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Chapter 2:
Findings of the Appraisal Standards Review

This chapter of the report addresses findings and recommendations from the appraisal standards review of the Marion CAD in two sections:

2.1
Generally Accepted Appraisal Practices

Three general appraisal methods or approaches–cost, income and market–must be considered in determining the market value of property. The appraiser must use the method most appropriate to a particular property.

Additional information about the approaches to determining or appraising value may be found in appraisal textbooks and the IAAO Technical 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 by using the income approach to value. Most appraisal districts contract with consultants to appraise mineral and utility properties. The chief appraiser can provide information that helps the contractor decide the proper method to use to appraise mineral and utility properties.

FINDING
The Marion CAD reappraisal plan is general in nature and does not have the necessary information to outline the processes and planning needed for completing appraisal duties as outlined in Property Tax Code Section 25.18.

Marion CAD plans to complete a reappraisal annually. The CAD's reappraisal plan, which is based on a template of a mass appraisal report, defines and supports prior reappraisals. The reappraisal plan should consist of plans for future reappraisals. Marion CAD's 2007 reappraisal plan includes a section by the external appraisal firm, which is also a report on past reappraisals rather than a plan of the upcoming annual reappraisal. Lack of an accurate reappraisal plan can keep staff from performing an effective reappraisal. Property Tax Code Section 25.18(b) defines what should be contained in the CAD's reappraisal plan:

The Marion CAD 2007 reappraisal plan does not

• specifically identify and update relevant property characteristics;
• specifically identify property characteristics that affect property values in each market area (neighborhood) such as size, age and condition;
• define market areas within the CAD or location and market area of property;
• develop an appraisal model that reflects the relationship among the characteristics affecting value in each neighborhood and determines the contribution of individual property characteristics; and
• calibrate the results reflected in the model to the characteristics of appraised parcels.

The Property Tax Code requires development of an appraisal model that determines the contribution of individual property characteristics affecting market value. Since Marion CAD relies primarily on the cost approach to value, the reappraisal plan needs to show the relationship among property characteristics affecting value in each market area. By developing a reappraisal plan that specifically shows how the CAD will identify, measure and update characteristics relating to the age of buildings for depreciation schedule adjustments, Marion CAD will achieve improvements in appraisal performance measures in the next reappraisal cycle.

IAAO's Standard on Mass Appraisal of Real Property, Section 3.3, states "The (appraiser) should collect and maintain sufficient property characteristics data for classification, valuation and other purposes. Accurate valuation of real property by any method requires descriptions of land and building characteristics."

Section 3.3.1 states "Property characteristics to be collected and maintained should be based on the following:

• factors that influence the market in the locale in question;
• requirements of the valuation methods that will be employed;
• requirements of classification and property tax policy;
• requirements of other governmental and private users; and
• marginal benefits and costs of collecting and maintaining each property characteristic."

By revising the reappraisal plan, the CAD can improve its reappraisal planning and practices to more equitably appraise all properties.

Jefferson CAD, for example, adopted a detailed reappraisal plan that explains exactly how and when reappraisals take place and explains how sufficient resources will be allocated in support of the plan.

RECOMMENDATION 1
Revise the reappraisal plan to include specific details on items such as the properties involved in the reappraisal, costs, staffing, management and other details necessary to complete an effective reappraisal.

FINDING
Marion CAD does not use the computer-assisted mass appraisal (CAMA) system's potential for automated features.

Property improvement records include the year built in order to accurately calculate depreciation. A sample of Marion CAD's property records indicates that critical age data for "year built" is missing from some property improvement records. "Year built" is the actual or estimated, original construction year of the buildings. "Effective year built" is a modification of year built and is used for describing substantial updates to improvements. Age is the year of reappraisal minus the effective year or actual year built.

A measurement of age is required for the automatic calculation of depreciation in the cost approach, which is Marion CAD's primary valuation approach. Without year built, or effective year built (age) for improvements, a computer-generated (standardized calculation) building depreciation factor cannot be applied to properties. In applying the cost approach to value, Marion CAD uses "percent good" to describe improvement value remaining after the depreciation is removed. For example, a building with 20 percent depreciation has 80 percent remaining life (percent good).

By including year-built data in property records, CADs reduce the subjectivity of appraisers' opinions in the calculation of age factors for property improvements, because an annual computer adjustment for depreciation will be possible instead of a guess by the appraiser. In an annual reappraisal with limited staff, appraisers cannot recalculate depreciation for every improvement. The application of depreciation, therefore, is inconsistent between appraisers and is not uniform among parcels. This is the cause of the wide disparity of ratios in Category A, Single-Family Residential, which in 2005 tested with a COD of 26.17 on the PVS.

According to the IAAO's Standard on Ratio Studies, CODs in the Category of Single-Family Residential, properties should be between these ranges:

• In newer, more homogenous areas, a COD 10 or less; and
• In older, heterogeneous areas, a COD 15 or less.

For example, Coryell CAD management decided to upgrade the CAD's information technology system by contracting for hardware, software and professional services. The software shows improvements from different views. For example, an appraiser can enter pictures of each view of a house along with the measurements of the structure, into the system. This is helpful in the reappraisal process because it shows improvements that existed at the last inspection of the property. In addition, the appraisal system assesses appraisal trends over time since it retains 10 years of data.

RECOMMENDATION 2
Perform an automated search of real property records to update instances of omitted year built, and use CAMA-automated calculations for percent good.

FINDING
The CAD does not perform market analysis to identify market areas (neighborhoods) within the CAD by property categories and the CAD's reappraisal plan lacks such information.

Property Tax Code Section 25.18(b) requires a reappraisal plan that identifies the market areas (neighborhoods) in the CAD. Marion CAD has two lakefront areas, a historic district, one downtown neighborhood and one major north-south traffic artery. Marion CAD's reappraisal plan, however, does not identify neighborhoods. Without identifying market areas or neighborhoods, the CAD cannot identify property characteristics that affect value based on a property's location within the CAD, as is specified under Property Tax Code Section 25.18(b) (3) - (4)(A), which states, in part:

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.

When actual market prices vary by location (neighborhood) within the CAD and the mass appraisal model does not identify such differences, the accuracy of the resulting appraisal is reduced and valuations are inconsistent or inaccurate.

Cooke CAD, for example, adopted a detailed biennial reappraisal plan in September 2006 that enables the execution of timely and accurate reappraisals on an annual basis. The timeline for both years of the plan is extensive and detailed. Cooke CAD's plan includes information on data collection and validation as well as procedures for data collection. The plan includes the types of property assessed in the CAD as well as the parcel counts. The plan also includes the scope of responsibility, staffing, market and neighborhood analysis, as well as highest and best use analysis, and in-depth information on model calibration of cost schedules and income models. The reappraisal plan explains exactly how and when reappraisals will take place, and it explains how sufficient resources will be allocated to follow the plan.

RECOMMENDATION 3
Identify market areas and neighborhoods within the CAD by major property categories and include this information in the CAD's reappraisal plan.

FINDING
The CAD misuses a property classification for high-quality improvements (RES-8) to delineate the historic district, which inappropriately classifies both rehabilitated and dilapidated residential property into one class.

Residential property records do not identify neighborhoods. The CAD's use of property classification codes to identify one historic area (neighborhood), rather than a system of neighborhood codes, limits the CAD's ability to set unit values such as cost-per-square-foot ranges in the property classification system and its ability to delineate neighborhoods is limited.

The incorrect use of property quality classification to delineate a neighborhood limits the range of possible valuations by the classification system within the historic district. Since there is a wide range of values due to rehabilitated and dilapidated residential buildings in the historic district, the accurate valuation of residential properties requires the full use of the residential quality classification system, as well as use of physical, functional and economic depreciation. By making full use of quality classifications and depreciation characteristics in its residential valuation system, a CAD is able to differentiate between rehabilitated and dilapidated residential buildings in a historic district as well as create a wider range of possible value classifications.

For example, Williamson CAD maintains an updated set of procedure manuals for the appraisal of all property types and classes in the district. The CAD's field appraisal procedures include, among others:

Code lists that set forth the CAD's property codes for improved and unimproved property that CAD appraisers assign to the various property characteristics, location characteristics, and other pertinent property profile data.

In addition, Williamson CAD provides orientation training for all new employees to familiarize them with the CAD's codes and classification systems, sketches and measurement expectations, field procedures, appraisal cards and records systems.

RECOMMENDATION 4
Eliminate use of the RES-8 property quality classification to dilineate the historic district.

FINDING
Marion CAD's appraisal manual lacks key appraisal procedures necessary to build a mass appraisal model that is reasonable, consistent and accurate.

A review of the CAD's appraisal manual showed the following inconsistencies:

• property classifications are not consistent in all cases;
• appraisal schedules have systematic problems;
• instructions for applying appraisal techniques are omitted; and
• the manual lacks information pertaining to the comparable sales approach to value.

Despite the chief appraiser's indication that the appraisal manual is updated annually, the following inconsistencies in cost tables were noted:

• Page 14 – The relationship of residential improvement price-per-square-foot scales between Class 1, RF1 minus and CB1 minus are not consistent with the other four columns (tables) on that page;
• Page 17 and Page 30 – Up to class 5, residential improvement class tables' price-per-square-foot are the highest in veneer (brick) tables. Starting at Class 6 and above, the highest prices are in the masonry tables, which is the opposite of the lower classes;
• Page 43 – The residential improvement adjustments (price per square foot) for being in the historic district are not consistent between classes. The percentage differences between the highest price per square foot in classes 1-7 versus Class 8 (historic district) range from 106 to 148 percent; and
• Page 45 – There are large price differences from residential Class 1 and 2 tables for log cabin price per square foot and the standard cost tables that are not present in the other log cabin class tables, when compared to the standard class tables.

These inconsistencies may be unintended results over time from adjustments that are not market-derived. They can be caused by market conditions or lack of market sales data. Without accurately developed depreciation tables and land and improvement schedules, the CAD's mass appraisal model is inconsistent and causes inaccurate judgments by field appraisers. The chief appraiser needs to provide guidelines within the appraisal manual and make sure the appraisal staff knows how to use the schedules to estimate property values uniformly. Even if computers normally carry out the calculations, the CAD needs to have a functional appraisal manual to teach and guide field appraisers in the application of the CAD's key processes in the mass appraisal model so all appraisers use the same procedures to arrive at market value.

The chief appraiser indicated that the methods for discovery of real and personal property are in the appraisal manual. There is a brief procedure for the discovery of personal property with the personal property tables and forms that are attached to the 2005 reappraisal plan. But no real or business personal property discovery procedures are included in the appraisal manual. Procedures the CAD uses to discover and value business personal property should be in the appraisal manual and should guide business property appraisers.

According to IAAO's Standard on Mass Appraisal of Real Property,

Mass appraisal requires complete and accurate data, effective valuation models and proper management of resources.

Mass appraisal is the process of valuing a group of properties as of a given date using common data, standardized methods and statistical testing. In determining the value of a parcel, appraisers must rely upon valuation equations, tables and schedules developed through mathematical analysis of market data.

Values for individual parcels should not be based solely on the sale price of a property, but valuation schedules and models should be applied consistently to correct, complete and update property data.

Credible mass appraisal results are supported by the relevant evidence, logic and valuation accuracy that appraisers build into a mass appraisal model, which is a mathematical representation of the interaction of the forces of supply and demand that determine market value. Another way to think of an appraisal model is to simply consider it a computerized schedule (Property Tax Education Coalition, Course 5). Models estimate the market value of properties from real estate data according to one of the three approaches to value: the cost, sales comparison or income approach.

The model-building process requires sound methods in order for results to be accurate, rational and explainable. An appraisal manual supports the following critical functions in the model-building process:

• developing and using standardized data forms;
• communicating training materials;
• documenting appraisal procedures to staff and taxpayers;
• building and applying land, improvement and depreciation schedules;
• development and use of adjustment tables for property-specific features;
• development and use of an adjustment table for depreciation;
• specification of appraisal models; and
• defining standards for classification systems.

All of these procedures need to be standardized and performed according to guidelines for achieving an effective mass appraisal. By developing accurate schedules and tables and applying them through use of its appraisal manual, Marion CAD will achieve a mass appraisal model that results in equitable and uniform valuations and provides credible support for the defense of values.

Tom Green CAD, for example has an up-to-date local appraisal manual that thoroughly explains how the CAD appraises residential and commercial property, business personal property and land. The manual also contains the CAD's USPAP Mass Appraisal Report.

RECOMMENDATION 5
Expand the appraisal manual to include comparable sales data and develop a reasonable, consistent and accurate mass appraisal model per Standards Rules 6-4 and 6-5 of the Uniform Standards of Professional Appraisal Practice.

FINDING
Marion CAD lacks procedures for validating sales for use in ratio studies.

The CAD does not have written procedures for gathering market sales data or for verifying the sales with the sellers, buyers or sale brokers. According to Section 3.1 of the IAAO's Standard on Mass Appraisal of Real Property, assessing offices must establish effective procedures for collecting and maintaining property data (that is, property ownership, location, size, use, physical characteristics, sales prices, rents, costs and operating expenses). If appraisers build a mass appraisal model using the cost approach to value, USPAP Standards Rule 6-7 requires them to take steps to ensure that, overall, models produce value conclusions that meet attainable accuracy standards. Thus, they must gather sales comparison data in order to test and calibrate its accuracy. By providing guidance to appraisers in collecting sales data, an appraisal manual is effective and sales comparisons throughout the CAD should be consistently and accurately made.

The results of Marion CAD's mass appraisal of Single-Family Residential during the past four years are characterized by low appraisal-to-sale ratios and high dispersion as shown in Exhibit 6. Low ratios result from low land schedules, low improvement schedules or high depreciation tables. The cause of high dispersion cannot be caused by inaccurate land or improvement schedules, since flaws in these schedules will produce errors that are consistent. High dispersion can be caused by flaws in the appraisal system's property categories, classing system, location categories, specific-adjustments table or individual appraisers' judgments. An appraisal manual should identify all features of a class so no property fits into more than one class and each property belongs to one of the classes in the system.

The results in Exhibit 6 can be accounted for by the application of a single adjustment factor to Single-Family Residential and can raise the median level of appraisal from 0.81 to 0.98 in 2006 without a significant improvement of the COD. Ratio studies are not solely for the development of percentage update factors for value-per-square-foot tables. Ratio studies should also be used to identify neighborhoods that need appraisal maintenance, to calibrate the contribution of property characteristics to value (specific-adjustments table), to consider updates to existing valuation methods or use of alternative valuation approaches.

Exhibit 6
Marion CAD
Category A, Single-Family Residential Appraisal Results as Measured by PVS

Year	Weighted Mean Ratio	Median Level of Appraisal	Coefficient of Dispersion	% of Ratios within ± 10% of Median
2006	0.8697	1.00	24.62	41.6
2005	0.7567	0.81	26.17	30.0
2004	0.9647	1.00	17.6	50.6
2003	0.9569	0.99	25.13	32.8

Source: Comptroller's Annual Property Value Studies.

The PVS stratifies Single-Family Residential into four quartiles according to value after excluding the lowest 5 percent of property value. Exhibit 7 shows Marion CAD's results in stratum 2 in 2005 had a COD of 40.84 and a weighted mean average of 0.7597.

Exhibit 7
Marion CAD
Annual weighted mean ratio by strata of Single-Family Residential

Year	Strata	Category	CAD Value	PTD Value	Weighted Mean Ratio	COD
2005	Stratum 2	A	38,137,387	50,200,588	0.76	40.84
2005	Stratum 3	A	38,128,996	64,856,261	0.59	22.64
2005	Stratum 4	A	38,108,775	44,255,923	0.86	14.83
2005	Stratum 5	A	38,103,044	44,784,960	0.85	14.02

Source: Comptroller's 2005 PVS.

The PVS indicates that the low-value residential strata are under-assessed in comparison to the high value strata. Additional stratification through application of the CAD's expanded sales file within the CAD's residential ratio studies will identify and define these problems for CAD appraisers.

According to IAAO's textbook, Property Appraisal and Assessment Administration, Chapter 5, Data Collection and Management, the reliability of any valuation model or sales ratio studies depends upon the quantity and quality of its data. Sales data must be collected, edited and adjusted to obtain valid indicators of market value. Accurate sales data are needed for specifying and calibrating valuation models and for sales ratio studies. The text recommends collecting the following sales data whenever possible:

• sales price – single most important information about any sale;
• names and addresses of buyers and sellers–allows appraiser to contact for additional information on the sale;
• relationship of buyer and seller – helps distinguish an arms-length transaction;
• property address, parcel identifier and legal description – links sale to CAD records;
• type of transfer and deed – also helps identify an arms-length transfer;
• interest transferred – what property rights are included in the sale;
• instrument number – unique identifier helps identify subject property;
• personal property – the price needs to be deducted from the sales price;
• financing – the terms can affect the price and need to be accounted for; and
• date of transfer – needed for determining time of sale adjustments.

Three basic sources of sales data are: deeds, contracts or agreements of sale and affidavits of property value. When this information is unavailable, is incomplete or requires verification, sales information can be obtained from buyers and sellers by mail questionnaire, by telephone inquiry or face-to face interviews. As a final resource, real estate agents, multiple listing services, title companies, private appraisers, leasing agents and certified property managers are good informational sources.

Chapter 1 of the aforementioned IAAO text points out that standards of practice require written procedures, and regularly scheduled updates of the procedures are essential to promote uniformity of approaches to necessary tasks.

The key to accurate data is quality control. The CAD's field supervisors provide frontline quality control and should be personally accountable for the quantity and quality of work produced by those in their charge, according to IAAO.

For example, Johnson Central CAD identified and implemented ways to improve appraisal accuracy by assigning one employee the responsibility of gathering and recording sales and distributing that information to the appraisal staff. By having one person responsible, the gathering and recording of sales and distribution of the database became more efficient and easier to manage. A significant part of the sales gathering procedure involves deed information received from the map and deed department, mailing sales information letters to respondents and recording the information in the appraisal records for analysis. The information system is a critical part of this process since it generates the periodic sales ratio studies.

RECOMMENDATION 6
Develop written procedures for sales verification used in internal ratio studies and correctly apply results to appraisal valuation approaches.

FINDING
Marion CAD primarily uses the cost approach to value, but does not annually incorporate land values in an organized process.

To fully comply with Property Tax Code Section 25.02, the CAD must separate the land and improvement values for the appraisal records.

Property Tax Code Section 25.02 (a) (2), (5), (6) states:

By accessing the Marion CAD Web site, the following parcel information from property records was extracted from the 2006 certified roll:

• improvement category;
• total living area;
• land market class; and
• land value.

The Marion Central Appraisal District 2007 Reappraisal Plan states on page two:

The entire MCAD database is available to the public via the Internet at www.marioncad.org. This service provides instant access to individual property information including homestead, ownership, address and all related appraisal data. This information includes square foot of living area, land size, age, class, construction type, and a variety of other useful information.

By matching available property data to the 2006 PVS study sample sales, the residual improvement value can then be computed by subtracting the land value from the sale price. Verifying the improvement schedule in this way allows the accuracy to be checked by price per square foot, quality, condition, neighborhood, etc. Testing the accuracy of one schedule at a time based on comparable sales eliminates that schedule as the source of the problem. Exhibit 8 shows that the price per square foot (ppsf) of properties in strata two has a range of $2 -$108 ppsf.

Exhibit 8
Price per Square Foot of Residual Improvement of Strata 2, Category A, Parcels in Marion CAD

Parcel ID	CAD Value	PVS Ratio	Improvement Category	RECENT SALE PRICE	Land Market Class	CAD LAND VALUE	LAND Size in Legal Description	Residual Improvement	Square Feet	ppsf
R10089	$27,970	0.43	RES, RF3	$65,000	FFLA75	1,750	0.114	$63,250	816	$78
R10466	28,390	0.52	RES, RF3	55,000	FFLD	4000	0.15	51,000	810	63
R16179	33,730	0.56	RES, RF2	60,000	fflb	7,200	0.34	52,800	916	58
R7690	14,660	1.63	RES, RF3	9,000	BS	6,300	0.9	2,700	1,486	2
R1866	36,930	0.72	RES, RF3	51,000	bs	6,510	0.93	44,490	990	45
R4398	32,250	0.61	RES, RF3	53,000	rza	2,680	1.07	50,320	1,204	42
R3979	35,130	0.28	RES, RF3	124,000	RN (BS)	7,580	1.414	116,420	1,592	73
R8433	36,370	0.56	RES, RF3+	65,000	fflc	13,170	4.41	51,830	480	108
R18306	37,660	1.09	RES, RF3	34,500	FF	16,200	N/A	18,300	984	19
R19389	32,030	1.6	RES-8, 01	20,000	FF	7,560	N/A	12,440	1,512	8
R19332	36,090	1	RES-8, 02	36,200	FF	6,750	N/A	29,450	986	30
R17934	24,880	1.03	RES-8, 03	24,150	ff	8,340	N/A	15,810	848	19
R11500	27,360	1.71	RES, RF2	16,000	FFLA50	1,500	N/A	14,500	640	23
R12929	24,760	1.55	RES, RF2	16,000	FFLA50	6,000	N/A	10,000	820	12
R11383	37,070	1.06	RES, RF3	35,000	FFLA50	4,500	N/A	30,500	960	32
R13139	33,950	1.36	RES, RF3	25,000	FFLA6+	1,300	N/A	23,700	1,064	22
R10581	27,030	0.55	RES, RF3	49,000	fflb	2,000	N/A	47,000	760	62
R10446	31,050	0.78	RES, RF3	40,000	fflb	2,000	N/A	38,000	838	45
R11699	30,350	1.06	RES, RF2	28,500	FFLB05	9,050	N/A	19,450	640	30
R10467	35,050	0.44	RES, RF3	79,000	FFLF	6,000	N/A	73,000	934	78
R16853	28,560	0.62	RES, RF2	46,000	fflf25	12,500	N/A	33,500	600	56
R10615	27,300	0.94	RES, RF2+	28,900	FFLA20	6,000	N/A	22,900	803	29
R10188	23,460	0.72	MH,MH2	32,500	FFLB	4,000	N/A	28,500	952	30
R10332	36,210	0.86	RES,RF4-	42,000	FFLA	2,000	N/A	40,000	806	50
R15167	31,120	1.95	MH,MH3	16,000	FFLA6X	1,350	N/A	14,650	1,216	12
R17072	13,490	0.23	RES,RF3+	58,500	FFLY	5,000	N/A	53,500	728	73
R19271	32,070	1.46	RES-8,03	22,000	FF	4,280	N/A	17,720	650	27
R32093	19,550	1.63	RES,RF2	12,000	BS	810	0.116	11,190	704	16
R33589	35,060	0.88	MH,MH4	40,000	BS	3,500	0.5	36,500	1,296	28
R5261	31,560	0.29	RES,RF3+	110,000	FFLY	2,100	0.3	107,900	1,152	94
R7204	22,400	1.02	MH,MH1	22,000	RK	8,290	2.17	13,710	924	15

Note: Improvement category, land market class, land size from legal description and square feet of total living area for properties R10188, R10332, R15167, R17072, R19271, R32093, R33589, R5261, R7204 taken from CAD Web site accessed Feb. 11, 2008. Land values for latter properties taken from 2006 certified Electronic Appraisal Roll Submission (EARS) to PTD.
Source: Parcel ID, CAD value, recent sale price taken from the Field Studies Category Worksheet, 2006 Property Value Study. Improvement category, land market class, land value, land size from legal description, square feet of total living area found at www.marioncad.org, last accessed Feb. 10, 2007.

Without individual property records showing information on lot size such as dimensions, square feet or fractional acres, no relationship can be established between unit value, price per square foot, price per front foot, etc., and residual improvement value, which is derived from sale price minus land value, as seen in Exhibit 8. This indicates the CAD does not have a process for developing a land schedule based on lot size for low value parcels, strata 2, within the CAD. This is further confirmed by the fact that the appraisal manual has no land schedule. Without a land schedule, the CAD cannot accurately determine the value that lot size contributes to the overall value of a parcel, which is land plus improvements, which are primary inputs of a mass appraisal model.

Updates to the cost approach tables require further analysis than simply ratio study time adjustment factors. By building land schedules based on sales data for comparable tracts, more accurate unit cost schedules for improvements become possible.

In addition to having to consider the sales comparison approach when building a mass appraisal model, the chief appraiser should also gather sales data and create a sales file in the CAD office, since USPAP Standards Rule 6-5(a)(i) - (v), recommends collecting, verifying and analyzing such data as necessary and appropriate to develop when applicable:

In 2004, for example, Kaufman CAD concentrated reappraisal efforts on both residential and rural land valuations. Findings of the 2003 PVS indicated the CAD appraised rural land below market value in some areas, which contributed to findings of invalid local value in four school districts. By using comparable sales data, the CAD reappraised rural land and residential lots (vacant and improved). As a result of the CAD's land valuation updates, all Kaufman County ISDs received valid findings in the 2004 PVS. The 2004 study found improved accuracy of ratios in Subcategory D2, Non-Qualified Acres, and because of the reappraisal of residential land values, ratios in Category A, Single-Family Residences, also improved.

RECOMMENDATION 7
Develop procedures for using ratio studies based on comparable sales data to incorporate land values into the cost approach to value.

FINDING
The Marion CAD chief appraiser needs to consider the three approaches to value due to the age factors of many of the improvements within the CAD and to comply with Property Tax Code Section 23.01.

The CAD should use the sales comparison approach to valuing properties, but from comments made by the chief appraiser and deputy chief appraiser, this approach to property valuation is seldom used. There are no procedures or guidelines for using the sales comparison approach in the appraisal manual that might enable appraisers to value properties by that approach.

Property Tax Code Section 23.01(b), Appraisals Generally, states:

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 (USPAP). 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 upon the individual characteristics that affect the property's market value.

Property Tax Code Section 23.0101, Consideration of Alternate Appraisal Methods, states:

In determining the market value of property, the chief appraiser shall consider the cost, income and market data comparison methods of appraisal and use the most appropriate method.

Section 2 of IAAO's Standard on Mass Appraisal states that all three approaches, sales comparison, cost and income, play important roles in the mass appraisal of real property. In mass appraisal applications, the reliability of all three approaches is dependent upon the quality of the data used in the development of the applicable valuation equations or tables. The cost approach requires current and accurate estimates of land values, cost data and accrued depreciation from all causes. The sales comparison approach requires an adequate sample of sales that provide good indications of current market values. The income approach requires reliable income and expense data, as well as objective evidence of the relationship between income and present value. In addition, successful development and application of all three approaches requires reliable data on property characteristics. Which technique works best in a given situation will vary with the type of property, nature of the available data, training and experience of appraisers and other factors.

The CAD completed the IAAO Self-Evaluation Questionnaire, which indicates a large percentage of residential and commercial properties were built in the 1800s. The cost approach is generally a good valuation approach for properties less than 20 years old. Marion CAD must consider alternate approaches to value, such as the income and sales comparison approaches. The CAD's CAMA system provides valuation programs for both the comparable sales approach and income approach. The comparable sales approach uses known sold properties to value subject properties. This is a market-derived approach to value that will provide accurate values for the older class of historical properties within the CAD. The CAD's appraisers do not generally use the comparable sales approach due, in part, to the lack of written procedures.

The CAD uses the income approach primarily on bed and breakfast properties. Marion CAD claims to have the most bed and breakfast establishments of all Texas counties. The chief appraiser is the primary appraiser responsible for market analysis and valuation of commercial properties. There are no written guidelines, however, for the valuation of bed and breakfast properties, or any other non-residential property, with the income approach to value. Written guidelines for applying the income approach not only will provide the appraisal staff with a consistent process to follow, but it will also comprise a structured order of work steps that can be broken down into specific activities that can be measured, modeled and improved.

Only the chief appraiser uses the income approach for valuation of bed and breakfast properties. Other commercial properties are valued by the cost approach. The cost approach is not considered with other appraisal approaches that might highlight inconsistency between approaches or potential places to update the cost tables. The lack of written instructions also limits the use of the income approach within the CAD. Personal appraisal knowledge has not been generalized throughout the CAD in the form of institutional appraisal knowledge.

For example, Nueces CAD has the well-written and comprehensive Commercial Procedures Manual, which was updated in 2005 and contains the department's reappraisal plan and a USPAP document. It discusses when and how to use the three approaches to value for commercial properties. It contains a classification guide showing pictures of various types of commercial buildings. This assists the commercial appraiser in being uniform and consistent in classifying these properties.

RECOMMENDATION 8
Apply all three approaches to value according to the Property Tax Code and generally accepted appraisal practices.

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