Findings of the Appraisal Standards Review
In July 2005, The Comptroller released an ASR of Nueces CAD because the 2003 PVS identified three of its school districts–Robstown, Banquete and Flour Bluff ISDs–as eligible school districts. The report made five recommendations to improve Nueces CAD's appraisal practices and operations. Nueces CAD faced a number of challenges including:
- using a modified cost approach;
- using market data to adjust cost-driven schedules on lower-value property when there are insufficient sales;
- improving fiscal management functions; and
- using the district's Geographic Information System (GIS) more effectively.
In August 2006, PTD reviewed the progress made by Nueces CAD in implementing the recommendations found in the original report and found the CAD had fully implemented all recommendations. The CAD took steps to improve appraisal consistency and accuracy, including reorganizing the residential appraisal department, retraining residential staff appraisers and reworking residential classification schedules during 2005. The PVS for 2004 and 2005 found the CAD appraised at acceptable levels in all school districts in its jurisdiction.
In 2006, the PVS again found Nueces CAD to have an eligible school district when Tuloso-Midway ISD's residential values fell below the acceptable ratio. The school district and the findings identified are not the same as those in the 2005 ASR. This ASR looks at the reasons Tuloso Midway ISD received an eligible designation and how the CAD can improve operations to assure it appraises the school district's property at market value.
This chapter of the report addresses commendations, findings and recommendations from the appraisal standards review of the Nueces CAD in two sections:
2.1 Commendable Practices
2.2 Key Findings and Recommendations
As part of its review process, PTD identifies best practices used by each CAD under review. These commendable practices improve efficiency, in some instances can address past operational weaknesses and may give other appraisal districts ideas for improving operations.
To help ensure consistency in the development of property values, Nueces CAD maintains a current appraisal procedures manual.
The CAD's 783-page Appraisal District Procedures and Operations Manual includes specific procedures for each appraisal department in the CAD. The manual provides clear instructions for appraisers to use in appraising each type of property. The CAD updates the manual annually and contains an organization chart for the CAD and the USPAP standards with explanations, as well as a section on mass appraisal procedures.
The residential procedures section of the manual includes the department's reappraisal plan, staff responsibilities, a planning calendar, building schedules and residential appraisal procedures that include the department's goals and objectives, procedures for data collection and the information required on all property records and appraisal cards, including building and land attributes. The manual also discusses measurements and sketches. A section on improvement appraisal explains highest and best use, construction type and construction quality and condition, including depreciation. The appendix contains a classification guide with photographs of homes to assist in uniformity and consistency among appraisers.
Like the residential procedures, the commercial procedures section of the manual includes the department's reappraisal plan and specific procedures for valuing commercial properties based on market, cost and income. This section of the manual provides guidelines for specific property categories such as apartment complexes and hotels and includes a classification guide with pictures of various types of commercial buildings and pricing structures to assist commercial appraisers in maintaining uniformity and consistency.
The land section of the manual includes an organization chart, a valuation system based on categories of land use, procedures for researching sales data and instructions on the valuation process. Other sections of the manual cover procedures for market analysis, ARB procedures and reappraisal notices.
With the assistance of a Nueces CAD field appraiser, the Comptroller's ASR review team performed a visual inspection of 40 randomly selected properties and appraised them using the procedures in the CAD's appraisal manual. The review team examined properties within Tuloso-Midway ISD, the eligible 2006 PVS school district, including 18 Category A: Single-Family Residential residences; five Category C: Vacant Lots and Tracts ; three Category D: Agricultural Land, Qualified and Non-qualified properties; seven Category F1: Commercial real properties; and seven Category L1: Commercial, personal properties.
The review team was able to replicate the values in all but three cases. The exceptions included two properties for which the team could not replicate the costs for other improvements and one property for which the depreciation on the property card differed from the amount on the schedule. In each exception, these variances were less than one percent of the CAD's appraised value.
Information on the property account cards was clear and easy to understand, and the documentation was consistent. Exhibit 1 lists the review team's average appraised the values for the sample property and values documented on the appraisal card.
Review of Sample Property
|Property Category||CAD Average Value||Review Team Average Value||Percent Different||PVS Category Ratio for Tuloso-Midway ISD|
|Category A: Single-Family Residential Residences||$2,054,638||$2,059,571||-0.24%||0.9160|
|Category C: Vacant Lots and Tracts||$6,670,053||$6,670,058||0.00%||0.9891|
|Category D: Agricultural Land, Qualified and Non-qualified||$134,910||$134,910||0.00%||0.9697|
|Category F1: Commercial||$2,291,546||$2,280,813||0.47%||0.9849|
|Category L1: Commercial, Personal Property||$6,622,042||$6,622,042||0.00%||0.9903|
Source: Nueces CAD and On-site Review, March 2008.
Nueces CAD has a separate Personal Property Procedures Manual, updated in 2007, that contains the department's reappraisal plan, USPAP document, job descriptions and assignments. According to the personal property coordinator, the department inspects all personal property annually. The manual outlines the discovery process and contains valuation schedules.
Nueces CAD subscribes to a wide variety of publications to assist in appraising personal property, including publications by Marshal & Swift and NADA's (National Automobile Dealers Association) guides for automobiles, boats, motorcycles and manufactured housing and its Blue Books for trucks and farm tractors. According to the assistant chief appraiser, the CAD relies on rigorous monitoring by its department heads to ensure appraisers use the manual to maintain consistency in appraisal processes.
The CAD updates the Appraisal District Procedures and Operations Manual annually to ensure it contains specific instructions to aid appraisers in their work. The manual includes quality control activities for the appraiser to perform before submitting changed appraisal values, as well as for support and management staff. The CAD documents changes to values on the appraisal card and on field inspection worksheets. In addition, managers from each department meet with the chief appraiser and the assistant chief appraiser weekly to review progress, plan and discuss problems.
The use of detailed procedures and rigorous monitoring of appraiser activities ensures consistent application of appraisal techniques and valid values.
Nueces CAD uses detailed appraisal procedures to determine consistent values for property in the CAD.
Due to an inability of certain staff members to complete the reappraisal of residential property in Tuloso-Midway as required by the reappraisal plan, Nueces CAD decided to reappraise most property annually to ensure the execution of timely and accurate reappraisals.
Nueces CAD has detailed reappraisal plans, referred to as time action plans, for each major appraisal department. Each action plan details steps, timelines and staffing assignments. The residential and commercial reappraisal plans outline how the CAD uses internal ratio studies to determine the need for reappraisal in each market area. The personal property reappraisal plan also discusses the responsibilities of each staff member.
PTD identified Tuloso-Midway ISD as an eligible school district when its local value fell outside of the confidence interval limit determined by the 2006 PVS. Staff charged with reappraising residential property in Tuloso-Midway did not do so. The chief appraiser and assistant chief appraiser stated they did not find out about the omission until it was too late. They point out that the finding was not a deficiency in the plan, but in the staff's failure to execute it timely. A lack of management monitoring further exacerbated the problem. The CAD's reappraisal efforts in 2007, however, resulted in valid preliminary findings for all of the CAD's school districts, including Tuloso-Midway.
The chief appraiser continues to address the issue by making changes in management staff. In September 2007, the chief appraiser hired a new assistant chief appraiser and, at the time of the site visit in February 2008, was in the process of filling the vacant residential department manager position. Both positions became vacant after reappraisal efforts failed in Tuloso-Midway.
Recognizing the increased pace of changing values, the chief appraiser decided to change the CAD's reappraisal cycle from every three years to every year for all school districts. The CAD will add sufficient staff in each department to accomplish yearly reappraisal. The CAD will address the need for additional staff in the 2008 budget process and it will document the reappraisal cycle change in the 2008 reappraisal plan.
A reappraisal plan is a roadmap for performing work. It communicates to the appraisal district board of directors how the appraisal district plans to accomplish its appraisals, and if the board chooses to require the chief appraiser to submit the plan for approval, the board can direct the appraisal activities by amending the plan.
Nueces CAD uses detailed reappraisal plans, updated annually, for each major appraisal department in the CAD and performs annual reappraisal of most areas of the CAD to ensure timely and accurate reappraisals.
Key Findings and Recommendations
As part of the review process, PTD makes recommendations to address challenges identified during its review of a CAD. Below are recommendations addressing key challenges associated with Nueces CAD's appraisal activities.
Nueces CAD relies on out-of-date depreciation schedules.
USPAP Standard 6-5 requires an appraiser to "collect, verify and analyze such data as are necessary and appropriate to develop ... accrued depreciation" for its mass appraisal model to obtain credible results. The appraisal model must reflect the relationship among the property characteristics affecting value in each market area and determine the contribution each property characteristic, such as age, makes to the overall value of a specific property.
IAAO defines a depreciation schedule as a table used in mass appraisal to show the typical loss in value at various ages or effective ages for different types of properties.
Nueces CAD relies on an outdated depreciation schedule for residential property improvements.
CAD staff does not know the schedule's creation date, last update or source; it may have been developed when the CAD was first established or soon thereafter. The process used to develop the schedule may have been market driven at one time, but over time, the documentation or basis for the schedule has been lost.
According to the assistant chief appraiser, CAD residential appraisers generally depreciate improvements one-half of one percent per year. Field appraisers review residential property and make a determination based on the actual year built or the effective age of the property. The effective age is the age indicated by the overall condition and utility of a structure. Most homes in the county are depreciated based on the effective age of the property as determined by the CAD residential appraiser during the resurvey of a neighborhood. Factors such as above-average maintenance, superior quality and design and a scarcity of such buildings may contribute to the effective age of a structure. For example, evidence of extensive rehabilitation may result in the appraiser increasing the percent good on a property from 85 percent to 90 percent good classification. During the resurvey, appraisers review sold property with extensive renovations to determine the nature of the work done and how it affected the overall sale price of that property.
Adjustments for obsolescence–physical, functional, or economic–is market driven and usually reflected in adjustments to the property value other than percent good. Appraisers can usually identify physical and functional obsolescence in the improvements, such as a single car garage in a neighborhood of two car garages. Appraisers make allowances on a percent of the total improvement value based on the effect of the obsolescence on the items, and they base the cost to replace or correct the problem on contractors' estimates. Factors external to a specific property can cause other obsolescence. These factors may include changes in demand, general property uses in the area, zoning and government regulations. The assistant chief appraiser cited restrictions on building livable improvements within 350 feet of the water as a recent example of a change in government regulations.
The assistant chief appraiser acknowledged that the residential schedules are out of date, but said the CAD is working with an external consultant to update depreciation schedules for both residential and commercial real property improvements, along with other issues. If the CAD fails to update depreciation schedules on a frequent basis using verified market data, appraisers may not link values consistently to market sales in the area.
Collin CAD, for example, tests real property appraisal depreciation tables and cost new tables against verified sales data to ensure they represent current market data.
Update existing depreciation schedules based on current market values and develop a process to annually evaluate and update them, as necessary.
Nueces CAD does not always group similar property within a market area, as recommended by Property Tax Code Section 23.01(b).
Property Tax Code Section 23.01(b) states the following:
The same or similar appraisal methods and techniques shall be used in appraising the same or similar kinds of property. However, each property shall be appraised based upon the individual characteristics that affect the property's market value.
Beginning in January 2008, the CAD identified a number of neighborhoods that had a mixture of new and old construction with significantly different market values. This was especially true in the beach areas, where it is common to find a large new family home adjacent to a smaller, older beach cottage. The CAD received complaints from a number of taxpayers questioning the values established for older homes, especially in Port Aransas on Padre Island.
Under its existing process, the CAD looks at sales as a whole for the neighborhood or market area, usually consisting of two to three subdivisions. The CAD applies a neighborhood modifier to all houses in a neighborhood and then uses the adjusted schedule to appraise all property in that market area or neighborhood. Based on the assistant chief appraiser's research of best practices, the CAD expanded its neighborhood coding structure to take into account other characteristics besides location. The new coding structure includes indicators for quality, median year built and value stratum.
The CAD plans to complete this process in all school districts, except Corpus Christi ISD, by June 2008. It will complete Corpus Christi ISD by 2009.
Exhibit 2 lists the indicators used in the new system and provides a sample property in the Aqua Dulce ISD with a new neighborhood code of K101B40F.
Sample 2008 Coding System
|1||ISD Code||K=Agua Dulce|
|2||Geographic Section||1= North of Highway 44|
|3 and 4||Index Identifier||01 = Area 1|
|5||Quality||B= Average Class|
|6 and 7||Median Year Built||40 = Year Built|
|F=Less than $100,000|
Source: Nueces CAD Assistant Chief Appraiser, February 2008.
The CAD enters the new code in the appraisal system as an additional identifier. The CAD is developing a new code for each residential property.
Not grouping similar property within a market area may result in different market values in the area. By using this expanded code, the CAD hopes to refine its process further to determine accurate market values by identifying comparable sales based on an expanded number of relevant characteristics. This will allow it to treat similar property consistently and help ensure that values determined using mass appraisal techniques reflect actual market values, especially in areas containing a mixture of construction ages and property conditions.
Continue implementing a new neighborhood coding system to improve the consistency and accuracy of residential property values by considering market conditions.