School and Appraisal Districts' Property Value Study
2004 Final Report
Section One

This section presents an overview of the Property Value Study (PVS) and explains the study procedures in detail for those who want more indepth knowledge of the process.
The Property Value Study  Overview
The Property Value Study (study), in accordance with Texas Government Code Section 403.302, is conducted annually by the Comptroller to estimate the taxable property value in each school district and to measure county appraisal district (CAD) performance. It is often referred to as a ratio study because it uses the appraisal roll value divided by its market value to calculate a ratio to measure effectiveness of the appraisal districts. The appraisal roll value is the property value estimated by the local appraisal district. The market value, in simple terms, is the price for which a property would sell under normal conditions.
Section 5.10 of the Property Tax Code requires the Comptroller to determine annually the level and uniformity of property tax appraisals in each appraisal district by using data collected in the annual school district study discussed above. The school district study required by the Government Code Section 403.302 and the appraisal district study required by Section 5.10 of the Property Tax Code are jointly referred to as the Comptroller’s Property Value Study.
What is the Primary Purpose of the Property Value Study?
The primary purpose of the study is to ensure that state funds for public schools are distributed according to need.
In Texas, public education is funded through a combination of state and local funds. Local funding comes from local property taxes. The chief appraiser of each county appraisal district (CAD) determines local property values and school districts set tax rates that determine the amount of local tax revenue. State funding is based on the total taxable property value within each school district as determined by the PVS.
School districts use the study to monitor their CAD’s performance and to evaluate the need for reappraisal of their districts. A school district’s funding could be affected by the results of the study. Consulting the study and working regularly with the CAD will ensure that values are uniform and as close to market as possible.
The Commissioner of Education uses the study to ensure equitable distribution of education funds so that school districts have roughly the same number of dollars to spend per student, regardless of the school district’s wealth or lack of wealth. School districts with less taxable property value per student receive more state dollars for each pupil than districts with more value per student. The state’s fair distribution of more than $11 billion in school funding depends largely on the Comptroller’s taxable value findings.
School Funding Equity Example
If the state were to rely solely on the values set by the 253 Texas CADs, inequitable school funding could result in some school districts. For example, assume that two school districts, school district A and school district B, are identical in every respect except that the appraisal district for school district B does a better job appraising property than the appraisal district for school district A. CADs are required to appraise most property at market value—in short, a property’s fair selling price. If property values in school district A are at 75 percent of market value, while property values in school district B are at 100 percent of market value, school district A would appear to have less taxable property value per student than school district B. Accordingly, more state funding would flow to school district A, even though the two districts have the same number of students, the same taxable property value and are alike in every way. This is clearly an unfair result.
Court Challenges/State Response
A series of court cases brought in the 1980s by poor school districts challenged the Texas funding system. One of the issues was that property values were not set at uniform percentages of market value in each school district, resulting in an unfair distribution of funds. As part of its response to these court challenges, the Legislature directed the Texas Comptroller to provide an independent estimate of taxable property value in each school district to ensure fair school funding—providing more money to those districts that are less able to raise money locally because of insufficient taxable property wealth.
The independent estimate is accomplished through the PVS by adjusting school district property values to market value. If the locally appraised value in a school district (local value) is within an acceptable range of the adjusted value (state value), the Comptroller’s Property Tax Division (PTD) certifies the local value to the Commissioner of Education. If the local value is outside the acceptable range, PTD certifies the state value, unless the school district is eligible for a grace period—a twoyear period when local value is used even though it is invalid.
The state funds districts based on either the local value, or the state value, depending on which was certified. The state values do not directly affect local property taxes, which are based on the local appraised values provided by each CAD. If state value is used in the funding formula, however, it normally is higher than the local value and causes the school district to receive less money than expected. For this reason, school districts should monitor the efforts of their CADs to maintain market values and should encourage them to perform accurate appraisals.
Chapters 41 and 42 of the Texas Education Code describe how the findings of the PVS are used in the school funding formula to determine state aid. For questions about state aid or the funding formula, contact the Texas Education Agency at 5124639238.
Secondary Purpose
The secondary purpose of the PVS is to provide taxpayers, school districts, appraisal districts and the Legislature with measures of appraisal district performance and to provide accountability for appraisal districts that fail to meet certain performance standards. PTD staff achieves this by publishing measures of appraisal level and uniformity, by conducting performance audits and by conducting appraisal standards reviews.
Appraisal Level and Uniformity
Section 5.10 of the Property Tax Code requires the Comptroller to measure CAD performance annually and to publish the results. PTD measures the level and uniformity of property tax appraisals in each CAD using data collected in the annual school district study. The level of appraisal shows whether the district has appraised typical properties at 100 percent of the legally required level—normally the market value. The uniformity of appraisal indicates how much the percentage of market value varies from property to property.
The school district study required by Section 403.302 of the Government Code and the CAD study required by Section 5.10 of the Property Tax Code are jointly referred to as the Comptroller’s Property Value Study.
Performance Audits
Section 5.12 of the Property Tax Code requires the Comptroller to conduct a performance audit in any CAD that fails to attain specified appraisal level and uniformity measures in the study. This section also requires the Comptroller, under certain circumstances, to perform an audit upon the written request of taxing units or taxpayers in the CAD. Finally, this section gives the Comptroller discretion to conduct a performance audit in any CAD. If a performance audit is done, the Comptroller’s office will send a copy of the findings to the affected school districts so that they can work with their CADs to remedy identified concerns.
Appraisal Standards Reviews
In addition to the performance audits, Section 5.102, Government Code, requires the Comptroller to perform an appraisal standards review of the CAD(s) serving a school district that receives a grace period. This review produces a report with recommendations for CADs to improve their appraisal procedures so that future studies will validate their property values. And, as with the performance audits, the affected school districts will receive a copy of the Comptroller’s findings so that they can work directly with their CAD to remedy any problems.
The school district, through its appraisal district, can prevent any adverse funding consequences by achieving valid values in the year after the twoyear grace period and can meet an important requirement for reestablishing eligibility for a future grace period by achieving valid values for two years in a row. If the CAD fails to take remedial action within a year of the report’s issuance, the Comptroller is required to notify the judge of each district court in the county. The district judges would be required to appoint a fivemember board of conservators to take control of the CAD. The board of conservators would supervise the CAD until all its component school districts’ values are found valid in the study.
Other Legal Requirements
The Government Code, in Section 403.302, requires the Texas Comptroller to conduct the school district taxable value portion of the PVS.
Taxable Value
Taxable value is the estimated property wealth of each school district. By law, it equals the market value of all property in a district, minus certain exemptions and deductions. The Comptroller’s estimated taxable value reflects deductions for statemandated homestead, disabled veterans’ exemptions and value limitations. Deductions are also made for reinvestment zones, freeport exemptions, productivity appraisal of qualified agricultural lands, the school tax ceiling for homeowners over age 65 or disabled and other statemandated exemptions.
In estimating school district taxable values, the Government Code requires the Comptroller to:
 use generally accepted sampling, valuation and statistical techniques;
 ensure that different levels of appraisal on sold and unsold property do not adversely affect the accuracy of the study; and
 test the validity of taxable values and presume that appraisal roll values are correct when values are valid.
Margin of Error
The Comptroller tests the validity of the taxable values assigned to each category of property by the CAD as required by the code by constructing a statistical margin of error around the Comptroller’s estimate of value for selected property categories in each school district. Values are presumed valid, or acceptable, when they are within the error margin. The margin of error is plus or minus five percent of the state value at a minimum, but may be higher. Values outside this margin of error are considered invalid.
Local Value Above Market Value
Even though a school district’s local value is invalid, the law requires the Comptroller to certify the local value if the local value is higher than the state value. This requirement prevents a school district from receiving extra state funding based on a lower state value, while receiving local funds from taxes on property that is appraised above market value.
Grace Period
The Government Code also requires the Comptroller to use the local appraisal roll values to estimate the total taxable value in an eligible school district for up to two years even when the local appraisal roll values are invalid. This is known as a grace period. A school district is eligible for the grace period if it meets three conditions:
 the district’s values are invalid in the most recent property value study;
 the district’s values were valid in the two studies preceding the most recent study; and
 the district’s local value is above 90 percent of the lower threshold of the margin of error.
Chart 1 illustrates how a school district could be eligible for a grace period if its values are invalid.
Study Timeline
The study is an annual project by PTD staff with the assistance of CADs, school districts and taxpayers. The study begins in February each year and concludes in July of the following year. A new study begins while the previous year’s study is being modified by protests, so there is considerable overlap.
Under the Government Code, the agency must certify the preliminary findings of taxable value for each district before February 1 of the year following the year under study. The agency delivers the findings to school districts and CADs and also certifies them to the commissioner of education. Districts that wish to protest preliminary value findings must do so within 40 days after the date of preliminary certification.
The Comptroller publishes the results of the CAD study simultaneously with the school district study and distributes copies to all CADs and members of the Legislature. Although the Property Tax Code does not give CADs the right to protest study findings, the Comptroller allows appeals of level and uniformity measures in an effort to enhance fairness and accuracy.
After study protests are complete, the Comptroller certifies final values on or about July 1 to the Commissioner of Education, who uses the final values to adjust school district funding the following September.
The Property Value Study  Detailed Procedures

This section lists the property categories used in the study, gives an overview of school district taxable value calculation, then describes the procedures and calculations used in the PVS stepbystep. This section then describes procedures that are specific to each property category.
Property Categories
The Government Code and the Property Tax Code require the Comptroller to develop ratios and value estimates for property categories and to combine information on the various property categories into overall estimates.
The property categories generally used are:
A. real property: singlefamily, residential;
B. real property: multifamily, residential;
C. real property: vacant lots and tracts;
D/E. real property: acreage at market value, and farm and ranch improvements;
D1. real property: acreage at productivity value;
F1. real property: commercial;
G. real property: oil, gas and other minerals;
J. real and tangible personal property: utilities; and
L1. personal property: commercial.
The Comptroller may group properties into any other category or subcategory necessary for the efficient and accurate completion of the PVS.
Calculating Taxable Value – Overview
The Comptroller’s Property Tax Division (PTD) calculates the total taxable value in a school district, referred to as state value, by estimating market value or by accepting the local appraised value in each property category in the district and then adding these category values for an overall school district value. PTD then deducts the losses from statemandated homestead exemptions, disabled veterans’ exemptions, value limitations, reinvestment zones, freeport exemptions, productivity appraisal of qualified agricultural lands, the school tax ceiling for homeowners over age 65 or disabled and other statemandated exemptions.
To estimate most category values, PTD obtains a representative sample of properties in each category, computes a weighted mean ratio from this sample and divides this ratio into the school district’s selfreported appraisal roll value for the category.
There are several property categories for which the Comptroller does not develop ratios or value estimates. These categories are included in the study at the local appraised value reported by the district.
Step 1. – Gather and Prepare Market Data
PTD gathers and prepares market data, including property sales, building costs and income information. If enough recent sales information is available, this data will become the basis of the PVS. PTD staff gathers sales information from any available source, including CADs, multiple listing services, realtors, appraisers, title companies and taxpayers. The sales prices must be verified, edited and adjusted as necessary for financing, personal property and time of sale. Building costs and income information become important when sales are scarce, because in this situation, PTD staff is required to appraise sample property to meet sample size requirements. The appraisals may be based on comparable sales information, building costs, market rents and vacancy rates or other market information.
Step 2. – Select a Sample
PTD supervisory staff assigns sample sizes for each property category included in the PVS in each school district based on a statistical model, designed to achieve a uniform 5 percent margin of error in each school district to the extent practicable. The sample includes a census of all recent sales when the number of sales is smaller than, or does not greatly exceed, the target sample size. If the number of available sales greatly exceeds the required sample size, the sample is randomly selected from the sales population. If there are not enough sales to achieve the assigned sample size PTD randomly selects enough properties to fill the gap and then appraises those properties.
PTD does not sample industrial property because of the lack of publicly available appraisal information and the cost of performing appraisals of this kind of property. If a property category includes less than five percent of the value in a school district (excluding industrial property), PTD generally does not include that category in the PVS.
PTD’s samples of properties may sometimes include outliers. Outliers are properties with abnormally high or low ratios. If PTD determines that an outlier is the result of a CAD error or unusual market variability, the outlier remains in the PVS. If the outlier was caused by a clerical error, a property mismatch or an error in appraisal judgment, PTD attempts to correct the error so that the property can remain in the PVS. If the staff finds that the outlier is a nonmarket transaction, the staff excludes the outlier from the sample. To improve sample representativeness, PTD may exclude extreme outliers that remain after the process described above is concluded.
See Appendix A for a discussion of the modified sampling procedures used when saleschasing is suspected.
Step 3. – Appraise Property
PTD appraises sample properties to achieve the required sample size when insufficient sales are available. After randomly selecting property for appraisal, PTD staff physically inspects each property. A CAD staff member may assist with routing these inspections. If physical inspection of an unimproved property (no buildings) is impossible or unnecessary, PTD may use appraisal cards, aerial photographs, soil maps and other relevant information to perform the appraisal.
At each property, PTD records the property class, construction type, condition, age, amenities, and any outbuildings or other additives such as pools. Staff notes property specifics such as neighborhood influences, restrictions, etc. and checks to determine that the square footage recorded by the CAD is reasonable. If the CAD record is incorrect, staff measures the property to obtain an accurate square footage.
Appraisals must reflect a property’s market value as of January 1 of the study year. PTD appraisers must use the Comptroller’s procedures in conjunction with the Comptroller’s computerized Field Appraiser System to classify and appraise residential and commercial sample property unless better information is available or unless that kind of property is not included in the procedures or the Field Appraiser System. PTD staff use other specialized computer software to appraise oil and gas reserves and other complex property types and develops separate appraisal schedules for vacant land.
Along with properties entered in the sample as appraisals, PTD staff also selects and appraises sold properties to develop a local modifier. A local modifier adjusts the PTD appraisal system values to account for differences in local markets.
Step 4. – Match PTD Values with Local Values
PTD staff match each sample property with the corresponding CAD records and obtain several items from the CAD records. These include the CAD and Independent School District (ISD) identification codes, the category code, the account number, the legal description, the parcel address, the sale/appraisal code, the sale date, the sale price, the source code, the CAD improvement value, the CAD land value, the furniture, fixtures and equipment value and the inventory value, if applicable to the sample property.
A proper match between the sample property and the CAD property records is important to ensure that the comparison of PTD’s value for the sample property and the CAD’s value for the sample property results in a meaningful ratio.
Step 5. – Compute Property Ratios
An appraisal ratio for an individual property is the ratio of the property’s appraised value as shown on the appraisal roll to its market value. The market value is indicated by the sales price or PTD’s appraised value. Table One shows appraisal ratios for a sample consisting of both sales and appraisals as indicators of market value. For example, Sale Number 1 in Table One has an appraisal roll value of $65,834 and an adjusted sale price of $83,113. Dividing $65,834 by $83,113 yields an appraisal ratio of 0.79 for this parcel. No judgment about CAD performance should be made on the basis of a single property ratio. Statistics based on aggregated ratios are intended for performance measurement.
School District ABC
Category A: Singlefamily Residential
Sales  
Sale Number  Appraisal Roll Value  Adjusted Sale Price  Individual Appraisal Ratio  
1  $ 65,834  $ 83,113  0.79  
2  75,254  90,720  0.83  
3  94,420  135,610  0.70  
4  99,880  113,310  0.88  
5  82,253  109,250  0.75  
6  89,654  94,715  0.95  
7  76,502  91,680  0.83  
8  111,020  128,048  0.87  
9  44,441  62,370  0.71  
10  64,519  75,905  0.85  
11  64,842  81,127  0.80  
12  39,479  41,925  0.94  
13  193,344  245,700  0.79  
14  98,885  127,493  0.78  
15  114,788  118,898  0.97  
16  92,088  113,645  0.81  
17  84,449  84,995  0.99  
18  21,090  25,988  0.81  
19  22,080  27,398  0.81  
Appraisals  
Appraisal Number  Appraisal Roll Value  Individual Appraisal Ratio  
1  $ 97,576  $ 110,741  0.88  
2  60,437  70,964  0.85  
3  107,543  148,828  0.72  
4  60,264  86,303  0.70  
5  69,708  76,117  0.92  
6  76,935  98,327  0.78  

Step 6. — Stratify
Stratifying properties so that similar kinds of property are in each group before calculating PVS statistics makes the results more meaningful and accurate. A sample is selected for each property category, or other stratum, included in the PVS. At this point PTD has already stratified properties by their use—singlefamily residential properties are grouped together, for instance.
In addition to categorizing property by its use, PTD uses a further level of stratification —that is, value stratification. Value stratification is used only in the school district study not in the CAD study. PTD obtains the information needed to valuestratify appraisal roll values from prior year stratification surveys, or the appraisal rolls, depending upon availability. In a few school districts, value stratification information is not available.
PTD has established a valuestratification procedure that results in as many as six strata. For the most part, the value ranges within the strata vary from school district to school district, and from year to year depending entirely on the distribution of property value within each school district.
The six value strata are:
Stratum #1 – The lowvalue stratum. After sorting all the properties in the category from lowest value to highest value, and beginning with the lowest valued property, this stratum contains the lowvalued properties that collectively equal 5 percent of the category’s total appraised value. PTD does not study this stratum. Instead, PTD accepts the locally determined value.
Stratum #2 – This stratum contains all properties that individually exceed 20 percent of the value in the property category. PTD may or may not study these highvalued properties.
Stratum #3 – After the remaining properties are sorted from lowest value to highest value, properties representing about the first 25 percent of the remaining appraisal roll value in the category comprise stratum 3.
Stratum #4 – Properties representing about the second 25 percent of the remaining appraisal roll value in the category comprise stratum 4.
Stratum #5 – Properties representing about the third 25 percent of the remaining appraisal roll value in the category comprise stratum 5.
Stratum #6 – Properties representing about the fourth 25 percent of the remaining appraisal roll value in the category comprise stratum 6.
PTD generally studies strata 36 using random sampling procedures.
In some school districts, the staff finds certain properties in a category sample sufficiently different from the remaining sample properties to warrant treatment as “exception” properties. An exception property is a property placed in its own separate stratum. The rationale is to offset the potential bias that an exception property might have on the estimated ratio. PTD uses other stratification methods in special circumstances, such as the resolution of a protest, when the evidence shows that some property characteristic other than use or value is distorting the appraisal level.
Step 7. – Statistical Analysis
The next step is to compute several statistics that will enable PTD to adjust reported school district values to market value, and that will provide a means to interpret the PVS results. These statistical computations will be shown below in two sections. The first will explain statistics computed for the school district study required by Section 403.302 of the Government Code, and the second will explain statistics computed for the appraisal district study required by Section 5.10 of the Property Tax Code.
PTD uses different statistical measures for school districts and CADs.
School District Statistics
The statistics used in the school district study are the weighted mean ratio, the stratified weighted mean ratio and the margin of error.
Weighted mean – Table One shows the computation of a weighted mean appraisal ratio. A weighted mean appraisal ratio takes into account the different values of the individual properties making up the sample by giving more weight to higher values. It is calculated by totaling the appraisal roll values, totaling the sales prices and staff appraisals and dividing the first sum by the second. As shown in Table One, the total appraisal roll value for this sample is $2,007,285, and the total value of sales and appraisals is $2,443,170. Dividing the former by the latter produces the weighted mean appraisal ratio of 0.8216. Finally, dividing the district’s total selfreported appraisal roll category value of $27,621,400 by the weighted mean appraisal ratio of 0.8216 produces an estimated category market value of $33,619,036. This result shows below market appraisal, and could reduce the school district’s funding.
Stratified weighted mean – A stratified weighted mean appraisal ratio is an overall property category ratio calculated by combining the weighted mean ratios of various subcategories or strata. As discussed above, PTD uses property use and property value to define each stratum. PTD uses these valuestratified weighted mean appraisal ratios whenever feasible to estimate market values for residential properties (Categories A and B), vacant lots (Category C), commercial properties (Categories F1 and L1), and minerals (Category G). PTD stratifies these ratios by value stratum within each category if reasonably accurate stratification data is available.
A valuestratified weighted mean appraisal ratio is a mechanism used to automatically adjust the sample to be representative of the property population from which it is taken. For example, lowvalued properties tend to be clustered in certain geographic areas, while midrange and highvalued properties tend to be clustered in others. Similarly, construction types tend to vary with value. A valuestratified weighted mean appraisal ratio adjusts for location effect and for the effects of varying construction types. In addition, it is a particularly useful tool for enhancing sample representativeness when appraisal levels in a category vary significantly between lowervalued and highervalued properties.
Tables Two, Three and Four show how a stratified weighted mean appraisal ratio is calculated and how it differs from a weighted mean and a simple mean appraisal ratio. The stratified weighted mean appraisal ratio for a category is calculated by:
 grouping sample properties by appraisal roll value stratum;
 calculating a weighted mean appraisal ratio for each value stratum;
 dividing the weighted mean appraisal ratio into the CAD total appraisal roll value for each value stratum to estimate a market value;
 adding these individual market value stratum estimates; and
 dividing the sum of the CAD values in each stratum by the sum of PTD’s individual market value stratum estimates.
Table Two lists the properties in a hypothetical random sample. The sample properties are grouped in six strata. A ratio is calculated for each property, by dividing the CAD value by the PTD appraisal value or sale price. A weighted mean ratio is calculated for each stratum by dividing the sum of the CAD values by the sum of the PTD appraisal or sale amounts. A weighted mean ratio is calculated for the entire property category by dividing the sum of the CAD values in every strata by the sum of the PTD values in every strata. A simple mean ratio is calculated by summing all the individual property ratios in the entire category and dividing by the number of ratios. The weighted mean and simple mean are calculated for comparison to the stratified weighted mean in Table Four and for use in calculating the pricerelated differential (PRD). The PRD is calculated by dividing the simple mean by the weighted mean. See an explanation of the PRD under Appraisal District Statistics below.
Weighted Mean Appraisal Ratio
(Step 1)
Appraisal Roll Value in the sample  Appraisal/Sale Price in the sample  Ratio* CAD/PTD in the sample 


STRATUM 1: $0 to $2,500  
Stratum 1 Total:  not sampled  not sampled  
STRATUM 2: $1,205,000 and up  
1,205,000  1,209,961  0.9959  
Stratum 2 Total:  1,205,000  ÷  1,209,961  =  0.9959 
STRATUM 3: $2,501 to $15,300  
11,243  8,000  1.4054  
13,510  10,000  1.3510  
14,194  11,500  1.2343  
14,800  12,000  1.2333  
15,001  13,000  1.1539  
Stratum 3 Total:  68,748  ÷  54,500  =  1.2614 
STRATUM 4: $15,301 to $47,573  
20,374  20,000  1.0187  
20,477  20,000  1.0238  
20,994  20,000  1.0497  
25,806  24,800  1.0405  
28,166  27,000  1.0432  
Stratum 4 Total:  68,748  ÷  111,800  =  1.0359 
STRATUM 5: $47,574 to $110,625  
51,007  52,000  0.9809  
52,191  52,000  1.0037  
53,217  54,000  0.9855  
54,141  54,000  1.0026  
57,396  57,000  1.0070  
Stratum 5 Total:  267,952  ÷  269,000  =  0.9961 
STRATUM 6: $110,626 to $465,581  
111,648  125,000  0.8932  
114,140  135,000  0.8455  
139,498  150,000  0.9300  
Stratum 6 Total:  365,286  ÷  410,000  =  0.8909 
Grand Totals:
Totals based on 19 parcels  $2,022,802  $2,055,261  
Mean Ratio (unweighted average) average based on 19 parcels  1.0631  
Weighted Mean Ratio $2,022,802/$2,055,261  0.9842  
PriceRelated Differential mean ratio 1.0631/weighted mean ratio 0.9842  1.0802  
*Rounded 4 places 
Table Three lists the strata shown in Table Two and shows the number of sample parcels, the CAD value of the sample properties, the PTD value of the sample properties and the weighted mean ratio for each stratum. Table Three also shows how the weighted mean stratum ratios are calculated by dividing the CAD value in each stratum by the PTD value in each stratum.
Sample Calculation of a ValueStratified Weighted Mean Appraisal Ratio
Step 2
Stratum Number  Number of Parcels in the sample  CAD Value in the sample  ÷  PTD Estimate in the sample  =  Stratum Ratio weighted mean ratio in the sample* 

(#)  ^{(n}sample^{)}  ^{(TX}sample^{)}  ^{(TY}sample^{)}  ^{(r1}sample^{)}  
1  n/a  n/a  n/a  1.0000  
2  1  1,205,000  ÷  1,209,961  =  census 
3  5  68,748  ÷  54,500  =  1.2614 
4  5  115,816  ÷  111,800  =  1.0359 
5  5  267,952  ÷  269,000  =  0.9961 
6  3  365,286  ÷  410,000  =  0.8909 
*Rounded four places. 
Table Four lists the strata shown in Table Two and Table Three and shows the number of parcels in the stratum, the CAD value in the stratum, the stratum ratio (from Table Two or Table Three) and the PTD market value estimate for each stratum. Table Four also shows the calculation of the stratified weighted mean ratio by dividing the sum of the CAD values for each stratum by the sum of the PTD market value estimated for each stratum. This stratified weighted mean ratio is divided into the appropriate selfreported category total to develop the PTD’s market value estimate for the category. Refer to the ISD Summary Worksheet to see this final calculation.
Sample Calculation of a ValueStratified Weighted Mean Appraisal Ratio
Steps 35
Stratum Number  Number of Parcels in the Stratum  CAD Value in the Stratum  ÷  Stratum Ratio weighted mean ratio in the sample  =  PTD Estimate in the Stratum** 

(#)  ^{(N}Stratum^{)}  ^{(TX}Stratum^{)}  ^{(r1}sample^{)}  ^{(TY}Stratum^{)}  
1  711  300,224  ÷  1.0000  =  $ 300,224 
2  1  1,205,000  ÷  census  =  1,209,961 
3  259  1,495,515  ÷  1.2614  =  1,185,570 
4  56  1,463,787  ÷  1.0359  =  1,413,029 
5  22  1,500,526  ÷  0.9961  =  1,506,395 
6  7  1,544,658  ÷  0.8909  =  1,733,737 
+  +  +  
=  =  =  
1,056  7,509,710  1.0219  $7,348,916  
Total Stratum Parcels  Total CAD Value  (7,509,710 ÷ 7,348,916) Stratified Ratio  Total PTD Estimate 

**Rounded to the nearest dollar. 
There are substantial differences in the level of appraisal among value strata in Table Two. Lowervalued properties are appraised at higher levels than highervalued properties, as indicated by a pricerelated differential well above 1.03. Using a stratified weighted mean appraisal ratio will adjust for these differences so that they will not bias the sample ratio and the resulting market value estimate for the category.
If stratification data are not available for a school district, stratified weighted mean appraisal ratios cannot be calculated. If the data to calculate a valuestratified ratio becomes available at any time during the process, including the protest process, PTD may calculate a valuestratified ratio.
Margin of error – The margin of error is equal to one half of the confidence interval expressed as a percent of total value studied in a school district. The confidence interval is a computed range of school district values for which the PVS has not proven that the state’s estimate of value is significantly different from the local value. If the school district’s local value is outside the range, the PVS has proven, statistically at least, that the school district’s value is incorrect because it is significantly different from the state’s estimate.
For example, assume that PTD staff estimates market value in sampled property categories in school district ABC to be $100 million before exemptions. The margin of error is computed to be plus or minus 5 percent of $100 million. Market value plus 5 percent is $105 million; market value minus 5 percent is $95 million. The $100 million estimate is known as a point estimate; the confidence interval of $95 million to $105 million is often called an interval estimate. The Comptroller uses the margin of error to determine whether local value is valid. If the school district’s value is inside the margin of error range, it is accepted as valid. If not, it is considered invalid.
The Legislature has instructed the Comptroller to include enough samples to obtain a margin of error that does not exceed 5 percent, if resources permit. The Comptroller, to make the study more uniform, has set a 5 percent floor on the margin of error. This means that if the statistically calculated margin of error is less than 5 percent it is set at 5 percent. On the other hand, if PTD’s margin of error is more than 5 percent, PTD will use the higher margin of error to decide whether the local value is valid.
More detailed explanations of the confidence interval and margin of error computations can be found in Appendices B & C.
Section 5.10 of the Property Tax Code requires the Comptroller to conduct and publish an annual study of appraisal districts to determine the median level of appraisal and the uniformity of appraisal in each major property category in each appraisal district in the state.
For the appraisal district study, PTD aggregates samples collected for the school district study to the appraisal district level. PTD then calculates statistical measures of appraisal level and uniformity in each property category and for the CAD overall. The measure of appraisal level is the median. The measures of appraisal uniformity include the coefficient of dispersion (COD), the percentage of properties within 10 and 25 percent of the median and the pricerelated differential (PRD). Together, the median level of appraisal, the COD, the percentage of properties within 10 or 25 percent of the median and the PRD enable the PVS to address the legal requirements that appraisals be equal, uniform and at 100 percent of market value.
Samples from each category are aggregated to the CAD level, with one exception. The ratio derived for agricultural acreage receiving productivity appraisal is not a median derived from a property sample. Consequently, PTD does not calculate measures of appraisal uniformity for acreage receiving productivity appraisal. The CAD performance measures listed under “D. Rural RealMarket Value” on the CAD summary worksheet are derived from the property samples used to compute the weighted mean appraisal ratios for estimating the market values of nonqualified acreage and farm and ranch improvements.
Median – The median level of appraisal measures appraisal level, or the accuracy of a CAD’s appraisals in relation to the standard of 100 percent of market value. The International Association of Assessing Officers (IAAO) 1999 Standard on Ratio Studies sets the standard for appraisal level at 95 – 105 percent of market value when the PVS results are used for funding equalization programs, and at 90 – 110 percent of market value when the results are used for other purposes.
Section 1.12(c) of the Property Tax Code defines the median appraisal ratio as:
The median appraisal ratio for a sample of properties is, in a numerically ordered list of the appraisal ratios for the properties: (1) if the sample contains an odd number of properties, the appraisal ratio above and below which there is an equal number of appraisal ratios in the list; or (2) if the sample contains an even number of properties, the average of the two consecutive appraisal ratios above and below which there is an equal number of appraisal ratios in the list.
The value of individual properties does not influence the median ratio; only the ranking of individual ratios within the sample matters. The median ratio falls at the middle of a group of ratios ranked from highest to lowest or lowest to highest.
Table Five uses 19 sales (marked “S1” to “S19”) and six appraisals (marked “A1” to “A6”) to show how to identify the median ratio. In this table, the appraisal ratios are ranked from the highest ratio to the lowest. Twentyfive properties make up the sample. The median ratio, 0.81, is 13th on the list. Twelve properties are ranked above it, and 12 are ranked below it.
Sample Calculation of Median Appraisal Ratio
XYZ County Appraisal District
Category A: Singlefamily Residential
Sales and Appraisals  
Number Sale or Appraisal  Appraisal Roll Value  Adjusted Sale Price or Appraised Value  Individual Appraisal Ratio  

S  17  $ 84,449  $ 84,995  0.99 
S  15  114,788  118,898  0.97 
S  6  89,654  94,715  0.95 
S  12  39,479  41,925  0.94 
A  5  69,708  76,117  0.92 
S  4  99,880  113,310  0.88 
A  1  97,576  110,741  0.88 
S  8  111,020  128,048  0.87 
S  10  64,519  75,905  0.85 
A  2  60,437  70,964  0.85 
S  2  75,254  90,720  0.83 
S  7  76,502  91,680  0.83 
S  16  92,088  113,645  0.81* 
S  18  21,090  25,988  0.81 
S  19  22,080  27,398  0.81 
S  11  64,842  81,127  0.80 
S  1  65,834  83,113  0.79 
S  13  193,344  245,700  0.79 
S  14  98,885  127,493  0.78 
A  6  76,935  98,327  0.78 
S  5  82,253  109,250  0.75 
A  3  107,543  148,828  0.72 
S  9  44,441  62,370  0.71 
S  3  94,420  135,610  0.70 
A  4  60,264  86,303  0.70 
Total = 25  
* 0.81  Median Appraisal Ratio for Category A, XYZ Appraisal District 
An easy way to find the median for a sample containing an odd number of properties is to divide the total count by two, then round the result upward to the nearest whole number. The sample shown in Table Five contains 25 parcels. Dividing 25 by two yields 12.5. Rounding upward to the nearest whole number produces 13. The 13th ratio is the median.
For an evennumbered sample, the median is the average of the two middle ratios. If there were 24 properties in the sample, the median would be the average of ratios 12 and 13. Eleven ratios would be above 12 and below 13.
PTD calculates a median appraisal level for each major category of property in each CAD, provided there were at least five properties in the sample. PTD then combines the properties making up the sample for each category into a larger sample of all properties in the CAD. The median ratio from the larger sample is listed as the overall ratio for the CAD.
Coefficient of dispersion – The coefficient of dispersion (COD) measures how tightly or loosely the individual sample ratios are clustered around the median. The Property Tax Code requires the agency to calculate a coefficient of dispersion around the median for each major property category. The COD is one measure of appraisal uniformity.
Technically, the COD expresses as a percentage of the median the average absolute deviation of the appraisal ratios in a sample from the sample’s median. A high COD indicates high variation—few ratios close to the median and low appraisal uniformity. A low COD indicates low variation—ratios clustered tightly around the median and high appraisal uniformity.
The IAAO’s 1999 Standard on Ratio Studies contains standards for CODs. These are:
 singlefamily residential and condominiums—15 or less; in areas of newer or fairly similar residences—10 or less; heterogeneous rural residences and seasonal homes—20 or less;
 vacant land: 20 or less;
 income properties in large, urban jurisdictions: 15 or less; and
 income properties in other jurisdictions: 20 or less.
The IAAO does not publish standards for other real and personal property, but notes that they vary with local conditions.
The COD measures appraisal uniformity independently of the median level of appraisal. As a result, CODs allow comparison of appraisal uniformity among districts or property categories where median levels of appraisal differ significantly.
Calculating a COD requires six steps:
 subtract the median ratio for the sample from each individual ratio making up the sample. The result is the deviation for each ratio;
 convert each deviation to its absolute value;
 3.total the absolute values of each deviation;.
 4.divide the total deviation by the number of properties in the sample to get the average absolute deviation;
 5.divide the average absolute deviation by the median ratio; and
 6.multiply the result by 100.
Table Six shows a sample calculation of a COD.
Sample Calculation for Coefficient of Dispersion
County Appraisal District
Category A: Singlefamily Residential
Sale or Appraisal Number  Individual Property Ratio %  Difference from Median (81%)  Absolute Value of Difference  

S  17  99  + 18  18  
S  15  97  + 16  16  
S  6  95  + 14  14  
S  12  94  + 13  13  
A  5  92  + 11  11  
S  4  88  + 7  7  
A  1  88  + 7  7  
S  8  87  + 6  6  
S  10  85  + 4  4  
A  2  85  + 4  4  
S  2  83  + 2  2  
S  7  83  + 2  2  
S  16  81  10%  25%  0  0 
S  18  81  0  0  
S  19  81  0  0  
S  11  80   1  1  
S  1  79   2  2  
S  13  79   2  2  
S  14  78   3  3  
A  6  78   3  3  
S  5  75   6  6  
A  3  72   9  9  
S  9  71   0  10  
S  3  70   11  11  
A  4  70   11  11  
Total of Absolute Values = 162  
162   Total of Absolute Values  
÷  25   Number of Sample Properties  
=  6.48   Average Absolute Deviation  
÷  81   Median Appraisal Ratio  
=  .08  
x  100  
=  8.0   Coefficient of Dispersion 
PTD calculates a COD for each major category of property in a CAD if the sample has at least five properties and combines the samples for each category into a larger sample to calculate the overall COD.
Percentage of properties within 10 and 25 percent of the median – To calculate the first of these, multiply the median appraisal ratio by 10 percent. Adding this result to the median yields the ratio that exceeds the median by 10 percent. Subtracting the result from the median yields the ratio 10 percent below the median. Count the number of properties in the sample that have ratios equal to or between these two numbers. Dividing that count by the total number of properties shows the percentage within 10 percent of the median.
To calculate the percentage within 25 percent of the median, multiply the median times 25 percent and then add and subtract the result to find the upper and lower end of the range. The percentages are computed if the sample contains at least six properties.
The COD and the percentage of properties within 10 and 25 percent of the median are measures of “horizontal” ratio dispersion. They measure how consistently CADs appraise properties at the same level (percentage of market value) without regard to the value of the properties. A low COD and high percentages indicate equitable appraisals, while a high COD and low percentages indicate inequitable appraisal.
In Table Six, the properties in the sample that have ratios between 89.1 percent and 72.9 percent are within 10 percent of the median, and properties that have ratios between 101.2 percent and 60.7 percent are within 25 percent of the median. In Table Six, all properties fall within 25 percent of the median.
Pricerelated differential – The pricerelated differential (PRD) measures another form of inequity that may arise from systematic differences in the appraisal of lowvalue and highvalue properties. According to the IAAO 1999 Standard on Ratio Studies, “When lowvalue properties are appraised at greater percentages of market value than highvalue properties, assessment regressivity is indicated. When lowvalue properties are appraised at smaller percentages of market value than highvalue properties, assessment progressivity results. Appraisals made for tax purposes, of course, should be neither progressive nor regressive.” Progressive and regressive appraisal are forms of inequity called “vertical” inequity.
PTD calculates the PRD for each property category included in the study if the sample contains at least five properties. The PRD is calculated by dividing a sample’s mean ratio by its weighted mean ratio. The IAAO standard for this measure is 0.98 to 1.03, with PRDs below this range indicating progressivity, and measures above this range indicating regressivity. A PRD inside this range indicates that lowvalue and highvalue properties are treated uniformly in regard to level of appraisal. Table Seven shows a sample PRD calculation. In this example the PRD is 1.01, which indicates uniformity.
Sample Calculation of PriceRelated Differential
XYZ County Appraisal District
Category A. Singlefamily Residential
Sales and Appraisals  
Number Sale or Appraisal  Appraisal Roll Value  Adjusted Sale Price or Appraised Value  Individual Appraisal Ratio  

S  17  $ 84,449  $ 84,995  0.99 
S  15  114,788  118,898  0.97 
S  6  89,654  94,715  0.95 
S  12  39,479  41,925  0.94 
A  5  69,708  76,117  0.92 
S  4  99,880  113,310  0.88 
A  1  97,576  110,741  0.88 
S  8  111,020  128,048  0.87 
S  10  64,519  75,905  0.85 
A  2  60,437  70,964  0.85 
S  2  75,254  90,720  0.83 
S  7  76,502  91,680  0.83 
S  16  92,088  113,645  0.81* 
S  18  21,090  25,988  0.81 
S  19  22,080  27,398  0.81 
S  11  64,842  81,127  0.80 
S  1  65,834  83,113  0.79 
S  13  193,344  245,700  0.79 
S  14  98,885  127,493  0.78 
A  6  76,935  98,327  0.78 
S  5  82,253  109,250  0.75 
A  3  107,543  148,828  0.72 
S  9  44,441  62,370  0.71 
S  3  94,420  135,610  0.70 
A  4  60,264  86,303  0.70 
Totals 25  $2,007,285  $2,443,170  20.71  
Mean = 20.71 ÷ 25 = .8284  
Weighted Mean = $2,007,285 ÷ $2,443,170 = .8216  
Price Related Differential = Mean ÷ Weighted Mean  
= .8284 ÷ .8216 = 1.01 (rounded) 

* PriceRelated Differential 
The IAAO warns that the PRD is not a reliable statistic when the sample is small or when the sample is heavily influenced by extreme sales prices. For this reason, staff publishes the sample size on the CAD summary worksheet. The PRD is only an indicator; it alone cannot prove vertical equity or inequity. Additional tests are required to prove vertical inequity.
Step 8. – Use the Results
The Texas PVS results are used for school funding equalization, and to evaluate CAD performance.
The primary use of the PVS is to equalize school funding by directing more funds to those school districts that have less taxable wealth per student.
The secondary, but still very important, use of the PVS for CAD performance evaluation has several components. Property taxpayers may use the PVS to evaluate whether they are being treated fairly in comparison to owners of similar property in the same area, or in other areas across the state. Taxpayers may also compare their treatment to the treatment of owners of other kinds of property. CADs and school districts may use the PVS to evaluate the need for reappraisal, although they should be conducting ongoing ratio studies to obtain this information on a timelier basis. The state uses the study to trigger mandatory audits and reviews in some instances.
School district officials should pay particular attention to local ratio studies, and to the Comptroller’s PVS, because their school funding may be affected. These officials should consult with their CADs on a regular basis, and work with them to ensure that values are uniform and as close to market value as possible.
Individual Property Category Details
This section defines local properties and technical properties, and explains how PTD studies the various property categories. PTD publishes several documents that explain appraisal procedures used in the study in more detail. Contact PTD tollfree at 18002529121 or visit our Web site at http://www.window.state.tx.us/taxinfo/proptax/index.html for more information.
Local properties
Local properties consist of residential properties and vacant lots, rural real property not qualified for productivity appraisal, commercial real and personal property and other taxable property. PTD field appraisers gather almost all of the data used in the local properties portion of the property value study. These employees, assigned to different regions throughout the state, appraise individual properties and collect sales data and other market information.
As a general rule, PTD staff will sample properties in a local property category in a school district if the category has at least 5 percent of total school district value or $250 million in value based on the preceding year’s study; however, a category may be sampled at any time, regardless of whether its value falls within the general rule. Categories not sampled are assigned reported appraisal roll value local value.
Residential properties and vacant lots – These properties consist of categories A (singlefamily residential real property), B (multifamily residential real property) and C (vacant lots and tracts).
For each of these property categories sampled, field appraisers collect sales information and perform appraisals to develop a sample of tested parcels. Using this sample information, the staff then develops a weighted mean appraisal ratio for each category. A stratified ratio is developed whenever possible. This estimated ratio, when divided into the school district’s total selfreported value for the category, produces the staff’s estimated value for the category.
Rural real property at market value – These properties consist of the portion of category D (rural acreage) that is appraised at market value and all of category E (farm and ranch improvements). Although categories D and E remain separate categories on the property value reports, these categories were merged in 1989 for study purposes. This merger was necessary since rural improvements and land are often sold together. Consequently, this merger makes it easier to compare total sales prices for land and buildings with the total appraised values on the appraisal roll without making artificial allocations between land and buildings. Land that is qualified for productivity valuation is not appraised at market value and is discussed separately under Technical Properties, below.
The staff collects sales and performs appraisals to develop a property sample based on market values. This sample may include some property receiving productivity appraisal, but the ratios for those individual parcels are calculated on the basis of the appraisal district’s reported market values, not their productivity values.
From this market value sample, the staff develops a nonstratified weighted mean appraisal ratio and divides this ratio into the school district’s reported value of rural real property that did not qualify for productivity appraisal. The result is PTD’s estimated market value for acreage not receiving productivity appraisal and the value of farm and ranch improvements. See below for a discussion of rural real property that is qualified for productivity valuation and that CADs are not required to appraise at market value.
Commercial real and personal property – Category F1 contains commercial real property (land and improvements), while category L1 contains commercial personal property (furnishings, fixtures, movable machinery, equipment and inventories). To estimate market values in these two categories, the staff collects sales information and, if necessary, performs appraisals for each school district category sampled. The staff develops either a stratified or nonstratified weighted mean appraisal ratio from the sampled properties and divides each school district’s reported category value by the weighted mean ratio to generate the PTD’s estimate of category market value. This procedure is the same used to estimate value in other local property categories, with the exception of agricultural land qualified for productivity appraisal.
Technical Properties
Technical properties consist of oil, gas and other mineral properties; utility properties; and qualified agricultural land. With the exception of agricultural properties, these properties are not sold often and if they are, the sales data are rarely available. As a result the staff must obtain and analyze volumes of data and develop computer models to value these properties. The Comptroller’s Austinbased appraisers perform all of the necessary work to review and appraise these properties.
As a general rule, the staff will sample properties in each technical property category in each school district if the category has a minimum percentage of district value and a minimum dollar amount. Categories not sampled are assigned the local reported appraisal roll value.
Rural real property qualified for productivity valuation – Texas law requires CADs to appraise property at 100 percent of its market value. Constitutional amendments, however, allow taxation of much of the state’s agricultural land based on its productive capacity rather than its market value. These provisions require CADs to classify qualified land according to its agricultural productivity, determine the net income to land for each land class over a fiveyear period and capitalize the average to estimate productivity value. The Property Tax Code sets the capitalization rate at the greater of 10 percent or 2.5 points above the Farm Credit Bank of Texas’ lending rate for December 31 of the prior year. Property taxes are based on the productivity appraisal, but CADs also must estimate the market value of any land receiving productivity appraisal.
Section 23.71 of the Property Tax Code establishes the procedures for productivity appraisal of timberland. This process differs only slightly from the procedure for agricultural land. Timberland is classified according to soil type and the type of timber grown. For each class, the estimated net income to land is capitalized into a value per acre.
To develop the productivity ratio, the division staff uses the CAD’s report of total acreage in each of the agricultural land classes for each school district. Staff uses information provided by published sources and persons in each county who are familiar with local agricultural conditions. The Austinbased staff develops an estimate of net return to land over a fiveyear period and capitalizes the average using the legally mandated rate to reach an estimated value per acre for each land class. Multiplying the value for each class times the reported acreage in the class yields the total taxable value per land class. The total of the values for each land class is the total taxable value for all acreage receiving productivity appraisal in a school district.
On the report of property value, school districts report the total appraised value of all land receiving productivity appraisal. The PTD divides this reported value by its own estimate of productivity value. The resulting ratio shows the general level of appraisal of all land receiving productivity appraisal in a school district.
A CAD’s ratio is calculated similarly and is based on the sum of the school district calculations. This ratio is not a median derived from a property sample. As a result, agency staff does not calculate measures of appraisal uniformity for land receiving productivity appraisal.
Finally, staff adds the estimated market value of rural real property not receiving productivity appraisal and the estimated productivity value for land receiving productivity appraisal. The total is the estimated total taxable value of category D (rural real property).
Oil, gas and other minerals – The minerals category consists primarily of oil and natural gasproducing properties (category G1) and lignite and sulfur mines (category G2).
The division samples mineral properties in school districts if the minerals category represents 5 percent or more of the total school district value. Minerals categories not meeting this criterion are assigned local value. The G1 sample is selected from the current year data provided by the appraisal firms and CADs. The lowvalue stratum is assigned the local tax roll value and contains property that makes up the lowest 5 percent of the property category’s value in the school district.
After removing lowvalue properties, and placing highvalued properties in a separate stratum, staff stratifies the remaining properties into four strata. Then PTD randomly selects the leases to be appraised for the PVS.
The staff uses computer models and specialized software to carry out discounted cash flow evaluations of mineral properties. Using computer models and information from a variety of sources including an inhouse database, PTD calculates economic parameters such as wellhead prices, operating expenses, equipment costs, net salvage values and discount rates. The future cash flow is generated based on forecasted production and economic parameters, then discounted to present value. The discounted equipment salvage value is then added to derive the market value for each oil and gas property. PTD may also use discounted cash flow analysis to appraise lignite and sulphur properties.
To produce the individual appraisal ratio for each minerals property in the sample, the staff divides the appraisal district’s value by the estimated market value. Category G ratios are calculated similarly to category A, but category G is divided into three subcategories.
PTD then calculates a stratified weighted mean ratio based on the strata discussed above.
Utilities – The utilities category (category J) consists of the real property and tangible personal property of telephone, electric, gas distribution, railroad and pipeline companies, as well as the property of other companies commonly thought of as utilities, such as water systems.
PTD staff chooses utility samples by a method that ensures sampling the highestvalued properties and other properties as appropriate. Utility staff use recognized unitary valuation methods, including the cost, income and market approaches, as applicable. Appraisals are based on information published in annual company reports filed with federal and state regulatory agencies and furnished directly to the Comptroller by the utility companies. The staff also obtains information from business and industry publications. PTD determines the percentage of unit value attributable to each company’s Texas operations to develop an overall estimated value for the Texas portion of the company. Using information provided by the utilities or CADs, the staff allocates this Texas value to the various school districts in which the utility owns property.
The total appraisal roll value for the sampled utility properties divided by the total estimated market values produces a nonstratified weighted mean ratio for utilities. Dividing this ratio into the school district’s total reported value for utilities generates the division’s estimated total value of all utility property in the school district.