• Citizens
• Business
• Government

Chapter 2:
Findings of the Appraisal Standards Review

This chapter of the report addresses commendations, findings and recommendations from the appraisal standards review of the Jeff Davis CAD in two sections:

2.1 Commendable Practices
2.2 Key Findings and Recommendations

2.1
Commendable Practices

As part of its review process, PTD identifies best practices used by each CAD under review. These commendable practices improve efficiency or in some instances address past operational weaknesses. We commend Jeff Davis CAD for its efforts and hope this commendation gives other appraisal districts an idea for improving their own operations.

FINDING
Jeff Davis CAD's property identification system complies with Comptroller Rule 9.3014 and is supported by documentation of how parcel identification system numbers are created and used to code individual properties.

Comptroller Rule 9.3014, Property Identification System, states:

The CAD's property identification system is based on geographic location. Each parcel in the CAD has a unique 15-digit parcel identification number. The CAD's appraisal manual explains how the parcel identification numbers are assigned. The first four digits identify the subdivision or survey. The next three digits represent the unit numbers of platted land and townships or block numbers for acreage within surveys. The next four digits correspond to block numbers for platted land and townships and section numbers for surveys; and the last four digits can identify either lots or subdivided land.

For example, T&P Survey 59, Block 9, Section 34, NW1/4 has the parcel identification number X959-009-0034-0010. X959 is the code for T&P Survey 59; 009 identifies Block 9; 0034 represents Section 34; and 0010 is for the first tract split from the section.

The CAD's documentation of the property identification system provides the layperson information on how the CAD's parcel coding system works and is helpful in defining market areas and neighborhoods for reappraisal planning.

COMMENDATION
The Jeff Davis CAD's appraisal manual documents its parcel identifier number system.

2.2
Key Findings and Recommendations

As part of the review process, PTD makes recommendations addressing challenges identified during its audit of a CAD. Below are recommendations aimed at key challenges associated with Jeff Davis CAD's appraisal activities.

The protocol for the Comptroller's ASR includes an independent consultant's audit of a sample of the CAD's appraisal records. The consultant tested 27 parcels among the sample properties found in the Field Studies Category Worksheet for Fort Davis ISD on the 2006 PVS. The audit is intended both to assess the CAD's appraisal procedures and to check the accuracy and completeness of parcel data on the appraisal cards.

In a site visit to individual properties, the appraisal consultant uses the CAD's written procedures to determine a property's appraised value and compares it to the local value, noting any variances and the reason for them. The procedures PTD uses to audit the CAD's sample property records and appraisal procedures can be found in Appendix 1, Appraisal Standards Review Protocol, Section 2.1.1, Activities to be Performed, Paragraphs P and Q.

With the chief appraiser's assistance, the appraisal consultant conducted an on-site inspection of each property. The appraisal auditor checked property characteristics data on the CAD's appraisal cards for accuracy and reviewed age, condition and floor area for reasonableness only. The appraisal consultant classified each improved parcel based on type and quality descriptions supplied in the CAD's appraisal manual.

Residential property was classified as either frame or masonry, with quality ratings from 100 to 700, or lowest to highest quality. Using the CAD's recorded floor area for each building component such as total living area, porch, carport, garage, etc., the appraisal consultant calculated the value of the improvement by applying the unit value indicated by the corresponding improvement schedule in the CAD's appraisal manual.

For example, a 1,000 square-foot, class 200 frame house has a base unit value of $33.22 per square foot. A percent good factor (remaining economic life), obtained from the CAD's residential depreciation schedule by estimating the building's effective age, was applied to the new cost of the improvement to appraise its current value. Land values were appraised with the corresponding unit value from the CAD's land schedule and then added to the depreciated new cost of the improvement to obtain a total value. Ten single-family residences were audited.

Similar methods were used to appraise seven parcels from Category C, Vacant Lots; five from Subcategory D2, Non-Qualified Acres and Rural Improvements; and five from Category F1, Commercial Real parcels.

The procedural review of sample property appraisals found only slight variances between the consultant's valuations and the CAD's local values. The CAD's calculated depreciation of improvements recorded on some property appraisal cards did not match the corresponding data in the depreciation table contained in its appraisal manual, but in all, the variances were slight.

Exhibit 1 compares the weighted mean ratios of the procedural audit sample to the CAD's local values for the same parcels. The audit examined properties in four property categories.

Exhibit 1
Fort Davis ISD
Sample Appraisal Results

Source: ASR sample appraisals from the 2006 PVS Field Studies Category Worksheet for Fort Davis ISD and Jeff Davis CAD 2006 certified roll.

FINDING
Jeff Davis CAD does not use internal ratio studies effectively for calibrating appraisal schedules and analyzing mass appraisal performance.

Property Tax Code Section 23.01 states:

IAAO's Standard on Ratio Studies, Section 4.6, Evaluation and Use of Results, states:

A properly designed ratio study is a powerful tool for analyzing appraisal performance and suggesting strategies for improvement.

Results of the 2006 PVS show the CAD is not appraising single-family residences, vacant lots and commercial real property at market value in Fort Davis ISD. Exhibit 2 lists 2006 Fort Davis ISD PVS results for Category A, Single-Family Residences, Category C, Vacant Lots and Category F1, Commercial Real.

Exhibit 2
Fort Davis ISD
2006 PVS Results for Categories A, C and F1

Source: Texas Comptroller of Public Accounts, 2006 Property Value Study.

For purposes of indirect equalization, acceptable category ratios generally fall between 95 percent and 105 percent of market value. The three property categories shown in Exhibit 2 represent more than 60 percent of the CAD's total appraised value. Category A comprises 46 percent of the CAD's total appraised value and Categories C and F1 each represent about 8 percent. Appraisal ratios in Valentine ISD, the CAD's other school district, were within the acceptable range of ratios in the 2006 PVS.

For single-family residences in Fort Davis ISD, the 2006 PVS found unacceptable appraisal levels in most of the value strata, an indication that not all properties are being treated equitably. Of the four value strata tested, only properties in the highest value stratum showed an acceptable appraisal ratio, receiving a weighted mean ratio of 0.9652. Exhibit 3 shows the weighted mean ratios for single-family residences by value strata in Fort Davis ISD.

Exhibit 3
Fort Davis ISD
Weighted Mean Ratios by Value Stratum
2006 PVS Category A,
Single-Family Residences

Source: Texas Comptroller of Public Accounts, 2006 Property Value Study.

According to the PVS, Fort Davis ISD's appraisal ratios for single-family residential have declined for the past three years, indicating a lack of appraisal schedule maintenance. Exhibit 4 lists PVS results for Category A from 2004 through 2006 for Fort Davis ISD.

Exhibit 4
Results of 2004-06 PVSs for Fort Davis ISD
Weighted Mean Ratios for Category A, Single-Family Residences

Source: Texas Comptroller of Public Accounts, 2004, 2005, 2006 Property Value Studies.

While the 2006 PVS found Category C, Vacant Lots, in Fort Davis ISD to be appraised slightly below study appraisal standards (with a weighted mean ratio of 0.9432), the coefficient of dispersion was far outside the industry standard for vacant lots.

Again, the COD is a statistical tool that measures appraisal uniformity and consistency by determining how tightly or loosely individual sample ratios cluster around the sample's median ratio. A lower COD indicates good appraisal uniformity and consistency. The IAAO-recommended COD for vacant land appraisals is 20 or less. In 2006, the PVS found the COD for Category C, Vacant Lots, in Fort Davis ISD to be 46. Individual ratios ranged from a low of 46.36 percent to a high of 240 percent. The countywide COD for vacant lots in Jeff Davis CAD was 25.17.

Exhibit 5 shows the 2006 PVS weighted mean ratios by value stratum estimated for vacant lots in Fort Davis ISD; these indicate poor uniformity among strata. Low-valued lots, those worth less than $8,220, tested with a weighted mean ratio of 1.2917 and were appraised at nearly 130 cents to each dollar of market value. The PVS also demonstrates poor appraisal performance in remaining strata, which tested with weighted mean ratios ranging from 0.7389 to 0.9290. According to Section 9.2.1, "Uniformity among Strata," of the 2007 IAAO Standard on Ratio Studies:

Although the goal is to achieve an overall level of appraisal equal to 100 percent of the legal requirements, ensuring uniformity in appraisal levels among strata also is important.

The 2006 PVS found poor horizontal uniformity and poor uniformity of appraisals among strata in Category C, Vacant Lots, in Fort Davis ISD. When results such as those in Exhibit 5 occur, the Standard on Ratio Studies advises "If the uniformity of appraisal is unacceptable, model recalibration and/or reappraisal should be undertaken."

Exhibit 5
Weighted Mean Ratios by Value Stratum
Category C; Vacant Lots, 2006 PVS Results, Fort Davis ISD

Source: Texas Comptroller of Public Accounts, 2006 Property Value Study.

In 2007, the Real Estate Center at Texas A&M University published data indicating that 2006 rural land values in Jeff Davis County and the neighboring Trans-Pecos counties had the largest annual percentage gain in value, at an estimated 71 percent over the previous year's land prices. The report noted that small tracts of land sold in "larger than normal numbers." The report does differentiate, however, between vacant lots and tracts versus non-qualified land as defined in the Comptroller's Property Classification Guide.

A report by the Texas chapter of the American Society of Farm Managers and Rural Appraisers, Trends in Texas Rural Land Values for the Year 2006, indicated strong demand for property in the Davis Mountains, with the market being dominated by "the investment-driven recreational rancher and/or environmentalist." The 2006 PVS appraisal performance results suggest Jeff Davis CAD has not kept abreast of trends in the local market.

The chief appraiser acknowledged that 2006 reappraisal efforts were primarily devoted to capturing new construction in the county and increasing land and improvement schedules in rural subdivisions, where most of the sales activity occurs, but said that maintaining appraisal schedules that reflect current market value was a challenge due to the rapid acceleration in sale prices.

Only properties that sell are included in sales ratio analysis. As long as sold and unsold properties are appraised in the same manner and the sample is otherwise representative, statistics calculated in a sales ratio study can be used to infer appraisal performance for the population of unsold parcels. The usefulness of sales ratio analysis in mass appraisal is directly tied to the integrity, accuracy and representativeness of the sample data. When steps are taken to ensure the validity and representativeness of the underlying ratio study, mass appraisal models that maintain an overall ratio level close to 100 percent can be developed and applied to all unsold properties in the population.

For the present review, Jeff Davis CAD submitted a recent set of ratio study spreadsheets. These came with a written disclaimer that the ratio study was for in-house use only and may include invalid sales, which are not arm's-length transactions, adjusted information from deeds of trust and confidential information. It also states that the study was intended for the development of property schedules and the defense of appraisal district values. The chief appraiser indicated that once appraisal values are certified, older ratio studies are of little or no benefit and are not retained. The CAD performs sales ratio studies several times before roll certification, but the appraisal district office lacks storage space for the volume of paper generated. Sales letters and other market information, however, are retained indefinitely in binders.

The CAD's ratio studies may include sales generally considered invalid for ratio studies. The chief appraiser stated that the CAD's ratio studies may include sales that are not arm's-length transactions, specifically Internet auction sales of vacant land. Uninformed buyers typically purchase land sight unseen without knowledge of its highest and best use. The chief appraiser stated that such sales are included in ratio studies when they are typical transactions for the area, but can often be trimmed as outliers or exceptions. The CAD's appraisal procedures manual states:

Sales involving online auction sites and individual Web sites are almost never arms-length and should be given much consideration. If the grantor and grantee have never seen the property, the sale is not arm's-length.... The terms of a sale should be taken into consideration and adjustments made if needed.

The IAAO Standard on Ratio Studies (2007) distinguishes between auction sales and those produced by Internet marketing:

Auction sales that have been well-advertised and well-attended may be valid for consideration in ratio studies. The seller also must have the option to set a minimum bid on the property or the right of refusal on all bids (with reserve) in order for the sale to be considered valid.

Property that sells on the Internet and meets the criteria of being an open-market, arm's-length transaction should be included as a valid transaction in a ratio study. Brokerage and realty firms are using the Internet as an additional method to advertise and market their inventory of property.

PTD policy considers Internet sales of unplatted parcels to uninformed buyers as invalid for use in ratio study analysis.

To create an effective tool in measuring appraisal performance, appraisal districts screen sales data used in ratio studies for validity and accuracy. In addition, property characteristics such as class, size, age and value should be verified. Stratifying sales information according to property characteristics is useful for identifying poor appraisal uniformity among property strata.

IAAO's Standard on Ratio Studies (2007) stresses that procedures for properly screening sales for use in ratio studies should be documented:

No single set of sales screening rules or recommendations can be universally applicable for all uses of sales data or under all conditions. Sales screening guidelines and procedures should be consistent with the provisions of value definition applicable to the jurisdiction. Appraisers must use their judgment, but should not be arbitrary. To help analysts make wise and uniform judgments, screening procedures should be in writing. Each sales analyst should be thoroughly familiar with these procedures as well as with underlying real estate principles.

Unless they comply with the Property Tax Code by adhering to generally accepted mass appraisal standards for sales ratio studies, as specified in the IAAO Standard on Ratio Studies and USPAP Standards Rule 6: Mass Appraisal, Development and Reporting, Jeff Davis CAD's ratio studies may not be reliable for use in calibrating schedules, deciding reappraisal priorities or defending values.

By improving ratio study methods, the CAD will ensure that the necessary analysis is made to produce timely mass appraisals at or near market value.

After reviewing the draft report, the CAD commented:

Jeff Davis Appraisal District disagrees with the finding that JDAD does not use internal ratio studies for calibrating appraisal schedules and analyzing mass appraisal performance. The internal ratio study is the tool used determine appraisal performance and to adjust cost schedules. Jeff Davis Appraisal District strongly disagrees the district is not maintaining their cost schedules. Category A values increased over 35% between 2005 and 2006. If the comptroller would analyzed their own ratio study, they would have found that lower ratios in the lower Category A strata reflect the properties being mostly mobile homes and lower end homes. District schedules used for 2006 were developed using sales which the appraisal district confirmed mostly in 2005. If the comptroller is right in their assumption properties are increasing at a rate 71% per year according to the Texas A&M Real Estate Center, the comptroller should have adjusted every 2006 sale in the study over 5% per month which they did not do. The district's schedules for Class M14 (single wide mobile homes) and Class 100, 200, 300 were based on available sales confirmed by the appraisal district segmented by property class and market area. The beauty of spread sheets is ability to sort information into a useful format. A prime example of a district confirmed sale used by the comptroller but which is an obvious outlier is the sale of a 1982 model 824 square foot mobile home located on 5 acres in the Davis Mountain Resort (DMR). The property sold for $70,000 or $84.95 a square foot. The highest sale price of single wide mobile homes in the Davis Mountain Resort in 2005-2006 excluding this sample was $29.94 per square foot. The median per acre price in the Davis Mountain Resort in 2005 was $1,400 per acre. Short of chasing this sale, the appraisal district would have a 42% ratio on this property. This sale can not be used as a basis to appraise similar properties in the DMR or the ratios on such properties would be at over 200% of market value based on the majority of sales of similar properties in the market area (Jeff Davis Appraisal District does define the DMR as a distinct market area). Regardless of what this property sold for, based on the evidence in the ratio study, this property is worth half of what it actually sold for. The vast majority of vacant lots in the Davis Mountain Resort are similar and sold within 10% of $1,400 per acre in 2005; however, you will have properties that will sell between $500 per acre and over $3,000 per acre in the resort. The appraisal district has to accept there are sales made by uninformed buyers or sellers which do not reflect the market and resist the temptation to chase the sale. The comptroller should use their own ratio study to weed out such exceptions to the actual market. Land values have increased in the Davis Mountain Resort form $950 in 2000, $1,050 in 2003, and $1,400 in 2006. The DMR historically has been slower than other market areas because of poor roads and the stigma of the Republic of Texas standoff with local law enforcement in 1997. The other problem area in Category C is Limpia Crossing. Most of the lots are similar with median selling price of $5,100 based on 2005 sales. Jeff Davis Appraisal District has increased the per acre value in Limpia Crossing from $2,700 per acre in 2003 to $3,100 in 2004 to $4,000 in 2005 and $5,100 in 2006. This increases were based on district ratio study by market area. The comptroller appraisals in Limpia Crossing were very close to the appraisal district values in the 2006 value study and indicate a very high level of uniformity. In summary, Jeff Davis Appraisal District does use their internal ratio study to build the schedules used in the appraisal of property. Jeff Davis Appraisal District will never change the values 71% based on a survey by the Texas A&M Real Estate Center for the Trans-Pecos region of West Texas without the confirmed sales which would back up such an outrageous assessment. The Trans-Pecos region of West Texas has quite of few defined market areas. The Jeff Davis Appraisal District will never chase sales in order to fudge the internal ratio study or the comptroller's study. Jeff Davis Appraisal District had the opportunity to chase every sale in the value study because almost every sale in the study came from our office.

According to IAAO's Standard on Automated Valuation Models (AVMs), model calibration is the development of the adjustments or coefficients obtained through market analysis. The property characteristics already specified by an appraisal model are assigned an adjustment rate using dollars or percentages. Specification and calibration are performed in an iterative process that includes the following steps:

• specify a model;
• test the specification with calibration;
• adjust the model specification;
• test new specification with calibration; and
• repeat the process until any statistical improvement is no longer significant.

The process includes following and using recognized methods for statistical testing procedures to ensure the accuracy of the calibrated model results. Evaluations of the performance of calibrated models using generally accepted mass appraisal procedures and techniques can include, but are not limited to, the following:

• goodness-of-fit statistics;
• hold-out samples;
• analysis of residuals; and
• appraisal-to-sale ratios.

The CAD submitted undated sales ratio studies stratified by improvement area unit values with measures of appraisal level and uniformity shown in Exhibit 6.

Exhibit 6
Jeff Davis CAD
Ratio Study Statistics of Improvement Cost Schedules

Note: Class 600 sample size is insufficient for the mass appraisal model to yield reliable conclusions.
Source: Jeff Davis Appraisal District Ratio Study, submitted to PTD November 2007.

These ratio study statistics from the Jeff Davis CAD ratio study submitted to PTD suggest appraisal performance accuracy standards that have not been calibrated to eliminate further significant statistical improvement and do not reflect the effective use of internal ratio studies for calibrating cost schedules and analyzing mass appraisal performance. PTD found no evidence that any of the accepted mass appraisal procedures and techniques needed to ensure accuracy were used.

PTD further notes, in response to other CAD review comments, that:

• The CAD's annual increase of 35 percent in single-family residences implies an average increase of 2.92 percent per month. Neither the CAD ratio study analyses or appraisal manual document any procedure for calculating a monthly rate. An annual blanket time adjustment for every 2005 calendar-year sale price is unsupported.
• The CAD's assertion that lower ratios in the lower Category A strata reflect the properties being mostly mobile homes and lower end homes is consistent with a value-stratified sample used in a ratio study for indirect equalization of intergovernmental transfer payments.
• Jeff Davis CAD submitted undated sales ratio studies with sales dating from February 2004 to July 2007.
• PTD makes no assumption that property values increased by 71 percent in Jeff Davis CAD in 2005-06. The finding cites the Texas A&M Real Estate Center study, the methodology and scope of inquiry of which is regional, not county-level, as an example of third-party analysis used as a backup to other types of analysis that suggest increasing property values. Furthermore, the usefulness of this approach is affirmed on the cover page to the Jeff Davis CAD cost manual, which states, "The Jeff Davis Appraisal District cost schedules have been developed from review of professional publications and local market research."
• Since sample sale price data for Categories A and C on the Field Studies Category Worksheet include sale dates which span the appraisal date of Jan. 1, 2006, PTD field studies did not time adjust those sales in the 2006 PVS. According to the IAAO's 2007 Standard on Ratio Studies, a sales period spanning the appraisal date can reduce the importance of time adjustments and offers an alternative technique to making time adjustments when valid sales are sufficient in number. Further, Comptroller Property Tax Rules Subsection 9.101(g)(6)(D)(x) codified under Chapter 9, Property Tax Administration, of the Texas Administrative Code (TAC), Title 34, Part I, issues the following directive to PTD field studies on conduct of the Property Value Study:

  The appraiser shall adjust sales samples for the effect of time if there is evidence of a significant value increase or decrease during the period from which sales are drawn. The appraiser must document the procedures used to develop time adjustments. As an alternative to time adjustment, the appraiser may randomly select samples so that the value of properties sold during a specified period before the assessment date roughly approximates the value of properties sold during a similar period after the assessment date. A sample balanced in this manner will negate the effect of changes in the level of market values if those changes occurred uniformly over the study time frame.

• The finding does not reformat, re-array or otherwise manipulate CAD spreadsheets into any form other than that in which it was submitted.
• Assuming that the median land value was $1,400 per acre, as the data in the CAD's prime example shows, a total land value of $7,000 is implied, leaving an improvement value of $63,000 ($70,000 - $7,000), or $76.46 per square foot rather than $84.95 per square foot. Sales ratios on the CAD internal ratio study for DMR, however, ranged from 0.35 to 10.22. This variability indicates potential land values of $2,450 to $71,540 for a five-acre tract, the latter value implying negative improvement value. Poor uniformity (COD = 66.79) and a low level of appraisal (weighted mean ratio = 0.78) in the CAD internal ratio study for vacant lot values in DMR for Class ST20 - $1,400 per acre land schedule result in statistically unreliable improvement unit values (Exhibit 7).
• Unintended results such as these indicate a need to calibrate and test the CAD's land appraisal model for DMR.
• The PTD appraisals in Limpia Crossing show uniformity with the CAD appraisals, consistent with Section 8.7, Combining of Sales and Appraisals, in the IAAO's Standard on Ratio Studies, which states:
  Variability measures computed on sales used in the sample should not be expected to be similar to variability measures computed on appraisals. Sales ratios reflect the vagaries of the marketplace. Appraisal ratios, on the other hand, come from comparing the results of one appraisal model (the oversight agency's) to the results of another (the assessing office's). If both parties use mass appraisal procedures, differences in appraisals between the two models should be less than when compared with sales; thus, variability measures based on appraisal ratios can be expected to be lower than those based on sales ratios as long as they represent properties with similar characteristics and similar degrees of appraisal difficulty.
• Based on the ratio study data submitted to PTD (Exhibit 8), Jeff Davis CAD does not appear to be using internal ratio studies effectively for calibrating appraisal schedules and analyzing mass appraisal performance. For example, the Class 400 cost schedule includes a range of coefficients from $57.25 to $49.51 per square foot. The corresponding floor areas in the improvement cost schedule range from 1,100 to 1,900 square feet. Since the unit values in the supporting Class 400 ratio study range from $58.21 to $258.41 per square foot, the coefficients in the improvement schedule do not appear to be calibrated.

Exhibit 7
Jeff Davis CAD
Class ST20 - $1,400 per Acre

Source: Jeff Davis Appraisal District Ratio Study, Class ST20 - $1,400 per acre, submitted to PTD November 2007.

Exhibit 8
Jeff Davis CAD
Class 400 Improvement Cost Schedule Ratio Study

Source: Jeff Davis Appraisal District Class 400 Improvement Cost Schedule Ratio Study.

Nueces CAD, for example, has a computerized appraisal system and conducts ratio studies within property classes by school district and county to determine appraisal performance. The CAD bases reappraisal and value maintenance decisions for some properties or locations on its ratio study results. And Grayson CAD, for example, was able to improve its land appraisals by physically re-inspecting all land and aggressively gathering sales information.

RECOMMENDATION 1
Conduct properly designed ratio studies and use them in recalibrating outdated schedules; analyzing the CAD's appraisal performance on preliminary and post-appeals values; deciding next year's reappraisal priorities; and ensuring that all property classes have been equitably and uniformly appraised at market value.

FINDING
Jeff Davis CAD does not adhere to generally accepted appraisal standards in analyzing and adjusting sale price data used in ratio studies.

The CAD appraisal manual notes the use of sales for CAD ratio studies to:

• defend appraisal values during the appeals process;
• measure appraisal performance; and
• conduct appraisal schedule maintenance.

The CAD's appraisal clerk routinely mails sales surveys to grantees for all recorded deed transactions. The number of surveys mailed each month varies and the CAD receives about a 30 percent response rate.

The surveys request information such as the sales price, down payment, type of financing, type of improvement and, if present, personal property included in the sale. When the CAD receives responses to the sales surveys, the clerk enters the information into a sales file database. The chief appraiser uses this information to determine if a sale needs adjusting and if it meets the requirements of a market-value transaction.

The CAD's appraisal procedures manual contains procedures for making time adjustments to sale prices. In addition to these guidelines, the chief appraiser uses his personal knowledge and professional appraisal experience to analyze and adjust sales. According to the chief appraiser and the procedures manual, lack of sales data in Jeff Davis CAD necessitates the use of older sale prices for ratio studies.

The appraisal procedures manual includes a policy stating that older sales need time adjustment to the valuation date, and documents the CAD's time adjustment procedure based on a two-year period. As an illustration of the policy, the CAD's appraisal procedures manual indicates that, for the sale prices of single-family residences:

• the one-year time adjustment is 5 percent for Class 100 homes; and
• the two-year time adjustment is 10 percent for Class 100 homes.

Jeff Davis CAD ratio studies submitted to the Comptroller reflect a calendar-year time adjustment factor of 1.10 for 2004 sale dates, 1.05 for 2005 sale dates and 1 for 2006 sale dates applied to sales prices used in the ratio study the CAD submitted for Class 200 residences. This appears to be consistent with the policy for time adjustments. But the ratio study for Class 500 residences applies a factor of 1.10 to time-adjust sale prices dated January 2004, October 2006 and February 2007. Based on evidence of sale price adjustments from CAD ratio studies, either the appraisal model follows procedures inconsistently in and among all classes of single-family residences or the appraisal procedures manual does not sufficiently explain the policy.

Research data published by the Real Estate Center at Texas A&M University suggests an accelerating trend in land values in rural Trans-Pecos counties such as Jeff Davis. There is a significant difference between the CAD's time adjustment factor of 5 percent for calendar 2005 sales and the 71 percent annual increase in 2005-06 real estate prices reported by the Real Estate Center.

Appraisers use growth rates determined by market data research and analysis of paired sale prices to derive credible and reliable time adjustment factors. According to the 2007 IAAO Standard on Ratio Studies:

If sales prices have been generally rising, ratios for sales that occurred after the assessment date tend to understate the overall level of appraisal. Similarly, sales ratios for sales that occurred before the assessment date tend to overstate the level of appraisal. If prices are generally declining, an opposite pattern results.

The reliability of ratio study analysis depends on how well the sale prices used in the study reflect market values at the time of sale, as adjusted to the valuation date.

IAAO also recommends appraisers analyze sales to determine whether they need adjustment for financing. When financing reflects prevailing market practices and interest rates, no adjustment of sales prices for financing is necessary. IAAO recommends adjustments when the:

• seller and lender are the same party and financing is below prevailing market rates;
• buyer assumes an existing mortgage at a non-market rate of interest;
• seller pays points, but not when the buyer pays points;
• property is sold under a gift program or type of creative financing where certain lenders provide qualified buyers additional monies to partially fund the down payment or pay for property improvements.

For loan financing of property sales, Jeff Davis CAD's sales survey letter asks for the down payment, interest rate and term of the loan financing the sale. When a deed of trust does not disclose the full sale price, the chief appraiser increases the loan amount by 10 percent to estimate the total sale price. For example, if a deed of trust shows a loan amount of $90,000, the estimated sale price used for the CAD sales file would be $99,000. According to the IAAO, assuming the down payment is 10 percent of the loan recorded on deeds, and adding it to the loan amount to estimate partially known sale prices, may render an inaccurate sale price value:

when either party to the transaction pays points (for statistical purposes, points paid by borrower are part of the down payment and should not be adjusted; the value of points paid by seller need to be deducted from the sale price);

• when the lender gifts monies to the buyer for facilitating the purchase (seller never actually takes receipt of the gift amount, and it must be deducted from sale price for use in ratio studies); and
• in the case of assumed mortgages.

Procedures for adjusting sales prices for use in ratio studies require the documentation of adjustment factors supported by market data. Adjusting for financing implies an ongoing market analysis of local real estate prices, interest rates and financing practices.

Inconsistent, unsubstantiated or blanket adjustments to sale prices made without supporting market data can jeopardize a ratio study's credibility by making it appear subjective. In most CADs, written guidelines help appraisers in selecting and adjusting sales for appraising values. Knowing what analysis must be done, when to do it and how to perform it is key to maintaining continuity and an accurate level of appraisal performance. Comprehensive written appraisal procedures provide the appraisal staff, even in a small rural CAD with only one appraiser, a method to adjust and implement sales data consistently.

For example, Nueces CAD has a well-written market analysis procedures manual that describes the processes used to obtain sales information and the procedures for sales confirmation. Written procedures ensure appraisal staff can perform market analyses correctly and consistently, regardless of personnel changes.

After PTD's site visit, Jeff Davis CAD noted that spreadsheets allow "sales information to be organized in such a way as to determine time adjustments by market area or property class." Jeff Davis CAD's internal ratio studies submitted to PTD included land sales ratio studies stratified by market area and improvement sales ratio studies stratified by floor area, as noted in the finding, which evaluates the sale adjustment policies documented in the CAD appraisal manual. The CAD's response to the finding states, however, "all the information to adjust sales prices is part of the ratio study."

RECOMMENDATION 2
Use generally accepted appraisal standards and practices to further develop and improve the CAD's written procedures and implementation of adjustments to sale price data.

The CAD should improve its sale price adjustment procedures:

• for time with market analysis supported by appropriate documentation;
• for making monthly pro rata time adjustment of sale prices to the valuation date;
• by analyzing trends for time adjustments by geographic area and type of property, since different market segments tend to change at different rates;
• for financing adjustments with market analysis supported by appropriate documentation, which the CAD's sales survey letter may produce; and
  • when making multiple adjustments, by prioritizing them in order of:
  • those that isolate the price paid for taxable real property (such as personal property received by the buyer);
  • those that increase the representativeness of the price as of the date of sale (such as adjustments for financing); and
  • adjustments for differences in market value levels between the date of sale and the date of analysis.

FINDING
Jeff Davis CAD's maps do not comply with Comptroller Rule 9.3002.

Comptroller's Property Tax Rule Section 9.3002 addresses mapping as follows:

Chapter 1 of IAAO Property Appraisal and Assessment Administration notes that an accurate set of maps showing every parcel of real property is the most important tool in identifying and locating taxable property. Chapter 7, Land Valuation, notes that a complete set of maps showing parcel boundary lines is required for land appraisals. And Chapter 17 states, "a good mapping system is essential for the location, identification and inventory of all parcels within a jurisdiction."

The CAD uses 9-1-1 maps, plat maps and county maps produced by a Texas map company, obtained from the county clerk. According to the chief appraiser, whenever the county clerk purchases new county maps, the CAD receives the old maps. The CAD's existing county maps are four to five years old and show ownership at the time the maps were made. The 9-1-1 maps show situs addresses assigned by the 9-1-1 emergency system to property in the county. The plat maps consist of subdivision maps and lot and block maps of incorporated areas. The chief appraiser developed some of the lot and block maps. None of the CAD's maps contain parcel identification numbers linked to the appraisal system. Ownership is updated in the appraisal system, while the chief appraiser updates parcel splits and combinations on the paper maps.

The chief appraiser acknowledges the CAD's mapping is a weakness and the CAD is not maintaining its maps using professionally accepted standards. The board chairman of Jeff Davis CAD agrees that the current mapping system is a concern. According to the chief appraiser, the CAD does the best it can with its current resources; any improvements to the mapping system will be contingent upon cost and benefit considerations.

Exhibit 9 shows the required mapping elements set forth by Comptroller Rule 9.3002 and the status of the CAD's maps.

Exhibit 9
Jeff Davis CAD
Comptroller Rule 9.3002 Required Mapping Elements and Status

Source: Comptroller Rule 9.3002, Jeff Davis CAD 2007.

The CAD cannot identify and list all parcels for property tax purposes if its mapping system is inadequate. The basic function of being able to locate all county parcels geographically is critical to the reappraisal process. Given the present status of the CAD's maps, PTD 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 field work and places the CAD at risk of failing to complete reappraisals in a timely manner. Displaying parcels to identify market areas also helps ensure fair and equitable appraisals.

After the site visit, the chief appraiser defended the CAD's current mapping system, giving the opinion that an onsite appraiser who cannot locate properties using the CAD's maps "is not very bright." While the mapping system may serve the chief appraiser's purposes, it lacks an automated link to the appraisal system for its intended efficient and effective appraisal use. The chief appraiser stated that there are some properties in the county that no one could find without a ground-level survey no matter how good the maps are, and that there are only a handful of properties that are not on some type of CAD map. In effect, the onsite appraiser's expertise is not relevant in locating properties with parcel maps that are incomplete, contain gaps and omit properties or parcel splits.

Brown CAD, for example, has a fully computerized mapping system that is integrated with its appraisal systems. 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.

Johnson CAD maintains an excellent multipurpose geographic system integrated with mapping technology. Johnson CAD is actively involved in multipurpose geographic information system (GIS), working with local governments, the county engineer, the 9-1-1 coordinator and the sheriff's department to optimize resource allocation and minimize costs.

After reviewing this finding, the chief appraiser stated he is evaluating potential vendors to provide mapping services. The chief appraiser noted that the cost of mapping services ranges between $2 to $5 per parcel, depending on the status of the CAD's actual mapping system without further defining this parameter. The unit costs represent a very wide range, from 21 to 46 percent of the CAD's total budget.

RECOMMENDATION 3
Develop a timeline and devote the resources needed to develop maps that comply with Comptroller Rule 9.3002.

Options available to the CAD include hiring full- or part-time mapping staff, outsourcing the mapping to a third party, coordinating with local governments for mapping services to help lower costs or consulting with CADs cited in best practices.

FINDING
Jeff Davis CAD's reappraisal plan lacks specific data required by Property Tax Code Section 25.18 and IAAO.

Property Tax Code Section 25.18 states:

Chapter 13 of the IAAO textbook Property Appraisal and Assessment Administration 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 and equitable, and that ratio studies are the primary tool for the analysis of performance.
• Reappraisal Decision–use statutes or administrative rules for reappraisal decisions. This may include a cyclical schedule in which jurisdictions are physically reviewed and revalued. 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. It includes evaluating the staff, budget, existing systems and practices, data processing support and existing data and maps. IAAO also stresses that budget planning is crucial in efficiently and effectively allocating limited appraisal resources.
• Planning and Organization–IAAO emphasizes that this is the most important aspect of reappraisal, as it identifies the target completion date, performance objective, specific plan of action and timeline. The plan also should include definitions of critical activities with completion dates, assignments of responsibility and data collection and field work standards.
• System Development–this step produces the procedures, methods, manuals and software needed for the mass appraisal system used in the reappraisal.
• Pilot Study–this study tests procedures in several portions of the jurisdiction. It should include a ratio study to verify that the system produces reliable and accurate values and highlight needed modifications.
• Data Collection– data collection can start after procedures and forms are made, tested and approved. IAAO stresses that quality control is essential.
• Production of Values–this 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, they can be used to produce values.
• Preparation of Appraisal Roll.
• Final Performance Analysis.
• Data Maintenance.
• Value Updates.

Jeff Davis CAD did not have a written reappraisal plan in 2006. In August 2006, the CAD board of directors approved a periodic reappraisal plan. The period to be covered by the plan was not specified, but it states that the CAD's policy is to reappraise all real and personal property annually.

The CAD's reappraisal plan discusses the seven reappraisal activities required by Property Tax Code Section 25.18, but fails to explain how the activities will be performed. The chief appraiser stated that appraisal cards are printed for all parcels within areas being reappraised, and that any changes in property characteristics are noted on the cards while the chief appraiser is on site. An appraisal clerk enters the changes in the automated appraisal system and the chief appraiser reviews them for accuracy.

The CAD's reappraisal plan describes 10 major property categories to be appraised, but fails to explain how a property category or its location fit into the reappraisal plan. For example, one cannot determine if all property within one category must be reappraised before moving on to another category, or if all property within a school district must be reappraised before beginning work in another school district.

The chief appraiser is the CAD's only field appraiser and a work plan or sequence of events will help to ensure that all properties are reviewed.

Jeff Davis CAD's reappraisal plan also contains a calendar generally describing when reappraisal processes occur. Appraisal schedules are calibrated and implemented during November and December, and processes involving field work occur between the months of January and March. Individual benchmarks or specific deadlines for each process or appraisal event are not included. A detailed timeline will help monitor time on task, promote appraisal efficiency and produce a timely reappraisal.

A reappraisal plan, as required by Property Tax Code Section 25.18, should describe in detail what an appraisal district plans to do in each year of the reappraisal cycle and contain at least the required statutory elements. The plan should explain specifically how and when the described mass appraisal techniques will be implemented. The work plan needs definitions of critical activities, completion dates, assignments of responsibility and established data collection and fieldwork standards. Without documenting each reappraisal activity of Jeff Davis CAD's reappraisal plan, one cannot determine if all of the required elements of a reappraisal plan were followed in 2007.

Exhibit 10 shows how the CAD's periodic reappraisal plan complies with Property Tax Code Section 25.18(b), and which activities were followed in 2007.

Exhibit 10
Jeff Davis CAD Reappraisal Plan
Comparison Between Required Elements of a Reappraisal Plan and CAD's Plan

Property Tax Code Section 25.18(b) Requirements

Source: Property Tax Code Section 25.18(b) and Jeff Davis CAD ratio studies and Periodic Reappraisal Plan submitted to PTD.

Without a detailed reappraisal plan, Jeff Davis CAD cannot supply taxpayers with a step-by-step explanation of how it will accomplish its reappraisal activities. Effective appraisal districts develop and properly execute complete reappraisal plans, helping to ensure that taxpayers are treated equitably. A reappraisal plan also serves as a communication tool that shows the board the methods used by appraisal staff.

Jefferson CAD, for example, has a detailed reappraisal plan that explains exactly how and when reappraisals take place and how sufficient resources will be allocated to follow the plan. The reappraisal plan ensures the execution of timely and accurate annual reappraisals and is reviewed each year and updated as needed.

Upon reviewing this finding, the chief appraiser repeated that the CAD performs all of the activities in the reappraisal plan annually. He noted that, in the past, field work performed for certain neighborhood reappraisals was not specified in a work calendar. He indicated, however, that the CAD reappraisal plan will include more detail in the future.

RECOMMENDATION 4
Perform and document the activities outlined in the CAD's reappraisal plan.

FINDING
Jeff Davis CAD's appraisal cards lack information required by Comptroller Rule 9.3001.

Comptroller Rule 9.3001 establishes the standard on appraisal cards for all appraisal districts and states:

The CAD's appraisal cards are designed to comply with the data required by Comptroller Rule 9.3001, but the data fields designating the date of appraisal, appraiser's initials, utilities available and street/road improvements and access have been left blank. In addition, an audit of randomly selected appraisal cards found instances in which the depreciation calculation or percent good for an improvement (the remaining economic life after deducting depreciation) differed from the depreciation table included in the CAD's appraisal manual.

For example, the depreciation table does not extend beyond an effective age of 60 years for residential property and limits physical depreciation to a range of 17 percent good for class 100 houses to 49 percent good for class 700 houses. The appraisal card for parcel number B150-001-00A-0010 shows an effective age of 87 years and physical depreciation calculated at 5 percent good, for a poor-quality class 102 house. Based on the CAD's depreciation table documented in the appraisal manual, the percent good should be 17 percent. The documentation in the appraisal procedures manual does not support the depreciation calculation.

After the site visit, the chief appraiser indicated that if an improvement shows a very low percent good in the appraisal records that is not reflected in the depreciation table, the reason is that the house is in such poor condition that it is unsafe and needs to be torn down. He noted that only in such rare instances will the CAD deviate from the documented depreciation tables.

The CAD's reappraisal plan states that all real and personal property will be reappraised every year. The chief appraiser carries working copies of appraisal cards into the field and makes changes to property characteristics on the cards. An appraisal clerk enters the appraisal changes from the working copies into the automated appraisal system. The date of reappraisal and the chief appraiser's initials are not recorded. Property characteristics relating to utilities available to the property and type of street or road access are also absent. None of the records in the audited sample of appraisal cards included appraisal dates, appraiser initials, utilities available or street/road access.

Appraisal cards should summarize how appraisal districts arrive at a property's appraised value. Recording appraisal dates is critical to the reappraisal process. The date signifies the year in which the appraisal applies and confirms that a reappraisal occurred. By generating records with appraisal dates, CADs can determine if all properties subject to a reappraisal have been reviewed and if reappraisal plans were followed. Without appraisal dates, property owners have no way of knowing when their property was last appraised or if the appraisal represents current market value.

An appraiser's initials provide further validation to the reappraisal process by identifying a contact person for specific questions.

Availability of utilities and the type of street or road improvements to the property are individual characteristics that may influence property values and should be considered in an appraisal. The chief appraiser reported an increased number of land sales that are inaccessible and cannot be furnished utilities. This is relevant information and should be documented on appraisal cards.

Depreciation factors or "percent good" should correspond with the appraisal manual's depreciation table to support values and help explain how they were calculated.

By omitting the date of the inspection and the appraiser's name from the appraisal card, the CAD cannot ensure the integrity of its appraisal data records and is not complying with state law. Jeff Davis CAD cannot show when reappraisals or reinspections occur or whether a qualified appraiser performed the appraisal. Unless all card data are recorded and analyzed, the CAD's appraisal records system may not reflect all property characteristics that influence value, and the CAD may lack the reliable and relevant data it needs for appraisals.

USPAP Standard 6: Mass Appraisal, Development and Reporting, requires the disclosure of appraisers, appraisal dates and the consideration of all property characteristics on all mass appraisals, as does Comptroller Rule 9.3001.

In response to this finding, the chief appraiser agreed to begin initialing appraisal records and to note the time and date whenever a change is made to a property in the computer-assissted mass appraisal (CAMA) system. He also stated that features such as road accessibility and presence of utilities will be noted on future appraisal record cards.

RECOMMENDATION 5
Maintain appraisal cards in compliance with Comptroller Rule 9.3001.

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