Chapter 2:
Findings of the Appraisal Standards Review
This chapter of the report addresses commendations, findings and recommendations from the ASR.
Val Verde CAD was formed in 1981 and became active in 1982. As of November 2008, Val Verde CAD has 11 full-time staff, of which three are supervisors and six are full-time appraisers. Val Verde CAD contracts with a professional appraisal services firm to appraise mineral, utility and some industrial property.
Each board member in Val Verde CAD was mailed an Appraisal District Board of Directors Questionnaire. Eight board members completed the questionnaire and returned it to the PTAD. All eight agreed the chief appraiser effectively manages the CAD's day-to-day operations, that they have confidence in the chief appraiser and staff appraisers have the skills, experience and credentials needed to appraise property appropriately. One voiced concerns over rising property values in the CAD.
In July 2004, PTAD identified Comstock ISD as one of 54 ISDs meeting the criteria that initiate an ASR. In July 2005, PTAD released the results of its ASR of Val Verde CAD with the following recommendations:
- Develop and implement written procedures for responding to financial audit findings;
- Develop a job description and objective set of evaluation measures for the chief appraiser position and establish a written, annual evaluation process;
- Establish written guidelines for administering 1-d-1 open space agricultural appraisals;
- Develop an implementation plan and timeline for the purchase and integration of a geographic information system with the CAD's appraisal software by the end of 2006;
- Adopt and implement a detailed reappraisal plan;
- Prepare and issue detailed appraisal procedures manuals to each appraiser; and
- Establish written procedures for gathering and analyzing sales.
In July 2007, PTAD published the Val Verde County Appraisal Follow-Up Report, which showed progress toward implementing the recommendations. In May 2008, PTAD released a final report indicating Val Verde CAD satisfied the requirements of all of the recommendations.
Key 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 Val Verde CAD's appraisal activities.
FINDING
Val Verde CAD did not calculate agricultural values for the 2007 appraisal year in accordance with Property Tax Code Section 23.51.
Property Tax Code Section 23.51 (3) states the following:
(3) "Category" means the value classification of land considering the agricultural use to which the land is principally devoted. The chief appraiser shall determine the categories into which land in the appraisal district is classified. In classifying land according to categories, the chief appraiser shall distinguish between irrigated cropland, dry cropland, improved pasture, native pasture, orchard, and waste. The chief appraiser may establish additional categories. The chief appraiser shall further divide each category according to soil type, soil capability, irrigation, general topography, geographical factors, and other factors that influence the productive capacity of the category. The chief appraiser shall obtain information from the Texas Agricultural Extension Service, the Natural Resources Conservation Service of the United States Department of Agriculture, and other recognized agricultural sources for the purposes of determining the categories of land existing in the appraisal district.
Property Tax Code Section 23.51 (4) states the following:
"Net to land" means the average annual net income derived from the use of open-space land that would have been earned from the land during the five-year period preceding the year before the appraisal by an owner using ordinary prudence in the management of the land and the farm crops or livestock produced or supported on the land and, in addition, any income received from hunting or recreational leases. 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, and all expenses directly attributable to the agricultural use of the land by the owner shall be subtracted from this owner income and the results shall be used in income capitalization. In calculating net to land, a reasonable deduction shall be made for any depletion that occurs of underground water used in the agricultural operation.
The CAD, with the assistance of the agriculture advisory board, gathers lease information from area livestock producers. An Agricultural Affidavit is mailed to area livestock producers, farmers and ranchers to gather lease information, including landowner, lessee, type of lease, acreage, ISD location and the dollar amount of the lease. The CAD mailed 264 questionnaires in 2007 and received 30 with complete information.
Exhibit 1 summarizes the PVS results for the previous five years for Comstock and San Felipe-Del Rio Consolidated ISDs:
Exhibit 1
Val Verde CAD Category D1 Ratio History
2003-07
| Year | San Felipe-Del Rio CISD | Comstock ISD |
|---|---|---|
| 2003 | 0.6736 | 0.6552 |
| 2004 | 0.7859 | 0.7557 |
| 2005 | 0.9010 | 0.8249 |
| 2006 | 0.9115 | 0.9048 |
| 2007 | 0.9126 | 0.9061 |
Source: Texas Comptroller of Public Accounts, 2003-07 Property Value Studies.
Exhibit 1 shows the CAD struggled with agricultural valuations from 2003-07. The 2005, ASR for Val Verde CAD included a recommendation to "establish written guidelines for administering 1-d-1 open space agricultural appraisals." The follow-up report indicated the CAD developed local degree of intensity standards and guidelines for minimum standards of livestock to qualify for an agricultural appraisal. While these guidelines established the standards needed to qualify for an agricultural appraisal, the CAD does not have procedures in place to perform calculations and input data necessary for agricultural evaluations.
Property Tax Code Section 23.51 (4) requires that the appraiser base the annual income estimate on the five-year period preceding the year of the appraisal. For example, for the 2007 appraisal year, the estimate must include an average of the income information from the years 2001-05. The CAD, instead, used income information gathered from the 2003-07. The ASR Follow-Up Report for Val Verde CAD, published in July 2007, stated, "the chief appraiser indicated data was not available for the 2006 tax year, but historical data showed a stable trend." It stated, "failure to collect 2006 data for net-to-land will impact the 2007 net-to-land calculation."
The CAD calculates an agriculture value by ISD and not by land classification as required by Property Tax Code Section 23.51 (3). The lease questionnaires are sorted by ISD and information is developed into an agricultural valuation for each ISD. This process could result in inequitable valuations. Two properties located in different ISDs, but with the same productivity capacities, could have different valuations.
After reviewing draft report, the chief appraiser stated, "I have included a copy of our agricultural rate calculation formula. As you can see we have the steps listed correctly. I believe that the appraiser that did the calculation for the 2007 year just made an error and included 2006 when in fact he should have skipped 2006 and started with 2005." The chief appraiser included a three-page Ag Rate Calculation Formula that includes examples for calculating agricultural rates. While it includes examples, it does not give instructions to walk the user through the examples nor does it explain which years should be used in the calculation.
By not developing and following accurate procedures to calculate agricultural valuations correctly, results could continue to fall below acceptable standards. Not calculating according to a land classification system and continuing to calculate by ISD is not consistent with statutory requirements and can lead to inequitable results. Not calculating the net-to-land with the correct five-year history results in incorrect valuations. Using productivity calculations that do not follow the Property Tax Code can lead to taxpayers paying an incorrect amount of property tax.
The Manual for the Appraisal of Agricultural Land (adopted by Comptroller Rule 9.4001) Part III, Agricultural Appraisal Process, states that:
To put an effective productivity appraisal system in action, the appraiser must complete five steps:
- Develop a land classification system.
- Estimate the net to land per acre for each class or subclass.
- Divide the class' net to land by the year's capitalization rate to find the value per acre in each class.
- Classify all qualified agricultural land according to the land classification system.
- Use the schedule to calculate productivity value for individual parcels of land.
RECOMMENDATION 1
Perform productivity calculations in Val Verde CAD in accordance with Property Tax Code Section 23.51.
FINDING
Val Verde CAD does not have a locally developed comprehensive land appraisal manual that includes land appraisal procedures, classifications and schedules for staff.
The IAAO's 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 IAAO Property Appraisal and Assessment Administration, Chapter 7, Land Valuation, Components of a Land Appraisal System discusses, "An effective land appraisal system has five basic components: cadastral maps, land characteristics data, sales and other market data, appraisal procedures, and staff and resources."
As part of the 2007 ASR, the reviewer examined 13 selected properties within the Comstock ISD: eight Category A and five Subcategory D3 accounts. The reviewer was unable to duplicate property values in either category, as shown in Exhibit 2, due to the absence of an appraisal manual for land.
Exhibit 2
Val Verde CAD Sample Property Inspected
Noted Problems
|
Property Category |
Total Number of Property Inspected |
Description of Problem |
Number of Property With Problem |
|---|---|---|---|
| Category A | 8 | No land manual for acreage and residential lots | 8 |
| Subcategory D3 | 5 | No land manual for acreage and residential lots | 5 |
Note: Problem categories listed are not mutually exclusive.
Source: Val Verde CAD appraisal cards reviewed by Review Team, December 2008.
With the assistance of the chief appraiser, the reviewer inspected each sample property, checking characteristics against data on appraisal cards for accuracy and reasonableness. While the CAD has adequate residential descriptions, the reviewer was unable to reconstruct values using existing manuals because the CAD does not have a land manual to provide detailed guidance for classification of land, including residential lots.
The chief appraiser completed the IAAO Assessment Practices Self-Evaluation Questionnaire, which includes Chapter 6: Land Evaluation. The following questions and responses indicate that the CAD is considering implementing new procedures to value land:
Are land sales analyzed in terms of value per unit, and are the per unit values plotted on maps?
No we do not do that at this time. This is another of our many projects we are trying to implement with our new mapping GIS [Geographic Information System].
Are adjustments made for positive location (situs) factors, such as golf course frontage, other premium frontage, premium view, or negative situs factors, such as excess traffic, limited access, adverse topography?
Yes, the more desirable lots sell for more than the non-desirable lots.
The previous questions illustrate examples of the CAD's need to develop a comprehensive land manual for using GIS when developing land values and written definitions for various adjustments. By not having written land appraisal policies and procedures, the CAD relies heavily on the knowledge and experience of senior staff, which can lead to the disruption of appraisal processes in the event of staff changes and result in the lack of appraisal uniformity. By developing and providing staff appraisers and senior personnel with local land appraisal manuals, including policies and procedures, the CAD's appraisal performance could be equitable, and appraisal uniformity could improve.
After review of the draft report, the chief appraiser stated, "I have included copies of our land classes for rural/agricultural land which are based on soil types. We are currently working on developing manuals for commercial and residential tracts and hope to have them implemented by 2010." The chief appraiser included a spreadsheet that includes the following columns: land type cd; land type desc; market table; ag table; range price; range pc; and range adj price, but no instructions are included on how to use the spreadsheets.
Matagorda CAD, for example, has a manual that serves as the primary guide for staff on how to appraise land. The manual contains information on how market values are established for vacant lots (Category C) and rural land (Category D). The CAD considers adjustments to land values based on factors that typically involve location and size. The manual is updated as needed.
RECOMMENDATION 2
Create a comprehensive land appraisal manual to provide adequate property classification descriptions for rural acreage, agricultural property, commercial and residential tracts with instructions for use by appraisers and CAD personnel.
FINDING
Val Verde CAD has not established land classes as outlined in the Manual for the Appraisal of Agricultural Land.
Property Tax Code Section 23.51 (3) states the following:
"Category" means the value classification of land considering the agricultural use to which the land is principally devoted. The chief appraiser shall determine the categories into which land in the appraisal district is classified. In classifying land according to categories, the chief appraiser shall distinguish between irrigated cropland, dry cropland, improved pasture, native pasture, orchard, and waste. The chief appraiser may establish additional categories. The chief appraiser shall further divide each category according to soil type, soil capability, irrigation, general topography, geographical factors, and other factors that influence the productive capacity of the category. The chief appraiser shall obtain information from the Texas Agricultural Extension Service, the Natural Resources Conservation Service of the United States Department of Agriculture, and other recognized agricultural sources for the purposes of determining the categories of land existing in the appraisal district.
Val Verde CAD does not have defined subclasses of native pastureland nor defined classes for other types of land in the jurisdiction. The CAD uses one class of native pasture for the entire jurisdiction. The Manual for the Appraisal of Agricultural Land, Establishing Land Classes, states that "[w]here available, soil surveys can be extremely helpful in establishing classes and subclasses. Surveys can reveal the major soil types. Grouping soil types to reflect a reasonable range of productivity capabilities will limit the number of subclasses established."
A soil survey for Val Verde County is available through the local Texas AgriLife Extension Service office. The Soil Survey Val Verde County, Texas, dated January 1982, details soil descriptions, use and management of soils, soil property, classification of soils, formation of soils and descriptions of various soil series found in the county. The soil survey contains maps and tables with detailed information on topics such as yields, rangeland productivity and wildlife habitat. The soil survey identifies 40 soil types by name and includes a table on the rangeland productivity of these sites. According to the soil survey, the potential for annual production of soils that can support rangeland vegetation suitable for grazing can vary from 550 pounds-per-acre to 5,500 pounds-per-acre for an average growing season. This data illustrates there are production variances within the county and the need to develop more detailed land classes.
By not considering and analyzing the possibility of subclasses in the land classification system, the CAD could underestimate the value of more productive land while overestimating the value of less productive land leading to unequal levels of appraisal.
After review of the draft report, the chief appraiser stated, "I have included copies of our land classes for rural/agricultural land which are based on soil types. We are currently working on developing manuals for commercial and residential tracts and hope to have them implemented by 2010." The chief appraiser included a spreadsheet that includes columns: land type cd; land type desc; market table; ag table; range price; range pc; and range adj price. It is difficult to determine from the spreadsheet whether subclasses exist beyond classifications of other, barren/wasteland, irrigated cropland or native pastureland and no instructions are included on how to use the spreadsheets.
The Manual for the Appraisal of Agricultural Land (adopted by Comptroller Rule 9.4001) Part III, Agricultural Appraisal Process, Establishing Land Classes, states, in summary, the following:
Land Classes should be based on the district's most common land uses. The Property Tax Code lists some typical classes of land, such as irrigated cropland, dry cropland, improved pasture, native pasture, orchard, and waste.
Appraisers must often divide broad classes into subclasses based on factors that influence productivity capacity. A particular land class may include land with different soil types, soil capacity, levels of irrigation, topography, or geographical factors. These differences may affect productivity enough to define subclasses.
The appraiser may base subclasses for pastureland on typical stocking rates or carrying capacity. Some native pastureland, for example, may have a soil type that produces more feed and can support more livestock than the same native pastureland with a different soil type. As is the case with cropland, districts must establish a reasonable grouping of major differences in carrying capacities or stocking rates.
RECOMMENDATION 3
Perform an analysis and study of the CAD's land classification system to determine if developing subclasses is appropriate for property located in Val Verde County.
CAD staff should consider enlisting the help of outside experts who are familiar with land classification and land productivity to determine if the development of subclasses is appropriate. The Manual for the Appraisal of Agricultural Land, Appendix D, illustrates a sample development of class values that would be beneficial for review.
FINDING
Val Verde CAD has not used ratio studies effectively to allow for generally accepted appraisal practices for reappraisal, schedule maintenance, planning and neighborhood analysis, as recommended by the IAAO Standard on Ratio Studies.
The IAAO's Standard on Ratio Studies, Section 1, Scope, states, "This 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 IAAO Standard on Ratio Studies, Section 4, Steps in Ratio Studies, states the following:
Ratio studies generally involve six basic steps:
(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 IAAO Standard on Ratio Studies, Section 2.2, Aspects of Appraisal Performance, states the following:
There are two major aspects of appraisal accuracy: level and uniformity. Appraisal level refers to the overall ratio of appraised values to market values. The level provides information about the degree to which legal requirements are met. Uniformity refers to the degree to which different properties are appraised at equal percentages of market value, that is, the degree to which property tax levies (aside from statutory differences in assessment levels) are distributed in proportion to market value.
The CAD provided the Val Verde Appraisal District Uniform Standards of Professional Appraisal Practices approved Jan. 1, 2008. The document provides generalized information to the staff and public about appraisal activities and includes sections on statistical analysis, market adjustment and performance tests that provide some information on ratio studies.
The valuation and statistical analysis section states that "appraisers perform statistical analysis annually to evaluate whether values are equitable and consistent with the market." It explains that neighborhoods are reviewed annually through sales ratio analysis. The market adjustment paragraph states, "[n]eighborhood or market adjustment factors are developed from appraisal statistics provided from the ratio studies and are used to ensure that estimated values are consistent with the market." It defines a process to develop market adjustment factors for each neighborhood. The performance test section states, "[t]he primary analytical tool used by the appraisers to measure and improve performance is the ratio study." It states that overall sales ratios are generated for each ISD allowing the appraiser to review general market trends and provide an indication of market changes over time. Ratio study information in the document is available for residential, commercial and business personal property. The 2008 Reappraisal Calendar in the Val Verde Appraisal District Uniform Standards of Professional Appraisal Practices shows that schedules are updated April 15.
The document, however, does not illustrate the steps involved to perform a ratio study nor does it provide detailed local information and instructions. It does not illustrate or give instruction on how to use ratio studies, when to run them, acceptable ranges, how to adjust schedules or how to analyze or apply the results. The chief appraiser stated that ratio studies are usually the last thing done before mailing appraisal notices. The reappraisal plan does not provide staff with a definition of the purpose and objectives of ratio studies, which is the first step in any ratio study, according to the IAAO Standard on Ratio Studies.
The CAD provided a spreadsheet with formulas used to calculate ratio studies. The file contains a separate spreadsheet for each residential classification. The chief appraiser stated that the CAD uses this format to calculate ratio studies. The file does not contain current data, but sales information from 2004. The CAD did not provide any additional ratio study data or written procedures or policies for performing ratio studies and analysis. Val Verde Appraisal District Uniform Standards of Professional Appraisal Practices provides no procedure nor does it reference ratio study spreadsheets. The CAD does have the capability to perform ratio studies through its computer assisted mass appraisal (CAMA) software, but apparently does not use it.
To the IAAO Self-Evaluation Questionnaire, Chapter 9: Sales Data, Ratio Studies, and Stratification, the CAD responded as follows:
Does the assessment office have the capability of running ratio studies by use-selected combinations of property characteristics?>
Yes our software is capable it has just never been used. I have started implementing the use of all software functions but it will take time to get everything going. The former Chiefs were not utilizing the software to its full capability.
By developing and implementing formal ratio study policies and procedures, the CAD could improve consistency when analyzing sales, developing schedules and adjustment factors, performing schedule maintenance, modifiers, time adjustments or depreciation factors. Defining local neighborhoods and market areas can help when limited sales data factors are available. Frequent ratio studies and the appraisal maintenance that follows can enable a CAD to keep its values at or near market, allowing the CAD to quickly identify market areas, neighborhoods or schedules that need attention. 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 and jeopardizes consistency and accuracy of appraised values.
Upon review of the draft report, the chief appraiser provided ratio study instructions that describe the keystrokes necessary to enter sales into the computer, run ratio studies and update schedules. The instructions do not discuss where or how to obtain sales information, how to analyze the information presented in ratio studies, or how to use that analysis to update schedules. The chief appraiser also included four sales ratio study reports indicating the capability of the CAD's appraisal system.
Wood CAD, for example, has a computerized appraisal system that allows it to analyze appraisals through ratio studies within and among property classifications. Of common interest in ratio studies are the level and uniformity of the appraisals or assessments. The CAD runs ratio studies within property classes, by ISD and county at least bimonthly to determine appraisal performance and makes reappraisal and value maintenance decisions for certain types of property or locations based on ratio study results.
RECOMMENDATION 4
Establish comprehensive, written ratio study procedures that allow for generally accepted appraisal practices for reappraisal, schedule maintenance, planning and neighborhood analysis, as recommended by the IAAO Standard on Ratio Studies and implement as a standard practice in the CAD.
FINDING
Val Verde CAD has not developed defined market areas and neighborhoods to assist in the estimation of market values.
IAAO Standard on Mass Appraisal of Real Property, Glossary, defines an economic area or market area as, "A geographic area, typically encompassing a group of neighborhoods, defined on the basis that the properties within its boundaries are more or less equally subject to a set of one or more economic forces that largely determine the value of the properties in question."
Property Tax Code Section 25.18 (b) (3), Periodic Reappraisals, requires "defining market areas in the district."
Val Verde CAD's reappraisal plan defines and describes how to conduct land, area, neighborhood and market analysis, but does not define or illustrate local land uses or market areas within the CAD. The reappraisal plan contains general information about processes used in the development of market areas and neighborhoods, but not specific information about land analysis or market area analysis in Val Verde CAD.
The chief appraiser stated that the CAD does not have defined market areas or neighborhoods; that it has not developed characteristics to identify market areas or specific land use categories to aid in the valuation of property; that the CAD values lots differently from one part of town to another; and that she believes the CAD used neighborhood codes and neighborhood adjustments in the past. The CAD did not provide documented analysis or definitions of neighborhood codes, adjustments or definitions of neighborhoods or subdivisions.
By not having market areas and land uses clearly defined, analyzed and documented, the CAD relies heavily on local market knowledge of staff when updates to appraised values are necessary. The CAD does not have any documentation showing which subdivisions or areas share similar characteristics, land characteristics, land uses or which areas it considers to be in the same market area.
Not clearly identifying market areas, neighborhoods and land use changes can lead to unequal values among similar land and residential classes. Clearly defining market areas can enable the CAD to make schedule changes across similar subdivisions or market areas, not only when sales are available in a specific subdivision. Market analysis can assist the CAD in determining land uses and recognize land use changes.
Upon review of the draft report, the chief appraiser stated, "We are currently working on developing neighborhood codes and hope to have them implemented by the 2010 appraisal year."
Brown CAD, for example, acquired a geographic information system (GIS) that depicts various attributes that influence value. These typically are with overlays that include flood zones, urban zoning, rural water systems, railroad and historic maps. The system is able to define market areas used in the appraisal of land or land and improvements.
RECOMMENDATION 5
Clearly identify, define and analyze market areas and neighborhoods within the CAD, incorporate the results into the reappraisal plan and appraisal manual and use the data to update schedules as needed.