revise the reappraisal plan to describe how the CAD will accomplish its reappraisal activities, including how it will identify the type of properties or how many properties the CAD will appraise in the reappraisal year and how the reappraisal will proceed from one area to the next.
The plan should also include a calendar of scheduled reappraisal activities, procedures for documenting the completion of each activity and a reappraisal plan for mineral properties.
FINDING
The CAD's aerial maps are outdated, and none of its maps contain parcel identification numbers linked to the appraisal system.
Comptroller's Property Tax Rules Section 9.3002 sets out the elements required in a CAD's mapping system. Exhibit 3 contrasts how the Goliad CAD measures up to this requirement.
Exhibit 3
Goliad CAD's Mapping System's Compliance with Comptroller Rules
| Comptroller Rule 9.3002 Mapping Requirement | Goliad CAD Mapping System Provision |
|---|---|
| All appraisal offices and all tax offices appraising property for purposes of ad valorem taxation shall develop and maintain a system of tax maps covering the entire area of the taxing units for whom each office appraises property. | The CAD's mapping system consists of outdated aerial maps, 9-1-1 maps, subdivision maps and old lot/block maps. |
| Each tax map system shall be drawn to scale and delineated for lot lines or property lines or both, with dimensions or areas and identifying numbers, letters, or names for all delineated lots or parcels. | Maps are drawn to scale, delineated for property lines or contain identifying numbers, letters or names. |
| Each tax map shall be divided into sections drawn at a scale large enough to serve the purposes of property assessment. Developed or subdivided areas may be drawn at a different scale than undeveloped or unsubdivided tracts. | Each CAD map includes sectional divisions. |
| The tax map, each section thereof, and each parcel thereon shall be assigned numbers in accordance with a parcel identification numbering system. Such numbers shall be recorded on the tax map, section and parcel. The identifying number for each parcel as recorded on the tax map shall also be recorded on the appraisal card maintained for that parcel. | None of the CAD maps have parcel identification numbers corresponding to parcel identification numbers on appraisal cards. |
| The tax map system shall be annually updated to incorporate any new subdivisions or property transfers as indicated by the filing of subdivision plats or deeds with the county clerk's office of the county or counties in which the taxing units for whom each office appraises property are located. | The CAD updates maps annually. |
| Any information required by these sections may be maintained in electronic data processing records rather than physical documents. | The CAD does not have electronic maps. |
Source: Comptroller Rule 9.3002 and Goliad CAD.
According to the chief appraiser, the CAD uses aerial maps, 9-1-1, subdivision and plat maps drawn to scale, but the CAD manually draws parcels onto the aerial maps, and it does not always draw parcels to scale. The 9-1-1 map shows the house point and situs address assigned by the 9-1-1 emergency system. The plat maps show the lots and blocks of incorporated areas and subdivisions. An appraisal clerk updates ownership in the automated appraisal system as well as on the paper maps. The maps show each parcel, owner, and in some cases, deed volume and page. None of the maps contains parcel identification numbers linked to the appraisal system.
The chief appraiser stated the CAD does the best it can with limited funds, and that realtors and land agents find the CAD's maps very useful. He said replacing outdated aerial maps would be very expensive.
Being able to locate all county parcels geographically is critical to the reappraisal process. Given the status of the CAD's maps, the onsite reviewer would have been unable to locate properties without the assistance of the chief appraiser. The chief appraiser is the CAD's only field appraiser and must rely on situs addresses or personal knowledge of the area to locate properties. This hinders fieldwork and places the CAD at risk of not completing scheduled reappraisals in a timely manner. In addition to helping locate properties, displaying parcel identification numbers on maps help identify market areas and promote fair and equitable appraisals.
Brown CAD, for instance, has a fully functional, computerized mapping system. The mapping and appraisal systems are integrated. The CAD maintains all mapping data layers to industry professional standards. The mapping coordinator regularly updates maps to reflect changes in ownership and boundaries. All parcels have a unique identification number.
RECOMMENDATION 4
Develop a timeline and devote necessary resources to develop maps that comply with Comptroller Rule 9.3002 and that contain parcel identification numbers linked to the appraisal system.
The CAD could hire a full- or part-time mapping staff; outsource the mapping to a third party; or contract with a neighboring appraisal district for mapping services.
FINDING
Goliad CAD's appraisal manuals lack local procedures and directions for completing appraisals.
IAAO's textbook, Property Appraisal and Assessment Administration, Chapter 1, The Ad Valorem Tax System, describes the importance of written procedures or standards of practice and states they may incorporate or be contained in laws, regulations, policy memoranda, procedural manuals and guidelines, appraisal manuals and schedules. The CAD should describe repeated tasks, particularly those done by more than one person, in guidelines or manuals. There should be a procedure for establishing standards of practice, including regularly updating manuals. Procedures are required for monitoring the quality of appraisals, editing data and reviewing appraisals.
The chief appraiser, who has been with the CAD since its inception in 1981, has more than 35 years of appraisal experience. He is also the CAD's only appraiser and developed many of the appraisal manuals. PTD recognizes the chief appraiser's ability to use the CAD's appraisal resources to appraise property, but CAD staff and taxpayers benefit by having written documentation chronicling the appraisal process and explaining how and when to use the CAD's manuals, guides, schedules and tables.
In 2008, the CAD plans to process appraisals using an automated appraisal system (valuation model). The model, when directed, produces a market value for each property based on the property's characteristics. Prior to 2008, the chief appraiser manually calculated property appraisals. Through fieldwork, the chief appraiser gathers specific information such as the property's condition, age, construction details and physical dimensions. The chief appraiser also gathers information about the land on which real property is located, including dimensions of the land, shape and location. The same information is gathered for vacant land, whether a vacant lot or a rural tract.
The chief appraiser records the accumulated property characteristics on appraisal cards and draws diagrams of all improvements. Using the CAD's appraisal manuals and his appraisal knowledge, the chief appraiser determines the property type and class, unit costs and depreciation. Separate values for land and improvements are calculated.
Residential properties are appraised using market-based schedules developed from local sales and cost data obtained from area builders. The residential appraisal manual includes current building schedules, descriptions of typical classification characteristics and representative pictures for each residential class. The residential manual lacks detailed instruction on its use. An effective manual focuses on measuring classification, identifying property attributes, applying depreciation and site-valuation procedures.
According to the chief appraiser, commercial properties are primarily appraised using actual costs obtained from builders. Goliad County has very few commercial sales, which hinders the appraisal district in appraising commercial property and developing accurate local modifiers. The chief appraiser also reviews mechanic liens filed with the county clerk on new construction. At times, the chief appraiser consults with neighboring chief appraisers and Marshall & Swift's Commercial Valuation Guide to determine commercial costs. The CAD lacks local procedures and directives for completing appraisals.
The CAD largely bases personal property values on taxpayer renditions. According to the chief appraiser, taxpayers submit 100 percent of the personal property accounts. When the CAD does not receive a rendition during the regular filing period the chief appraiser visits with the property owner to obtain the necessary information. The chief appraiser reviews the renditions for reasonableness by comparing the rendered values to the personal property value schedule in the out-of-print Comptroller's Field Appraiser's Guide and comparing values of similar businesses. The guide is outdated and not adequate for use in valuing personal property. The CAD does not have a manual to guide its appraisers in the review of renditions or in the reasonableness determination.
The appraisal district contracts with an outside appraisal vendor to appraise the CAD's industrial, utility and mineral accounts. The vendor appraises utilities using the unit value technique. The unit value technique requires the appraiser to determine the entire utility company's market value. The vendor then apportions the utility company's value to each taxing unit based on an agreed measure of the company's presence in the taxing unit, such as miles of track, historical cost or number of meters. The unit valuation is widely accepted as the preferred income technique for appraising utility properties. The vendor typically appraises industrial properties using the cost approach and appraises minerals using the income approach. The vendor provides a general explanation of the methods used to appraise these properties in the CAD's reappraisal plan.
During the course of this review, the contractor examined 12 randomly selected properties within Goliad ISD's 2006 PVS; including seven single-family residences and five rural real tracts. The reviewer conducted on-site visits to the properties and appraised them using the CAD's appraisal manuals and oral instructions from the chief appraiser. The reviewer did not find any material discrepancies and was able to arrive at the same or similar appraised values as the CAD.
With the assistance of the chief appraiser, the reviewer conducted an on-site inspection of each property. The contractor reviewed information pertaining to property characteristics contained on the CAD's appraisal cards for accuracy. He also reviewed for reasonableness, age, condition and size. Using descriptions of property classifications found in the CAD's appraisal manuals, the reviewer classed each property based on type and quality. He classified residential property as either frame or masonry with quality ratings from one to seven-plus, one being lowest quality and seven-plus being the highest quality.
Using the CAD's calculated square footages for each building component, such as living area, porches and garages, the reviewer applied the corresponding costs per square foot from the appraisal manual and calculated a replacement cost new. For example, a wood frame class three house with 1,592 square feet of living area has a base cost per square foot of $24. The reviewer estimated the effective age of the improvement, used the CAD's depreciation table to determine a percent good factor and applied the factor to the replacement cost new to calculate the current value of the improvement. He calculated land values by applying the appropriate unit value from the CAD's land schedule for the land code found on the appraisal card. For example, if the appraisal card showed a land code of ST1, then he appraised the land at $2,600 per acre, which is the unit cost per acre for land table ST1. The reviewer combined the improvement and land values to arrive at the total property value. The reviewer used the same methods to appraise the five rural properties.
As Exhibit 4 shows, the results of the audited appraisal sample did not show any material differences between the reviewer's appraisals using the CAD's manuals and the CAD's values in the PVS.
Exhibit 4
Sample Goliad CAD Appraisal Results
Single-Family Residential Properties
| Property ID | ASR Sample Value | CAD Value | Ratio |
|---|---|---|---|
| 1001-382250-000R09 | $48,470 | $48,470 | 100.0 |
| 1001-099461-290012 | $71,490 | $73,180 | 102.4 |
| 1001-282390-057002 | $70,900 | $70,950 | 100.1 |
| 1001-065860-034000 | $46,060 | $46,020 | 99.9 |
| 1001-385930-000057 | $43,710 | $44,360 | 101.5 |
| 1001-095350-007001 | $51,870 | $51,530 | 99.3 |
| 1001-095320-003002 | $16,590 | $16,850 | 101.6 |
| Total Single-Family Residential Sample | $349,090 | $351,360 | 100.6 |
Rural Real Properties
| Property ID | ASR Sample Value | CAD Value | Ratio |
|---|---|---|---|
| 1001-393838-104000 | $22,000 | $22,000 | 100.0 |
| 1001-053850-044000 | $49,060 | $49,060 | 100.0 |
| 1001-123416-284000 | $87,500 | $87,500 | 100.0 |
| 1001-070691-000045 | $77,380 | $76,740 | 99.2 |
| 1001-107296-000000 | $23,330 | $24,230 | 103.9 |
| Total Rural Real Properties Sample | $259,270 | $259,530 | 100.1 |
Source: ASR Sample Appraisals and Goliad CAD.
Because the contractor is an experienced appraiser, he was able to use the CAD's appraisal manuals without written instructions to complete the appraisals. Someone without comparable appraisal experience likely would not be able to use the CAD's appraisal manuals without written instructions.
When the present chief appraiser retires or otherwise leaves the CAD, or if the CAD hires an assistant-chief appraiser, the lack of detailed appraisal procedures manuals may result in inconsistent appraisals and cause property values to deviate from market value. Such a market value deviation could cause Goliad ISD 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.
Tom Green CAD, for example, has a comprehensive appraisal policies and procedures manual for appraising real, commercial and personal property. Tom Green CAD has developed a residential classification guide to promote uniformity and consistency among the appraisers in the way they classify residential properties. The guide has pictures of local houses and a description of property characteristics and attributes common to each class. The manual also contains a section on land appraisal.
RECOMMENDATION 5
Develop appraisal procedures manuals that provide instructions and local procedures for completing appraisals.