Findings of the Appraisal Standards Review
This chapter of the report addresses findings, commendations and recommendations from the Appraisal Standards Review of the Mills CAD in two sections:
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 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 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 these properties.
Mills CAD does not have a comprehensive appraisal manual that includes locally developed procedures for appraisals.
Appraisal staff consists of the chief appraiser and deputy chief appraiser. The chief appraiser has been with the CAD for one year and the deputy chief appraiser has been employed for 14 years. One staff member assists with another's training. This is time consuming and more difficult due to the lack of a detailed appraisal manual.
The chief appraiser said he plans to develop an appraisal manual that includes local procedures for appraisers to use when appraising property, including a classification guide with photographs and descriptions of characteristics and attributes typical for each class of property. A timeline for developing this manual has not been created. Currently, appraisal staff must rely on their appraisal knowledge and a CAD-developed building cost manual for appraising property, containing current appraisal schedules for residential, commercial and land properties. It was last updated in April 2006. The chief appraiser said the residential and land schedules are market-based, while the commercial schedules are based on construction costs. The manual also contains minimal descriptions for each class of residential property appraised by the CAD and depreciation schedules. According to the chief appraiser, residential and land schedules are updated annually using local sales data. Commercial schedules are updated as new construction cost information becomes available. Written procedures instructing appraisers how to use the schedules do not exist, but all of the cost schedules are integrated into the CAD's automated appraisal system. By entering data unique to each property, the appraisal system accesses the correct cost schedule and generates an appraised value.
The chief appraiser stated that the income approach is not used in the county due to the lack of reliable data. He said he is considering purchasing the Marshall and Swift Commercial Cost Estimator (M&S), which is also used by the PTD to assist in appraising Mills CAD commercial property, although he feels local construction costs of some commercial buildings are much less than those published by M&S. The PTD field appraiser assigned to Mills CAD encouraged the CAD to use M&S commercial schedules because commercial sales do not exist.
The chief appraiser said that personal property values are largely based on taxpayer renditions. Rendition forms are mailed to all business owners every year. The chief appraiser reviews the renditions for reasonableness by comparing the rendered values of comparable properties. The review procedures are based on the chief appraiser's knowledge of personal property values and are not documented. According to the chief appraiser, personal property is discovered by word of mouth, phone book, advertisements and by driving around the county. The CAD subscribes to the publication Just Texas for locating leased vehicles in the county.
Currently, the CAD has two appraisers for local properties – the chief appraiser and deputy chief appraiser. Should appraisal personnel change, lack of detailed appraisal manuals will compromise the continuity of appraisal uniformity and result in property values that deviate from market value. This market value deviation can cause the school districts in Mills County to receive invalid findings in the state's Property Value Study.
As mentioned previously, Goldthwaite ISD received an invalid finding in the Comptroller's 2005 Property Value Study, and an invalid finding, if not corrected, can eventually cause the school district to receive less funding from the state than expected. Further, if the level of appraisal (percentage of market value) varies from taxpayer to taxpayer, then some taxpayers will bear more than their fair share of the local tax burden, while other taxpayers do not pay their fair share and could open the CAD up to equity issues in appraisal review board hearings.
A local appraisal procedures manual can help the CAD's appraisers operate more efficiently and improve appraisal uniformity. A functional appraisal manual should contain, at a minimum, the following: local procedures and practices for each type of property the CAD staff appraises; typical property classification characteristics and photographs; instructions for gathering and processing appraisal data; and instructions for reviewing and evaluating appraised values through internal ratio studies.
Property Tax Code Section 23.01(b) mandates that property be appraised by applying generally accepted appraisal methods and techniques. This section also requires appraisal districts to comply with the USPAP mass appraisal standard and to apply similar appraisal methods and techniques to the same or similar properties, while taking into account the contributions of individual property characteristics on value. A comprehensive appraisal manual helps ensure that these standards and requirements are achieved.
In Tom Green CAD, for example, an up-to-date local appraisal manual has been developed which 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.
Develop and distribute to appraisal staff a comprehensive appraisal manual that includes locally developed procedures for appraisals.
Ratio studies conducted by Mills CAD are not being used effectively to improve appraisal performance.
According to the chief appraiser, the CAD relies almost entirely on taxpayers for sales information. About 600 sales letters are mailed to buyers annually based on deeds filed with the county clerk and about 15 percent, or less than 100 responses, are returned. The CAD does not have written procedures for gathering or analyzing sales.
The chief appraiser said that the CAD performs ratio studies several times throughout the year to determine appraisal performance on the properties it appraises. The chief appraiser and deputy chief appraiser enter sales information for recently sold properties into the CAD's automated appraisal system. The system can generate ratio studies on demand, calculating individual property ratios as well as various statistical measures such as the mean, weighted mean, median and coefficients of dispersion (COD) for groups of properties. The chief appraiser said ratio studies are performed countywide and within school districts by property category, i.e., residential, land and commercial. The CAD's recently adopted reappraisal plan states there are no areas in the county that sell better than others; therefore, ratio studies are not conducted within separate market areas.
During the months of March – July 2005, the CAD performed ratio studies by county and school district for single-family residences and rural land and improvements. No commercial sales were reported at the time the ratio studies were performed. The parameters used by the CAD were all sales occurring in the period Jan. 1, 2004, through June 20, 2005. There is no evidence to show that the former chief appraiser used the ratio study results for appraisal maintenance.
In the 2005 PVS, Goldthwaite ISD received invalid findings due to its appraisal performance in Category A (single-family residences), Category D (rural land & improvements), and Category F1 (commercial real). The CAD's other three school districts received valid findings.
Exhibit 6 shows the Mills CAD 2005 ratio studies results for Goldthwaite ISD.
Goldthwaite ISD Ratio Studies
Residential and Land Sales
January 1, 2004 – June 30, 2005
Single-family Residential Sales
(1/01/04 –6/30/05) Category A
|Number of Sales||23|
|Total Sales Value||$1,187,478|
|Total Appraisal Value||$1,170,214|
|Weighted Mean Ratio||98.5|
Rural Land and Improvement Sales
(1/01/04 – 6/30/05) Category D
|Number of Sales||29|
|Total Sales Value||$7,031,281|
|Total Appraisal Value||$6,287,252|
|Weighted Mean Ratio||89.4|
Source: Mills CAD 2005 Ratio Studies.
Single-family residences make up about a third of Goldthwaite ISD's total appraised value. Final results of the 2005 PVS show single-family residences in Goldthwaite ISD being appraised at 91.54 percent of market rather than 98.5 percent as indicated in the CAD's study. The PVS sample consists of both sales and appraisals. Appraisals are used when there are not enough sales to meet the sample size requirement and to test whether unsold properties are being appraised at the same level as sold properties. When possible, PTD stratifies samples by value to test appraisal uniformity within a property category. The 2005 PVS results indicate the CAD needs to examine its residential building cost schedules to ensure that residential properties are appraised using current market data.
Exhibit 7 presents the 2005 PVS results for single-family residences in Goldthwaite ISD.
2005 PVS Results Single-family Residences Goldthwaite ISD
Group 1 (Residences with market values between $17,848 and $41,718)
|Sale (S) or Appraisal (A)||CAD Value||PTD Value||Ratio|
|Group 1 Total||$650,371||$758,901||.8570|
Group 2 (Residences with market value of between $41,719 and $62,937)
|Sale (S) or Appraisal (A)||CAD Value||PTD Value||Ratio|
|Group 2 Total||$770,159||$823,272||.9355|
Group 3 (Residences with market value of between $62,938 and $100,591.)
|Sale (S) or Appraisal (A)||CAD Value||PTD Value||Ratio|
|Group 3 Total||$1,558,633||$1,713,543||.9096|
Group 4 (Residences with market value of greater than $100,592.)
|Sale (S) or Appraisal (A)||CAD Value||PTD Value||Ratio|
|Group 4 Total||$2,481,307||$2,615,009||0.9489|
Source: 2005 PVS, Goldthwaite ISD Category A.
Rural land and improvements constitute about 40 percent of Goldthwaite ISD's total market value. The CAD ratio study and the 2005 PVS show identical results with land and rural improvements being under-appraised at 89.4 percent of market value, yet the CAD made no adjustments to the cost schedules. The results show the CAD failed to use its ratio study to improve appraisal performance and did not adjust its land and rural building schedules accordingly.
According to the chief appraiser, ratio studies performed in 2006 were used for appraisal maintenance and to test cost schedules for the 2006 tax year. These efforts seem to help improve appraisal performance as all ISDs in Mills CAD received valid findings in the final 2006 PVS.
Property Tax Code Section 23.01(a) requires that a CAD appraise property at its market value. IAAO's Standard on Ratio Studies, Section 4, lists the six basic steps of ratio studies:
- definition of purpose and objectives;
- collection and preparation of market data;
- matching appraisal and market data;
- statistical analysis; and
- evaluation and use of results.
To be an effective tool in measuring appraisal performance, appraisal districts do not limit sales analysis to location only. Appraisal districts also review property characteristics such as class, size, age and value. Stratifying sales information according to property characteristics is useful in identifying the lack of appraisal uniformity among property types. Moreover, while the PVS is a good tool for appraisal planning, the timing of the study and its results are not available in a timely manner to solve current year appraisal weaknesses.
By applying ratio study methods correctly, the Mills CAD can ensure they make necessary adjustments to produce values at or near the market. Effective appraisal districts conduct and apply frequent ratio studies with associated appraisal maintenance, ensuring it makes necessary adjustments to produce values at or near the market.
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 leaders make reappraisal and value maintenance decisions based on ratio study runs within property classes, by school district and county, conducted at least quarterly to determine appraisal performance, ensuring values are kept at or near the market.
Apply current methods of using ratio studies to adjust cost schedules that reflect market values.
Adjusting cost schedules to reflect market values helps ensure that the CAD appraises all categories of property uniformly and at market value. When appropriate, the CAD should use a locally developed modifier based on sales to use with the cost approach.
Mills CAD does not consider income when appraising commercial properties as required by the Property Tax Code, USPAP and IAAO.
The chief appraiser said that the CAD does not use the income approach to calculate the appraised value when appraising commercial properties. He said most of the commercial properties are old and not good candidates for the income approach.
The CAD gathers local commercial building cost information from area builders and uses sales data when available, but commercial sales are extremely scarce. The chief appraiser stated that the CAD's building cost schedules were developed over the years using local building cost information and feels they are better indicators of value than Marshall & Swift's Commercial Valuation Guide. He is considering purchasing M&S because it is used by PTD to appraise commercial property.
Mills CAD reported 176 commercial real properties in the 2005 School District Report of Value for Goldthwaite ISD. The vast majority of the commercial accounts are located within the city of Goldthwaite. The city of Goldthwaite does not levy a property tax, but instead relies on revenue generated by the sale of utilities, sales tax rebates and other fees. According to a city official, the city collects a two-percent sales tax. The Comptroller's report on September 2006 sales tax rebates shows the city's rebates are up by 9.36 percent over 2005 and total $183,176, an indicator that business revenues are increasing. Net revenues (income) are the basis for the income approach to value.
Due to limited commercial sales and building cost information, the CAD should consider the income approach as another source of data for appraising commercial properties, when applicable. While it is true that not all commercial properties lend themselves to the income approach, properties that generate income from rents, leases and fees do, as well as some retail establishments.
The CAD risks producing commercial appraisals that do not accurately reflect current market value by failing to recognize all approaches to value when appraising commercial property. Goldthwaite ISD received an invalid finding in the 2005 PVS, due in part to commercial real property being under-appraised. 2005 PVS results indicated commercial property was being appraised at 76.9 percent of market value. If any Mills CAD school district receives two consecutive invalid findings, it could lose funds in the school funding formula.
Property Tax Code Section 23.0101 states that 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.
USPAP Standard 6-6(a) states: "(An appraiser must) value improved parcels by recognized methods or techniques based on the cost approach, the sales comparison approach and income approach."
IAAO Standard on the Application of the Three Approaches to Value in 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.
Tom Green CAD, for example, improved its level of commercial appraisals by using surveys, commercial market reports, internet research and communicating with business owners to obtain more reliable income and market data on commercial property.
Develop methods for obtaining data on income-producing properties and consider income when appraising commercial property.
Mills CAD does not annually inspect business personal property.
The Mills CAD reappraisal plan states personal property will be physically inspected once every three years. The chief appraiser said personal property values are reviewed every year by examining renditions filed by business owners. The chief appraiser estimates 85 percent of all businesses in Mills CAD render their personal property. Renditions are reviewed for accuracy and reasonableness. Procedures for reviewing renditions are not written. If additional information is needed, the business owner is either called or visited. Businesses new to the CAD are physically inspected during their first year of operation. The CAD's recently approved reappraisal plan states personal property will be physically inspected every three years.
In 2005, Mills CAD's 307 business personal property accounts made up less than one percent of the CAD's total reported appraised value. Nonetheless, personal property must be appraised using the same appraisal standards as other properties. Because personal property by nature is moveable, a physical inspection is critical to ensure appraisal accuracy from year to year.
Lack of annual inspections and independent valuation of all properties, regardless of size and value, could result in inaccurate and inequitable appraisals. IAAO's Standard on Valuation of Personal Property states that an assessor should establish an audit program to verify that all personal property items have been reported and the information given is accurate.
Property Tax Code Section 23.01(a) requires all property to be appraised 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 of property. Independent verification, inspection and valuation of inventories, fixtures and equipment ensure that accounts reflect market value.
Section 22.07(a) states: "The chief appraiser or his authorized representative may 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 and having a taxable situs in the district." Section 22.07(c) authorizes the chief appraiser to request supporting rendition information.
IAAO Standard 14, Valuation of Personal Property states that 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; and
- Web sites, specifically leasing and sales.
Once the property has been discovered and the owner is identified, the CAD should inspect the property.
Nueces CAD, for example, prepares an annual work plan specifying how and when appraisers will inspect and value personal property.
Attempt to inspect all business personal property accounts each year and develop an independent valuation method as provided by the law.
Changes in personal property appraisal methods should be reflected in the CAD's reappraisal plan.
Mills CAD's reappraisal plan lacks specific data required by the Property Tax Code Section 25.18, and recommended by USPAP.
On Aug. 15, 2006, the Mills CAD board of directors held a public hearing on the CAD's proposed reappraisal plan. Notice of the public hearing was properly posted. No taxpayers were present for the hearing. The reappraisal plan was approved at the board's regular meeting following the hearing.
Exhibit 8 shows the elements of an effective reappraisal plan and the elements needed to improve the Mills CAD plan.
Comparison of Elements of Standard Reappraisal Plan and the Mills CAD Reappraisal Plan
|Effective Reappraisal Plan Elements||Mills CAD Reappraisal Plan Elements|
|Record of property characteristics||Property record card with all required data|
|Physical property inspection||Residential and personal property every three years and commercial property every year.|
|Other sources of reliable information in lieu of physical inspection||Business personal property renditions|
|Available resources: (a) staff, (b) budget; (c) equipment/technology||(a) two fulltime appraisers, (b) not specified, (c) Gemini automated appraisal software, variety of manuals and maps|
|Specific description of appraisal activities for each year of the reappraisal plan||Not specified|
|Timeline for completing appraisal activities within each year of the reappraisal plan||Not specified|
|Quality control||Ratio studies, field work reviews, taxpayer protests|
Sources: USPAP, Texas Tax Code, Mills CAD Reappraisal Plan.
The Mills CAD reappraisal plan describes in general terms how appraisal staff appraise residential, land, commercial and business personal properties using the three approaches to value – market, cost and income. The plan states the CAD operates under a three-year reappraisal cycle, with physical inspections of residential and personal property occurring once every three years and commercial property inspected every year. In addition, new construction is appraised and a market analysis of all properties is performed every year using ratio studies. According to the plan, the next complete reappraisal is scheduled for 2008.
Without a detailed reappraisal plan, Mills CAD does not have a step-by-step explanation of how the CAD will accomplish its reappraisal activities. The plan identifies an appraisal staff of two appraisers, but the plan does not explain if the appraisers work as a team or individually. Nor does the plan state how the reappraisal activities will progress, for example, in which area(s) of the county the reappraisal activities will begin and where will they end. The plan fails to provide a timeline for completing reappraisal activities – when appraisers must complete field work, when data entry must be complete, or when appraisal notices will be generated and appraisal review hearings held.
The Mills CAD reappraisal plan follows the format of a mass appraisal report. USPAP Standard 6 requires appraisal districts to prepare annual mass appraisal reports to provide the public a better understanding of what an appraisal district does and how it performs appraisals. A mass appraisal report describes, in general terms, the mass appraisal techniques used by an appraisal district to appraise property for ad valorem tax purposes. A reappraisal plan, on the other hand, as required by Property Tax Code Sections 6.05(i) and 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 mass appraisal techniques described in the mass appraisal report will be implemented.
In a separate document, an appraisal summary prepared by the CAD's contract appraiser describes how utility, railroad, pipeline, oil and gas, industrial and business personal properties are appraised. It states that the appraisals are as of Jan. 1 and are reported to the CAD around April 20 of the tax year. The contractor submitted the plan to the CAD in September 2006 after the board had approved its reappraisal 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
(6) characteristics affecting value in each market area and determines the contribution of individual property characteristics;
(7) applying the conclusions reflected in the model to the characteristics
(8) of the properties being appraised; and
(9) 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.
- Value Updates.
A detailed reappraisal plan, if executed properly, provides a roadmap to help ensure that school districts receive valid values in the PVS and possibly preclude a school district from receiving less than the expected amount of funding from the state. Effective appraisal districts develop and properly execute a complete reappraisal plan, helping ensure that taxpayers are treated equitably in assigning property taxes. A reappraisal plan also serves as the communication tool that demonstrates to the board the methods used by appraisal staff. The reappraisal plan sets forth the manner in which the staff will conduct its appraisals.
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 reappraisals on an annual basis and is reviewed each year and updated when changes are needed.
Expand the reappraisal plan to include a tax calendar, staff assignments and technical properties.
The CAD is responsible for its contract appraisers and the board should approve a reappraisal plan that includes contracted properties.
Mills CAD does not have written procedures for gathering and analyzing sales.
According to the chief appraiser, after eliminating deeds between family members, sales letters are mailed to each grantee when a deed is filed in Mills County. The chief appraiser estimates about 50 letters are mailed each month, with the CAD receiving about a 15 percent response. He said the sales letters are the CAD's primary source of sales information and that a multiple listing service does not exist in Mills County.
The chief appraiser said that when a sales letter is received, either he or the deputy chief appraiser reviews the information supplied by the grantee and enters it into the automated appraisal system. If needed, sales are adjusted based on the appraisal knowledge and expertise of the chief appraiser and deputy chief appraiser. Guidelines for adjusting sales are not written. The chief appraiser reviews the sales annually to test schedules by performing ratio studies. The deputy chief appraiser said sales are also used during the appeals process to help support the CAD's appraised values.
Without common guidelines for determining how to verify, confirm and adjust sales, the CAD risks using sales for appraisals and appraisal maintenance that do not accurately reflect current market value. Confirmation and validation of sales is critical in determining local market values. Non-market and improperly adjusted sales also contribute to inaccurate ratio studies, which the chief appraiser stated are used for updating appraisal schedules. Goldthwaite ISD received an invalid finding in the 2005 PVS, primarily because single-family residences, rural land and improvements and commercial real property were appraised below market value. Single-family residences (Category A) in Goldthwaite ISD received a weighted mean ratio of 0.9154, rural land and improvements (Category D) was assigned a weighted mean ratio of 0.8940 and commercial real property (Category F1) received a weighted mean ratio of 0.7690. If any Mills CAD school district receives three consecutive invalid findings, it could lose funds in the school funding formula.
According to IAAO's textbook, Property Appraisal and Assessment Administration, Chapter Five, "Data Collection and Management," the reliability of any valuation model or sales ratio study 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 reliability of any valuation model or sales ratio study depends on the quantity and quality of data. The text recommends collecting the following sales data whenever necessary:
- 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.
- 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, realtors, multiple listing services, title companies, private appraisers, leasing agents and certified property managers are good informational sources.
The aforementioned IAAO text also points out in Chapter One that standards of practice require written procedures and regularly scheduled updates of the procedures are essential. As well as establishing work procedures, written procedures 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.
Written guidelines help appraisers select and adjust sales for assigning values and as evidence before the appraisal review board. Knowing what analysis is needed, when to perform the analysis and how to perform it is key to maintaining continuity and a high level of appraisal accuracy. By providing comprehensive, written guidance to appraisal staff, Mills CAD can help ensure that sales data are applied consistently as valid indicators in achieving market value, particularly for single-family residences.
For example, Nueces CAD has a well-written Market Analysis Procedures Manual that describes the processes used to obtain sales information and the procedures necessary for sales confirmation. Written procedures ensure the market analyses are done consistently, regardless of personnel changes.
Establish written procedures based on IAAO standards for gathering and analyzing sales data.
The CAD should also examine other CAD's methods for obtaining sales data rather than relying solely on sales letters.