Findings of the Appraisal Standards Review
This chapter addresses findings, commendations and recommendations from the appraisal standards review of the Lampasas CAD in two sections:
Generally Accepted Appraisal Practices
There are three general appraisal methods or approaches–cost, income and market–that a chief appraiser must consider when determining the market value of property. The appraiser must use the method most appropriate in appraising a particular property.
Additional information about the approaches for determining or appraising value may be found in appraisal textbooks and IAAO Standards. Appraisers usually determine the value of producing mineral deposits–such as oil, gas and coal–and the value of many utility and commercial properties using the income approach to value. Most appraisal districts contract with vendors to appraise mineral and utility properties. The chief appraiser can provide information that helps the vendor decide the proper method to use to appraise mineral and utility properties.
Lampasas CAD lacks a detailed reappraisal plan consistent with Property Tax Code Section 25.18 and industry standards.
The reappraisal policy provided by the CAD in January 2006 was last updated in 1993 and consists of a one-page document with five paragraph sections, as shown in Exhibit 6.
Lampasas CAD Reappraisal Plan
|I||"As required by Section 25.18 of the Property Tax Code, the chief appraiser with necessary staff will conduct a reappraisal of all real property in the district at least once every three years. Areas of property that require more frequent inspection will be identified and reappraised accordingly.|
|II||Productivity value will be recalculated on a yearly basis as required by Section 23.51 of the Property Tax Code.|
|III||The chief appraiser and staff will appraise newly annexed territory, new improvements, taxing unit requests and taxpayer requests on an annual basis.|
|IV||The appraisal district will gather and maintain cost information for the schedules as well as market data from the local realtors and what sales information the grantor and grantee provide. An internal ratio study will be conducted to analyze any types of property that need attention. By trying to collect current information and applying it when necessary we hope to maintain fair and accurate values for all of the Lampasas County Appraisal District.|
|V||All notices will be mailed to property owners, and taxing units will be notified of estimated values as required by the Property Tax Code and the State Comptroller's office."|
Source: Lampasas CAD, January 2006.
The CAD reappraises cyclical and reappraised the city of Lampasas portion of county in 2006.
In a February 2006 follow-up CAD visit, the chief appraiser supplied a document dated 2005 that was a sample reappraisal plan. The chief appraiser attended a workshop in late January or early February 2006 where a sample reappraisal plan was distributed. The sample reappraisal plan has Lampasas CAD's name at the top and includes general information, but it does not address individual CAD or school district details.
When comparing the existing CAD document with USPAP Standard 6, all of the recommended activities necessary for a functional reappraisal plan are missing from Lampasas CAD's plan:
- identifying properties to be appraised;
- identifying and updating the relevant characteristics of each property to be appraised in the appraisal records;
- defining market areas such as neighborhoods;
- 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;
- applying the conclusions reflected in the model to the characteristics of the properties being appraised;
- reviewing the appraisal results;
- calibrating the model to determine the contribution of the individual property characteristics affecting value;
- applying the conclusions reflected in the model to the characteristics of the properties being appraised;
- reviewing the appraisal results; and
- developing annual timelines showing key activities.
The 2006 reappraisal plan, although more complete than previous years, still does not contain the recommended activities necessary for a functional reappraisal plan. The plan contains only the general direction that the CAD will reappraise the western portion of the county in 2007 and the eastern portion of the county in 2008. The 2006 reappraisal plan does not identify any properties to be reappraised or market areas and even though the CAD's values for commercial properties were the cause for the invalid findings, the reappraisal plan does not contain details or directions for the reappraisal of commercial property.
In practice, the chief appraiser is directing the staff orally and informally to accomplish the CAD's reappraisal goals.
Neither the 1993 adopted plan nor the 2006 sample reappraisal plan have enough detail for staff members to follow without additional direction and oversight. As a result, staff members rely on constant informal direction from the chief appraiser because no written reappraisal goals, resources or detailed plans existed.
A reappraisal plan is a roadmap for performing a reliable appraisal, as well as the communication tool that demonstrates to the appraisal district board the methods used by the staff. The reappraisal plan also sets forth the manner in which the staff will conduct its appraisals.
By producing a comprehensive written reappraisal plan, Lampasas CAD can help provide that consistent, accurate and uniform reappraisals are made and that reappraisal, IAAO's Property Apprairsal and Assessment Administration goals are known and met. The plan ensures all staff members are guided by a single written source. Property Tax Code Section 25.18 requires that appraisal districts implement a plan for reappraisal and USPAP Standard provide a good resource for developing a complete plan.
Property Tax Code Section 25.18:
(a) Each appraisal office shall implement a plan for periodic reappraisal of property approved by the board of directors under Sec 6.05(i).
(b) 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;
(2) identifying and updating relevant characteristics of each property in the appraisal records;
(3) defining market areas in the district;
(4) identifying property characteristics that affect property value in each market area, including:
(A) the location and market area of property;
(B) physical attributes of property, such as size, age and condition;
(C) legal and economic attributes; and
(D) easements, covenants, leases, reservations, contracts, declarations, special assessments, ordinances or legal restrictions;
(5) developing an appraisal model that reflects the relationship among the characteristics affecting value in each market area and determines the contribution of individual property characteristics;
(6) applying the conclusions reflected in the model to the characteristics of the properties being appraised; and
(7) reviewing the appraisal results to determine value.
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 or not the values are consistent with the market and if the values are equitable and that ratio studies are the primary tool for the analysis.
- Reappraisal Decision - Use statutes or administrative rules. This may include a cyclical schedule in which jurisdictions are physically reviewed and revalued. It is also noted 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 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 field work standards.
- System Development - This produces the procedures, methods, manuals, and software for the mass appraisal system.
- Pilot Study - This study tests procedures in several portions of the jurisdiction. It should include a ratio study to verify if the system produces reliable and accurate values and point out needed modifications.
- Data Collection - After procedures and forms are made, tested and approved the data collection can start. 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; and
- Value Updates.
As an example, Cooke CAD has a model reappraisal plan that meets or exceeds the applicable laws and recommended industry standards. It includes all the desired details, which the CAD can expand to meet the biennial written appraisal plan requirement for 2006.
Develop and adopt a complete reappraisal plan in compliance with the Property Tax Code and industry standards.
Lampasas CAD has appraisal manuals for individual appraisal programs and systems, and a general manual with CAD schedules and processes, but it lacks written documentation describing the complete appraisal process by appraisal type.
The chief appraiser said some of the schedules in the general manual have not been updated to match the computer appraisal system schedules. The CAD purchased a new system in November 2005, and the priority has been appraising and implementing the new system, not the associated documentation.
Since January 2006, the CAD has used a vendor's computer appraisal system. Through fieldwork, the appraisers gather specific information about properties, such as the condition and age of the property, construction details, and physical dimensions. In addition, the appraisers gather information about the land where real property is located. They gather specific information about the dimensions of the land, its shape and location. The appraisers gather the same information for vacant land, whether it is a vacant lot or a rural tract.
Most appraisals are accomplished by entering the accumulated property characteristics into the computerized valuation model. The model produces a market value for each property based on the property's characteristics that the appraiser then reviews to determine if it is reasonable and accurate.
Residential properties are appraised using in-house, cost-based schedules and local sales. The residential appraisal manual includes class descriptions with pictures of houses. The CAD also relies on Marshall & Swift (M&S) schedules for the highest residential classifications. While the CAD has detailed procedures for using the general residential appraisal schedules, no user instructions are included in the residential manual about when to use the local schedules versus M&S, applying local modifiers and depreciation, adjustments for time and financing, or site valuation.
The CAD appraises land using schedules developed from local sales. Schedules are automated and take into consideration such factors as location, road type and size. Lampasas CAD does not possess a description or example of how to perform a land appraisal, just the tools used to perform the appraisal.
Commercial properties are primarily appraised using Lampasas CAD schedules and M&S cost schedules. The CAD uses M&S's area modifier to adjust cost data to the local market. The area modifier is evaluated for adequacy by contrasting M&S derived values to local sales and builder costs when available. The CAD uses the income approach when sufficient data exists. While the Marshall & Swift Valuation Service guidebook is a useful tool, it is not specifically designed for use in Lampasas County and does not contain local procedures and directives for completing appraisals.
The CAD appraises business personal property using rendered values from the property owner, and the Comptroller's Field Appraiser's Guide, a publication no longer used by the Comptroller's office. The Field Appraiser's Guide has been out of publication for four years and was never designed for use as a local manual. The schedules contained in this manual are now four years out of date and will only produce inaccurate values.
The personal property appraiser generally accepts the submitted rendition without verification and uses the Field Appraiser's Guide schedules as needed. The CAD inspects all new businesses on-site but inspects existing businesses only when time permits. Lampasas CAD lacks written procedures to guide appraisers in reviewing renditions, specifically in determining whether the appraisals are reasonable and which schedule to use for particular properties.
Lampasas CAD contracts with another vendor to perform complex utility and industrial property appraisals. Utilities are appraised using the unit value technique. The unit value technique requires the appraiser to determine the market value of the entire utility company. The utility company value is then apportioned 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. No manual is available at the CAD office explaining the appraisal process for complex industrial and utility properties to the public.
Lampasas ISD received an invalid finding in the 2004 PVS for inaccurate appraisals mainly because it did not value all commercial property amenities. The invalid finding may have been avoided if detailed appraisal procedures explained how to value commercial property.
Property Tax Code Section 23.01 mandates that CADs appraise property by applying generally accepted appraisal methods and techniques. This section also requires appraisal districts to comply with the USPAP standards and requires that CADs apply similar appraisal methods and techniques to the same or similar properties, while taking care to account for the contributions of individual property characteristics on value.
Property Tax Code Section 5.05(a) states that the Comptroller may prepare and issue publications relating to the appraisal of property and the administration of taxes or may approve other publications relating to those matters, including materials published by The Appraisal Foundation, the International Association of Assessing Officers (IAAO), or other professionally recognized organizations, for use in the administration of property taxes, including:
- a general appraisal manual;
- special appraisal manuals as authorized by law;
- cost, price, and depreciation schedules as authorized by law;
- news and reference bulletins;
- an annotated version of this title and Title 3; and
- a handbook containing selected laws and rules and all rules promulgated by the Comptroller relating to the property tax and its administration.
According to Chapter 1, The Ad Valorem Tax System in IAAO's textbook, Property Appraisal and Assessment Administration publication, standards of practice may incorporate or be contained in laws, regulations, policy memoranda, procedural manuals and guidelines, appraisal manuals and schedules. Repeated tasks, particularly those done by more than one person, should be described in guidelines or manuals. The publication further states that there needs to be a procedure for establishing standards of practice that include updating manuals on a regular basis. Performance and progress reviews contribute to effective and efficient operations of appraisal districts. Procedures are required for monitoring the quality of appraisals, editing data and reviewing appraisals.
Standards of practice include:
- manuals - establish work procedures;
- procedures - promote uniformity of approach to tasks;
- policy memoranda - set performance goals; and
Johnson Central CAD, for example, provides a systematic approach to property appraisal with its well-written CAD policy and procedures manuals and other written guides. Nueces CAD has well-written and comprehensive residential, commercial, personal property and land appraisal manuals. A comprehensive, written appraisal procedure manual helps ensure that appraisal districts attain required standards and requirements.
Expand the appraisal manual to include local procedures and practices for each type of property the CAD appraises.
Lampasas CAD uses only rendered values from the property owner to value business personal property and does not routinely inspect business personal property.
The CAD has not established an independent method for valuing personal property, as recommended by industry standards.
The chief appraiser indicated that property is discovered through building permits, sewer permits, taxpayer information, abstract companies and CAD appraisers. The CAD mails business personal property renditions to all businesses each year, and the appraisers hand-deliver renditions to new businesses. CAD appraisers only follow up on non-returned renditions when time permits.
The CAD uses the personal property reporting forms provided by the state. When possible, CAD staff members coordinate real and personal property field inspections. When time permits, CAD staff members audit returns and inspect businesses to provide complete and accurate reporting. Instead of using the income approach to value leased equipment, most information is obtained from renditions, and CAD staff members use an economic life percent good table to value items like computers, copiers and construction equipment.
Existing businesses that do not respond to the CAD letter request either receive the same value as the previous year or are assigned value by using the Comptroller's internal and now unpublished Field Appraiser Guide; as mentioned earlier, this manual provides inaccurate results because the information is not updated. All businesses that do not respond with a required rendition are assessed a 10 percent penalty in October, as required by law. The chief appraiser believes the penalty encourages non-responders to file renditions in the following year.
Without regular inspections of existing business personal property accounts and no independent valuation method, Lampasas CAD is not ensuring the accuracy business personal property appraisals or equity among taxpayers. The CAD did not test business commercial personal property in the 2004 or 2005 PVS due to the small amount of value in the category, compared with other categories.
IAAO's Standard on Valuation of Personal Property requires that an assessor establish an audit program to verify that all personal property items are reported and that the information is accurate.
According to IAAO Standard 14, Valuation of Personal Property, the extent to which personal property can be appraised depends upon its discovery. Full discovery of personal property requires that the appraisal district have sufficiently trained staff and resources. Discovery of personal property is contingent upon identifying the property owner. Useful sources include the following:
- previous appraisal records and renditions;
- physical inspection (on-site review);
- real property field appraiser reports
- state and local sales tax permits;
- business licenses and registrations;
- building permits;
- chamber of commerce membership lists;
- new business listings from news media (newspapers, magazines, etc.);
- public records (assumed name filings, partnership articles, corporation charters);
- property transfer documents;
- classified advertisements;
- telephone directories;
- city directories;
- internet research on business operations and contacts;
- Web sites, specifically leasing and sales;
Once the property has been discovered and the owner is identified, the CAD should inspect the property.
Property Tax Code Section 23.01 requires CADs to appraise all property at market value, taking into consideration the individual characteristics of each property. Annual inspections help identify changes in the character of the accounts, as well as changes in ownership and location. Independent verification, inspection and valuation of inventories, fixtures and equipment ensure that accounts reflect market value.
Property Tax Code Section 22.07(a) gives the chief appraiser or a designated authorized representative permission to enter the premises of a business, trade or profession and inspect the property to determine the existence and market value of tangible personal property used for the production of income. Property Tax Code Section 22.07(c) gives the chief appraiser the authority to request supporting rendition information.
Effective county appraisal districts meet or exceed recommended industry practices for business personal property appraisal, ensuring accurate valuations as a basis for taxpayer assessments.
Johnson County CAD, for example, has an automated information system for both real and personal property data that it can used to independently verify renditions. Johnson County CAD appraisers conduct periodic inspections and routinely visit businesses, especially in rural areas where permits are not required.
Attempt to inspect all business personal property accounts regularly and develop an independent valuation process.