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Chapter 2
Findings of the Appraisal Standards Review

This chapter of the report addresses findings and recommendations of Runnels CAD.

Key Findings and Recommendations

As part of the review process, PTAD makes recommendations to address challenges identified during its review of a CAD. Below are recommendations addressing key challenges associated with Runnels CAD's appraisal activities.

FINDING
Runnels CAD did not update agricultural (ag) values in 2006, which contributed to an invalid finding in the 2006 PVS.

The Manual for the Appraisal of Agricultural Land is adopted by Comptroller administrative rule and sets out appraisal procedures and eligibility requirements for 1-d and 1-d-1 appraisals. The manual lists five steps that are required to put an effective productivity appraisal system into action:

Property Tax Code Section 23.51 requires the CAD to base the annual income estimate on "the five-year period preceding the year before the year of the appraisal." For example, the 2006 agricultural appraisals were based on income from 1999 through 2004 (two years before the appraisal).

Runnels CAD land classifications in Olfen ISD and Miles ISD include the following:

• Irrigated Crop
• Dry Crop
• Improved Pasture
• Native Pasture

Exhibit 1 shows the PVS productivity ratio results for the years 2005-07 for all ISDs in Runnels CAD subcategory D1.

The chief appraiser stated that no historical ag valuation calculations were available when she took the position in October 2005, and it appeared the CAD had been using the PTAD values, which results in the CAD being a year behind on valuations. Ag valuations were not changed or updated in the 2006 tax year. For the 2007 tax year, the chief appraiser calculated and introduced the net-to-land for 2005 into the five-year averages. The chief appraiser used the five-year history figures calculated by PTAD as the base for ag valuation calculations, since no historical locally developed information was available. The calculations for 2007 use income from 2001 through 2005.

Exhibit 2 compares the 2007 PTAD net-to-land calculations by land categories to the Runnels CAD 2007 net-to-land calculations.

As shown in Exhibit 2, the CAD net-to-land calculations are similar to PTAD calculations with the exception of 2005, which is the year the CAD began internal net-to-land calculations.

Cropland values in Runnels County are based on a shared lease method, which can result in significant changes in value from one year to the next. As an example, in 2005, PTAD's irrigated cropland value was $114 per acre; for 2006, it increased to $255.10 per acre (Exhibit 3). This fluctuation from one year to the next illustrates the need to use current information in the calculation of ag valuations.

As shown in Exhibit 3, the result of not dropping the last year's (1999) net-to-land value for the 2006 calculations would cause a significant difference from the 2005 calculation to the 2006 calculation.

The Manual for the Appraisal of Agricultural Land, Appendix D, is a sample development of class values example that is "intended to demonstrate for chief appraisers some of the steps required to develop agricultural productivity values."

RECOMMENDATION 1
Calculate net-to-land values annually for agricultural property in the CAD and integrate those values into the five-year averages.

Runnels CAD could benefit by documenting the processes used to develop ag values and by implementing those processes into the Runnels CAD Special Productivity Valuation of Agricultural Land (1-d-1) manual.

FINDING
Runnels CAD does not have a comprehensive appraisal manual that provides adequate property classification definitions, instructions and directives for staff to use to complete appraisals.

The IAAO Standard on Mass Appraisal of Real Property Section 3.3.2.3, Data Collection Manuals, states the following:

The CAD provided an appraisal manual used by staff appraisers that lists residential classifications, residential cost schedules, depreciation schedules, commercial descriptions and commercial cost schedules. The CAD provided the Runnels CAD General Operating Procedures manual that contains appraisal procedures and information for taxpayers and staff. The procedures manual contains some local information with a majority of the contents being Property Tax Code sections. The manual is well-organized with a table of contents.

The CAD also subscribes to Marshall & Swift publications. Runnels CAD does not have an appraisal manual for personal property or land.

The 2007-08 reappraisal plan has general data collection procedures that provide basic information useful to the public or any interested outside party; however, the data collection procedures do not provide the detail necessary for a field appraiser to accurately appraise property.

Runnels CAD contracts with an appraisal firm for complex industrial, mineral, personal property and utility property.

As part of the ASR, the on-site reviewer examined 23 selected properties within Miles and Olfen ISDs. Thirteen Category A, Single-Family Residential, and 10 Category D, Rural Real, property accounts were reviewed. The reviewer was unable to duplicate the CAD's values due to the limited amount of appraisal data collected to estimate depreciation in the appraisal manual.

With the assistance of a CAD appraiser, the reviewer conducted an on-site inspection of each property. The reviewer checked property characteristics and data on appraisal cards, such as the age, condition and size, for accuracy and reasonableness. Using descriptions of property classifications found in the CAD's appraisal manuals, the reviewer classed each property based on type and quality. The reviewer viewed the accounts for consistency in classification.

Exhibit 4 lists various descriptions of problems associated with the reconstruction of values for individual parcels using the CAD's existing manual.

The Runnels CAD appraisal manual does not provide detailed guidance in the classification of property, and it is unlikely that someone without extensive appraisal experience could use the appraisal manual without written instructions.

The appraisal manual does not have instructions for estimating accrued depreciation, such as a guideline to use for determining the condition of a home. It does not contain written procedures for measuring homes or procedures for engaging with the homeowner while on-site. All are critical items in developing consistent field procedures and classification guidelines. When combined, these items can result in the misclassification of homes or incorrect measurement techniques, resulting in inaccurate and inconsistent appraisal data and ultimately resulting in inaccurate appraisals. Consistency in classification of property and accurately estimating depreciation are key factors to appraisal accuracy. In addition to the need for more details in appraising residential property, the CAD should include appraisal procedures for valuing land and commercial property. Land classes should be clearly defined and described and representative photographs could be beneficial when classifying commercial property. It could benefit appraisers to have any appraisal procedures located in the general operating procedures included in the general appraisal manual.

Lack of a detailed appraisal procedures manual may cause inconsistent appraisals and may cause property values to deviate from market value. This market value deviation may cause ISDs in Runnels CAD to receive invalid findings in the state's PVS. If the level of appraisal (percentage of market value) varies between property categories, or from taxpayer to taxpayer, some taxpayers may bear more than their fair share of the local tax burden. Instructions on how to use the CAD's appraisal manuals can help taxpayers better understand the appraisal process.

Lack of a detailed, comprehensive appraisal manual can lead to inconsistent classing of property by field appraisers, irregular field procedures and varying property characteristic definitions. Lack of a manual can result in the CAD relying heavily on senior personnel, and in the event of senior staff changes, the remaining staff has few guidelines and limited locally developed knowledge of the area. A properly written comprehensive appraisal procedures manual can help ensure the CAD is complying with Property Tax Code Section 23.01 (b), mandating that the market value of property be determined by using appraisal methods and techniques of generally accepted mass appraisal standards. The CAD's manual must also comply with USPAP Standard 6, requiring similar appraisal methods and techniques be applied to the same or similar property.

Nueces CAD, for example, developed several policy and procedure manuals for appraisal: Real Estate Procedures and Operations, Personal Property Procedural Manual, Records Exemptions and Information Procedural Manual and a Policy Manual. A copy of each manual is given to each appraiser in the CAD. Each manual contains a schedule of the work to be performed in a given year and is updated annually.

RECOMMENDATION 2
Expand the current appraisal manual to include procedures, instructions and protocols for appraising property in-house.

The appraisal manual should contain local procedures for items such as estimating accrued depreciation and condition, recording property characteristics, and field procedures like measuring and methods to access property or deal with property owners. Land classifications and characteristics should be defined to assist in the proper and consistent classification of land.

FINDING
Runnels CAD has not updated or gathered property characteristics on individual appraisal cards.

The IAAO Standard on Mass Appraisal of Real Property states, "the assessor should collect and maintain sufficient property characteristic data for classification, valuation, and other purposes." The standard states that a "clear, thorough, and precise data collection manual should be developed, updated, and maintained." The IAAO Standard on Automated Valuation Models (AVMs) states, "market land valuation modeling requires data on use, location, and physical characteristics."

The IAAO Property Appraisal and Assessment Administration textbook, Chapter 7, Land Valuation, provides information to perform accurate land valuations. The introduction states that "accurate land values are crucial to an effective assessment system" and that "they contribute to the accuracy of appraisals of improved parcels." The chapter explains appraisal principles and factors affecting land values. It covers land value models, market analysis, data analysis, valuation methods, site adjustments and administration. It states that "an effective land appraisal system has five basic components: cadastral maps, land characteristic data, sales and other market data, appraisal procedures, and staff and resources."

Runnels CAD has not collected property data characteristics, such as year built, effective year, condition and quality of construction, as described in the CAD's 2007-08 reappraisal plan and general operating procedures manual. In reviewing the Category A sample property, it was noted that a number of the accounts with residential improvements did not have a year built, effective age or condition description to assist with estimating accrued depreciation. The reappraisal plan states, "the information contained in CAMA includes site characteristics, such as land size and topography, and improvement data, such as square feet of living area, year built, quality of construction, and condition." Of the 23 properties inspected, 20 had a residential improvement, while only three had a year built on the appraisal card.

In another instance, a 100-acre tract of land reviewed as part of the on-site inspection revealed that land characteristics are outdated. The parcel was listed on the appraisal card as follows:

• 88 acres as dry cropland; and
• 12 acres as native pastureland.

In reality, the 88 acres has not been maintained as dry cropland and is becoming covered with native brush and is not cultivated. The separation between the two classes of land was apparent due to the age of the brush cover. These land use changes and characteristics must be noted and updated during field work.

By not gathering property characteristics, the application of depreciation can become inconsistent among appraisers, which can lead to varying depreciation adjustments. Misapplying and inconsistently estimating depreciation can affect overall appraisal performance. Not gathering pertinent property characteristics may cause poor appraisal performance and inconsistent appraisals within classes of property.

Brown CAD, for example, has continuous data gathering procedures that conform to IAAO and USPAP standards and contribute to effective assessments of property. The CAD obtains building permits from all cities in its jurisdiction and septic information from the county. It obtains new electric service permits from the electric company and mobile home movement reports. Brown CAD appraisers use hand-held computers for field data collection and are able to update records while at the property. Each appraiser has a personal computer with Internet capabilities for data collection and recording.

RECOMMENDATION 3
Collect and record property data characteristics necessary to complete accurate appraisals and follow policies as outlined in the reappraisal plan and operating procedures.

FINDING
Runnels CAD lacks detailed local ratio study procedures that outline and define the analysis and implementation of ratio study results, as recommended by IAAO Standards.

The IAAO Standard on Ratio Studies points out that two major aspects of appraisal accuracy are level and uniformity. Level refers to the overall ratio of appraised values to market values, while uniformity refers to the degree to which different property is appraised at equal percentages of market value. The standard provides "recommendations on the design, preparation, interpretation and use of ratio studies for equalization, the evaluation of appraisal performance and the quality control operations of an assessor's office." The standard provides for design considerations and outlines the six steps generally involved in ratio studies, including the following:

• defining purpose and objectives;
• collecting and preparing market data;
• matching appraisal and market data;
• stratification;
• statistical analysis; and
• evaluation and use of results.

Runnels CAD would benefit by developing a ratio study process that mirrors the IAAO Standard on Ratio Studies.

The CAD briefly defines performance tests in the Runnels CAD 2007-08 reappraisal plan. The plan, but, does not define content, scope, required variances or when and how often staff should run ratio studies. The CAD does not have any definition of purpose and objectives of the ratio studies, which, according to the IAAO Standard on Ratio Studies, is the first step in any ratio study. For example, the performance test section of the reappraisal plan discussing sales ratio studies for residential property states that, "overall sales ratios are generated for each neighborhood to allow the appraiser to review general market trends within their area of responsibility, and provide an indication of market appreciation over a specified period of time." The CAD does not have clearly defined neighborhoods and did not provide any historical ratio studies that indicate the CAD follows processes outlined in the reappraisal plan.

The chief appraiser does not have a policy or detailed verbal description of the methodologies the CAD uses to conduct ratio studies and adjust cost schedules to local sales data. Sales letters mailed to the grantor and grantee gather the majority of sales data in the CAD. The chief appraiser stated that the CAD does not track the number of sales letters mailed or the number returned.

Sales data entered into the computer assisted mass appraisal (CAMA) software is used to run ratio reports. The chief appraiser provided one computer generated sales ratio report dated March 20, 2006, for Ballinger ISD. No other ratio studies, internal analysis results or calculations were provided. The chief appraiser stated that property in Olfen ISD is rarely on the market; therefore, sales data is nonexistent for this ISD. The chief appraiser stated that Miles ISD is in a similar situation concerning sales data. She stated that there are sales transactions from time-to-time, but not enough to run ratio studies. The chief appraiser stated that when she analyzes sales data, she subtracts land values then compares the improvement value to the cost schedule value and determines if adjustments are needed. The CAD does not have any defined times to calculate and review ratio studies; however, the chief appraiser stated that they are calculated at least once a year and possibly twice a year in November and March to determine if market values are changing in the CAD.

By developing formal ratio study policies and procedures, the CAD can improve performance when analyzing sales and developing schedules, adjustment factors, modifiers or depreciation factors. Frequent ratio studies and the appraisal maintenance that follows, can enable a CAD to keep its values at or near market value. By applying ratio study results in an inconsistent or inappropriate manner, the CAD runs the risk of not properly recognizing and adjusting schedules for market changes, unequally valuing market areas, and jeopardizing consistency and accuracy of appraised values.

Nueces CAD, for example, has a computerized appraisal system and conducts ratio studies within property classes by school district and county to determine appraisal performance. The CAD bases reappraisal and value maintenance decisions for some property or locations on the ratio study results.

RECOMMENDATION 4
Establish comprehensive, written ratio study procedures that allow for generally accepted appraisal practices for reappraisal and maintenance planning, as recommended by the IAAO Standard on Ratio Studies.

All CAD documentation, such as the reappraisal plan and general operating procedures, must be updated to reflect CAD ratio study procedures.

FINDING
The Runnels CAD reappraisal plan lacks specific local information and does not comply with the requirements of Property Tax Code Section 25.18.

Property Tax Code Section 6.05(i) requires the CAD's board to biennially develop a written plan for the periodic reappraisal of all property within its boundaries. Section 25.18(a) and (b) states the following:

According to USPAP Standard 6, a functional mass appraisal includes the following activities:

• identifying properties 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 mass appraisal results.

The 2007-08 reappraisal plan for Runnels CAD states that the CAD "prepared and published this reappraisal plan and appraisal report to provide our Board of Directors, citizens, and taxpayers with a better understanding of the district's responsibilities and activities." The CAD provided the ASR reviewer with a one-and-a-half page reappraisal plan for 1999, which is believed to be the only plan before the 2007-08 reappraisal plan.

The 2007-08 reappraisal plan includes the following sections:

• Introduction – lists scope of responsibility, personnel resources, staff education and training, data, information systems, shared appraisal district boundaries, independent performance test;
• Appraisal Activities – describes appraisal responsibilities, appraisal resources, appraisal frequency and method summary, data collection process, sources of data, data collection procedures, data maintenance, field review, office review, performance test;
• Residential Valuation Process – addresses scope of responsibility, appraisal resources, land analysis, area analysis, neighborhood and market analysis, highest and best use analysis, cost schedules, income models, sales information, statistical analysis, market and cost reconciliation and valuation, homesteads, residential inventory, agricultural appraisal, field review, office review, sales ratio studies, management review process;
• Commercial Property Valuation Process – addresses appraisal responsibility, appraisal resources, market study, land value, area analysis, neighborhood analysis, highest and best use analysis, market analysis, data collection manuals, sources of data, cost schedules, income models, sales comparison approach, final valuation schedules, statistical and capitalization analysis, field review, office review, sales ratio studies;
• Business Personal Property Valuation Process – addresses appraisal responsibility, SIC (standard industry classification) code analysis, highest and best use analysis, data collection procedures, sources of data, cost schedules, statistical analysis, depreciation schedules and trending factors, computer assisted personal property appraisal, office review, ratio studies; and
• Listing of staff providing significant mass appraisal assistance.

The current chief appraiser, hired in October 2005, does not believe a complete reappraisal has been completed in recent years. The CAD began a reappraisal in 2006, beginning with Miles ISD. The chief appraiser said reappraisals of towns in the CAD are primarily completed and the staff has started on property that is more rural.

While the plan does address general functions and steps taken during a reappraisal, it does not clearly identify property characteristics that affect market value as required by Property Tax Code Section 25.18(b). Specifically, the following items in Section 25.18(b) (4) are not adequately identified and defined in the plan:

• the location and market area of property;
• legal and economic attributes; and
• easements, covenants, leases, reservations, contracts, declarations, special assessments, ordinances or legal restrictions.

The reappraisal plan lacks a clear definition of market areas as required by Property Tax Code Section 25.18(b). The Runnels CAD reappraisal plan does not adequately outline and provide direction for the completion of a reappraisal. The plan's appraisal activities conflict with the reappraisal schedule found in the CAD's general operating procedures. The reappraisal plan states, "the goal is to periodically field inspect residential, commercial, and personal property in the district every other year. Improved residential property with improvements less than 25 years in age is field inspected every other year. All other property is inspected every year."

Another section of the reappraisal plan states that "residential property is physically examined every three years." The reappraisal schedule found in the general operating procedures states, "all property in the District is reappraised at least every three years." In reality, the CAD is conducting reappraisals and inspections by ISD, not as defined in the reappraisal plan or reappraisal schedule. The plan does not clearly identify property or areas scheduled for appraisal for a given year. A clear definition, identification and direction of property to be reappraised can help ensure that a reappraisal is completed in a thorough and efficient manner.

By not developing a detailed reappraisal plan, the CAD runs the risk of failing to identify market areas and changes to market values in the jurisdiction. A reappraisal plan is a detailed roadmap for the CAD staff to follow. A thorough reappraisal plan details which property to reappraise, who is going to do the work, how the work is done and when it will be completed. The reappraisal plan becomes a working guideline for staff to use throughout the tax year. A reappraisal plan can help ensure that appraised values are at market value.

Jefferson CAD, for example, adopted a comprehensive reappraisal plan that ensures the execution of timely and accurate reappraisals on an annual basis. The CAD reviews the plan each year and updates it as needed. The reappraisal plan is part of the CAD's policy and procedures manual adopted by the board. The plan gives details regarding the steps to perform, staffing levels, workflow and the costs associated with plans and goals. The CAD links the plan to its budget, training, contracting, market analysis, field inspections and data processing. The board adopts and reviews the reappraisal plan and makes changes as necessary.

RECOMMENDATION 5
Adopt a detailed reappraisal plan that complies with Property Tax Code Section 25.18.

FINDING
Runnels CAD has not maintained and completed a mapping system.

The IAAO Standard on Digital Cadastral Maps and Parcel Identifiers provides, "recommendations on the development and maintenance of digital cadastral map layers and parcel identifiers." The standard describes components, content, design, preparation, maintenance and contracts. The standard states that, "the principle responsibility of the assessor is to locate, inventory, and appraise all property within the jurisdiction. A complete set of maps is necessary to perform this function. Maps help determine the location of property, indicate the size and shape of each parcel and reveal geographic relationships that affect property value."

IAAO's Property Appraisal and Assessment Administration, Chapter 16, Elements of Administration, points out, "planning prepares organizations for the future and is crucial in an era of rapid technological and social change. Such changes affect the demands placed on government and the means of satisfying them."

The chief appraiser believes the CAD began a stand-alone mapping project approximately seven to eight years ago and estimates the mapping system is 80 percent completed. The mapping software is installed on an older PC that is incapable of receiving software updates from the vendor; subsequently, the mapping system is not complete and ownership updates are not being made. The CAD does not have staff that is adequately trained and dedicated to the mapping system.

In lieu of a complete mapping system, the CAD uses a set of maps provided by the local 9-1-1 coordinator. The CAD is able to use portions of the incomplete mapping system and relies on the local knowledge of CAD staff.

A completed mapping system can help the CAD analyze and verify sales information. It can assist field appraisers and appraisal staff by allowing the CAD to respond to requests by the public and allow the staff and appraisal review board members access to more comprehensive information. A mapping system can contribute to a timely and more efficient reappraisal and help maintain consistent property appraisal. By not developing timelines and implementing procedures for completion of the mapping system, the CAD runs the risk of falling behind in technology and sacrificing the efficiencies a complete set of maps can provide.

Brown CAD, for example, uses its mapping system to provide staff and the public with a valuable tool in the assessment process. The CAD acquired a GIS that is fully integrated with the CAD's CAMA system. Staff may query on a single attribute or on multiple attributes simultaneously from within the CAMA. More sophisticated analysis is possible in the GIS and readily available to staff. After initial startup costs for hardware, software and data acquisition, recurring costs have been minimal. The mapping coordinator maintains the underlying data to industry professional standards and regularly updates maps to reflect changes in ownership and boundaries. The CAD works closely with other local agencies. In order to acquire updated aerial photography, the CAD receives assistance from local cities, the county and water improvement district and shares mapping information.

RECOMMENDATION 6
Develop and implement a strategic plan and timeline to complete and maintain a mapping system.

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