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 Johnson CAD in two sections:
2.1 Commendable Practices
2.2 Key Findings and Recommendations
2.1
Commendable Practices
As part of its review process, PTAD identifies best practices used by each CAD under review. These commendable practices improve efficiency or in some instances address past operational weaknesses. We commend Johnson CAD for its efforts and hope these commendations give other CADs ideas for improving their own operations.
FINDING
Johnson CAD uses an information system that combines aerial imaging with a software system to provide visual images of property in the CAD.
Johnson CAD uses a system that relies on oblique aerial photographs, which is the technical term used to describe aerial photographs that are taken at an angle. The photographs allow Johnson CAD appraisers to view a property before the actual physical inspection and actually look at improvements on the property from each side of the improvement. For example, an appraiser can differentiate between a metal building and a residence. An appraiser is able to identify amenities that are not visible from a traditional aerial photograph. Relevant characteristics such as porches, fireplaces and brick veneers can be seen in their entirety. The system also allows appraisers to view property that may not be accessible in person.
Johnson CAD began this process in 2006 and has more than 99 percent of its property in the system. While the system does not eliminate the need for physical inspections of property, it does provide information to the appraiser prior to the physical inspection to help the appraiser capture all needed information. This is especially useful in identifying changes or additional improvements added since the last physical inspection.
COMMENDATION
Johnson CAD's use of oblique aerial photographs increases the information available to the appraiser prior to the inspection of property and can serve to document the appraiser's determination of value.
FINDING
Johnson CAD uses a formal planning process that helps identify needed improvements and provide the necessary approvals and funding for implementation.
In fall 2005, the chief appraiser implemented a formal process for project planning, expanding on the informal process that had been in place for a number of years. At least annually, the chief appraiser meets with his managers to identify needed improvements and to decide on priorities. The priorities are documented by source, objective, sponsor, impact on budget, barriers and constraints, action points, approvals needed and communications. Major projects requiring board approval are included in the upcoming year's budget.
Completed projects include the digitization of hand-drawn maps in a two-month period, the geographic information system (GIS) implementation in 2004, a customer service call center, improvements in tracking deed changes, online support for employees in their daily activities and implementation of the oblique aerial photography system.
Current project plans include training customer service staff in advanced GIS functions to free GIS technicians for other tasks, using GIS symbology for account code verification and building a new office building. CAD management identified smaller projects that will improve daily operations such as pagers for professional staff and security cameras outside of remote doors.
The chief appraiser believes that this process has helped to make the organization more inclusive as well as identify a number of projects, both large and small, that continue improving operations.
COMMENDATION
Johnson CAD's use of project planning has enabled the CAD to identify innovations that continue improving operations.
2.2 Key Findings and Recommendations
As part of the review process, PTAD makes recommendations to address challenges identified during its review of a CAD. Below are recommendations addressing key challenges associated with Johnson CAD's appraisal activities.
FINDING
Johnson CAD's appraisal practices do not ensure that all relevant property characteristics are captured during physical inspections.
Property Tax Code Section 23.01(b) requires appraisal districts to appraise property by applying generally accepted appraisal methods and techniques as follows:
The market value of property shall be determined by the application of generally accepted appraisal methods and techniques. If the appraisal district determines the appraised value of a property using mass appraisal standards, the mass appraisal standards must comply with the Uniform Standards of Professional Appraisal Practice. The same or similar appraisal methods and techniques shall be used in appraising the same or similar kinds of property. However, each property shall be appraised based upon the individual characteristics that affect the property's market value.
USPAP, Standard 6: Mass Appraisal, Development and Reporting, applies to all mass appraisal of real or personal property, regardless of the purpose or use of such appraisals. This standard states that a functional mass appraisal includes the following activities:
- identifying property to be appraised;
- defining market areas;
- identifying property characteristics that affect property value in each market area;
- developing an appraisal model that reflects the relationship among the property characteristics affecting value in each market area;
- calibrating the model to determine the contribution of the individual property characteristics affecting value; and
- applying the conclusions reflected in the model to the characteristics of the property being appraised; and reviewing the mass appraisal results.
During the course of the ASR, the review team examined 54 randomly selected properties within the eligible ISD from the CAD's 2006 PVS. Category A, Single-Family Residences, included 37 properties. Category D3, Rural Real, included seven properties, and Category F1, Commercial Real, included 10 properties. With the assistance of a senior appraiser, the reviewers performed a visual inspection of the properties and then attempted to replicate the CAD's value using the CAD's appraisal manuals and oral instructions from the senior appraiser.
In 37 of the 54 properties inspected (69 percent), the review team was unable to replicate the CAD's values due to the lack of information on the property records. A description of the issues noted is shown in Exhibit 1. Missing information included the age for main improvements and the lack of documentation for appraiser adjustments. The review team noted that depreciation was not applied correctly in many instances: 27 out of 37 residential properties, five of the seven rural properties and five of the 10 commercial properties. The review team noted that the property records did not assign a value to characteristics such as fireplaces or brick veneers. These improvements are typically noted and assigned an individual value.
Exhibit 1
Johnson CAD Sample Property Inspected
Noted Issues
| Property Category | Total Number of Properties Inspected | Description of Issue | Number of Properties With Problem |
|---|---|---|---|
| A: Single Family Residences | 37 | Classification Adjusted by Appraiser – Not Documented | 4 |
| A: Single Family Residences | 37 | Non-Descriptive Property Classification (Flat value) | 4 |
| A: Single Family Residences | 37 | No Age Listed for Main Improvement | 14 |
| A: Single Family Residences | 37 | No Depreciation for Main Improvement | 6 |
| A: Single Family Residences | 37 | Depreciation Not Supported for Main Improvement or Depreciation Not According to Depreciation Table | 27 |
| D3: Rural Real | 7 | Classification Adjusted by Appraiser – Not Documented | 1 |
| D3: Rural Real | 7 | Non-Descriptive Property Classification (Flat value) | 3 |
| D3: Rural Real | 7 | No Age Listed for Main Improvement | 5 |
| D3: Rural Real | 7 | Depreciation Not Supported for Main Improvement or Depreciation Not According to Depreciation Table | 5 |
| F1: Commercial Real | 10 | Non-Descriptive Property Classification (Flat value) | 2 |
| F1: Commercial Real | 10 | No Age Listed for Main Improvement | 1 |
| F1: Commercial Real | 10 | No Depreciation for Main Improvement | 3 |
| F1: Commercial Real | 10 | Depreciation Not Supported for Main Improvement | 3 |
| F1: Commercial Real | 10 | Depreciation Not According to Depreciation Table | 5 |
| F1: Commercial Real | 10 | Functional Adjustment by Appraiser – Not Documented | 1 |
Note: Problem categories listed are not mutually exclusive.
Source: ASR Review Team, December 2007.
The CAD has appraisal manuals that contain extensive information on property classifications, but do not provide detailed steps that appraisers need to perform during fieldwork to document specific information about property, including age and relevant characteristics such as brick veneers, air conditioning and fireplaces. The chief appraiser stated that the missing information was either known by the appraisers based on their familiarity with the property or had been documented on earlier property cards that are stored by the CAD. He also stated that the CAD did not document a number of characteristics such as fireplaces and brick veneers because the CAD found theses items did not affect the values. All information necessary to complete an appraisal should be contained in the property records.
After review of the draft report, the chief appraiser stated:
The District currently uses a field work sheet which specifically identifies all relevant characteristics on all property which receives a field inspection each year. Furthermore, these worksheets are then turned in to our data entry department and all of the relevant information is entered in our CAMA system to help produce appraisals.
In response to the draft report, the chief appraiser provided a blank Central Appraisal District of Johnson County Valuation Record. This form has fields for various improvement specifications with three columns, but there is not a key to the relevance or meaning of these columns.
The chief appraiser provided two screen prints from a computer system for a property that includes completed fields for each characteristic including the year built. He also provided one property appraisal card that shows complete information.
The chief appraiser provided the section of the appraisal manual regarding residential property. It discusses information gathered, on-site inspection, discrepancies noted, on-site inspection completed, calculations made, appraiser information keyed and CAMA system updated. Each of these subsections provides a general description for what is to be done, but does not give detailed instruction on how to accomplish it.
The lack of information on the property records in the sample limits the ability of the chief appraiser to ensure that the field appraiser has captured all needed information and that appraisal values are consistent throughout the CAD. While the CAD manuals include detailed cost and classification information, they do not include instructions on how to perform appraisals in Johnson CAD. They also do not include steps to monitor the results of individual field appraisals for consistency in application.
Jefferson CAD, for example, has a detailed appraisal manual to ensure that its staff consistently follows proper procedures in appraising property. The manual outlines steps for gathering specific information about property and the land on which it is located. The CAD's supervising appraisers use the written appraisal procedures manual to teach appraisal staff consistency in appraisal of property. The appraisal procedure manual is useful as evidence during appraisal review board hearings and for demonstrating that the CAD complies with its own policies.
RECOMMENDATION 1
Revise appraisal practices to require the documentation of all relevant characteristics on the current property records and implement a monitoring process to help ensure compliance.
FINDING
Johnson CAD land schedules do not provide sufficient detail to ensure consistent application.
In order to fully comply with Property Tax Code Section 25.02, the CAD must separate land and improvement values for the appraisal records. Property Tax Code Section 25.02 (a) (2), (5), (6) states:
(a) The appraisal records shall be in the form prescribed by the Comptroller and shall include:
(2) real property;
(5) the appraised value of land and, if the land is appraised as provided by Subchapter C, D, E or H, Chapter 23, the market value of the land; and
(6) the appraised value of improvements to land.
The Appraisal of Real Estate (American Institute, Twelfth Edition), states that in the cost approach, the estimated market value of the land is added to the estimated cost of the structure after applying accrued depreciation to the improvement only. Potential highest and best use significantly influences land value; therefore, the cost approach is especially persuasive when separate land values are well supported.
Residential land values are determined by the appraiser assigned to that ISD or area. According to the chief appraiser, each appraiser is directed to review the sales database and use that information to develop a schedule for his assigned area; however, the appraiser is not required to develop a formal schedule and may use the sales database information to set land values as he conducts his reappraisals. The chief appraiser stated that he relies on the judgment and experience of his appraisers to ensure that the values are correct. The review team was unable to document the specific criteria used by appraisers or a formal process to monitor the values determined by the individual appraisers to determine equity or consistency of application.
Commercial land values are determined based on the appraiser's use of information in the sales database. All of the 10 commercial real properties in the sample property inspected by the review team had flat values.
Rural land values are based on a CAD-wide schedule that classifies land by area (classes A-H). Each area is then broken down by size and a relatively broad range of values are established for each size grouping. Exhibit 2 lists this schedule. The review team inspected seven rural properties during the site visit. All of the land values were based on the schedule shown in Exhibit 2, but there was no documentation on the cards indicating why the appraiser determined a particular value within the range for that area, class and size.
Exhibit 2
Johnson CAD Rural Land Schedule
2007
| Size Class – Number of Acres |
Area Class A |
Area Class B |
Area Class C |
Area Class D |
Area Class E |
Area Class F |
Area Class G |
Area Class H |
|---|---|---|---|---|---|---|---|---|
| 0 to 3 Acres | $17,000 to $27,500 | $12,750 to $16,500 | $8,500 to $12,700 | $6,000 to $8,500 | $4,400 to $6,000 | $3,380 to $4,400 | $2,350 to $3,400 | $1,500 to $2,400 |
| 3 to 7 Acres | $13,500 to $15,000 | $8,500 to $12,700 | $6,800 to $8,500 | $5,500 to $6,800 | $3,200 to $5,500 | $2,700 to $3,200 | $2,250 to $2,800 | $1,240 to $2,300 |
| 7 to 12 Acres | $10,000 to $13,500 | $8,500 to $12,700 | $5,100 to $6,900 | $3,500 to $5,100 | $2,560 to $3,500 | $2,130 to $2,600 | $1,850 to $2,200 | $970 to $1,900 |
| 12 to 20 Acres | $6,500 to $9,500 | $4,460 to $6,500 | $3,400 to $4,500 | $2,500 to $3,500 | $1,920 to $2,500 | $1,490 to $2,000 | $1,200 to $1,500 | $720 to $1,200 |
| More than 20 Acres | $3,000 to $6,000 | $2,420 to $2,500 | $1,700 to $2,500 | $1,500 to $1,700 | $1,280 to $1,500 | $850 to $1,300 | $680 to $850 | $480 to $750 |
Source: Johnson CAD, January 2008.
The lack of formal land schedules for residential and commercial property and the broad value ranges on rural land schedules, combined with a lack of documentation on the property cards, limits the chief appraiser and other management staff's ability to appropriately monitor appraisals for consistency and equity.
Kaufman CAD, for example, focused their reappraisal effort on improving land schedules. The Comptroller's PVS showed improved ratios in Category D, Rural Real. By updating the land schedules, the CAD was able to appraise all categories more equitably and uniformly, improving the appraisal performance of Category A, Single-Family Residential.
RECOMMENDATION 2
Develop formal land schedules for all real property categories and implement a monitoring system to help ensure appraisers use them consistently.
FINDING
Johnson CAD's extensive reliance on the judgment and experience of individual appraisers without an effective monitoring process to help ensure consistency in the development of appraisals results in frequent invalid PVS values for commercial real property.
A comparison of PVS results in the largest three ISDs for the past five years, the 2003 to 2007 PVS results, show continuing invalid values for commercial real property tested in the PVS. A comparison of these values for 2003 through 2007 is shown in Exhibit 3.
Exhibit 3
Johnson CAD's Three Largest ISD's Weighted
Mean Ratios for Commercial Real Property
2003 to 2007 PVS Weighted Mean Ratios
| School District | 2003 | 2004 | 2005 | 2006 | 2007 |
|---|---|---|---|---|---|
|
Joshua |
0.7952 | 0.8322 | 0.7936 | 0.8998 | N/A |
| Cleburne | 0.9643 | 0.9425 | 0.8439 | 0.9167 | 0.9014 |
| Burleson | 0.9358 | 0.9949 | 0.8477 | 0.878 | 0.9104 |
Note: Largest ISDs determined on total taxable value.
These invalid values did not result in an overall finding or the designation of a school district as an eligible school district except for Joshua ISD in 2006.
Source: 2003 to 2007 PVS.
Commercial real property values are determined by the appraiser based on an analysis of sales in the database. There is no formal schedule for land values. Improvements are based on the classifications described in the appraisal manual and other improvements' costs are based on a percentage of the main improvement's cost. Appraisers have the ability to adjust values by changing the classification, the condition, the value of amenities, economic factors and functional factors. The chief appraiser has indicated that he relies on the judgment and experience of his appraisers to help ensure that appraisals are determined appropriately. Exhibit 4 lists the experience of each professional staff member in Johnson CAD.
Exhibit 4
Johnson County Central Appraisal District Professional Staff
Positions, Certifications and Years of Service
| Position | BTPE Course/Certification | Year Completed/Obtained | Years of Service |
|---|---|---|---|
| Chief Appraiser, Executive Director | RPA; RTA | 1982; 1982 | 27 |
| Ag/Gas/Industrial Appraisal Supervisor | RPA | 1994 | 14 |
| Residential Appraisal Supervisor | RPA | 1999 | 17 |
| Commercial Appraisal Supervisor | RPA | 2000 | 13 |
| Senior Appraiser IV | RPA; RTA | 1988; 1985 | 23 |
| Senior Appraiser IV | RPA | 1980 | 28 |
| Senior Appraiser IV | RPA | 1989 | 19 |
| Appraiser IV | RPA; RTA | 2007; 2001 | 14 |
| Appraiser III | RPA Class III | 2005 | 14 |
| Appraiser III | RPA Class III; RTA | 2008; 1989 | 19 |
| Appraiser III | RPA Class III; RTA | 2008; 2001 | 24 |
| Appraiser II | RPA Class II | 2005 | 6 |
| Appraiser II | RPA Class II | 2005 | 4 |
| Appraiser II | RPA Class II | 2007 | 3 |
| Appraiser Trainee | RPA Course 1 | 2008 | 2 |
Note: The current chief appraiser also holds CTA, CSTA and CCA certifications. BTPE requires appraisers to reach an RPA certification within five years.
Source: Johnson CAD, March 2008.
The review team inspected 10 commercial real properties and the related property account cards and noted problems in nine of the properties. The review team noted that seven properties had depreciation that was not calculated according to the schedule. Property cards for two properties did not have the year built documented. One property had a flat value shown for its main value that was not documented. One property had an adjustment for economic value that was not documented and another had an adjustment for amenities that was not documented. Though evidence was not presented to the review team, the chief appraiser stated that information for the adjustments existed on older cards and was known by the appraiser when he made the adjustment. According to the chief appraiser, the information was noted on earlier property account cards kept in storage or on worksheets prepared by the appraiser. That information, however, was not provided.
The review team was unable to document that a process was in place to monitor the performance of individual appraisers to ensure consistency of application or equity in establishing values. The review team was unable to determine how the CAD leadership used ratio studies to monitor appraisal performance, ensuring that values are kept at or near the market.
After review of the draft report, the chief appraiser stated:
The District currently monitors all values placed on all commercial real property as well as all other types of real property. The Districts management team regularly reviews new and existing appraisals by staff appraisers to ensure the appraisers are following the correct classification system for identifying price per square foot calculations. The District uses ratio studies to determine the current level of accuracy of all commercial appraisals at the beginning and end of each appraisal cycle. Through the use of these ratio studies the Districts management team can see how accurate each appraiser is as well as how accurate our cost schedules are.The Johnson County Appraisal District's primary objective is to produce fair and accurate appraisals on all categories of real and personal property. The district has a comprehensive checks and balances system in place to ensure this objective is being met. The District is aware improvements can always be made to continue to better the process and strives to be proactive in making any necessary adjustment to the system.
The chief appraiser provided an Excel spreadsheet used to perform a ratio study for Category F1 that shows an overall ratio of 1.1212. There is not enough information on the spreadsheet to compare this sample to the sample of the PVS to determine if the same school districts are reviewed. No instructions accompany the ratio study details provided to indicate how it is used to monitor the performance of individual appraisers or any other process to ensure that values are consistent with the market.
Without a process to ensure that commercial properties are appraised in a consistent manner, based on uniform processes and adjusted to reflect changing values, the CAD cannot be sure that the values determined by the individual appraisers are valid. All appraisals are ultimately based on the experience and knowledge of the appraiser conducting the appraisal or reappraisal. The CAD has an experienced staff and, in the past, this experience may have been adequate to maintain values that fell within the PVS parameters. In a CAD that is experiencing rapid growth, such as Johnson, there is a need for analysis and monitoring to identify changing values and to apply these changes in an appropriate manner.
Nueces CAD, for example, has a computerized appraisal system that provides appraisal analysis through ratio studies within and among property classifications. Nueces CAD's appraisal leadership and appraisal department heads make reappraisal and value maintenance decisions based on ratio study runs within property classes, by ISD and county and conducted at least quarterly to determine appraisal performance, ensuring values are kept at or near the market.
RECOMMENDATION 3
Develop procedures to monitor values determined by individual appraisers to help ensure that commercial real property is appraised at or near market value.