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Chapter 2:
Findings of the Appraisal Standards Review

This chapter of the report addresses commendations, findings and recommendations from the appraisal standards review of the San Patricio CAD in two sections:

2.1 Commendable Practices
2.2 Key Findings and Recommendations

2.1
Commendable Practices

As part of its review process, PTD identifies best practices used by each CAD under review. These commendable practices improve efficiency or in some instances address past operational weaknesses. We commend San Patricio CAD for its efforts and hope this commendation gives other appraisal districts ideas for improving their own operations.

FINDING
San Patricio CAD replaced outdated hardcopy aerial maps with a geographic information system (GIS) that is beneficial in fieldwork.

Prior to 2006, the CAD used outdated aerial maps to pinpoint situs of property. The maps' conditions made it difficult for the CAD to properly perform property identification by location. The CAD acquired the base maps for the new mapping system from the Texas Education Agency (TEA), U.S Geological Survey (USGS), General Land Office (GLO) and the Coastal Bend Council of Government (CBCOG). It enlisted the help of local college students who are pursuing degrees in the GIS field. The college taught the GIS courses using the same mapping software the CAD uses. The CAD and students used e-mail and compact discs to transfer data between them. The students gained mapping experience and the CAD kept costs at a minimum.

The CAD began working on a computerized GIS mapping system in the spring of 2006 and now has a working set of maps that aid in fieldwork and the discovery of improvements in the CAD. All base coverage is complete, and approximately 40 percent of ownership maps were complete by the beginning of 2008. The chief appraiser estimates the CAD will achieve complete parcel coverage by summer 2009.

By using full color satellite imagery, the CAD is able to identify roads, highways and structures. By geo-referencing, the CAD is able to get base maps for roads and to identify various structures and improvements in the county.

The CAD is also working with cities to develop zoning codes and maps. Eventually, the GIS will include information on fire hydrants, stop signs and water and sewer lines.

During the review, the chief appraiser identified the parcels requiring an on-site inspection and used a laptop computer equipped with a global positioning system (GPS) and the GIS to navigate to the property. This method proved efficient in the field, as parcels and property were easily located.

COMMENDATION
San Patricio CAD developed a geographic information system (GIS) that is very beneficial in identifying property and completing fieldwork.

2.2
Key Findings and Recommendations

As part of the ASR process, PTD makes recommendations to address challenges identified during its review of a CAD. The following recommendations address key challenges associated with San Patricio CAD's appraisal activities.

FINDING
San Patricio CAD did not update agricultural values in 2006, which contributed to an invalid finding in the 2006 PVS in Mathis and Sinton ISDs.

The Comptroller's Manual for the Appraisal of Agricultural Land sets out appraisal procedures and eligibility requirements for assessment of lands designated for agricultural use and taxation of certain open-space land. The manual lists five steps that are required to put an effective productivity appraisal system into action:

(1) develop a land classification system;
(2) estimate the net-to-land per acre for each land class or sub-class;
(3) divide each class' net-to-land by the year's capitalization rate to create a current year productivity appraisal schedule;
(4) classify all qualified agricultural land according to the land classification system; and
(5) use the productivity appraisal schedule to compute productivity value for individual land parcels.

Property Tax Code Section 23.51 defines the net-to-land as "the average annual net income derived from the use of open space land that would have been earned for the land during the five-year period preceding the year before the appraisal." For example, the basis for 2006 agricultural appraisals is income from 2000 through 2004. The section goes on to state, "the chief appraiser shall calculate net-to-land by considering the income that would be due to the owner of the land under cash lease, share lease, or whatever lease arrangement is typical in that area for that category of land."

San Patricio CAD land classifications listed on the PVS include:

• irrigated crop;
• dry crop;
• barren;
• improved pasture;
• native pasture; and
• other.

Exhibit 1 shows that the PVS Productivity Ratio results for the years 2005-07 for all ISDs in San Patricio CAD, except for Aransas Pass ISD, fell during the past two years.

The CAD did not provide productivity value calculations for the 2006 or 2007 tax years; the data it provided as a part of the ASR was a hardcopy of the 2004 Land Value schedules that lists the productivity and market valuations for various land classifications in the CAD. The CAD used these same schedules for the 2005 tax year. The CAD has land schedules for the following categories:

• A, B, C, D, E, F, improved land;
• open space; and
• brushland.

These land classes have a market value (more than 50 acres) and productivity value. Additionally, the CAD uses an incremental schedule for tracts of land less than 50 acres.

As a part of the ASR, PTD reviewed 54 sample property in the Mathis and Sinton ISDs. Seven of the sample property had a productivity value calculation for the 2006 tax year. In reviewing the values for these seven property for the tax years 2003-07, they reflect changes to the productivity values in 2005 and a small or no change for the 2007 tax year. Productivity values remained the same from 2003 to 2004 and from 2005 to 2006 and changed slightly for the 2007 tax year; one property reflected no change in agricultural value for 2005-2007 (Exhibit 2).

Exhibit 2
San Patricio CAD
Analysis of Ag Value on Sample Property

Property	2003 Productivity Value	2004 Productivity Value	2005 Productivity Value	2006 Productivity Value	2007 Productivity Value
1321-0005-0000-015	$55,904	$55,904	$60,080	$60,080	$59,392
1041-0000-0004-000	$2,310	$2,310	$2,340	$2,340	$2,310
2139-0005-0030-006	$2,873	$2,796	$1,975	$1,975	$1,950
2139-0004-0204-240	$365	$365	$370	$370	$366
1589-0049-0000-003	$1,578	$1,578	$337	$337	$337
1589-0003-0000-001	$3,283	$3,087	$3,479	$3,479	$3,430
1321-0021-0000-032	-	-	-	$17,497	$15,346

Source: San Patricio Property Appraisal Cards.

Cropland values in San Patricio County, based on a share lease method, can often change drastically from one year to the next. Exhibit 3 illustrates how dry cropland net-to-land can fluctuate from one year to the next.

Exhibit 3
San Patricio CAD
PTD Net-to-Land Calculations for Dry Cropland

Year	Net-to-Land
2001	$29.10
2002	$23.50
2003	$67.12
2004	$48.02
2005	$42.78

Source: PTD Net-to-Land San Patricio CAD Spreadsheet for 2007.

The result of not dropping the last year's net-to-land value for the next years' calculations would cause a significant difference, especially when a large change occurs from one year to the next.

This yearly fluctuation illustrates the need to use current information in the calculation of agricultural valuations. By not adding the next year to the average and dropping the last year in the average, the CAD will not accurately value agricultural property. By not updating and calculating net-to-land values annually, the CAD will continually be behind when agricultural commodities and production change.

Erath CAD, for example, has written guidelines that include degree of intensity standards, stocking ratios, acreage requirements and management factors. In addition, the Manual for the Appraisal of Agricultural Land, Appendix D, provides a "Sample Development of Class Values" example, "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.

San Patricio CAD would benefit by documenting the processes used to develop agricultural values and integrating these into an appraisal manual.

FINDING
The San Patricio 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 board to develop a written plan biennially for the periodic reappraisal of all property within its boundaries, "according to the requirements of Sections 25.18." Subsections 25.18(a) and (b) require the following:

The reappraisal plan for San Patricio CAD includes the following sections:

• Executive Summary – reviews Property Tax Code requirements, revaluation decision and reappraisal cycle years activities;
• Revaluation Decision – states that the CAD policy is to reappraise all property in the district within every three years. Also states that the CAD "makes every attempt to perform on-site appraisal and/or inspections of property every other year and recalibrates schedule rates for all categories of property on an annual basis;
• Performance Analysis – states in part that the CAD analyzes the previous tax years' equalized values ratio studies using the current Standard on Ratio Studies from the International Association of Assessing Officers (IAAO);
• Analysis of Available Resources – states, "staffing, time and budget requirements for tax year 2007 are detailed in the 2007 appraisal district budget;
• Planning and Organization – includes a calendar of key events for 2007 and 2008;
• Mass Appraisal System – highlights real property valuation, personal property valuation, noticing process and hearing process;
• Data Collection Requirements – highlights new construction/demolition, remodeling, re-inspection of problematic market areas, re-inspection of the universe of property and field and/or office verification of sales data and property characteristics;
• Pilot Study – briefly discusses model testing and calibration;
• Valuation by Tax Year – states, "property values in all market areas are updated each reappraisal year"; and
• Mass Appraisal Report.

The 2007-08 San Patricio CAD reappraisal plan totals 12 pages and addresses general functions and steps taken during a reappraisal, which is useful for public information, however it does not provide the level of detail needed to complete and plan for a reappraisal.

Exhibit 4 shows how the CAD's periodic reappraisal plan complies with Property Tax Code Section 25.18(b) and which activities it followed in 2007.

Exhibit 4
Required Elements of a Reappraisal Plan
Versus San Patricio CAD's Reappraisal Plan

Property Tax Code Section 25.18(b) Requirements	Activity in Plan?	Extent to Which Activity Performed
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 property 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;	States 2007 is a reappraisal year for half of the CAD area and 2008 is a reappraisal year for remaining half of the CAD area.	The CAD started field inspections for problematic areas for the 2006 tax year, completed commercial schedules/appraisals in 2007 and other smaller towns in the CAD in 2008. These reappraisal activities were not consistent with the activities in the reappraisal plan.
(2) identifying and updating relevant characteristics of each property in the appraisal records;	Provides a general explanation for field and office procedures.	Specific relevant characteristics not defined.
(3) defining market areas in the district;	States the CAD does neighborhood analysis and neighborhood delineation in August.	The reappraisal plan does not identify or define neighborhoods and/or market areas, nor does it document them elsewhere.
(4) identifying property characteristics that affect property value in each market area, including:     (A) the location and market area of property	Provides a general explanation, but fails to explain how San Patricio CAD will accomplish this task.	Plan does not define or reference any specific market areas or neighborhoods.
(B) physical attributes of property, such as size, age, and condition;	Not defined.	CAD gathers size, age, condition (on some parcels).
(C) legal and economic attributes;	Provides a general explanation.	The appraisal cards contain a legal description but fail to identify other attributes.
(D) easements, covenants, leases, reservations, contracts, declarations, special assessments, ordinances, or legal restrictions;	Not defined or characterized in the plan.	None provided.
(5) 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;	Provides a general explanation.	The plan does not define relationships in or among the neighborhoods located in the CAD.
(6) applying the conclusions reflected in the model to the characteristics of the property being appraised; and	Provides a general explanation.	The CAD uses cost-based schedules.
(7) reviewing the appraisal results to determine value.	Provides a general explanation, but fails to explain how the CAD analyzes results.	Plan does not have detailed documentation showing analysis of ratio study results and analysis of changes to cost schedules.

Source: Property Tax Code Section 25.18(b) and San Patricio CAD 2007-2008 Reappraisal Plan dated Aug. 8, 2006.

While the CAD's reappraisal plan fulfills the fundamental requirements of Property Tax Code Section 25.18, an effective reappraisal plan requires a work plan that presents tasks for executing the essential requirements of the statute. IAAO provides vital elements for an effective work plan, such as a timeline or calendar for performing reappraisal tasks. The work plan needs definitions of critical activities with completion dates, assignment of responsibilities and established data collection and fieldwork standards.

The reappraisal plan does not reflect the reappraisal activities taking place in the CAD. The chief appraiser began working in the CAD in 2005 and stated that his reappraisal activities started for the 2006 tax year. The chief appraiser considered areas in the CAD with more activity and growth first, which include Aransas Pass and Portland. The CAD completed reappraisal of commercial property in 2007, including development of new cost schedules for these property. The CAD then began working on the cities Mathis and Sinton in 2007 and completed these for the 2008 tax year. Rural areas remain outstanding and the CAD will complete them in the 2009 tax year. By 2009, the CAD will have completed reappraisal work for the entire CAD. The 2007-08 San Patricio CAD reappraisal plan does not reflect this pattern of reappraisal work.

By not developing a detailed reappraisal plan, the CAD runs the risk of not identifying 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 the CAD will complete the work. The reappraisal plan will become a working guideline for staff to use throughout the tax year and can help ensure that appraised values are at market value. Without a detailed reappraisal plan, San Patricio CAD does not have a systematic guide for completing reappraisal activities.

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

• identifying 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 property being appraised; and
• reviewing the mass appraisal results.

Jefferson CAD, for example, has 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. Furthermore, the reappraisal plan is a part of the CAD's policy and procedures manual. The plan gives details regarding the steps to perform, staffing levels, workflow and the costs associated with plans and goals. In addition, the CAD links the plan to its budget, training, contracting, market analysis, field inspections and data processing. The board adopted or reviewed the reappraisal plan and makes changes as necessary.

RECOMMENDATION 2
Adopt a reappraisal plan that complies with Property Tax Code Section 25.18 by providing the detail necessary, such as definitions of critical activities with completion dates, assignment of responsibilities, and established data collection and fieldwork standards.

FINDING
San Patricio CAD lacks detailed local ratio study procedures and policies 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 a CAD appraises different property at equal percentages of market value. The standard also 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." Finally, the standard provides for design considerations and outlines the six steps generally involved in ratio studies, including the following:

(1) defining purpose and objectives;
(2) collecting and preparing market data;
(3) matching appraisal and market data;
(4) stratification;
(5) statistical analysis; and
(6) evaluation and use of results.

The 2007 & 2008 San Patricio CAD Reappraisal Plan states the CAD conducts ratio studies and that it calculates the mean, median and weighted ratios for property in each reporting category to measure the level of appraisal or appraisal accuracy. The document, however, does not define content, scope or required variances. The events calendar suggests the CAD runs ratio studies (non-adjusted) five times between August and January and two times, with adjustments, between January and March. The plan lists neighborhood analysis done in August and paired neighborhood analysis between January and March. The CAD does not provide staff with a definition of the purpose and objectives of the ratio studies, which, according to the IAAO Standard on Ratio Studies, is the first step in any ratio study.

The CAD conducts ratio study analysis in a spreadsheet format. The CAD recently changed computer systems and was unable to retrieve complete data from prior ratio study calculations. The chief appraiser and the assistant chief appraiser are responsible for running and analyzing ratio study results. The chief appraiser explained that he conducts ratio studies in various ways such as by ISD, by like or similar subdivisions and by similar geographic areas. The chief appraiser stated that the CAD would enter neighborhood factors into the computer assisted mass appraisal system (CAMA), which will assist with the appraisal of similar neighborhoods. These neighborhood factor codes or similar neighborhood/market areas were not available at time of the onsite review. The CAD gathers sales information through the multiple listing service (when available), brokers, real estate agents, homeowners and fee appraisers. The CAD also generates and mails sales questionnaires to the grantor and grantee. The CAD did not track the number of sales letters generated and received.

By developing more formal ratio study policies and procedures, the CAD could improve consistency when analyzing sales, developing schedules and adjustment factors, modifiers, time adjustments or depreciation factors. Defining local neighborhoods and market areas help in areas with limited sales data when factors are necessary. Frequent ratio studies and the appraisal maintenance that follows enable an appraisal district to keep its values at or near the market values. By applying ratio study results in an inconsistent or inappropriate manner, the CAD risks not properly recognizing and adjusting schedules for market changes and unequally valuing market areas. Additionally, it jeopardizes consistency and accuracy of appraised values.

RECOMMENDATION 3
Establish comprehensive, written ratio study procedures that allow for generally accepted appraisal practices for reappraisal, maintenance planning and neighborhood analysis, as recommended by the IAAO Standard on Ratio Studies.

FINDING
San Patricio CAD's appraisal manual does not provide adequate property classification definitions, instructions and directives for staff to use in performing appraisals.

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

A clear, thorough, and precise data collection manual should be developed, updated, and maintained. The written manual should explain how to collect and record each data item. Pictures, examples and illustrations are particularly helpful. The manual should be simple yet complete, with a high degree of standardization for uniformity. Data collection staff should be trained in the use of the manual and updates to maintain consistency. The manual should present guidelines for personal conduct during field inspection and, if interior data are required, should outline procedures to follow when the property owner has denied access or when entry might be risky.

The CAD provided classification systems used for residential and commercial property as well as residential, commercial and land schedules. The CAD appraises all property in-house with the exception of mineral, utility and complex industrial and personal property accounts that it contracts out to an appraisal firm. The CAD has not developed a comprehensive appraisal manual for residential, commercial, business personal property and land, including agricultural property. In lieu of a comprehensive manual, the CAD relies on the personal experience of the chief appraiser, deputy chief appraiser and field appraisers. The CAD currently has three field appraisers, two of which have the Registered Professional Appraiser (RPA) designation from the Board of Tax Professional Examiners (BTPE).

The CAD started using a new classification system in the 2006 tax year based on a classification developed by a national cost valuation service. The documentation provided regarding the classification system did not have instructions or adequate explanations for classifying property using the system. An inexperienced appraiser using this system would have difficulty classifying property consistently. The classification system uses seven quality classes with a general description and standard specifications for each quality class. The standard specifications consider items such as foundations, exterior walls, roof, floors, millwork and typical features such as electrical outlets, custom fixtures, number of baths, number of garages, porches/patios, doors, central heat and air and fireplace.

As part of the ASR, the onsite reviewer examined 54 randomly selected property within the Sinton and Mathis ISDs, including 32 in Category A: Real Property: Single-Family Residential; 10 in Categories D2: Real Property: Non-Qualified Land and E: Real Property: Farm and Ranch Improvements (called Category D3 in the PVS); and 12 in Category F1: Real Property: Commercial property accounts. The CAD had not reappraised these property as part of the current reappraisal now underway; therefore, the current information on the appraisal cards relies on the old classification system used in the CAD. In addition, the CAD completed a CAMA software conversion to a different software vendor in early 2008, and historical data available from the 2006 appraisal year consisted of a land value and improvement value, making it difficult to recalculate and reconstruct values reflecting the values at the time these school districts received an invalid finding.

With the assistance of a CAD appraiser, the reviewer conducted an onsite 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 old classifications found in the CAD's appraisal manual, the reviewer looked at accounts for consistency in classification.

Exhibit 5 shows results associated with the review of the individual parcels using the CAD's existing manual (problem categories listed are not mutually exclusive).

Exhibit 5
San Patricio CAD Sample Property Inspected
Descriptions of Results

Property Category	Total Number of Property Inspected	Description of Results
A: Real Property: Single-Family Residential	32	Unable to discover or reveal procedure problem by reconstructing value due to change in CAMA system and classification system in all 32 property; 31 appraisal cards contained year built, condition and depreciation of main improvement; and staff utilized last inspected field with date and initials in 31 property.
D3: Rural Real	10	Improvements on property (or suspected) not listed on four appraisal records; staff utilized last inspected field with date and initials on nine cards; and all 10 appraisal cards contained year built and condition of main improvement.
F1: Real Property: Commercial	12	Non-Descriptive Property Classification (Flat value segment) and no age listed for main improvement on three cards; staff used last inspected field with date and initials in all 12 property; and depreciation in five property was not according to depreciation table.

Source: San Patricio Appraisal Cards, April 2008.

The appraisal cards for the sample property consistently identified important basic features such as year built, condition and valuations conducted by scheduled costs. The condition of some homes appeared different from the condition represented on the appraisal card. This could be the result of prior or inconsistent judgment by field appraisers or, more likely, the result of not completing a more current inspection of the property in the sample. While most appraisal cards had the date noted when last inspected, if correct, it had been 4-5 years since some property in the sample had an onsite inspection. In a 4-5 year period, changes to property occur, such as additions, deferred maintenance, remodeling and renovations, all items that can affect the overall value of a property. Thirty-eight of the sample property were last inspected in 2003 or 2004.

The San Patricio 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. As an example, the appraisal manual does not have instructions for estimating accrued depreciation, land class definitions, use of schedules, neighborhood information and personal property procedures. In addition, the appraisal manual does not contain written procedures for measuring homes or procedures for engaging with the homeowner while onsite. 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 also lacks appraisal procedures for valuing land and commercial property. For instance, the CAD does not clearly define and describe land classes and does not include representative photographs beneficial when classifying commercial and residential property.

Lack of a detailed, comprehensive appraisal manual can lead to inconsistent classing of property by field appraisers, as well as irregular field procedures and varying property characteristic definitions. Lack of a manual can also 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 compliance 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, such as USPAP Standard 6, requiring similar appraisal methods and techniques be applied to the same or similar property.

RECOMMENDATION 4
Expand the current appraisal manual to include procedures, instructions and protocols for valuing property the CAD appraises in-house.

The appraisal manual should contain local procedures for items such as estimating accrued depreciation; recording property characteristics and field procedures, such as measuring and procedures to access property or deal with property owners; and definitions of land classifications, schedules and characteristics needed for the proper and consistent classification of land and vacant lots.

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