Chapter 2
Findings of the Appraisal Standards Review
This chapter addresses findings, commendations and recommendations from the appraisal standards review of the Navarro CAD in two sections:
- 2.1 Generally Accepted Appraisal Practices
- 2.2 Other Recommendations
2.1
Generally Accepted Appraisal Practices
There are three general appraisal methods or approaches–cost, income and market–that a chief appraiser must consider in determining the market value of property. The appraiser must use the method most appropriate in appraising a particular property.
Appraisal textbooks and IAAO Standards include additional information about the approaches to determining or appraising value. Appraisers usually determine the value of producing mineral deposits, including 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.
Navarro CAD's appraisal manual contains local procedures for appraisers to follow when appraising residential, commercial and personal property. The manual contains taxing entity codes, property classification codes, photos of each classification of property and a description of characteristics common to each classification. The CAD updates the manual annually to reflect new building schedules. The automated appraisal system also keeps the schedules in electronic format.
Navarro CAD's computerized mapping system assists in the appraisal process by allowing appraisers to locate properties efficiently. Maps are an integral part of any reappraisal plan.
FINDING
Navarro CAD's one-page reappraisal plan adopted by its board on Jan. 17, 2001, is outdated and lacks information required by USPAP Standard 6 and Property Tax Code Section 25.18.
Navarro CAD's July 2006 response indicated agreement with this finding. Navarro CAD submitted a new reappraisal plan for its residential department; the plan includes all county school districts.
The one-page plan consists of seven short paragraphs that address the topics, as shown in Exhibit 6. The recently retired chief appraiser indicated the most recent Navarro CAD reappraisal was in 2004, with the next planned reappraisal in 2007.
Exhibit 6
Navarro Central Appraisal District
Summary of Reappraisal Plan Topics by Paragraph
| Paragraph Number | Summary Description |
|---|---|
| 1 | The paragraph includes three sentences that generally reference the Property Tax Code. |
| 2 | One sentence reference to Property Tax Code Section 25.18 requirement and that the CAD will reappraise all real property in Navarro CAD once every three years. |
| 3 | Three sentences that discuss completing additions/deletions to the appraisal roll based on new construction or improvements, work in progress and damaged property. |
| 4 | Two sentences that discuss compiling and evaluating sales information on each class of real residential property annually, and then conducting ratio studies and adjusting schedules as needed. Two sentences that discuss compiling sales information for commercial property at least once every three years and then conducting ratio studies and adjusting schedules as needed. |
| 5 |
Three sentences with requirements for Personal Property:
|
| 6 |
Three sentences:
|
| 7 |
Five sentences about Agriculture valuations:
|
Source: Navarro Central Appraisal District Reappraisal Plan, adopted by board on Jan. 17, 2001.
Property Tax Code Section 6.01 (i) requires:
(i) To ensure adherence with generally accepted appraisal practices, the board of directors of an appraisal district shall develop biennially a written plan for the periodic reappraisal of all property within the boundaries of the district according to the requirements of Section 25.18 and shall hold a public hearing to consider the proposed plan. Not later than the 10th day before the date of the hearing, the secretary of the board shall deliver to the presiding officer of the governing body of each taxing unit participating in the district a written notice of the date, time, and place for the hearing. Not later than September 15 of each even-numbered year, the board shall complete its hearings, make any amendments, and by resolution finally approve the plan. Copies of the approved plan shall be distributed to the presiding officer of the governing body of each taxing unit participating in the district and to the comptroller within 60 days of the approval date.
Property Tax Code Section 25.18 on Periodic Reappraisals requires that:
- Each appraisal office shall implement a plan for periodic reappraisal of property approved by the board of directors under Section 6.05(i).
- The plan shall provide for the following reappraisal activities all real and personal property in the district at least once every three years:
- 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;
- identifying and updating relevant characteristics of each property in the appraisal records;
- defining market areas in the district;
- identifying property characteristics that affect property value in each market area, including:
- the location and market area of property;
- physical attributes of property, such as size, age, and condition;
- legal and economic attributes; and
- easements, covenants, leases, reservations, contracts, declarations, special assessments, ordinances, or legal restrictions;
- developing an appraisal model that reflects the relationship among the property characteristics affecting value in each market area and determines the contribution of individual property characteristics;
- applying the conclusions reflected in the model to the characteristics of the properties being appraised; and
- reviewing the appraisal results to determine value.
Navarro CAD adopted its reappraisal plan for 2007-2008 on Nov. 15, 2006, a full two months after the statutory requirement. The plan includes brief paragraphs describing the 10 steps of each reappraisal. The 10 steps include: performance analysis, reappraisal decision, analysis of available resources, planning and organization, mass appraisal system, pilot study, data collection, valuation, the mass appraisal report and value defense. While the plan lists the names and qualifications of various appraisers as well as a timeline for the reappraisal, it does not contain the level of detail needed to effectively perform a full reappraisal.
Because of Navarro CAD's inadequate reappraisal plan, the CAD did not reappraise Rice ISD with the periodic three-year reappraisal required by law. It did not provide enough information to be able to tell if all property categories in each ISD were reappraised as scheduled. It did not indicate which property categories or parcels it completed in Corsicana ISD's partial reappraisals.
The CAD provided no evidence to show it had updated or amended the 2001 plan. When comparing the existing CAD document with USPAP Standard 6, all of the recommended activities to be included in a functional reappraisal plan are missing from Navarro CAD's plan, as follows:
- identifying properties to be appraised;
- identifying and updating in the appraisal records the relevant characteristics of each property to be appraised;
- defining market areas;
- identifying property characteristics that affect property value in each market area;
- developing an appraisal model that reflects the relationship among the property characteristics affecting value in each market area;
- calibrating the model to determine the contribution of the individual property characteristics affecting value;
- applying the conclusions reflected in the model to the characteristics of the properties being appraised; and
- reviewing the appraisal results.
Also missing are the appraisal district's budget, training, contracting, market analysis, field inspections and data processing (as related to the reappraisal plan) in one document.
When asked in February 2006 about the biennial reappraisal plan that requires public review and adoption by Sept. 15, 2006, for 2007 and 2008, the recently retired chief appraiser did not provide any additional documentation but indicated the plan is something the CAD still wishes to do and that there is time to prepare it. In July 2006, the senior appraiser provided a copy of the Navarro CAD Residential Real Estate Department 2006 Reappraisal Plan. This document is three pages and has much more detail than the board-adopted plan, including a general time/action schedule.
In July 2006, the senior appraiser also provided the following information about Navarro CAD school district reappraisal plan activities for 2004, 2005 and 2006 (Exhibit 7). An "X" marks the year that the ISD was scheduled and reappraised while blank spaces indicate no reappraisal was scheduled or occurred.
Exhibit 7
Navarro CAD School Districts and Reappraisals
2004, 2005 and 2006
Navarro CAD ISDs
| Reappraisal Year | Corsicana | Blooming Grove | Dawson | Frost | Kerens | Mildred | Rice |
|---|---|---|---|---|---|---|---|
| 2006 | X(p) | X | X | X | |||
| 2005 | X(p) | X | |||||
| 2004 | X(p) | X |
Note: X(p) means only part of the ISD was reappraised.
Source: Navarro CAD, July 2006.
A reappraisal plan is a roadmap for performing a reliable appraisal, as well as the communication tool that demonstrates to the 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 detailed written reappraisal plan, Navarro CAD can help attain consistent, accurate and timely reappraisals are scheduled and completed for all properties. This is especially important for Navarro CAD, since the chief appraiser retired in late June 2006. The CAD produced less than acceptable quality in-house appraisals in 2004 and 2005.
As an example, Jefferson CAD has a one-year model reappraisal plan that meets or exceeds the criteria of the laws and recommended industry standards, with all of the desired details. Jefferson CAD can expand the plan to meet the biennial written appraisal plan requirement in effect for 2006.
RECOMMENDATION 1
Develop and adopt a complete reappraisal plan in compliance with Property Tax Code Section 25.18 and industry standards.
FINDING
Navarro CAD's method of performing ratio studies is ineffective as a tool for identifying and eliminating unequal levels of appraisal.
Navarro CAD's July 2006 response indicated agreement with this finding, and the CAD plans to request additional funds for joining a multiple listing service (MLS) to provide direct receipt of sales data.
The chief appraiser entered all available sales into a spreadsheet and recorded the property identification number, month that the sale occurred, property classification code, sale price and appraised value. The chief appraiser also coded each sale that he verified or did not verify. The spreadsheet contains calculations that produce individual ratios, standard deviations, a coefficient of dispersion, mean, median, mode and weighted mean for the sample properties.
The chief appraiser indicated a lack of sales information prevents the CAD from developing market areas; therefore, it groups all sales of property with the same use together by taxing entity. For example, the CAD analyzes all single-family residences within Corsicana ISD as a whole. It does not analyze separately, classification, value and time.
The 2004 PVS stratification data show instances where value was a factor contributing to unequal levels of appraisal. The CAD did not appraise property within certain value ranges at market value. The 2004 PVS indicated that single-family residences in Corsicana ISD with appraised values less than $45,000 received a weighted mean ratio of 0.9127. Homes with appraised values greater than $105,000 received a weighted mean ratio of 0.9340. The CAD's ratio study methodology does not identify these appraisal weaknesses. As a result, the lack of appraisal uniformity in Corsicana ISD led to its 2004 PVS invalid finding.
The 2004 PVS stratification data shows other examples of unequal levels of appraisals in Mildred ISD. For example, Single-family residences received a weighted mean ratio of 1.0817, and rural land received a weighted mean ratio of 1.1859. These examples show examples where the CAD's appraisals were inaccurate as compared with the PVS. Because of the continued appraisal inaccuracies and inability to qualify as an eligible school district in the 2004 and 2005 PVS, Mildred ISD received invalid findings in both the 2004 and 2005 PVS.
The recently retired chief appraiser indicated that in 2006 staff appraisers began entering sales data from their assigned regions into the CAD's automated appraisal system. The system can generate ratio studies on demand, so field appraisers can analyze sales data based on a variety of criteria such as location, classification, value and time.
Property Tax Code Section 23.01 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;
- stratification;
- statistical analysis; and
- evaluation and use of results.
To be an effective tool in measuring its 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 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 improving ratio study methods, the Navarro CAD can ensure it makes 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 heads make reappraisal and value maintenance decisions based on ratio study runs within property classes, by school district and county and conducted at least quarterly to determine appraisal performance, ensuring values are kept at or near the market.
RECOMMENDATION 2
Improve methods of using ratio studies to eliminate unequal levels of appraisal to help ensure that the CAD appraises all categories of property at market value.
FINDING
Navarro CAD lacks locally written guidelines for administering open space land valuations, and its agricultural advisory board has not met since April 2003.
Navarro CAD's July 2006 response indicated agreement with this finding. The CAD advises it will request that its agricultural advisory board to meet three times annually.
According to the recently retired chief appraiser, it is difficult to define minimum standards for agricultural use because land in the county is so diverse. The CAD uses the Tax Code and the Comptroller's Manual for the Appraisal of Agricultural Land as resources for granting agricultural use designations. The CAD has an agricultural advisory board, but the last documented meeting was April 25, 2003. The senior appraiser indicated that appraisers review each application for agricultural use and conduct on-site inspections for each application.
The recently retired chief appraiser indicated that the CAD uses the Texas Parks and Wildlife Department's guidelines on wildlife management to determine qualifications for wildlife management designations.
On May 15, 2002, the Navarro CAD board adopted a wildlife management plan setting minimum wildlife use percentages at 92 percent, or 12.5 acres. In other words, to qualify for the special use evaluation as wildlife management, 92 percent of a tract of land (or a minimum of 12.5 acres) must be devoted to wildlife management. In 2004, the CAD reported 3,479 acres in wildlife management, or less than one percent of the total reported 522,796 acres qualifying for agricultural use. This indicates that very few Navarro CAD landowners are engaging in wildlife management on agricultural properties.
Exhibit 8 presents the 2004 and 2005 Navarro CAD PVS results by school district for Category D1, the corresponding PVS category for agricultural land valuations' productivity values. The indicated weighted mean ratios are inside of the desired 0.95 to 1.05 range. All of the 2004 PVS and all but two (Dawson and Kerens ISD) of the 2005 PVS ratios are outside of the reasonable range for achieving market value.
Exhibit 8
Navarro CAD 2004 and 2005 PVS Data for
Rural Properties by School District
| Navarro CAD School District |
2004 PVS Weighted Mean Ratios |
2005 PVS Weighted Mean Ratios |
|---|---|---|
| Blooming Grove ISD | 1.0897 | 1.0671 |
| Corsicana ISD | 1.1133 | 1.1709 |
| Dawson ISD | 1.0898 | 1.0418* |
| Frost ISD | 1.0827 | 0.8942 |
| Kerens ISD | 1.1040 | 1.0428* |
| Mildred ISD | 1.1418 | 1.1798 |
| Rice ISD | 1.1274 | 1.1185 |
Source: 2004 and 2005 PVS.
The 2004 and 2005 PVS results indicate that Category D1 properties in Navarro CAD are consistently valued above a 1.0 weighted mean ratio in all but one instance, Frost ISD in 2005 which had a rate of .8942. By not using the advisory board as the Tax Code intended or adequately defining or valuing its agricultural land uses, Navarro CAD has inaccurately appraised Category D1, Real Property: Qualified Agricultural Land, countywide as measured by the PVS, with Mildred ISD receiving invalid findings in the 2004 and 2005 PVS. Landowners may also lose the opportunity to qualify for agricultural land uses that the CAD has not properly defined, as required by Property Tax Code Section 23.51.
Effective appraisal districts maintain written guidelines defining all typical land uses for their county and setting out what factors define the degree of intensity requirement. Factors such as stocking ratios, acreage requirements and number of required animal units need to be set forth in a written document for use by appraisal district staff and the public.
Written agricultural guidelines help ensure consistency in administration while eliminating subjectivity from the decision-making process. By clearly defining what agricultural activities are typical for Navarro CAD areas and the degree of intensity that is necessary to meet each area's requirements, the CAD will improve appraisal accuracy and consistency in administering the agricultural land valuations while ensuring key information is available to landowners and the public.
Property Tax Code Section 23.51 requires that land be dedicated principally to agricultural use to "the degree of intensity generally accepted in the area" to qualify for agricultural land valuation. Property Tax Code Section 6.12 requires that an appraisal district's agricultural advisory board meet at least three times each year. The board's function is to advise the chief appraiser on the valuation and use of land designated for agricultural use. The advisory board assists the chief appraiser in developing guidelines for granting agricultural use evaluations.
RECOMMENDATION 3
Improve agricultural land appraisal accuracy by requiring the Navarro CAD Agricultural Advisory Board to meet at least three times annually and establish written local guidelines for administering agricultural land valuations.
FINDING
Navarro CAD lacks written procedures for gathering and analyzing sales.
Navarro CAD's July 2006 response indicated agreement with this finding, and the CAD plans to resume sending sales verification letters in 2007.
The chief appraiser indicated the local real estate MLS will not allow the CAD to join the organization or to access any MLS sales information. CAD employees who hold a real estate license must place the license on inactive status with the Texas Real Estate Commission. The chief appraiser indicated that the reason is to avoid any perception of CAD employees using information from the CAD to conduct real estate transactions.
The chief appraiser indicated that the CAD stopped mailing sales confirmation letters to property owners two years ago due to the poor response and expense. The chief appraiser estimated that the CAD mailed about 6,000 letters over the years with less than 10 responses. The CAD currently purchases sales information from a local realtor. The realtor supplies the CAD with sales information monthly at a cost of $50 per month. The CAD also uses the PVS as a source of verified sales information.
CAD appraisers recently began analyzing sales data within their assigned regions and entering the data into the CAD's automated appraisal system. Without common guidelines for determining how to verify, confirm and adjust sales, the CAD risks using sales for appraisal maintenance that do not accurately reflect current market value. Confirmation and validation of sales is critical in determining accurate local market value modifiers, especially for single-family residences. Not using verified, accurate sales data to adjust single-family residence appraisals for local conditions could cause Navarro CAD to produce inaccurate appraisals.
Corsicana ISD's single-family residential category tested with a weighted mean ratio of 0.9433. Mildred ISD also received an invalid PVS finding partially due to inaccurately valuing single-family residences.
Chapter 5 in the IAAO publication Property Appraisal and Assessment Administration discusses the importance of gathering and analyzing sales data:
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 its data. Sales data must be collected, edited and adjusted to obtain valid indicators of market value. Ratio studies also require data on appraised values. Data on property characteristics are needed for stratification and the preparation of sales reports.
Written guidelines help appraisers in selecting and adjusting comparable sales for assigning values and as evidence before the appraisal review board. Knowing what analysis to perform and when 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, Navarro CAD can help ensure that it applies sales data consistently as valid indicators in achieving market value.
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 CAD performs market analyses consistently, regardless of personnel changes.
RECOMMENDATION 4
Establish written procedures aligned with industry-accepted standards for gathering and analyzing sales data.