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2018-119 DCAD Reappraisal Plan Notice
Date: September 7, 2018 Report No. 2018-119 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: Notice of Public Hearing on Denton Central Appraisal District 2019-2020 Reappraisal Plan. BACKGROUND: The Denton Central Appraisal District will be holding a public hearing on their reappraisal plan for the 2019-2020 appraisal year. The public hearing will be held on September 13, 2018 at 3:00 p.m. at 3911 Morse Street, Denton, Texas. Attached for your review is the draft 2019-2020 Reappraisal Plan. Once the plan has been approved by both the DCAD Board of Director and the Texas Comptroller’s Office, the final plan will be forwarded to the City. If you have any questions or need additional information, please let me know. STAFF CONTACT: Antonio Puente, Jr., Director of Finance (940) 349-7283 Antonio.Puente@cityofdenton.com Notice on Public Hearing On Denton Central Appraisal District 2019-2020 Reappraisal Plan The Denton Central Appraisal District will hold a public hearing on their biennially reappraisal plan for the 2019-2020 appraisal year. The public hearing will be held on September 13, 2018 at 3:00 pm at 3911 Morse Street, Denton, Texas. Last update on: 08/31/16 DENTON CENTRAL APPRAISAL DISTRICT 2019 – 2020 REAPPRAISAL PLAN 2 Property Tax Appraisal .............................................................................................................................................4 SUBSECTION 1. GENERAL POLICIES AND PROCEDURES .................................................................................... 4 1.01 Appraisal ............................................................................................................................................................ 4 1.02 Valuation Components of a Mass Appraisal System ....................................................................................... 13 1.03 DCAD Appraisal Card ..................................................................................................................................... 14 1.04 Appraisal Codes ............................................................................................................................................... 18 1.05 Ethical Conduct ............................................................................................................................................... 26 1.06 Notice of Appraised Value ............................................................................................................................... 40 SUBSECTION 2. REAL PROPERTY APPRAISAL ...................................................................................................... 46 Part A. General Policies and Procedures ...................................................................................................................... 46 2.01 Introduction...................................................................................................................................................... 46 Part B. Commercial Property ....................................................................................................................................... 46 2.02 Introduction...................................................................................................................................................... 46 2.03 Valuation Approach ......................................................................................................................................... 48 2.04 Data Collection/Validation .............................................................................................................................. 50 2.05 Class System .................................................................................................................................................... 52 2.06 Valuation and Statistical Analysis (model calibration) .................................................................................... 53 2.07 Residential Vacant Lots ................................................................................................................................... 74 2.08 Individual Value Review Procedures ............................................................................................................... 81 2.09 Performance Tests............................................................................................................................................ 82 2.10 Value Defense Procedures ............................................................................................................................... 83 2.11 Education and Training .................................................................................................................................... 84 2.12 Data Entry Procedure ....................................................................................................................................... 84 2.13 Commercial Department Reappraisal Plan Overview ...................................................................................... 84 Part C. Agriculture Use ................................................................................................................................................ 85 2.21 Application ...................................................................................................................................................... 85 2.22 Qualification .................................................................................................................................................... 86 2.23 Appraisal of Agricultural Land ........................................................................................................................ 87 2.24 Rollback Procedure .......................................................................................................................................... 89 2.25 Wildlife Management ..................................................................................................................................... 92 Part D. Residential Properties ...................................................................................................................................... 95 2.31 Introduction...................................................................................................................................................... 95 2.32 Valuation Approach (model specification) ...................................................................................................... 97 2.33 Data Collection/Validation .............................................................................................................................. 99 2.34 Class System .................................................................................................................................................. 100 2.35 Valuation and Statistical Analysis (model calibration) ................................................................................. 101 2.36 Individual Value Review Procedures ............................................................................................................. 109 2.37 Performance Tests.......................................................................................................................................... 110 2.38 Value Defense Procedures ............................................................................................................................. 116 2.39 Education and Training .................................................................................................................................. 116 FIELD CLASSIFICATION GUIDE ..................................................................................................................... 117 Part E. Appraisal of Mobile Homes ........................................................................................................................... 135 2.41 Inventories ..................................................................................................................................................... 136 2.42 Park Rosters ................................................................................................................................................... 136 2.43 Installation Permits ........................................................................................................................................ 136 2.44 Taxpayer ........................................................................................................................................................ 136 2.45 Field Inspection ............................................................................................................................................. 137 2.46 Classification of Mobile Home ...................................................................................................................... 137 2.47 Creation of Improvement Only ...................................................................................................................... 137 2.48 Maintenance Improvement Only Accounts ................................................................................................... 138 2.49 Mobile Home on Land Accounts ................................................................................................................... 139 2.50 Mobile Home Valuation ................................................................................................................................ 139 Part F. Sales and Research ......................................................................................................................................... 153 2.51 Sales and Research Department ..................................................................................................................... 153 2.52 Education and Training .................................................................................................................................. 153 2.61 Introduction.................................................................................................................................................... 154 2.62 Sales and Statistical Analysis ......................................................................................................................... 155 3 2.63 Performance Tests ......................................................................................................................................... 156 2.64 Data Collection Procedures ........................................................................................................................... 157 2.65 Procedures for Analyzing and Adjusting Sales Prices .................................................................................. 163 2.66 Value Defense Procedures for Informal Meetings and Formal Hearings ...................................................... 164 2.67 Procedures for Responding to the Public ...................................................................................................... 165 2.68 Reproduction Costs on Open Records .......................................................................................................... 166 2.69 Taxpayer Information on Open Records ....................................................................................................... 171 2.70 Taxpayer Liaison Officer .............................................................................................................................. 172 SUBSECTION 3. APPRAISAL OF BUSINESS PERSONAL PROPERTY ................................................................ 174 3.01 Introduction.................................................................................................................................................... 174 3.02 General Policies and Procedures .................................................................................................................... 175 3.03 Methods of Discovery .................................................................................................................................... 176 3.04 Procedures for Informal Meetings and Participating in Appraisal Review Board Hearings .......................... 179 3.05 Situs and Inspection of Personal Property ..................................................................................................... 179 3.06 Estimation of Property Value ......................................................................................................................... 182 3.07 Motor Vehicle Dealer's Special Inventory ..................................................................................................... 207 3.08 Utility, Mineral Property ................................................................................................................................ 211 3.09 Valuation Bibliography ................................................................................................................................ .230 CALENDAR OF EVENTS ............................................................................................................................................ 231 4 Property Tax Appraisal SUBSECTION 1. GENERAL POLICIES AND PROCEDURES 1.01 Appraisal Each year the Chief Appraiser shall analyze all categories of property that fall within the boundaries of the Denton Central Appraisal District and re-appraise where necessary. The following procedures shall govern the appraisal process using the mass appraisal system. All through this procedure, testing of schedules will be done using acceptable statistical analysis. All appraisal standards must comply with standards #6 and #7 of the Uniform Standards of Professional Appraisal Practice (USPAP). DCAD also administers and determines eligibility for various types of property tax exemptions that are authorized by state and local governments; such as homestead, over-65, disabled persons, disabled veterans, and charitable or religious exemptions. The District will update and process exemptions and special use appraisal applications as necessary and applicable. The following was taken directly form Uniform Standards of Professional Appraisal Practice publication: Appraisal Standards Board; The Appraisal Foundation. Uniform Standards of Professional Appraisal Practice (USPAP): Standard 6: Mass Appraisal, Development and Reporting In reporting the results of a mass appraisal, an appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading. Comment: STANDARD 6 addresses the content and level of information required in a report that communicates the results of a mass appraisal. STANDARD 6 does not dictate the form, format, or style of mass appraisal reports. The form, format, and style of a report are functions of the needs of intended users and appraisers. The substantive content of a report determines its compliance. STANDARDS RULE 6-1 Each written report of a mass appraisal must: (a) clearly and accurately set forth the appraisal in a manner that will not be misleading; (b) contain sufficient information to enable the intended users of the appraisal to understand the report properly; and Comment: Documentation for a mass appraisal for ad valorem taxation may be in the form of (1) property records, (2) sales ratios and other statistical studies, (3) appraisal manuals and documentation, (4) market studies, (5) model building documentation, (6) regulations, (7) statutes, and (8) other acceptable forms. (c) clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment. 5 Comment: The report must clearly and conspicuously: • state all extraordinary assumptions and hypothetical conditions; and • state that their use might have affected the assignment results. STANDARDS RULE 6-2 Each written report of a mass appraisal must: (a) state the identity of the client, unless the client has specifically requested otherwise; state the identity of any intended users by name or type; Comment: An appraiser must use care when identifying the client to avoid violations of the Confidentiality section of the ETHICS RULE. If a client requests that the client’s identity be withheld from the report, the appraiser may comply with this request. In these instances, the appraiser must document the identity of the client in the workfile and must state in the report that the identity of the client has been withheld at the client’s request. (b) state the intended use of the appraisal; (c) disclose any assumptions or limiting conditions that result in deviation from recognized methods and techniques or that affect analyses, opinions, and conclusions; (d) state the effective date of the appraisal and the date of the report; Comment: In ad valorem taxation the effective date of the appraisal may be prescribed by law. If no effective date is prescribed by law, the effective date of the appraisal, if not stated, is presumed to be contemporaneous with the data and appraisal conclusions. The effective date of the appraisal establishes the context for the value opinion, while the date of the report indicates whether the perspective of the appraiser on the market and property as of the effective date of the appraisal was prospective, current, or retrospective. (e) state the type and definition of value and cite the source of the definition; Comment: Stating the type and definition of value also requires any comments needed to clearly indicate to intended users how the definition is being applied. When reporting an opinion of market value, state whether the opinion of value is: • In terms of cash or of financing terms equivalent to cash; or • Based on non-market financing with unusual conditions or incentives. When an opinion of market value is not in terms of cash or based on financing terms equivalent to cash, summarize the terms of such financing and explain their contributions to or negative influence on value. (f) state the properties appraised including the property rights; 6 Comment: The report documents the sources for location, describing and listing the property. When applicable, include references to legal descriptions, addresses, parcel identifiers, photos, and building sketches. In mass appraisal this information is often included in property records. When the property rights to be appraised are specified in a statute or court ruling, the law must be referenced. (g) summarize the scope of work used to develop the appraisal; exclusion of the sales comparison approach, cost approach, or income approach must be explained; Comment: Because intended users’ reliance on an appraisal may be affected by the scope of work, the report must enable them to be properly informed and not misled. Sufficient information includes disclosure of research and analyses performed and might also include disclosure of research and analyses not performed. When any portion of the work involves significant mass appraisal assistance, the appraiser must describe the extent of that assistance. The signing appraiser must also state the name(s) of those providing the significant mass appraisal assistance in the certification, in accordance with Standards Rule 6-3. (h) summarize and support the model specification(s) considered, data requirements, and the model(s) chosen; Comment: The appraiser must provide sufficient information to enable the client and intended users to have confidence that the process and procedures used conform to accepted methods and result in credible value conclusions. In the case of mass appraisal for ad valorem taxation, stability and accuracy are important to the credibility of value opinions. The report must include a summary of the rationale for each model, the calibration techniques to be used, and the performance measures to be used. (i) summarize the procedure for collecting, validating, and reporting data; Comment: The report must summarize the sources of data and the data collection and validation processes. Reference to detailed data collection manuals or electronic records must be made, as appropriate, including where they may be found for inspection. (j) summarize calibration methods considered and chosen, including the mathematical form of the final model(s); summarize how value conclusions were reviewed; and, if necessary, state the availability and location of individual value conclusions; (k) when an opinion of highest and best use, or the appropriate market or market level was developed, summarize how that opinion was determined; Comment: The mass appraisal report must reference case law, statute, or public policy that describes highest and best use requirements. When actual use is the requirement, the report must discuss how use- value opinions were developed. The appraiser’s reasoning in support of the highest and best use opinion must be provided in the depth and detail required by its significance to the appraisal. (l) identify the appraisal performance tests used and the performance measures attained; (m) summarize the reconciliation performed, in accordance with Standards Rule 5-7; and (n) include a signed certification in accordance with Standards Rule 6-3. 7 STANDARDS RULE 6-3 Each written mass appraisal report must contain a signed certification that is similar in content to the following form: I certify that, to the best of my knowledge and belief: — the statements of fact contained in this report are true and correct. — the reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, impartial, and unbiased professional analyses, opinions, and conclusions. — I have no (or the specified) present or prospective interest in the property that is the subject of this report, and I have no (or the specified) personal interest with respect to the parties involved. — I have performed no (or the specified) services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. — I have no bias with respect to any property that is the subject of this report or to the parties involved with this assignment. — my engagement in this assignment was not contingent upon developing or reporting predetermined results. — my compensation for completing this assignment is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. — my analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice. — I have (or have not) made a personal inspection of the properties that are the subject of this report. (If more than one person signs the report, this certification must clearly specify which individuals did and which individuals did not make a personal inspection of the appraised property.) — no one provided significant mass appraisal assistance to the person signing this certification. (If there are exceptions, the name of each individual providing significant mass appraisal assistance must be stated.) Comment: The above certification is not intended to disturb an elected or appointed assessor’s work plans or oaths of office. A signed certification is an integral part of the appraisal report. An appraiser, who signs any part of the mass appraisal report, including a letter of transmittal, must also sign this certification. In an assignment that includes only assignment results developed by the real property appraiser(s), any appraiser(s) who signs a certification accepts full responsibility for all elements of the certification, for the assignment results, and for the contents of the appraisal report. In an assignment that includes personal property assignment results not developed by the real property appraiser(s), any real property appraiser(s) who signs a certification accepts full responsibility for the real property elements of the certification, for the real property assignment results, and for the real property contents of the appraisal report. In an assignment that includes only assignment results developed by the personal property appraiser(s), any appraiser(s) who signs a certification accepts full responsibility for all elements of the certification, for the assignment results, and for the contents of the appraisal report. In an assignment that includes real property assignment results not developed by the personal property appraiser(s), any personal property appraiser(s) who signs a certification accepts full responsibility for the personal property elements of the 8 certification, for the personal property assignment results, and for the personal property contents of the appraisal report. When a signing appraiser(s) has relied on work done by appraisers and others who do not sign the certification, the signing appraiser is responsible for the decision to rely on their work. The signing appraiser(s) is required to have a reasonable basis for believing that those individuals performing the work are competent. The signing appraiser(s) also must have no reason to doubt that the work of those individuals is credible. The names of individuals providing significant mass appraisal assistance who do not sign a certification must be stated in the certification. It is not required that the description of their assistance be contained in the certification, but disclosure of their assistance is required in accordance with Standards Rule 6-2(g). In developing a personal property appraisal, an appraiser must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete research and analyses necessary to produce a credible appraisal. Comment: STANDARD 7 is directed toward the substantive aspects of developing a credible appraisal of personal property. The requirements set forth in STANDARD 7 follow the appraisal development process in the order of topics addressed and can be used by appraisers and the users of appraisal services as a convenient checklist. STANDARDS RULE 7-1 In developing a personal property appraisal, an appraiser must: (a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal; Comment: This Standards Rule recognizes that change continues to affect the manner in which appraisers perform appraisal services. Changes and developments in personal property practice have a substantial impact on the appraisal profession. Important changes in the cost and manner of acquiring, producing, and marketing personal property and changes in the legal framework in which appraisers perform their assignments result in the need for corresponding changes in personal property appraisal theory and practice. Social change has also had an effect on appraisal theory and practice. The appraisal profession responds to changing circumstances with revised and new appraisal methods and techniques. Therefore, it is not sufficient for appraisers to maintain the skills and the knowledge they possess when they become appraisers. Each appraiser must improve and update his or her skills and knowledge to remain proficient in the appraisal of personal property. (b) not commit a substantial error of omission or commission that significantly affects an appraisal; and Comment: An appraiser must use sufficient care to avoid errors that would significantly affect his or her opinions and conclusions. Diligence is required to identify and analyze the factors, conditions, data, and other information that would have a significant effect on the credibility of the assignment results. 9 (c) not render appraisal services in a careless or negligent manner, such as by making a series of errors that, although individually might not significantly affect the results of an appraisal, in the aggregate affect the credibility of those results. Comment: Perfection is impossible to attain, and competence does not require perfection. However, an appraiser must not render appraisal services in a careless or negligent manner. This Standards Rule requires an appraiser to use due diligence and care. STANDARDS RULE 7-2 In developing a personal property appraisal, an appraiser must: (a) identify the client and other intended users; (b) identify the intended use of the appraiser’s opinions and conclusions; Comment: An appraiser must not allow the intended use of an assignment or a client’s objectives to cause the assignment results to be biased. (c) identify the type and definition of value, and ascertain whether the value is to be: (i) in terms of cash; or (ii) in terms of financial arrangements equivalent to cash; or (iii) in other precisely defined terms; and (iv) if the opinion of value is to be based on non-market financing or financing with unusual conditions or incentives, the terms of such financing must be clearly identified and the appraiser’s opinion of their contributions to or negative influence on value must be developed by analysis of relevant market data; Comment: When reasonable exposure time is a component of the definition for the value opinion being developed, the appraiser must also develop an opinion of reasonable exposure time linked to that value opinion. (d) identify the effective date of the appraiser’s opinions and conclusions; (e) identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal, including: (i) sufficient characteristics to establish the identity of the item including the method of identification; (ii) sufficient characteristics to establish the relative quality of the item (and its component parts, where applicable) within its type; (iii) all other physical and economic attributes with a material effect on value; Comment: Some examples of physical and economic characteristics include condition, style, size, quality, manufacturer, author, materials, origin, age, provenance, alterations, restorations, and obsolescence. The type of property, the type and definition of value, and intended use of the appraisal determine which characteristics have a material effect on value. 10 (v) the ownership interest to be valued; (vi) any known restrictions, encumbrances, leases, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature if relevant to the assignment; and any real property or intangible items that are not personal property but which are included in the appraisal; Comment on (i)–(vi): The information used by an appraiser to identify the property characteristics must be from sources the appraiser reasonably believes are reliable. An appraiser may use any combination of a property inspection and documents or other resources to identify the relevant characteristics of the subject property. When appraising proposed modifications, an appraiser must examine and have available for future examination, documentation sufficient to identify the extent and character of the proposed modifications. An appraiser may not be required to value the whole when the subject of the appraisal is a fractional interest, a physical segment, or a partial holding. (f) identify any extraordinary assumptions necessary in the assignment; Comment: An extraordinary assumption may be used in an assignment only if: • it is required to properly develop credible opinions and conclusions; • the appraiser has a reasonable basis for the extraordinary assumption; • use of the extraordinary assumption results in a credible analysis; and • the appraiser complies with the disclosure requirements set forth in USPAP for extraordinary assumptions. (g) identify any hypothetical conditions necessary in the assignment; and Comment: A hypothetical condition may be used in an assignment only if: • use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison; • use of the hypothetical condition results in a credible analysis; and • the appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions. (h) determine the scope of work necessary to produce credible assignment results in accordance with the SCOPE OF WORK RULE. STANDARD RULE 7-3 In developing a personal property appraisal, when necessary for credible assignment results, an appraiser must: (a) analyze the property’s current use and alternative uses as relevant to the type and definition of value and intended use of the appraisal; Comment: In the context of personal property, value can be a function of the choice of the appropriate market or, in some cases, market level for the type of item, the type and definition of value, and the intended use of the appraisal. The appraiser must consider the various uses of the property when viable alternative uses exist and when those alternative uses may result in a different value. 11 (b) define and analyze the appropriate market consistent with the type and definition of value; and Comment: The appraiser must recognize that there are distinct levels of trade (measureable marketplaces) and each may generate its own data. For example, a property may have a different value at a wholesale level of trade, retail level of trade, or under various auction conditions. Therefore, the appraiser must analyze the subject property within the correct market context. (c) analyze the relevant economic conditions that exist on the effective date of the valuation, including market acceptability of the property and supply, demand, scarcity or rarity. STANDARDS RULE 7-4 In developing a personal property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results. (a) When a sales comparison approach is necessary for credible assignment results, an appraiser must analyze such comparable sales data as are available to indicate a value conclusion. (b) When a cost approach is necessary for credible assignment results, an appraiser must: (i) analyze such comparable cost data as are available to estimate the cost new of the property; and (ii) analyze such comparable data as are available to estimate the difference between cost new and the present worth of the property (depreciation). (c) When an income approach is necessary for credible assignment results, an appraiser must: (i) analyze such comparable data as are available to estimate the market income of the property; (ii) analyze such comparable operating expense data as are available to estimate the operating expenses of the property; (iii) analyze such comparable data as are available to estimate rates of capitalization and/or rates of discount; and (iv) base projections of future income and expenses on reasonably clear and appropriate evidence. Comment: An appraiser must, in developing income and expense statements and cash flow projections, weigh historical information and trends, current supply and demand factors affecting such trends, and competition. (d) When developing an opinion of the value of a lease, leased, or encumbered property, an appraiser must analyze the effect on value, if any, of the terms and conditions of the lease(s) or encumbrances. (e) When appraising multiple objects, the appraiser must consider the significance of the value of the individual assets to the assignment results. Those objects which are more significant to the assignment results should be the focus of the analysis and analyzed in appropriate detail. Comment: A group of objects may have a mix of high and low value items. Those objects that are more significant to the assignment results should be subject to a greater and appropriate depth of analysis. 12 (f) When analyzing the assemblage of the various component parts of a property, an appraiser must analyze the effect on value, if any, of the assemblage. An appraiser must refrain from valuing the whole solely by adding together the individual values of the various component parts. Comment: Although the value of the whole may be equal to the sum of the separate parts, it also may be greater than or less than the sum of such parts. Therefore, the value of the whole must be tested by reference to appropriate data and supported by an appropriate analysis of such data. A similar procedure must be followed when the value of the whole has been established and the appraiser seeks to value a part. The value of any such part must be tested by reference to appropriate data and supported by an appropriate analysis of such data. (g) When analyzing anticipated modifications to the subject property, an appraiser must analyze the effect on value, if any, of such modifications to the extent they are reflected in market actions. (h) When real property or intangible items are included in the appraisal, the appraiser must analyze the effect on value of such non-personal property items. Comment: When the scope of work includes an appraisal of real property or intangible items, competency in real property appraisal (see STANDARD 1) or business appraisal (see STANDARD 9) is required. In addition, competency in other types of personal property outside of the appraiser’s specialty area may be necessary (see STANDARD 7 and the COMPETENCY RULE). STANDARDS RULE 7-5 When necessary for credible assignment results, an appraiser must, if such information is available to the appraiser in the normal course of business: (a) analyze all agreements of sale, validated offers or third-party offers to sell, options, and listings of the subject property current as of the effective date of the appraisal if warranted by the intended use of the appraisal; and (b) analyze all prior sales of the subject property that occurred within a reasonable and applicable time period if relevant given the intended use of the appraisal and property type. Comment: The data needed for the required analyses in Standards Rule 7-5(a) and 7-5(b) may not be available or relevant in all assignments. See the Comments to Standards Rules 8-2(a)(viii) and 8-2(b)(viii) for corresponding reporting requirements. STANDARDS RULE 7-6 In developing a personal property appraisal, an appraiser must: (a) reconcile the quality and quantity of data available and analyzed within the approach or approaches used; and (b) reconcile the applicability and relevance of the approach or approaches, methods and techniques used to arrive at the value conclusion(s). 13 1.02 Valuation Components of a Mass Appraisal System A. Direct Sales Comparison Each year, all sales and appraisals that can be reasonably obtained will be gathered. Sources of sales and appraisals can come from MLS, closing statements, renditions, fee appraisers and any other reliable source. The sales and fee appraisals are be sorted by school district, subdivision or abstract, by category and in some cases by class of improvement and ratio of appraised value to sale or fee appraisal. The sales and fee appraisals will be used to establish schedules for valuation purposes. B. Cost Approach The cost schedule, based on construction of similar improvements, will be developed from information gathered from reliable sources such as Marshall and Swift, a national publication of building cost; and local builders, local suppliers and any other sources considered reliable. Once the cost schedule is verified from available sales, the residential and commercial departments shall compare gathered sales and appraisals to all improved properties in each subdivision and abstract within the boundaries of the Denton Central Appraisal District. In all, cases any changes made in value should be as to market value using mass appraisal system. Sales will be compared to all properties in an area, not just to one individual property. Appraising property is not an exact science, so valuing large numbers of properties at one time will reflect some low values, some high values and some values in the middle. C. Income Approach The income approach to value will be used when the direct sales comparison and cost approach to value would not give indication of market value. Renditions, state schedules published by the Comptroller’s Office, information furnished by property owner/agents, National publications, and any other reliable sources will be used to determine market value by the income approach. D. Land Valuation Land values will be developed from an analysis of comparable sales. These sales will be used to develop a schedule of land values for abstract, subdivision and commercial land. Changes will be made to the land schedules based on comparable sales analysis, with the goal of achieving fair market values and uniformity of appraised values. E. Valuation of Agricultural Use Land Agricultural use values will be determined from information gathered from ASCS, Texas A&M University State Agricultural Dept., Agricultural Income publication published by TU Electric, or any other reliable source. Information gathered will determine the makeup of the valuation schedule for cropland, pasture land and wasteland. F. Comptroller The State Ratio Study conducted by the Comptroller of Public Accounts, Property Tax Division, will be considered in re-appraising individual categories of property. 14 1.03 DCAD Appraisal Card Appraisal Codes Denton Central Appraisal District’s appraisal card, for Real Property, Business Personal Property, or Mineral will consist (in part or whole) of the following information categories: A. Account Information 1. Property ID Number 2. Legal Description 3. GEO ID 4. Map ID 5. Situs 6. Property Group Codes 7. Last Inspection Date/Appraiser 8. Next Inspection Date/Reason B. Ownership and Exemptions 1. Owner Name and Address 2. Percent Ownership 3. Effective Acreage 4. Applied Exemptions 5. Taxing Entities C. Value Breakdown 1. Improvement/Land Values 2. Current and Prior Year Market Values 3. Ag Production Loss 4. Appraised Values 5. Homestead Cap Loss 6. Taxable Value D. Remarks and Sketch Commands E. Active Permit Information 1. Date 2. Type and Comments F. Income Approach Data 1. Rent/ Vacancy Information 2. Expenses 3. Net Operating Income G. Tax Agent and Informal/Protest Information 1. Agent Contact Information 2. Inquiry/ARB Dates and Status 15 H. Property Photo and Sketch 1. Photo with Account Number and Photo Date 2. Sketch with Dimensions and Area ID I. Sales and Deed History 1. Date 2. Price 3. Transaction Type 4. Recording Information J. Improvement Valuation 1. Subdivision Code and Neighborhood Code/Factor 2. Segment ID 3. Improvement Type 4. Detail Description 5. SPTB Method 6. Class 7. Detail Area and Total Area 8. Detail Area Unit Price 9. Actual and Effective Year Built 10. Condition Type 11. Values and Total Value Before Depreciation, Obsolescence, or % Complete 12. Detail Depreciation % Good 13. Detail Physical, Economic, Functional, and Completion % Good 14. Detail Total % Good Adjustment 15. Adjusted Values and Total Adjusted Value 16. State Code and Homesite Declaration 17. Living Area K. Other Improvement % Good Adjustments and Features 1. Adjustment Type a. Additional Percent Good b. Adjustment Percentage c. Arena no Roof d. Condition e. Drilling Site f. Economic g. End Unit 26 h. End Unit 26A i. End Unit 26B j. Flooding k. Foundation l. Imp_Mod Adjustment m. Improvement Modifier n. Inventory o. Location p. Obsolescence q. Open air arena w/roof r. Over built for area s. Physical percent t. Quality of Construction Adj u. Rental Property v. Split Entity 2. Feature Description 3. Feature Count and Value 16 L. Land Valuation 1. Subdivision Code and Neighborhood Code/Factor 2. Segment ID 3. Segment Description 4. Segment Type 5. Land Table Name 6. Soil 7. State Code 8. Land Table 9. State Code 10. Homesite Declaration 11. Appraisal Method Code 12. Size 13. Unit Price 14. Segment % Adjustment 15. Segment Mass Adjustment 16. Segment Market Values and Total Market Value 17. Adjustment Type a. Access b. Area c. bldr d. condo e. culde f. drain g. ease h. econ i. flood j. flway k. func l. golf m. green n. l-meth o. lake p. lmod q. loc r. lsize s. lview t. move u. prem v. ptdev w. row x. rv y. shape z. split aa. topo bb. treed cc. undev dd. water 18. Ag Declaration and Use 19. Ag Use Type 20. Ag Use Table 21. Ag Unit Price and Value See illustration below: 18 1.04 APPRAISAL CODES Entity Codes County, Cities, Schools G01 Denton County CAD Appraisal District C01 City of Aubrey C02 City of Carrollton C03 City of The Colony C04 City of Corinth C05 City of Denton C06 City of Eastville C07 Town of Flower Mound C08 City of Highland Village C09 City of Justin C10 City of Krum C11 City of Lake Dallas C12 City of Lewisville C13 Town of Little Elm C14 City of Pilot Point C15 Town of Ponder C16 City of Sanger C17 City of Roanoke C18 City of Krugerville C19 Town of Hickory Creek C20 City of Dallas C21 City of Coppell C22 City of Hackberry C23 Town of Marshall Creek C24 City of Oak Point C25 City of Lakewood Village C26 Town of Argyle C27 Town of Copper Canyon C28 Town of Trophy Club C29 City of Plano C30 Town of Double Oak C31 Town of Bartonville C32 City of Frisco C33 Town of Northlake C34 Town of Shady Shores C35 Town of Cross Roads C36 City of Fort Worth C37 City of Southlake C38 City of Haslet (Tarrant Co.) C39 City of Grapevine C40 City of Newark (Wise Co.) C41 City of Rhome (Wise Co.) C42 Town of Dish C43 City of Keller (Tarrant Co.) C44 Town of Westlake C45 City of New Fairview (Wise Co.) C46 City of Aurora (Wise Co.) C47 City of Corral City C48 Town of Prosper C49 City of Celina C50 City of Hebron C51 Town of Providence Village S01 Argyle ISD S02 Aubrey ISD S03 Carrollton/Farmers Branch ISD S04 Celina ISD S05 Denton ISD S06 Frisco ISD S07 Krum ISD S08 Lake Dallas ISD S09 Lewisville ISD S10 Little Elm ISD S11 Northwest ISD S12 Pilot Point ISD S13 Ponder ISD S14 Sanger ISD S15 Era ISD S16 Slidell ISD S17 Prosper ISD S18 Coppell ISD S19 Grapevine ISD S20 Carroll ISD 19 Special Districts F01 Denton County Fire District L01 Denton Co. Levy Imp District PLAN Builder Home Plans E01 Denton CED E02 Denton CED E03 Carrollton CED E05 Denton CED E07 Denton CED E08 Denton CED E09 Denton CED E10 Denton CED E11 Denton CED E12 Denton CED E13 Denton CED E14 Denton CED ESD1 Denton Co. Emergency Service District ESD2 Trophy Club PID #1 Emergency Service PID 1 Lewisville Public Improvement Dist #1 PID2 Allegiance Public Improvement Dist #1 PID3 Castle Hills PID PID4 Town of Trophy Club PID #1 PID5 Briarwyck Public Improvement District PID6 Hackberry Hidden Cove Public Improvement District PID7 Northlake PID #1 R01 Denton Co. Reclamation, Rd & Util Dist RUD Denton Co. RUD T01 Speedway TIF #1 T02 Speedway TIF #2 T03 Flower Mound TIRZ #1 TIF1 City of Lewisville TIRZ #1 TIF2 City of Lewisville TIRZ #2 TIF3 Little Elm TIRZ #1 TIF4 Little Elm TIRZ #2 TIF5 The Tribute TIF #1 TIF6 Downtown TIF #1 X01 Tribute at The Colony W01 Colony MUD W02 Lake Cities MUA W03 Trophy Club MUD #1 W04 Clearcreek Watershed Authority W05 Trophy Club MUD #2 W06 Do not use W07 Corinth MUD #1 W08 Lake Turner Municipal Util Dist #1 W09 Denton Co. FWSD 1-A W10 Denton Co. FWSD 1-B W11 Denton Co. FWSD 1-C W12 Denton Co. FWSD 1-D W13 Denton Co. FWSD 6 W14 Denton Co. Dev Dist #4 W15 Denton Co. FWSD 1-E W16 Providence Village WCID W17 Denton Co. FWSD #10 W18 Denton Co. FWSD 8-A W19 Denton Co. FWSD 8-B W20 Denton Co. FWSD 11-A W21 Denton Co. FWSD 7 W22 Denton Co. MUD #4 W23 Denton Co. Mud #5 W24 Denton Co. FWSD 8-C W25 Denton Co. FWSD 11-B W26 Denton Co. FWSD 4-A W27 Oak Point WCID #1 W28 Oak Point WCID #2 W29 Oak Point WCID #3 W30 Smiley Road WCID W31 Denton Co. FWSD 1-F W32 Denton Co. FWSD 11-C W33 North Fort Worth WCID #1 W34 Denton Co. FWSD 1-G W35 Valencia on the Lake WCID #1 W36 Denton Co FWSD 1-H W36 South Denton County WCID #1 W38 Alpha Ranch WCID W39 Belmont FWSD #1 W40 Mobberly MUD W41 The Lakes FWSD W42 Canyon Falls WCID #2 W43 Oak Point WCID #4 W44 Canyon Falls MUD #1 W45 Belmont FWSD #2 W46 Fort Worth MUD #1 W47 Denton Cty MUD #6 20 Exemption Codes AB Abatement AG EOY: AG CH Charitable CHODO 11.182 Community Housing Development Organizations CLT Community Land Trust DP Disability DPS DISABLED Surviving Spouse DV1 Disabled Veterans 10% - 29% DV1S Disabled Veterans Surviving Spouse 10% - 29% DV2 Disabled Veterans 30% - 49% DV2S Disabled Veterans Surviving Spouse 30% - 49% DV3 Disabled Veterans 50% - 69% DV3S Disabled Veterans Surviving Spouse 50% - 69% DV4 Disabled Veterans 70% - 100% DV4S Disabled Veterans Surviving Spouse 70% - 100% DVCH Disabled Veteran Charity Homestead DVCHS Disabled Veteran Charity Homestead Surviving Spouse DVHS Disabled Veteran Homestead DVHSS Disabled Veteran Homestead Surviving Spouse ECO Economic Development EN Energy EX Exempt EX-XA 11.111 Public property for housing indigent persons EX-XD 11.181 Improving property for housing with volunteer labor EX-XF 11.183 Assisting ambulatory health care centers EX-XG 11.184 Primarily performing charitable functions EX-XH 11.185 Developing model colonia subdivisions EX-XI 11.19 Youth spiritual, mental, and physical development organizations EX-XJ 11.21 Private schools EX-XL 11.231 Organizations Providing Economic Development Services to Local Community EX-XM 11.25 Marine cargo containers EX-XN 11.252 Motor vehicles leased for personal use EX-XO 11.254 Motor vehicles for income production and personal use EX-XP 11.271 Offshore drilling equipment not in use EX-XQ 11.29 Intracoastal waterway dredge disposal site EX-XR 11.30 Nonprofit water or wastewater corporation EX-XS 11.33 Raw cocoa and green coffee held in Harris County EX-XT 11.34 Limitation on taxes in certain municipalities EX-XU 11.23 Miscellaneous Exemptions EX-XV Other Exemptions (including public property, religious organizations, charitable organizations, and other property not reported elsewhere) 21 EX366 HB366 Exempt FR Freeport FRSS First Responder Surviving Spouse GIT GOODS IN TRANSIT HS Homestead HT Historical LIH 11.181 Improving property for housing with volunteer labor LVE Leased Vehicles MASSS Member Armed Services Surviving Spouse OV65 Over 65 OV65S OV65 Surviving Spouse PC Pollution Control PPV Personal Property Vehicle SO Solar Property Classification Codes SPTB Codes A1.....Residential Single Family A2.....Residential Mobile Home A3.....Single Family Waterfront A4.....Condominium A5…..Townhome A6…..Single Family Golf Course AT.....Tax Abatement Real B1.....Residential Multi-family B2.....Duplex C1.....Vacant Platted Lots/Tracts C2.....Commercial Lots In City C3.....Lots Outside City C5.....Waterfront D1.....Qualified Open-Space Land D2..... Farm / Ranch Imps on Qualified Ag Land E1.....Rural Land/Improvement on Non Ag Land E3.....Mobile Homes on Non Ag Land E4.....Vacant Non Ag Land F1.....Real, Commercial F2.....Real, Industrial F3.....Commercial-Real-MH Parks F4.....Commercial-Real Office Condo G1.....Oil, Gas, and Mineral Reserves H1.....Personal Vehicles I1.....Banks-Real J1.....Water Systems/Real and BPP J2.....Gas Companies/Real and BPP J3.....Electric Companies J4.....Telephone & Communication/Real and BPP J5.....Railroads J6.....Pipelines J7.....Railroad-Non-Operating J8.....Cable Companies K1.....Farm Machinery & Equip. L1.....Tangible Commercial/Personal L2.....Industrial Personal LA.....Tax Abatement Personal M2....Aircraft Improvement Type Codes C......Commercial I........Misc Improvement M......Mobile Home R......Residential 23 Building Attributes Construction Style A Frame American Mansard Brownstone Bungalow California Bungalow Cape Cod Colonial American Contemporary English Tudor Fiberglass Fireproof Structural Steel French Provincial Greek Revival Log Masonry or Concrete Load Bearing Walls Mediterranean Metal Mission Prefabricated Steel Frame Ranch Reinforced Concrete Columns Shingle Style Southern Colonial Split Full Victorian Wood Wood or Steel Frame Foundation B.....Concrete Block M....Mason P......Pier S......Slab Exterior Wall Adobe Brick Aluminum siding Asbestos Siding Asphalt Siding Brick Veneer Cedar Concrete Block Concrete Tilt Up Walls Hardboard Log Metal Siding Plywood Rock Shakes Shingles Siding Steel/Metal Stone Stucco Synthetic Plaster (EIFS) Tile Vinyl Siding Wood FEET …….. Ceiling “Exterior Wall Height” Interior Finish Concrete Drywall Plaster Sheetrock Roof Style Dome Flat Gable Hip Mansard 24 Roof Covering Asphalt Composition Shingle Copper Fiberglass Metal Roll Shake Slate Spanish Tile Tile Wood Shingle Unknown Foundation Concrete Block Mason Pier Slab Heat and Air CH (Central Heat) CHCA (Central Heat and Air) Cold Storage Facility Fuel Furnace Fireplace Gas Stove Moist Air Window Unit Solar 25 Land Appraisal Method A Acreage F Flat Price FA Flat Acreage F-SFT Flat Square Foot FF Front Foot LT Flat Priced Per Lot SL Special Lot Pricing SQ Square Foot Land Type Codes 1 Homesite 2 Cropland 3 Pasture 4 Woods 5 Wasteland 6 Commercial 7 Rear Lot 8 Residential Lot 9 Waterfront Lot 10 Timberland AG Agriculture Exempt C1 Cropland I C2 Cropland II C3 Cropland III CA Common Area H Hanger IL Improved Lot PI1 Improved Pasture I PI2 Improved Pasture II PI3 Improved Pasture III PN1 Native Pasture I PN2 Native Pasture II PN3 Native Pasture III UD Undeveloped UL Undeveloped Lot W Wasteland Agricultural Use Property Codes AG AG Use Granted AGLATE Late AG application AG.RECD AG application received AG.SENT AG Wildlife application sent AG_INT AG internal transfers request new application AG_RC AG Re-check AG_RC2 AG Re-check again AG_SENT_INT_1 AG App sent internal change AG_SENT_NEW_1 AG Appsent new owner letter 1 AG_SENT_RF_1 AG App sent refile letter AG_LGL AG Legal Description Change AG_NOPEN AG App Deadline Extended AG_OV65 Ag Applied with OV65 Exemption AG_OV65_SENT1 AG OV 65 First letter sent AB_OV65_SENT2 AG OV 65 Second letter sent AG5% AG use under protest AGCKRB Check AG for rollback AGD AG use denied AGLATEDENY Denied Late AG application AGOWNER AG use new owner AGPRC16 2016 AG application AGSUR AG use survey letter DORB Do Rollback RBLTS AG use rollback letters RF Request to re-file AG application AGLATE2016 Remove penalty flag 2016 1.05 Ethical Conduct Title 16 . Texas Department of Licensing and Regulation Chapter 94 Administrative Rules of the Texas Department of Licensing and Regulation Effective January 1, 2014 A. General For the property tax system to achieve its intended purpose of providing funds for those activities that are essential to the public welfare, not only must the entire process be fair and equitable to all taxpayers, and to each taxpayer individually, it must be so perceived by them and the public at large. These rules are directed toward the achievement of that goal. Persons registered with the Texas Department of Licensing and Regulation (TDLR) shall perform their duties in accordance with applicable laws, rules and regulations; and shall avoid the act or appearance of improper influence, conflict of interest, discrimination, abuse of powers, unfair treatment or misuse of titles by conforming to the Rules stated in the following document. PROPERTY TAX PROFESSIONALS Title 16 Texas Administrative Code Chapter 94 Administrative Rules of the Texas Department of Licensing and Regulation Effective January 1, 2014 Table of Contents 94.1. Authority 94.10. Definitions 94.20. Persons Required to Register 94.21. Registration 94.22. Renewal of Registration 94.24. Inactive Status 94.25. Continuing Education 94.70. Responsibilities of a Registrant: General 94.71. Responsibilities of a Registrant: Equal and Fair Treatment 94.72. Responsibilities of a Registrant: Conflicts of Interest 94.73. Responsibility of Registrant: Use of Titles 94.80. Fees 94.90. Sanctions and Administrative Penalties 94.91. Enforcement Authority 94.100. Code of Ethics 26 27 94.1. Authority. (New rule effective January 18, 2010, 35 TexReg 367) This chapter is promulgated under the authority of Texas Occupations Code, Chapters 51 and 1151. 94.10. Definitions. (New rule effective January 18, 2010, 35 TexReg 367; amended effective January 1, 2011, 35 TexReg 11625) The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: (1) Act--Texas Occupations Code, Chapter 1151. (2) Registered Texas Collector (RTC)--Certified Class III Collector. (3) Registered Professional Appraiser (RPA)--Certified Class IV Appraiser. (4) Registered Texas Assessor/Collector (RTA)--Certified Class IV Assessor/Collector. (5) USPAP--Uniform Standards of Professional Appraisal Practice. 94.20. Persons Required to Register. (New rule effective January 18, 2010, 35 TexReg 367; amended effective January 1, 2014, 38 TexReg 9524) Those required to register are: (1) the chief appraiser of an appraisal district, an appraisal supervisor or assistant, a property tax appraiser, an appraisal engineer, and any other person authorized to render judgment on, recommend, or certify an appraised value to the appraisal review board of an appraisal district; (2) a person who engages in appraisal of property for ad valorem tax purposes for an appraisal district or a taxing unit; (3) an assessor-collector, other than a county assessor-collector, a collector, or another person designated by a governing body as the chief administrator of the taxing unit's assessment functions, collection functions, or both; and (4) a person who performs assessment or collection functions for a taxing unit and is required to register by the chief administrator of the unit's tax office. 94.21. Registration. (New rule effective January 18, 2010, 35 TexReg 367; amended effective January 1, 2011, 35 TexReg 11625; amended effective January 1, 2014, 38 TexReg 9524) To be registered an applicant must: 28 (1) be at least 18 years of age; (2) be a resident of the State of Texas; (3) be a person of good moral character; (4) be a graduate of an accredited high school or holder of high school graduation equivalency; (5) be actively engaged in appraisal, assessing/collecting, or collecting for an appraisal district, tax office, or private firm working for an appraisal district or tax office; (6) submit a completed application on a form approved by the department; (7) pay the applicable fees under §94.80; and (8) successfully complete all requisites appropriate for the applicant's classification level: (A) Appraisers (i) A Class I appraiser must be registered. (ii) A Class II appraiser must: (I) be a Class I appraiser registrant; and (II) successfully complete within twelve months of registration: (-a-) no less than 32 hours in the basics of the Texas property tax system; (-b-) no less than 8 hours in ethics; and (iii) A Class III appraiser must: (I) be registered as a Class II appraiser registrant; and (II) successfully complete within thirty-six months of registration: (-a-) no less than 18 hours in the income approach to value; (-b-) no less than 18 hours in the theory and practice of personal property appraisal; 29 (-c-) no less than 15 hours in USPAP; (-d-) no less than 24 hours in the theory and practice of appraisal of real property; and (-e-) pass the Class III examination. (iv) A Class IV appraiser (RPA) must: (I) be registered as a Class III appraiser registrant; and (II) successfully complete within sixty months of registration: (-a-) no less than 18 hours in analyzing real property appraisal; (-b-) no less than 16 hours in Texas Property Tax Law; and (-c-) no less than 18 hours in mass appraisal; (III) successfully complete no less than 3.5 hours in USPAP if the 15 hour USPAP course has not been completed in the last two years; (IV) pass the appraiser Class IV examination within five years of registration; and (V) have a minimum of three years experience as a registered appraiser. (B) Assessor/Collectors (i) A Class I assessor/collector must be registered. (ii) A Class II assessor/collector must: (I) be registered as a Class I assessor/collector registrant; and (II) successfully complete within twelve months of registration: (-a-) no less than 32 hours in the basics of the Texas property tax system; and (-b-) no less than 8 hours in ethics. (iii) A Class III assessor/collector must: 30 (I) be registered as a Class II assessor/collector registrant; and (II) successfully complete within thirty-six months of registration: (-a-) no less than 16 hours in Texas Property Tax Law; and (-b-) no less than 18 hours in assessment and collection. (iv) A Class IV assessor/collector (RTA) must: (I) be registered as a Class III assessor/collector registrant; (II) successfully complete within sixty months of registration: (-a-) no less than 18 hours in advanced assessment and collections; (-b-) no less than 12 hours in truth in taxation; (III) pass the Class IV assessor/collector examination within five years of registration; and (IV) have a minimum of three years experience as a registered assessor/collector. (C) Collectors (i) A Class I collector must: (I) be registered; and (II) successfully complete within twelve months of registration: (-a-) no less than 32 hours in the basics of the Texas property tax system; and (-b-) no less than 8 hours in ethics. (ii) A Class II collector must: (I) be registered as a Class I registrant; and (II) successfully complete: (-a-) no less than 16 hours in Texas Property Tax Law; 31 (-b-) no less than 18 hours in assessment and collection; and (-c-) no less than 18 hours in advanced assessment and collections. (iii) A Class III collector (RTC) must: (I) be registered as a Class II collector registrant; (II) pass the collector Class III examination within three years of registration; and (III) have a minimum of two years experience as a registered collector. (D) The provisions in this paragraph apply to registrations that renew on or after January 1, 2011. 94.22. Renewal of Registration. (New rule effective January 18, 2010, 35 TexReg 367; amended effective January 1, 2011, 35 TexReg 11625) (a) All registrations expire one year after the day issued. The Department may extend the expiration date of a registration to correspond to the registrant's original registration date. (b) To renew an applicant must: (1) comply with all provisions of the Act and this chapter; (2) submit a completed application on a department-approved form; (3) pay the applicable fees; and (4) successfully complete all requisites appropriate for the renewal applicant's classification level. (c) To renew and maintain continuous registration, the renewal requirements must be completed prior to the expiration of the registration. (d) Applications not filed by the expiration date are considered applications for late renewal and are subject to late renewal fees under §60..83 of this title (relating to Late Renewal Fees). (e) Registrations issued from a late renewal application will have an unregistered period from the expiration date of the previous registration to the issuance date of the renewed registration. Work 32 that requires a registration issued under this chapter must not be performed during the unregistered period. (f) A registrant must complete all registration renewal requirements within one year of the date the registration expires, or the renewal application shall be deemed void. (g) If the registrant does not meet the deadline established in subsection (f), the person must reapply for a new registration by complying with the requirements and procedures, including any examination requirements and payment of fees. (h) Non-receipt of a renewal notice from the department does not exempt a person from any requirement of this chapter. 94.24. Inactive Status. (New section effective March 1, 2012, 37 TexReg 1325) (a) To change a registration to inactive status, an applicant must submit a completed application on a department-approved form. (b) A person whose registration is on inactive status may not engage in activity requiring a registration. (c) A registration on inactive status must be renewed in accordance with §94.22; however, continuing education is not required for renewal of a registration on inactive status. (d) The time period to obtain certification requirements is stopped for the duration the registration is on inactive status. (e) To change from an inactive registration to an active registration, an applicant must: (1) submit a completed application on a department-approved form; (2) pay the applicable fee; and (3) complete the continuing education that is required for the renewal of an active registration during the preceding registration period. Continuing education hours used to satisfy the requirement for changing from an inactive license status to an active license status may not also be utilized for a future renewal of an active registration. 33 94.25. Continuing Education. (New rule effective January 18, 2010, 35 TexReg 367; amended effective January 1, 2011, 35 TexReg 11625; amended effective March 1, 2012 37TexReg 1325; amended effective January 1, 2014, 38 TexReg 9524) (a) Terms used in this section have the meanings assigned by Chapter 59 of this title, unless the context indicates otherwise. (b) A Registered Professional Appraiser (RPA) must complete 30 hours of approved continuing education to be eligible to renew the registration. The continuing education must include: (1) two hours in ethics as required by §94.25(j)(3); (2) a state laws and rules update course; and (3) 3.5 hours in USPAP. (c) A Registered Professional Appraiser (RPA) that is a chief appraiser must complete 30 hours of approved continuing education to be eligible to renew the registration. The continuing education must include: (1) 3.5 hours in USPAP; (2) a state laws and rules update course; (3) two hours in chief appraiser ethics, as required by §94.25(j)(3); and (4) 15 hours in one or more of the topics listed in §94.25(j)(1), (3), (4), (5), or (6). (5) The provisions of subsection (c) are effective for those registrations expiring on or after January 1, 2015. (d) A Registered Texas Assessor-Collector (RTA) must complete 30 hours of approved continuing education to be eligible to renew the registration. The continuing education must include: (1) two hours in ethics; and (2) a state laws and rules update course. (e) A Registered Texas Collector (RTC) must complete 10 hours of approved continuing education to be eligible to renew the registration. The continuing education must include: 34 (1) two hours in ethics; and (2) a state laws and rules update course. (f) Continuing education credit must be completed during the 24 month period before the expiration of the license. Newly certified registrants are not required to complete continuing education until their second renewal after their certification deadline. (g) For a late renewal, the continuing education hours must have been completed within the two- year period prior to the date of renewal. (h) A course approved for use under §94.21 may be taken for continuing education credit. (i) A registrant may not receive continuing education credit for attending the same department- numbered course more than once within the two-year period prior to the date of renewal. (j) To be approved by the Comptroller, a provider's course must be dedicated to instruction in: (1) appraisal procedures and methods; (2) tax assessment and collection; (3) ethics; (A) general; or (B) chief appraiser; (4) laws and rules; (5) USPAP; or (6) customer service. (k) The provisions in this section apply to registrations that renew on or after January 1, 2011. 94.26. Break In Service Credit (New section effective March 1, 2012, 37 TexReg 1325) (a) A registrant may receive an adjustment of their anniversary date for a break in service as defined in Texas Occupations Code, §1151.160(f) by: 35 (1) submitting a completed form approved by the department; and (2) paying the applicable fee. (b) An applicant for credit under this provision must provide proof, acceptable to the department, of time during which the person was not employed in the type of employment for which the person was registered. If no proof is available, the department may award credit for "break in service" as it determines from previous department registration records. (c) Under no circumstances will a break in service credit exceed five years. 94.27. One-Year Extension. (New section effective March 1, 2012, 37 TexReg 1325) (a) A registrant may receive a one-year extension to meet certification requirements by: (1) submitting a completed form approved by the department; (2) paying the applicable fee; and (3) submitting supporting documentation deemed appropriate by the department for extension under Texas Occupations Code, §1151.160(g). (b) The extension will begin on the day after the original deadline for certification, regardless of when the extension is requested or on the discretion of the department. 94.28. Re-application. (New section effective March 1, 2012, 37 TexReg 1325) An applicant that does not meet any of the requirements for extension under Texas Occupations Code, §1151.160(g), and does not qualify for reinstatement under Texas Occupations Code, §1151.1605, may reapply for registration after being unregistered for two years by: (1) paying the applicable fee for new application; (2) submitting a completed form approved by the department; and (3) qualifying as class II registrant. 36 94.70. Responsibilities of a Registrant: General. (New rule effective January 18, 2010, 35 TexReg 367; amended effective January 1, 2011, 35 TexReg 11625) (a) A registrant must not violate any provision of the Act or this chapter. (b) A registrant must timely respond to the department's investigative requests including making a complete written answer to any complaint. (c) Registrants must inform the department within 30 days of any changes to their employment and change their registration as appropriate. (d) A registrant must not violate the property tax professional's Code of Ethics, referenced in §94.100, or aid or encourage another to violate the Code of Ethics. (e) A registrant must not engage in any practices that constitute acts of improper influence, conflict of interest, unfair treatment, discrimination, abuse of powers, or misuse of titles. (f) A registrant must be in compliance with any report issued by the Comptroller of Public Accounts under §5.102 of the Tax Code. (g) An appraisal registrant or assessor/collector must be certified in their field within five years of registration. (h) A collector registrant must be certified in their field within three years of registration. (i) A registrant may act in a purely private capacity regarding a personal tax matter so long as he does not use his official position to influence the outcome of such a dispute. 94.71. Responsibilities of a Registrant: Equal and Fair Treatment. (New rule effective January 18, 2010, 35 TexReg 367) (a) A registrant must apply equally and fairly any appraisal, assessment, or consulting service according to the Uniform Standards of Professional Appraisal Practice and generally accepted appraisal, assessment, or collection practices applicable to an assignment. (b) A registrant may not accept or solicit any benefit in return for favorable treatment. (c) A registrant must not knowingly testify falsely or withhold any information, or influence anyone into testifying falsely or withholding any information in any investigation or proceeding. 37 (d) A registrant must not knowingly mislead any member of the public who makes a reasonable inquiry or request on tax matters. (e) A registrant must not predetermine the value or value range of a property or properties and then manipulate data to arrive at a predetermined conclusion. (f) A registrant must not perform calculations: (1) by methods other than those directed by law, rule, or written guidance of the Comptroller of Public Accounts, or (2) that are designed to result in a predetermined effective tax rate, or rollback tax rate, current or delinquent collection rate, or other value, rate, or ratio used for official purposes. (g) A registrant must not provide, to any private party, information that is not provided to, or reasonably available to all persons. 94.72. Responsibilities of a Registrant: Conflicts of Interest. (New rule effective January 18, 2010, 35 TexReg 367) (a) A registrant must disclose in writing to the appraisal district or taxing entity any relationship of consanguinity within the third degree that may relate to an assignment so long as he holds a registration position. (b) A registrant must disclose in writing to the appraisal district or taxing entity any outside employment. (c) A registrant must disclose in writing to the appraisal district or taxing entity any financial interest in any private business or real property subject to the appraisal district or taxing entity where she is employed. (d) A registrant must not invest in property, interests, or transactions which create a conflict of interest or which affects independent judgment or performance in the official position. (e) A registrant must not engage in any activity or employment outside of the appraisal office or tax office if such engagement adversely affects his impartiality in the execution of his official duties or adversely affects the performance of his official duties. 38 (f) A registrant must not use agency resources for the personal benefit of himself, any party in whom he has an interest, or any public servant; or for the benefit of any social or political organization unless any member of the general public could make similar use of the agency resources. (g) A registrant in their official capacity must not endorse the services or products of any person or firm. 94.73. Responsibility of Registrant: Use of Titles. (New rule effective January 18, 2010, 35 TexReg 367) A person may not use the titles Registered Professional Appraiser, Registered Texas Assessor/Collector, or Registered Texas Collector unless he is an active and certified registrant with the department and performing official duties as a property tax appraiser, assessor/collector, or collector. 94.80. Fees. (New rule effective January 18, 2010, 35 TexReg 367; amended effective March 1, 2012 37 TexReg 1325; amended effective January 1, 2014, 38 TexReg 9527) (a) Application fees. (1) Appraiser--$100 (2) Collector--$100 (3) Assessor/Collector--$100 (b) Renewal fees. (1) Appraiser--$55 for registrations expiring before February 1, 2014; $45 for registrations expiring on or after February 1, 2014 (2) Collector--$55 for registrations expiring before February 1, 2014; $45 for registrations expiring on or after February 1, 2014 (3) Assessor/Collector--$55 for registrations expiring before February 1, 2014; $45 for registrations expiring on or after February 1, 2014 (c) 'Break in service' credit application fee--$75 (d) One-Year Extension application fee--$25 39 (e) Change from inactive status to active status--$25 (f) Late Renewal Fees. Late renewal fees for licenses issued under this chapter are provided under §60..83 of this title (relating to Late Renewal Fees). (g) Revised/Duplicate License/Certificate/Permit/Registration--$25 (h) All fees are non-refundable, except as otherwise provided by law. 94.90. Sanctions and Administrative Penalties. (New rule effective January 18, 2010, 35 TexReg 367) A person who violates the Texas Occupations Code, Chapter 1151, a rule, or an order of the executive director or commission relating to Texas Occupations Code, Chapter 1151, will be subject to administrative sanctions and/or administrative penalties under Texas Occupations Code, Chapters 51 and 1151 and applicable agency rules. 94.91. Enforcement Authority. (New rule effective January 18, 2010, 35 TexReg 367) The enforcement authority granted under Texas Occupations Code, Chapters 51 and 1151 and any associated rules may be used to enforce Texas Occupations Code, Chapter 1151 and this chapter. 94.100. Code of Ethics. (New rule effective January 18, 2010, 35 TexReg 367; amended effective October 15, 2010, 35 TexReg 9083) Registrants must: (1) be guided by the principle that property taxation should be fair and uniform, and apply all laws, rules, methods, and procedures, in a uniform manner, to all taxpayers; (2) not accept or solicit any gift, favor, or service that might reasonably tend to influence the registrant in the discharge of official duties, with the following exceptions: (A) the benefit is used solely to defray the expenses that accrue in the performance of duties or activities in connection with the office which are nonreimbursable by the state or political subdivision; (B) a political contribution as defined by Title 15 of the Election Code; or (C) an item with a value of less than $50, excluding cash or a negotiable instrument; 40 (3) not use information received in connection with the duties of an appraiser, assessor, or collector for their own purposes, unless such information can be known by ordinary means to any ordinary citizen; (4) not engage in an official act that is dishonest, misleading, fraudulent, deceptive, or in violation of law; (5) not conduct their professional duties in a manner that could reasonably be expected to create the appearance of impropriety; (6) not accept an appraisal, assessment, or collection related assignment that can reasonably be construed as being in conflict with the registrant's responsibility to their jurisdiction, employer, or client, or in which the registrant has an unrevealed personal interest or bias; and (7) not accept an assignment or responsibility in which the registrant has a personal interest without full disclosure of that interest. 1.06 Notice of Appraised Value The Legislature requires the chief appraiser to deliver, by April 1 or as soon thereafter as practicable if the property is a residence homestead or by May 1 or as soon thereafter as practicable for any other property, a written notice of appraised value to the property owner. Appraisal districts are required to mail a notice if: The appraised value of the property is greater than the preceding year. The appraised value of the property is greater than the value the property owner rendered The property was not on the appraisal roll in the preceding year. The ownership of the property has changed from the preceding year. Denton Central Appraisal District (DCAD) has chosen to mail appraisal notices to every property owner every year. Appraisal notices will contain the following information: A list of the taxing unites in which the property is taxable. The appraised value of the property in the preceding year The taxable value of the property in the preceding year for each taxing jurisdiction The appraiser value of the property for the current year Any exemptions applied to the property, must show the type and amount of each exemption An estimate of the taxes using the current appraised value and the preceding year tax rates. 41 The notice of appraised value services to notify the property owner of an estimate of market value, the exemption applied to the property, and any agricultural use applied. It also services to notify the owner of The current mailing address the district has returned appraisal notices are worked to find the correct address If the correct mailing address is not found the account is coded as undeliverable. This helps the staff when the property owner states at a later date that they did not receive the notice. The identification of the property; the situs address, the legal description, the property account number. The taxpayer’s rights to appeal the value DCAD includes in the mailing information on the appeals procedures and frequently asked questions. The inclusion of property on the appraisal roll To review for equitable appraisal The qualification for an agricultural use appraisal Any action taken by the Chief Appraiser and Appraisal District that affected the value This starts the informal process of reviewing the information with the property owner. Taxpayers have until May 31st or 30 days from the date the notice was delivered to the post office to either file a protest or come in to speak with an appraiser. Protest can be made in person, mail, email or fax. Informal reviews of property values over the phone are limited to taxpayers who are unable to come in due to some type of disability. During the 30-day protest period appraisers are available to talk to owners/agents. If the appraiser and owner/agent agree on the value of a property, the owner/agent and appraiser will sign a form titled “Agreement to Establish Property Values”. This agreement is binding between the two parties only for the current year. If the appraiser and the owner/agent cannot agree the owner/agent must complete the form “Notice of Protest” and a hearing is scheduled before the Appraisal Review Board (ARB). The owner/agent has the right to 15 days’ notice before the ARB hears the protest to develop the information to present to the ARB that would help their case. However, if the owner/agent wishes to waive the 15- day, they may do so by signing a waiver. When the property has been scheduled with the ARB the property owner/agent is given a form titled “Information for Property Owners from the Chief Appraiser”. This document tells the owner/agent of their right to inspect and obtain copies of the DCAD value schedules, formula, comparable sales and any other information that the district plans to use at the hearing. 42 43 44 45 46 SUBSECTION 2. REAL PROPERTY APPRAISAL Part A. General Policies and Procedures 2.01 Introduction There are three basic approaches available to the appraiser for the valuation of real property. Ideally, all three approaches are used to establish a final estimate of market value. Quite often, though, one or more of the approaches will be inappropriate to the property being appraised. Therefore, it is essential that the appraiser have a thorough working knowledge of each approach, and when to make use of it. The Commercial, Land, and Residential Departments appraise many different types of property, so an appraiser’s judgment is a very important factor in the mass appraisal process. Part B. Commercial Property 2.02 Introduction A. Definition of Appraisal Responsibility The Commercial Department of the Denton Central Appraisal District (DCAD) is responsible for developing fair and uniform market values for all multi-family, commercial, industrial properties, as well as commercially zoned land inside city limits and non-subdivided rural land outside city limits within district boundaries. B. Legal and Statutory Requirements The DCAD adheres to the policies and regulations of the Texas Property Tax Code (TPTC). The provisions of the TPTC and relevant legislative measures involving appraisal administration and procedures control the work of the appraisal district. The district is responsible for estimating the market value of each property, as of January 1, for ad valorem tax purposes. The district is required to periodically reappraise all real property at least once every three years. DCAD has adopted a reappraisal plan on an annual cycle. C. Administrative Requirements An appraisal management policy should reflect regulatory obligations, mandate due diligence, ensure conformance to professional standards, generate current and meaningful valuations, and establish criteria for a thorough review process. DCAD subscribes to the standards of the International Association of Assessing Officers (IAAO) regarding its appraisal practices and procedures. DCAD also subscribes to 47 the standards promulgated by the Appraisal Foundation known as the Uniform Standards of Professional Appraisal Practice (USPAP). A current copy of the USPAP manual is on file at DCAD. The Commercial Department submits an annual budget to the Deputy Chief Appraiser. The department is responsible for completing mass appraisal assignments in a timely manner, within the cost constraints of said budget. D. Appraisal Resources Personnel - The Commercial Department consists of an appraisal manager, two supervisors, four field appraisers, and two administrative support positions. The appraisal manager reports to the Deputy Chief Appraiser. Data - The data used by the Commercial Department includes verified sales of vacant land and improved properties and the pertinent data obtained from each (sales price levels, capitalization rates, income multipliers, etc.). Other data used by the department includes actual income and expense data (typically obtained through the hearings process), actual contract rental data, leasing information (commissions, tenant finish, length of terms, etc.), and actual occupancy rates. In addition to the actual data obtained from specific properties, market data publications are also reviewed to provide additional support for local and regional market trends, such as: Institute of Real Estate Management (IREM) – Provides revenue and expense analysis for shopping centers, offices, conventional and federally assisted apartments. Urban Land Institute (ULI) – Provides revenue and expense analysis for apartments and shopping centers. Source Strategies Inc. – Provides revenue and occupancy analysis for hotels and motels. Delta Associates – Provides revenue and occupancy analysis for industrial and offices. NAI Global Market Report – Provides revenue and occupancy analysis for retail, industrial and offices. PKF Hospitality Research – Provides revenue, expense, and profit analysis for hotels and motels. COSTAR Group – Provides sales information as well as revenue and occupancy analysis for industrial, flex, retail, offices and apartments. ALN Apartment Data – Provides revenue and occupancy analysis for apartments. Integra Realty Resources – Provides capitalization rate analysis for retail, industrial, hotel/motel, offices and apartments. Realty Rates, Inc. - Provides capitalization rate analysis for retail, industrial, offices and apartments. Real Estate Research Corp. - Provides capitalization rate analysis for retail, industrial, hotel/motel, offices and apartments. PriceWaterhouseCoopers – “Korpacz Real Estate Investor Survey” provides capitalization rate analysis for retail, industrial, hotel/motel, offices and apartments. Information Systems - The mainframe systems are augmented by the databases that reside as various applications on the DCAD Local Area Network (LAN). DCAD offers a variety of systems for providing property owners and public entities with information services. The Appraisal Support Department fields many of the public’s questions or redirects them to the proper department. Computer terminal stations are 48 located in the customer service area for the public’s use. Access to the district’s appraisal data is also available through DCAD’s website: www.dentoncad.com. 2.03 Valuation Approach A. Area Analysis Data on regional economic forces such as demographic patterns, regional location factors, employment and income patterns, general trends in real property prices and rents, interest rate trends, availability of vacant land, and construction trends and costs are collected from private vendors and public sources. Information is gleaned from real estate publications and sources such as the Multiple Listing Services, (Dallas and Denton Board of Realtors), “The Roddy Report,” “The Dallas Business Journal,” Marshall & Swift, IAAO, CoStar Group and applicable sources found on the Internet. Monitoring these sources provide employees a current economic outlook on Denton County’s real estate market. The Commercial Department uses the above-mentioned sources in its analysis of defined neighborhood and geographical areas. B. Neighborhood Analysis The neighborhood is comprised of the land area and commercially classed properties located within the boundary of a taxing jurisdiction. The current commercial neighborhoods (market areas) are: CODE DESCRIPTION C02 Cities of Carrollton and Dallas C03 City of The Colony S05 Denton ISD and Argyle ISD S08 Lake Dallas ISD S09 Cities of Lewisville, Highland Village, and Flower Mound S10 Little Elm ISD, Frisco ISD, Celina ISD, and Prosper ISD S11 Northwest ISD, and Ponder ISD S14 Sanger ISD, Pilot Point ISD, Aubrey ISD, and Krum ISD These areas consist of a wide variety of property types including multi-family, commercial and industrial. Neighborhood analysis involves the examination of how physical, economic, governmental and social forces and other influences affect property values. The effects of these forces are also used to identify, classify, and organize comparable properties into smaller, manageable subsets of the universe of properties known as neighborhoods. 49 Neighborhoods are defined by each of the improved property use types (multi-family, office, flex, warehouse / industrial, general retail, shopping center, sports and entertainment, hospitality, health care, and specialty) based upon an analysis of similar economic or market forces. These include but are not limited to similarities of rental rates, class of construction, date of construction, overall market activity or other pertinent influences. Sales and income information are gathered on each neighborhood area and used to formulate overall appraised values for that neighborhood. The current commercial property use types are: CODE DESCRIPTION CODE DESCRIPTION Multi Family Shopping Center MF001 Apartments SC001 Community Center MF002 Apts. – Under 75 Units SC005 Department Store MF005 Apts. – Dormitory SC010 Discount Store MF006 Apts. – Efficiencies SC015 Lifestyle Center MF007 Apts. – Frat House SC020 Neighborhood Center MF010 Apts. – Senior SC025 Outlet Center MF015 Apts. – Subsidized SC030 Power Center MF016 Apartments w/ Retail SC035 Regional Mall MF020 Mobile Home Park SC040 Specialty / Entertainment MF025 Plex (2 – 7 units) SC045 Strip Center Office SC050 Super Regional Mall OF001 Condo SC055 Town Center OF002 Converted House Sports & Entertainment OF005 Corporate Campus SE001 Amusement Park OF010 Medical SE005 Baseball Field OF015 Multi-Tenant SE010 Bowling Alley OF020 Single Tenant SE015 Casino Flex SE020 Golf Course FL001 Flex Distribution SE025 Golf Driving Range FL005 Flex Manufacturing SE030 Health Club FL020 Flex Warehouse SE035 Horse Stables FL025 U.S. Post Office SE036 Indoor Sports Facility Warehouse / Industrial SE040 Movie Theater WH001 Airplane Hangar SE045 Race Track WH005 Auto Salvage Facility CODE DESCRIPTION CODE DESCRIPTION WH010 Cement Plant SE050 Skating Rink WH015 Distribution SE055 Swimming Pool WH020 Food Processing SE060 Theater / Concert Hall WH025 Industrial Manufacturing Hospitality WH030 Railway Yard HS001 Hotel - LS WH035 Refrigeration HS002 Hotel - Budget WH040 Self Storage HS005 Hotel Casino WH045 Service HS010 Motel WH050 Truck Terminal HS015 Motel – Suites WH055 Utility Sub Station HS020 Hotel Convention WH060 Warehouse HS025 Hotel Resort General Retail HS030 Hotel Casino RE001 Auto Dealership Health Care RE005 Auto Repair HC001 Assisted Living 50 RE006 Auto Oil & Lube Center HC005 Clinic RE010 Bank HC010 Cont. Care Retirement Community RE015 Bar HC015 Hospital RE020 Car Wash HC020 Independent Living RE025 Convenience Store HC025 Rehabilitation Center RE030 Day Care Center HC030 Skilled Nursing Facility RE035 Drug Store HC035 Surgery Center - Outpatient RE040 Fast Food Specialty RE045 Funeral Home SP001 Cemetery / Mausoleum RE050 Garden Center SP005 Lodge / Meeting Hall RE055 General Freestanding SP010 Marina RE060 Parking Garage SP015 Movie / Radio / TV Studio RE065 Parking Lot SP030 Private School RE070 Restaurant RE075 Service Station RE080 Storefront Retail / Office RE085 Storefront – Historic Downtown RE090 Supermarket RE095 Truck Stop RE100 Veterinarian / Kennel C. Highest and Best Use Analysis The highest and best use of property is the reasonable and probable use that supports the highest present value as of the date of the appraisal. The highest and best use must be physically possible, legal, financially feasible, and maximally productive. For improved properties, highest and best use is evaluated as improved and as if the site were still vacant. This assists in determining if the existing improvements have a transitional use, interim use, non-conforming use, multiple uses, speculative use, excess land, or a different optimum use if the site were vacant. Improved properties reflect a wide variety of highest and best uses that include, but are not limited to: office, retail, multi-family, warehouse, light industrial, special purpose, or interim uses. In many instances, the property’s current use is the same as its highest and best use. This analysis insures that an accurate estimate of market value is derived. 2.04 Data Collection/Validation A. Data Collection Manuals Field data collection requires organization, planning, and supervision of the field staff. Data collection procedures have been established for land, residential, commercial, and personal property. The “Appraisal” (cost) manual and “Property Tax Appraisal and Data Collection” (procedure) manual is published and distributed to all appraisers involved in the appraisal and valuation of commercial properties. Field appraisers use these manuals during their initial training and as a guide in the field inspection of properties. Both manuals are reviewed and revised on an annual basis to meet the changing requirements of field data collection. 51 B. Sources of Data The district’s property characteristic data was originally obtained from the ISD’s, Denton County Tax Office as well as the surrounding cities. And where absent, collected through a massive field data collection effort coordinated by the district over a period of time. On an annual basis, building permits and blueprints (obtained from taxing jurisdictions) are a principal source of data. New commercial starts, remodeling, additions and other permit-required improvements are also discovered through field inspection, which frequently results in the discovery of new construction not found through the permit process. Tax assessors, city and local newspapers, internet sources (such as CoStar, Axiometrics, and local websites), and the public often provide information to the district regarding new construction, market patterns, and other useful facts related to property valuation. Renditions (reports filed by the property owner) describe the property, list any improvements, identify its location, and sometimes provide an estimate of value. Aerial photographs are also sometimes used to find hard to locate improvements. C. Data Collection Procedures The appraisal support staff processes and enters building permit data into the PACS Appraisal System. When building blueprints are attached to the permit, the appraisal support staff enters the building dimensions and characteristic data into PACS. The field appraiser is responsible for the collection of information used in the appraisal of property. The physical characteristics of a property currently shown on the record will be provided to the appraiser at the time of inspection in the form of a PACS appraisal card. Care must be taken to ensure the accuracy of this information. Although DCAD will provide all available information regarding cost, market, and income, the appraiser must take every opportunity to discover this information while inspecting the property. Upon completion of the field inspection, the updated information on the appraisal cards is entered into PACS by the appraisal support staff. The appraisers are required to check the data entry on each property to ensure that the new information was entered correctly. The information collected by the appraiser and entered into the PACS appraisal system serves as the basis for the valuation of real property. In addition to field inspections, DCAD utilizes the Pictometry Sketch Verification program, which is a computer program that compares the PACS building sketch to the most recent aerial photograph of the building. Appraiser’s field inspects any discrepancies and makes corrections as necessary. The DCAD boundaries are divided into geographic areas with each appraiser assigned an area for which they are responsible for data collection. The commercial department conducts periodic meetings where each appraiser gives a verbal report of their work progress. Additionally, each appraiser’s work is reviewed by the appraisal supervisor before it is given to appraisal support for data entry. These procedures are an important tool in analyzing future departmental staffing needs, as well as showing each individual appraiser’s progress and error rate. While production standards are established and upheld for the various field activities, quality of data is emphasized as the goal and responsibility of each appraiser. New appraisers are trained in the specifics of data collection set forth in the appraisal manual as procedures to follow. Experienced appraisers are routinely brought up to date on changes in procedures prior to major field projects such as new construction, sales validation or data review. The commercial department manager routinely reviews the work being performed by all the field appraisers. The 52 department manager is also charged with the responsibility of ensuring that appraisers follow listing procedures, identify training issues and provide uniform training throughout the appraisal staff. 2.05 Class System A class system for commercial properties has been developed to help ensure appraisal uniformity. The commercial class system currently consists of 106 classes. These classes are based on occupancy and are grouped together in clusters of like occupancy. Within each occupancy group, classes are based on levels of quality, such as excellent, good, average, and low cost. When classing a particular property, the appraiser will choose an occupancy for which the building was originally designed. If the current occupancy is different from that for which the building was originally designed, the appraiser must take care in measuring any functional obsolescence experienced by the structure. The different classes will reference the computer to cost tables developed from the Core Logic Valuation Service, which is an appraisal guide for developing replacement costs for a wide range of construction classes and types of occupancies. Core Logic Valuation Service software utilizes the comparative unit method to derive a cost per unit for the structure being appraised. Typical building specifications are developed for each occupancy group, which are used to determine the base cost of benchmark structures. Once the benchmark base costs are in place, construction costs for each occupancy class at various size increments are developed. Adjustments for variations from base cost specifications are also developed for each class. And finally, local modifiers are used to make the cost data applicable to Denton County. The DCAD also collects actual cost data from local developers and property owners. Whenever possible, actual costs are compared to Marshall Valuation Service costs. If there are inconsistencies between the two costs, adjustments will be made to the appropriate DCAD classes. Actual local costs are given more weight than Core Logic Valuation costs in these circumstances. If, in the appraiser’s judgment, the cost tables do not fit the property being appraised, but that property does fit into a class, the appraiser should class the property by its occupancy. The computer system will allow the appraiser to override the tables and enter the cost value he deems correct. All commercial class costs are updated annually, based on data that is published closest to January 1. Classes cannot be established for every commercial property within Denton County. A small percentage of the properties will require special pricing by the appraiser. This can be accomplished either by use of the Core Logic Valuation Service or flat pricing. Each of these two methods requires that the appraiser utilize his or her best judgment on items that are too infrequent or unusual to fit efficiently into the present class system. A listing and description of all commercial classes is given in the cost approach section of this manual. 53 2.06 Valuation and Statistical Analysis (model calibration) A. Land Valuation The commercial department is responsible for appraising commercially zoned land inside city limits and non-subdivided rural land outside city limits within district boundaries. Land and improvements are valued separately so that the trends and factors affecting each can be studied. The first step in land valuation is market analysis, which consists of sales stratification, determination of units of comparison, and data analysis. Stratification is accomplished by grouping sales into homogeneous geographic areas (school district, city, etc.) where there are similar market influences, variations in zoning, and probable uses. These grouping criteria will ensure that land values will reflect market data for parcels with similar or competitive uses in the same area. Land is analyzed and valued according to common units of comparison. The units chosen conform to the basis upon which land is sold in the market. Commercially zoned land is valued by the square foot, while rural land is valued by the acre. Once the sales have been grouped into geographic areas, the appraiser then produces GIS maps showing the sale price, sale price per unit, sale date, and property ID number. The sold parcels as well as the commercial and rural parcels to be valued are color coded for easy identification. Once the sales have been plotted on a map, the appraiser can more easily determine patterns and trends in land values. The primary method of rural and commercial land valuation is the comparative unit method. The appraiser determines the average or typical per unit value for each stratum of land by carefully considering the available data on the sales maps and making an informed judgment. When there are insufficient sales within strata but sales prices per unit are similar between adjoining strata, the appraiser can combine strata in order to develop per unit values. Once comparative unit values have been determined for an area, those values must then be refined by applying site adjustments at the individual parcel level. Site characteristics often requiring adjustment include topography, traffic flow, limited access, flooding susceptibility, drainage, and irregular shape. Site adjustments are applied only to those parcels in the neighborhood or stratum that are affected. The adjustments are made as a percentage adjustment to the market value (ex: $50,000 x .85 = $42,500). The appraisers use their informed judgment to determine the adjustment percentage. When there are too few land sales to conduct the sales comparison approach, the appraiser should employ either the abstraction or allocation method. In the abstraction method, improvement values obtained from the cost model are subtracted from the sale price of the improved parcel to yield the land value estimate. The reliability of this method depends on the accuracy of the improvement values used in the analysis. The use of this method should be limited to parcels with relatively new buildings, so that the replacement cost and depreciation are more easily estimated. The allocation method is also known as the land ratio method. When there are insufficient vacant land sales in a given market area, the appraiser looks at comparable areas with sufficient land sales, determines the typical ratio of land value to total value, and then applies the ratio to parcels in the subject area. This method is particularly useful in older neighborhoods that are almost totally built out and therefore have very few, if any vacant land sales. 54 Appraisers are expected to review land values in their assigned areas on an annual basis in order to keep pace with market conditions. B. Cost Approach The cost approach to estimating value is the most widely applicable approach used for commercial properties because it can be applied to all improved properties. However, the appraiser must always be conscious of the difference between cost and value. Because of this difference, the appraiser must exercise judgment when measuring applicable depreciation. For the cost approach, a class system based on occupancy and quality has been programmed into the computer. The cost figures for each class were taken from the Core Logic Valuation manual, with modifications to reflect the Denton County market. A description of each class, and the quality levels in which that class can be found, is included at the end of this section. All DCAD commercial cost schedules are evaluated and updated on an annual basis by the department manager. The uniqueness of some properties will necessitate use of the unit-in-place or segregated cost method. The appraiser will manually make the calculations using the Core Logic Valuation Manual and enter the figures directly into the computer. If the appraiser can get actual costs on new construction, he can use those costs in the cost approach. Care must be taken to ensure that any costs provided represent actual total costs. Cost can be defined as the total expenditure necessary to construct an improvement and place it in the hands of the consumer. The appraiser may use actual new construction costs, as long as those figures represent actual total costs. In other words, the appraiser must make sure all indirect costs, as well as direct costs, are included. This will require a detailed breakdown of the submitted cost information. Summarized costs provided by tax consultants or taxpayers should be avoided unless substantial support for those figures can be provided. The costs included in the Core Logic Valuation Manual are the actual costs to the owner and include direct costs (materials, equipment rentals, utilities, labor, and supervision), as well as indirect costs (plans and plan check, site preparation, architectural and engineering fees, building permits, title and legal fees, and interest and fees on construction loans). Indirect costs also include the contractor’s profit and overhead, which includes fire, liability and unemployment insurance, and workmen’s compensation. When classing a building, the appraiser must first ascertain the quality of the building because the majority of DCAD classes are based on a single level of quality. The quality levels used in the DCAD class system are excellent, good, average, and low cost. Construction quality can be difficult to determine in buildings where the importance of appearance and amenities is equal to or greater than the importance of pure utility. It is usually true that a well-framed building is a well-finished building. And it is also true that if a builder cuts corners on framing, he will probably also cut corners on finish-out and mechanical equipment. If an appraiser is having difficulty in determining the quality level of a building, he should refer to the DCAD and/or Core Logic Valuation Manual for guidance. The final step in the cost approach is to establish the level of depreciation experienced by the improvement. Depreciation occurs in three forms: physical, functional, and economic. Physical deterioration is the loss in value due to the wear and tear of the property. The DCAD utilizes the Core Logic Valuation Service commercial depreciation tables to measure physical deterioration. These 55 tables are a modified version of the overall Age-Life method. Whereas the Age-Life method assumes that a building depreciates by a constant percentage over its economic life, the Core Logic Valuation tables recognize that a building is in the prime of life up until mid-life. This non-linear approach accounts for a slower depreciation rate in the early years as compared to the later years when diminishing serviceability and higher maintenance can accelerate depreciation. DCAD depreciation tables are divided into five year increments from twenty year life to seventy year life. The particular table that is used is determined by the type of construction and usage of the building. As part of the physical depreciation analysis, the appraiser should consider the “effective age” of the building. The effective age of a building is its actual age, less the age which has been taken off by structural face-lifting or reconstruction, removal of functional inadequacies, updating of equipment, etc. Functional obsolescence is the overall usefulness and desirability of a property. Functional obsolescence is the loss of value in a property improvement due to changes in style, taste, technology, needs, and demands. It exists where property suffers from poor or inappropriate architecture, poor floor plans, room sizes, etc. In these instances, buyers perceive a loss in utility, therefore, the price offered is lower due to reduced demand. Economic obsolescence (or external obsolescence) is the loss in value caused by outside forces such as in the highest and best use of a property due to market shifts or governmental actions, restrictions on income, zoning, neighborhood decline, etc. This can influence both land and improvements. Field inspection is required for the analysis and measurement of all forms of accrued depreciation. The appraiser should consider all conditions that diminish utility and estimate their combined effect on market value. Physical depreciation, functional and economic obsolescence, and effective age are also influenced by competition and market conditions. The appraiser, therefore, should also analyze the income and sales of comparable properties when deciding on a measurement of accrued depreciation. All forms of depreciation are expressed as a percent good. Once the estimated depreciated improvement value is determined, it is then added to the land value resulting in an estimated total property value. The cost approach is used as a comparison to the market schedules. V = LV + (RCN – D) (Value = Land Value + (Replacement Cost New – Depreciation) 56 COMMERCIAL IMPROVEMENT CLASS DESCRIPTIONS CLASS 120-140 Apartments (Low Rise) are multi-family residences from one to three stories. Costs include common areas such as hallways, laundry areas, etc. Each unit will have a kitchen and at least one bathroom. Generally, the units are intended for rental purposes, but may be sold individually as condominiums. Good quality apartments will have plaster, paneling, good detailing in molding and trim, and high cost floor finishes. The structures are commonly solid masonry (Class C) or wood frame (Class D) construction. CLASS 120 – Low Cost CLASS 130 – Average Quality CLASS 140 – Good Quality CLASS 141 Apartments (High Rise) are multi-family residences with three or more stories of multiple dwelling units. The structures can be built of all construction classes. The structures include a lobby area, interior hall access to dwelling units and some type of stairway for fire exit. Costs include appliances, fireplaces, balconies, and elevators. This class has three quality levels of average, good, and best. CLASS 141 – Average, Good, or Best CLASS 142 Apartments & Retail (Mixed) are generally two to three story structures with retail use on the first level and one or more residential units on the upper levels. The structures are commonly solid masonry (Class C) or wood frame (Class D) construction. Costs include fireplaces, balconies, porches, appliances and elevators. This class has three quality levels of low, average, and good. CLASS 142 – Low, Average, or Good 57 CLASS 150-170 Motels are multiple sleeping units from one to three stories, with or without individual kitchen facilities, and designed for transient occupancy. The structures are commonly solid masonry (Class C) or wood frame (Class D). Interiors are of plaster or drywall with wall coverings. Paneling and wallpaper are included in the better qualities in the common areas and sleeping rooms. Price large restaurants and lounges separately. If, however, the amount of office, lobby, coffee shop and meeting rooms is proportionate with the number of rooms and overall quality, then these features will be included in the cost. CLASS 150 – Low Cost CLASS 160 – Average Quality CLASS 170 – Good Quality CLASS 180-190 Hotels are multiple sleeping units and lobby of three or more stories, without individual kitchen facilities. The costs include lounges, restaurants, ballrooms and meeting rooms commensurate with the number of rooms and overall quality of the hotel. Better quality hotels have a large amount of high-cost wall cover and floor finish in the open and public areas. CLASS 180 – Low cost CLASS 190 – Average Quality CLASS 191 – Good Quality CLASS 200-210 Department Stores are one or more stories, typically found in large cities and regional shopping centers, which handle multiple lines of merchandise, for which they are subdivided into departments. Costs include suitable office and employee areas, and restroom facilities. CLASS 200 – Average Quality CLASS 210 – Good Quality 58 CLASS 220-240 Retail Stores are one or two story buildings designed for retail sales and display, and usually have display and/or decorative fronts. Included in this occupancy are stores occupied by secondary department stores with limited merchandise lines, specialty shop and commercial buildings designed for general occupancy. CLASS 220 – Low Cost CLASS 230 – Average Quality CLASS 240 – Good Quality CLASS 250-270 Supermarkets are large retail food stores, which handle limited lines of other merchandise. The cost includes built-in refrigerators, cold rooms, and ancillary cooling equipment, which are usually classed as real estate, but do not include display freezers and coolers or other equipment generally classed as personal property or trade fixtures. CLASS 250 – Low Cost CLASS 260 – Average Quality CLASS 270 – Good Quality CLASS 280-300 Discount Stores are of warehouse construction with minimal interior partitioning. Low cost structures are unfinished shell types with minimum code throughout. Better qualities have partitioned offices and storage areas. NOTE: The highest quality discount stores should be classed as average quality department stores. CLASS 280 – Cheap Cost CLASS 290 – Low Cost CLASS 300 – Average Quality 59 CLASS 310-332 Shopping Centers are multi-tenant buildings designed for retail sales. Shopping centers provide neighborhood and community services such as food, drugs, hardware, clothing and personal services needed for daily living. These structures may or may not have an anchor. CLASS 310 – Low Cost CLASS 320 – Average Quality CLASS 330 – Good Quality CLASS 331 – Excellent Quality CLASS 332 – Best Quality CLASS 340-360 Fast Food Restaurants have a limited dining area in relation to the preparation area. These structures range in size from 1,300 to 4,200 square feet, and the seating area is normally less than 45% of the total area. CLASS 340 – Low Cost CLASS 350 – Average Quality CLASS 360 – Good Quality CLASS 370-390 Restaurants are designed for the preparation and sale of food and beverages. These buildings have a full service commercial kitchen and varied seating capacities. Average quality includes neighborhood restaurants or coffee shops or a lower priced franchise operation. Good quality includes the typical chain operation and neighborhood restaurants catering to regional trade. CLASS 370 – Low Cost CLASS 380 – Average Quality CLASS 390 – Good Quality 60 CLASS 397-399 Day Care Centers CLASS 397 – Low Cost CLASS 398 – Average Quality CLASS 399 – Good Quality CLASS 400-432 Office Buildings are designed for commercial occupancy and are normally subdivided as multi-tenant structures. If part of an office building has some other occupant, such as a bank or retail store on the first floor, that portion should be classed according to its occupancy. CLASS 400 – Low Cost CLASS 410 – Above Low Cost CLASS 420 – Average Quality CLASS 430 – Good Quality CLASS 431 – Very Good Quality CLASS 432 – Excellent Quality CLASS 440-460 Banks are financial structures that include savings and loan and credit union occupancies where the design is of a bank type. Cost includes vaults, drive up windows, night depositories, and surveillance systems. Costs do not include banking equipment, vault doors, or safety deposit boxes. CLASS 440 – Low Cost CLASS 450 – Average Quality CLASS 460 – Good Quality 61 CLASS 470-480 Nursing Homes (Convalescent Hospitals) are buildings of hospital type construction that give nursing care. They are designed for bed care and/or hotel and nursing care for ambulatory patients. They have treatment and therapy rooms, service and administration areas, nurses’ stations and signaling systems commensurate with quality. These facilities do not have equipment for surgical care and treatment. CLASS 470 – Low Cost CLASS 480 – Average Quality CLASS 490-500 Hospitals are complete health care facilities that typically include a number of different health services within one building or groups of buildings. These buildings have a large number of partitions with additional electrical, mechanical, and plumbing needs for this occupancy group. Lower quality hospitals have a large ward area while higher quality hospitals have a large amount of private rooms. Costs include fixed equipment, but not equipment classified as personal property. CLASS 490 – Low to Average Quality CLASS 500 – Average to Good Quality CLASS 510-530 Clinic / Medical Office / Veterinary Clinic buildings are designed for medical or dental services with examination and outpatient treatment. The cost reflects the additional electrical, mechanical and plumbing required by this occupancy. These costs are also used for veterinary hospitals, which are buildings designed for the medical and surgical care and treatment of animals. CLASS 510 – Low Cost CLASS 520 – Average Quality CLASS 530 – Good Quality 62 CLASS 540-560 Service Stations (old style) are designed for the sale of gas and service of automobiles. The cost includes office, service, storage, sales and restroom areas. The cost does not include equipment that is considered personal property. CLASS 540 – Low Cost CLASS 550 – Average Quality CLASS 560 Service Station Food Booth CLASS 560 – Low, Average, and Good Quality CLASS 570-590 Automotive Centers are designed for both sales and service with display rooms, office, storage and repair commensurate with the quality. The better qualities are a combination retail store and garage. CLASS 570 – Low Cost CLASS 580 – Average Quality CLASS 590 – Good Quality CLASS 595 Mini-Lube Garages are designed for quick maintenance lube and oil changes and may have drive-thru bays. The quality levels are low, average, and good. CLASS 600-611 Automotive Sales and Service buildings contain showroom, office, storage and repair space. The sales and office space are priced separately from the service area. CLASS 600 & 601– Low to Average Quality CLASS 610 & 611 – Average to Good Quality 63 CLASS 700-710 Shopping Malls are regional shopping centers comprised of major department store anchors, center strip stores and enclosed mall concourses. CLASS 700 – Average Quality CLASS 710 – Good Quality CLASS 800-840 Industrial Buildings include those structures designed for manufacturing processes. They have the same structural shell as warehouses, but with better lighting, plumbing, and an enlarged office space. Each class differs only in structure and exterior features. Each class also has three quality levels of average, good, and excellent. CLASS 800 – Class A (Fireproof Structural Steel Frame) CLASS 810 – Class B (Reinforced Concrete Frame) CLASS 820 – Class C (Masonry Bearing Walls, including Tilt-Up) CLASS 830 – Class D or S (Wood or Steel Frame) CLASS 840 – Class P (Wood “Pole” Frame) CLASS 900-920 Warehouses are structures designed for both storage and distribution, and include an amount of office space commensurate with the quality of the building (typically 3% to 12%). If, however, the office area is substantial in size or quality, it may be necessary to price the office area as office and the warehouse area as warehouse. Each class differs only in structure and exterior features. Each class also has three quality levels of average, good, and excellent. CLASS 900 – Class A & B (Fireproof Structural Steel Frame and Reinforced Concrete Frame) CLASS 910 – Class C (Masonry Bearing Walls, including Tilt-Up) CLASS 920 – Class D or S (Wood or Steel Frame) 64 CLASS 930 Low Cost Storage Warehouses are structures with a light steel frame (Class D “pole”), no insulation, and typically no office space. The quality levels are low, average, good, and excellent. The low price is used only for warehouse space, while the other quality levels are used to price only office space. CLASS 940 Low Cost Storage Warehouses are structures with a light steel frame (Class D “pole”), insulation, and typically no office space. The quality levels are low, average, good, and excellent. The low price is used only for warehouse space, while the other quality levels are used to price only office space. CLASS 950-970 Mini-Warehouses are warehouses subdivided into cubicles of generally small size. They are primarily designed to be rented for non-commercial storage, and may include some office/living space. Each class differs only in structure and exterior features. CLASS 950 – Class S or P (Metal Frame and Walls) CLASS 960 – Class C & D (Wood or Steel Frame) CLASS 970 – Class B & C (Masonry Bearing Walls, including Tilt-Up) CLASS 1000 & 1001 Self Service Car Wash. Class 1000 is a coin operated self-service care wash. Class 1001 is the equipment room. Equipment that is considered personal property is included in the building cost. The quality levels are low cost, average and good. Use low cost prices for metal wall construction, and average and good prices for masonry wall construction. CLASS 1002 Drive-Thru Car Wash. Equipment that is considered personal property is not included in the building cost. The quality levels are average and good. Use average price for masonry or steel construction, and good price for porcelainized steel construction. 65 CLASS 1003 Automatic Car Wash. Full service car wash buildings include finished office area, locker and restrooms and basic equipment room. Equipment that is considered personal property is not included in the building cost. The quality levels are average and good. Use average price for masonry or steel construction, and good price for porcelainized steel construction. CLASS 1010 Airplane hangar. Low cost hangar used only for airplane storage. There are minimal electrical and plumbing fixtures. CLASS 1020 T-Hangars are multiple hangars for small planes. Many include partitioned areas for individual planes. Interiors have concrete slab floors with very few extras. They have minimum electrical, occasionally plumbing, and commonly do not have heating or cooling. CLASS 1030 Airplane Hangar. Average quality hangar used for storage and repair maintenance of small aircraft. These hangars have some office area, storage area, and restroom and plumbing facilities for small crews of maintenance personnel. CLASS 1031 Airplane Hangar. Good quality hangar used for storage and repair maintenance of small aircraft. These hangars have some office area, storage area, and restroom and plumbing facilities for small crews of maintenance personnel. CLASS 1040-1060 Commercial Greenhouses are designed for the growth of plants. Each class differs in structure and exterior features. CLASS 1040 – Steel Frame and Glass CLASS 1050 – Steel or Wood Frame and Fiberglass CLASS 1060 – Wood Frame and Poly-cover 66 CLASS 1070 Residential Greenhouse CLASS 1070 – Wood or Aluminum Frame CLASS 1100-1110 Theaters are designed primarily for stage or screen presentations and include a stage commensurate with the type and quality of construction. Scenery, curtains, and seating are not included in the costs. CLASS 1100 – Low Cost CLASS 1110 – Average Quality CLASS 1200 Telephone Exchange Building. CLASS 1210 Communications Equipment Building. CLASS 1300-1320 Funeral Homes are buildings with facilities for the preparation of the dead for burial or cremation, for viewing of the body and for funerals. CLASS 1300 – Low Cost CLASS 1310 – Average Quality CLASS 1320 – Good Quality 67 CLASS 1400-1420 Bowling Alley and Roller Skating Rink buildings generally include a snack bar, billiard and miscellaneous rooms with necessary plumbing and electrical connections. These buildings do not include any equipment or fixtures such as alleys, ball returns, hardwood floor (skating rink) kitchen and bar equipment or other trade fixtures that are considered personal property. CLASS 1400 – Low Cost CLASS 1410 – Average Quality CLASS 1420 – Good Quality CLASS 1500 - 1501 Parking Garages are structures with no exterior walls (or with partial walls) designed for above grade storage of automobiles. The quality levels are average and good. CLASS 1600- 1630 Barns CLASS 1600 – Wood frame and dirt floor. CLASS 1610 – Wood frame and concrete floor. CLASS 1620 – Steel Frame and dirt floor. CLASS 1630 – Steel Frame and concrete floor. CLASS 1640 Kiosks are small retail booths that range anywhere from 25 to 200 square feet. They have minimum electrical and plumbing fixtures. CLASS 1650 – 1670 Outbuilding/ Storage CLASS 1650 – Low Cost CLASS 1660 – Average Quality CLASS 1670 – Good Quality 68 CLASS 1680 Stables CLASS 1680 – Average, Good, Best, and Excellent Quality CLASS 1690 Marina Boathouses and Slips are small to medium berths of light construction on lakefronts. Ramps, anchor piers, lockers, and floatation drums are included in the cost. Utilities are additives. Quality levels are low for open slips, and good for fully enclosed boathouses. CLASS 1700 Grain Elevators CLASS 1710 Water Tanks CLASS 1720 Pipe Rail Fence CLASS 1730 Pipe & Cable Fence CLASS 1740-1740B Tennis Courts. There are three pricing levels for tennis courts based on amenities. CLASS 1740 – Includes fence and lighting CLASS 1740A – Includes fence CLASS 1740B – Court only 69 CLASS 1750 Residential Swimming Pool CLASS 1750 – Basic, Average, Good, Excellent, Superior Quality CLASS 1760 Wood Deck CLASS 1770 Circular Training or Walking Arenas CLASS 1770 – Low, Average, and Good Quality CLASS COM Commercial Swimming Pools are large recreational pools found in hotels, apartments, etc. Costs are for gunite pools and include chlorinators, filters, heaters, boards, ladders and coping. CLASS 1780 Condominiums are now classed as apartments. See classes 120-140. CLASS 1790-1810 Country Clubs are specialized clubhouses designed mainly for entertainment and have few, if any sleeping rooms. Generally, the better clubs will have a ballroom, bar, banquet and pro shop facilities, as well as locker and shower rooms. These classes are meant to price only the main clubhouse. Outbuildings, pools, tennis courts and golf holes are priced separately. CLASS 1790 – Low Cost CLASS 1800 – Average Quality CLASS 1810 – Good Quality 70 CLASS 1900 Golf Course. Low cost, simply developed budget course on open, flat terrain, few bunkers, small tees and greens. CLASS 1910 Golf Course. Average quality, simply designed course on relatively flat terrain, natural rough, few bunkers, small built-up tees and greens, as well as some small trees. CLASS 1920 Golf Course. Good quality course, undulating terrain, bunkers at most greens, some large trees and driving range. CLASS 1930 Golf Course. Excellent quality, championship course on good undulating terrain, fairway and greens bunkered and contoured, large tees and greens, driving range, and name architect. CLASS 1940 Golf Course. Better championship-type course on good undulating terrain, fairway and greens bunkered and contoured, large tees and greens, large trees transplanted, driving range, may have name architect. CLASS 2000 Mobile Home Park Spaces are developed for permanent occupancy and are representative of low end parks. The spaces can accommodate homes up to 80 feet long and 28 feet wide. Each space will have utilities, but recreational facilities such as pool and clubhouse are rarely provided. CLASS 2010 Mobile Home Park Spaces are developed for permanent occupancy and are representative of average parks. The spaces can accommodate homes up to 80 feet long and 28 feet wide, and all utilities are available. This class of park usually has a clubhouse and pool, as well as good streets, patios, walks, and some landscaping. 71 CLASS 2100 Ornamental Entry Way CLASS 2100 – Average, Good, Best Quality C. Income Approach The income approach to value is applied to those real properties which are typically viewed by market participants as “income producing,” and for which the income methodology is considered a leading value indicator. The DCAD computerized program utilizes the direct capitalization method. The first step in the income approach is to estimate the potential gross rent (PGR) for the property. Potential gross rent is the rent that would be collected if the property were fully occupied at market rent. PGR = UNIT RENT x # UNITS PGR can be derived from a variety of sources ranging from local market study publications, to actual rent data furnished by property owners. The computer program allows for three different methods of establishing PGR. Most commercial properties lease based on a lease rate per square foot, in which case the appraiser inputs the net or gross leasable area and the monthly or annual square foot lease rate. The computer then calculates the potential gross rent. For those properties that lease by the unit, such as apartments, the appraiser may input the number of units and the annual lease rate for one unit. The computer then calculates the PGR. The appraiser can also manually calculate the PGR by entering a dollar amount in the computer. A vacancy and collection loss allowance is the next item to consider in the income approach. Vacancy and collection loss is an allowance for reductions in potential income attributable to vacancies, tenant turnover, and nonpayment of rent. The allowance is estimated as a percentage of potential gross income, which varies depending on the type and characteristics of the physical property, and general and local economic conditions. V&C LOSS = PGR x % V&C LOSS The projected allowance is established based on local market study publications, and actual data collected from property owners. This allowance accounts for periodic fluctuations in occupancy, both above and below an estimated stabilized level. The appraiser enters a vacancy and collection loss percentage that is typical within the market for the property being appraised. Once the percentage is entered, the computer will calculate the dollar amount. The market derived stabilized allowance is then subtracted from the potential gross income. Miscellaneous property income (which is not subject to v/c loss) such as parking, vending machines, and laundry are then added to arrive at an effective gross income. EGI = (PGR – V&C LOSS) + MISC. INCOME Allowable expenses and expense ratio estimates are based on a study of the local market, with the assumption of prudent management. Categories of allowable operating expenses include insurance; administrative costs for the property such as legal, accounting, advertising, and management fees; repair 72 and maintenance such as extermination, janitor’s salaries, trash collection, hardware, and supplies; utilities such as fuel, water, and electricity; and property taxes. Different expense ratios are developed for different types of commercial property based on use. For instance, retail properties are most frequently leased on a triple-net basis, whereby the tenant is responsible for his pro-rata share of taxes, insurance and common area maintenance. In comparison, multi-family properties may have the tenants paying utilities, while the owner pays the remainder of the expenses. As a result, expense ratios must be implemented based on the type of commercial property being appraised. Another form of allowable expenses are the replacement of short-lived items (such as roof or floor coverings, air conditioning or major mechanical equipment or appliances) requiring expenditures of large lump sums. When these capital expenditures are analyzed for consistency and adjusted, they may be applied on an annualized basis as stabilized expenses. When performed according to local market practices by commercial property type, these annualized expenses are known as replacement reserves. The appraiser must carefully analyze the owner’s operating statement to make sure all the expenses are allowable and at market rates. Expenses are entered in the computer as a dollar amount. Subtracting the allowable expenses (inclusive of replacement reserves) from the effective gross income results in an estimate of net operating income (NOI). NOI = EGI – OPERATING EXPENSES Capitalization rates are used to convert net operating income into an estimate of market value. These rates vary between property types, as well as by location, quality, condition, design, age, and other factors. Overall capitalization rates (for the direct capitalization method) can be derived from the market. Sales of improved properties from which actual income and expense data are obtained provide a very good indication of what a specific market participant is requiring from an investment at a specific point in time. We also rely on Henry S. Miller,“Real Estate Investment Trends,” Real Estate Research Corp., Integra Realty Resources, and Korpacz Inc., for capitalization rate information for the different types of commercial properties. Additionally, we survey local fee appraisers regarding typical capitalization rates by property type. Rent loss concessions are sometimes made to specific properties with vacancy problems. A rent loss concession accounts for the impact of lost rental income as the building is moving toward stabilized occupancy. The rent loss is calculated by multiplying the rental rate by the percent difference of the property’s stabilized occupancy and its actual occupancy. Build out allowances (for first generation space or renewal/second generation space) and leasing expenses are added to the rent loss estimate. The total adjusted loss from these real property operations is discounted using an acceptable risk rate. The discounted value (inclusive of rent loss due to extraordinary vacancy, build out allowances and leasing commissions) becomes the rent loss concession and is deducted from the value indication of the property at stabilized occupancy. D. Market Approach The market approach to value has a more limited application to commercial properties than to single family residences because they sell much less frequently and are generally unique unto themselves. For this reason, prior sales of unique commercial properties may be used as a yardstick for that specific property but should not be used as comparable for other properties. When commercial properties are very 73 similar and compete within the same market parameters, however, the market approach may well provide the most reliable indication of value. All commercially zoned and rural land valuation tables and unit prices are derived from comparable sales. Sales prices are expressed as price per unit, either by square foot or acre – depending on how the land is analyzed or sold in the market. Once sales have been gathered, the appraiser determines the average or typical per unit value for a particular stratum of land. The average value is found by calculating the median or mean sale price per unit. After establishing land unit values, the appraiser can determine individual parcel values by applying any necessary site adjustments. Site adjustments recognize the characteristics of individual parcels, such as size, shape, topography, and location (corner influence, limited access, etc.). When using the market approach, the appraiser should take care to assure that the sales price is the total consideration given for the property. This is a formidable task since commercial properties are normally traded in a market from which it is difficult for the appraiser to extract information. For example, many sales can include significant amounts of personal property. If these sales are used in ratio studies, the value of the personal property must be estimated and subtracted from the sale price in order to determine the purchase price for the real property alone. Personal property consists of inventories (raw materials, finished goods, supplies, etc.), fixed assets (machinery, equipment, furniture and fixtures, etc.), and intangibles (bonds, mortgages, insurance policies, cash, stocks, goodwill or business value, etc.). Appraisers should scrutinize each sale for items of personal property, estimate their market value, and deduct it from the total purchase price. Whenever data on personal property is unavailable, the appraiser should attempt to estimate a percentage of the sale that is attributable to personal property. This can be achieved by reviewing a sample of sales, by property type, and determining the percentage of the purchase price commonly attributable to personal property. If the personal property component of a sale cannot be estimated, the sale can be excluded from ratio studies. The appraiser should gather as many details as possible on any sales he may collect to allow that information to be used in the future as comparable sales. Pertinent data from actual sales of properties, both vacant and improved, is pursued throughout the year in order to obtain relevant information that can be used in all aspects of valuation. For example, sales of similarly improved properties can provide a basis for capitalization rates used in the income approach. Improved sales are also used in ratio studies, which afford the appraiser an excellent means of judging the present level and uniformity of appraised values. E. Sales Information All sales information collected is the responsibility of the Sales and Research Department. Commercial improved sales are collected from a variety of sources including, but not limited to, district questionnaires sent to buyer and seller, field discovery, protest hearings, Roddy Report, Costar Group, Loopnet, builders, real estate professionals, and fee appraisers. A system of type, source, and validity codes was established to define salient facts related to a property’s purchase or transfer. Neighborhood and ISD sales reports are generated as a tool for the appraiser in the development of value estimates. Sales information is stored in the mainframe database and on excel spreadsheets. 74 F. Statistical Analysis The appraisers in the Commercial Department perform an annual statistical analysis to evaluate whether values are equitable and consistent with the market. Ratio studies are conducted on each neighborhood and ISD to judge the two primary aspects of mass appraisal accuracy: level, and uniformity of value. Appraisal statistics of central tendency and dispersion generated from sales ratios are available for each property type being studied. These summary statistics including, but not limited to, the median, the mean, the weighted mean, standard deviation, coefficient of dispersion (COD), and coefficient of variation (COV), provide the appraiser a tool by which to determine both the level and uniformity of appraised value of a particular property type. The level of appraised value can be determined by the weighted mean for individual properties within a within a specific type, and a comparison of weighted means can reflect the general level of appraised value. Review of the standard deviation, coefficient of dispersion and the coefficient of variation can discern appraisal uniformity within a specific property type. Every commercial property type is reviewed annually by the appraiser through the sales ratio analysis process. The first phase involves ratio studies that compare the recent sales prices of properties to the appraised values of the sold properties. This set of ratio studies affords the appraiser an excellent means of judging the present level of appraised value and uniformity of the appraised values. The appraiser, based on the sales ratio statistics and designated parameters for valuation update, makes a preliminary decision as to whether the value level of a particular property type needs to be updated in an upcoming reappraisal, or whether the level of market value is at an acceptable level. The commercial department creates income schedules for multi-family, office, retail, and industrial properties on an annual basis. Actual rent, occupancy and expense data is collected from property owners. We also collect actual data from published sources and local vendors when data from property owners is not forthcoming. The data is entered into Excel spreadsheets and grouped by property type, neighborhood (market) area, and quality (class). Averages and medians for income and expense variables are then calculated and entered into the computer system, which calculates the income schedule value for the property. During the annual reappraisal analysis, the appraiser will be able to choose between the income schedule value (based on prevailing market conditions), the income direct cap value (based on the actual subject property data), and the cost approach value. Before deciding on a final market value, the appraiser should check for any comparable sales in order to make an informed judgment. 2.07 Residential Vacant Lots A. Area Analysis Data on regional economic forces such as demographic patterns, regional location factors, employment and income patterns, general trends in interest rates, availability of vacant land, and construction trends are collected from private vendors and public sources. Information is gleaned from real estate publications and sources such as the real estate professionals, Dallas Business Journal, IAAO, Texas A&M Real Estate Department, Realty Trac, National Association of Independent Fee Appraisers 75 (NAIFA), foreclosure listing and applicable sources found on the internet; such as realtor.com. Monitoring these sources help to give the appraisal staff a current economic outlook on Denton County’s real estate market. The residential department monitors available lot inventory and new construction. All of this impacts the values of the available lots. All employees shall have the knowledge and expertise to do their job. Each employee will have a minimum educational standard required for their position. In addition, DCAD will supply the following: A. On the job training – each employee will receive training on procedures, policy, and equipment by their supervisor and other employees in similar positions. B. State required education and registration – all employees so required will achieve and maintain their own educational and registration requirements. C. Additional training and education – from time to time, additional training and education will be required to enhance job performance, knowledge and expertise. Employees will be expected to perform to a minimum standard. An appraisal management policy should reflect regulatory obligations, mandate due diligence, ensure conformance to professional standards, generate current and meaningful valuations, and establish criteria for a thorough review process. DCAD subscribes to the standards of the International Association of Assessing Officers (IAAO) regarding its appraisal practices and procedures. DCAD also subscribes to the standards promulgated by the Appraisal Foundation known as the Uniform Standards of Professional Appraisal Practice (USPAP). A current copy of the USPAP manual is on file at DCAD. The department is responsible for completing mass appraisal assignments in a timely manner. A. Definition of Appraisal Responsibility The Residential Department is responsible for estimating the market value for all residential vacant lots. B. Legal and Statutory Requirements The provisions of the Texas Property Tax Code (TPTC) and relevant legislative measures involving appraisal administration and procedures control the work of the appraisal district. The district is responsible for appraising property on the basis of its market value as of January 1 for ad valorem tax purposes for each taxing unit that imposes ad valorem taxes on property in the district. DCAD reappraises property on an annual basis. C. Administrative Requirements An appraisal management policy should reflect regulatory obligations, mandate due diligence, ensure conformance to professional standards, generate current and meaningful valuations, and establish criteria 76 for a thorough review process. DCAD subscribes to the standards of the International Association of Assessing Officers (IAAO) regarding its appraisal practices and procedures. DCAD also subscribes to the standards promulgated by the Appraisal Foundation known as the Uniform Standards of Professional Appraisal Practice (USPAP). A current copy of the USPAP manual is on file at DCAD. D. Appraisal Resources Data - A common set of data characteristics for each residential dwelling in Denton County is collected in the field and data entered to the DCAD mainframe computer. The property characteristic data drives the computer-assisted mass appraisal approach to valuation. A common set of data characteristics for each land account in DCAD is collected in the field and data is entered to the DCAD mainframe computer. Information on sold properties is reviewed using GIS and aerial photography. Sales are plotted on the map to review location, access, and topography of the sold land. The property characteristic data drives the computer-assisted mass appraisal approach to valuation. Information Systems – The mainframe systems are augmented by the databases that reside as various applications on the DCAD Local Area Network (LAN). DCAD offers a variety of systems for providing property owners and public entities with information services. B. Sales and Statistical Analysis A. Sales Information The Residential Department will process all sales information collected by the Sales Department. As much pertinent information as possible is gathered about the sale to help determine the quality and conditions of the sale; for example, does the sale appear to be an arm’s length transaction or not. A system of type, source and validity codes has been established to help define these salient facts related to a property’s purchase or transfer. Entity, neighborhood and subdivision sales reports are generated as an analysis tool for the appraisal analyst in the development of value estimates. Sales information is stored in the appraisal district CAMA Software. Refer to the software user’s manual for software implementation. B. Statistical Analysis Appraisers in the appraisal departments perform statistical analysis annually to evaluate whether values are equitable and consistent with the market. Ratio studies are conducted on each property category, neighborhood and ISD to judge the two primary aspects of mass appraisal accuracy—level and uniformity of value. Appraisal statistics of central tendency and dispersion generated from sales ratios are available for each property category and/or neighborhood within an ISD and summarized. These summary statistics including, but not limited to, the median, the mean, the weighted mean, standard deviation, coefficient of dispersion (COD), and coefficient of variation (COV), provide the analysts an analytical tool by which to determine both the level and uniformity of appraised value of a property category and/or neighborhood 77 basis. Review of the standard deviation, coefficient of dispersion and the coefficient of variation can discern appraisal uniformity within and between categories and ISD’s. Subdivisions and/or neighborhoods are reviewed annually by the appraiser through the sales ratio analysis process. The first phase involves subdivision/neighborhood ratio studies which compare the recent sales prices with the appraised values of those properties which have recently sold. This set of ratio studies affords the appraiser an excellent means of judging the present level of appraised value and uniformity of the sales. All valid sales that we are aware of are used unless the result is misrepresentative. C. Market Adjustment or Trending Factors Market adjustment factors are developed from appraisal statistics provided from ratio studies and are used to ensure that estimated values are consistent with the market. If the subdivision/neighborhood is to be updated, the appraiser uses a ratio study that compares recent sales prices of properties within a delineated subdivision/neighborhood with the properties’ appraised value. The calculated ratio derived from the sum of the sold properties’ appraised value divided by the sum of the sales prices indicates the subdivision/neighborhood level of value based on the unadjusted value for the sold properties. This comparison of appraised value-to-sale ratio determines the market adjustment factor for each subdivision/neighborhood. This market adjustment factor is needed to trend the values closer to the actual market evidenced by recent sales prices within a given subdivision/neighborhood. The market adjustment factor calculated for each updated subdivision/neighborhood is applied uniformly to all properties within a neighborhood and as needed in the subdivision. Once the market-trend factors are applied, a second set of ratio studies is generated that compares recent sale prices with the proposed appraised values for these sold properties. From this set of ratio studies, the appraiser judges the appraisal level and uniformity in both updated and non-updated subdivision/neighborhoods, and finally, for the school district as a whole. C. Performance Tests A. Sales Ratio Studies The primary analytical tool used by the appraiser to measure and improve performance is the ratio study. This helps to insure that the appraised values that it produces meet the standards of accuracy in several ways. Overall sales ratios are generated for each ISD to allow the appraiser to review general market trends and provide an indication of market appreciation or depreciation over a specified period of time. Sales ratio reports are run several times prior to the setting of preliminary values as well as after finalization of appraisal values in order to catch any inaccuracies, value anomalies, or outliers. An independent test of the appraisal performance of the district is conducted by the State of Texas Comptroller’s Office through the annual property value study. The study determines the degree of uniformity and the median level of appraisals by the appraisal district within each major category of property. The comptroller publishes a report of the study, which includes in the report the median levels 78 of appraisal for each major category of property, the coefficient of dispersion around the median level of appraisal for each category of property, and any other standard statistical measures that the comptroller considers appropriate. EXAMPLE OF LOT VALUE CALCULATION: Most residential lots, both improved and vacant are calculated using the appraisal districts’ “L” Method. Lot square foot times dollar per square foot times % adjustment for size D. Sales and Statistical Analysis A. Sales Information The Residential Department will process all sales information collected by the Sales Department. As much pertinent information as possible is gathered about the sale to help determine the quality and conditions of the sale as set forth in IAAO Standard on Verification and Adjustment of Sales 4.4, 4.6, 4.7, 4.8, 4.9, 4.10, and 4.11. Examples include; Are the parties related? Does the sale appear to be an arm’s Example 1. 14,000 sq. ft. lot size $3.50 per sq. ft. 25% adjustment for lots over 14,000 sq. ft. Subject Lot Size 16,500 sq. ft. 1st 14,000 @ $3.50 = $49,000 2nd 2,500 @ $3.50 @ 25% = $2,187 Total Lot Value $51,187 In this scenario the lots vary in size and the larger lots in the neighborhood would need to be adjusted otherwise the larger lots would be over-appraised Example 2. 1 sq.ft lot size $50,000 per sq.ft. 0% adj for lot size 1st 1 @ $50,000 = $50,000 In this scenario all of the lots would be very similar in size and the neighborhood very homogeneous. 79 length transaction or not? Was there any personal property included? A system of type, source and validity codes has been established to help define these salient facts related to a property’s purchase or transfer. Entity, neighborhood and subdivision sales reports are generated as an analysis tool for the appraisal analyst in the development of value estimates. Sales information is stored in the appraisal district CAMA Software. Refer to the software user’s manual for software implementation. B. Sale Adjustments The market value of property is what it would sell for in cash terms or the equivalent. This means that any sale that has nonmarket financing must be adjusted to reflect what the prevailing market conditions would be without that special financing. Typical bank loans are at the market rates while owner financed sales can be skewed to correct for the different rates that the seller is offering (IAAO Standard on Verification and Adjustment of Sales 7.4). This also applies to personal property that has been included in a sale. Appraisers must determine the contributory value of personal property and adjust sale price to reflect only the real property included in a sale (IAAO Standard on Verification and Adjustment of Sales 7.5). Sales are also adjusted to reflect changes to the property between the sale date and appraisal date. An example would be a property is purchased on 4/1/16 and then the new owner adds a pool to the property. This will add value that is not included in the purchase price, but should be considered when using the sales information to arrive at values for 1/1/17. C. Statistical Analysis Appraisers in the appraisal departments perform statistical analysis annually to evaluate whether values are equitable and consistent with the market. Ratio studies are conducted on each property category, neighborhood and ISD to judge the two primary aspects of mass appraisal accuracy—level and uniformity of value. Appraisal statistics of central tendency and dispersion generated from sales ratios are available for each property category and/or neighborhood within an ISD and summarized. These summary statistics including, but not limited to, the median, the mean, the weighted mean, standard deviation, coefficient of dispersion (COD), and coefficient of variation (COV), provide the analysts an analytical tool by which to determine both the level and uniformity of appraised value of a property category and/or neighborhood basis. Review of the standard deviation, coefficient of dispersion and the coefficient of variation can discern appraisal uniformity within and between categories and ISD’s. Subdivisions and/or neighborhoods are reviewed annually by the appraiser through the sales ratio analysis process. The first phase involves subdivision/neighborhood ratio studies which compare the recent sales prices with the appraised values of those properties which have recently sold. This set of ratio studies affords the appraiser an excellent means of judging the present level of appraised value and uniformity of the sales. All valid sales that we are aware of are used unless the result is misrepresentative. D. Market Adjustment or Trending Factors Market adjustment factors are developed from appraisal statistics provided from ratio studies and are used to ensure that estimated values are consistent with the market. 80 If the subdivision/neighborhood is to be updated, the appraiser uses a ratio study that compares recent sales prices of properties within a delineated subdivision/neighborhood with the properties’ appraised value. The calculated ratio derived from the sum of the sold properties’ appraised value divided by the sum of the sales prices indicates the subdivision/neighborhood level of value based on the unadjusted value for the sold properties. This comparison of appraised value-to-sale ratio determines the market adjustment factor for each subdivision/neighborhood. This market adjustment factor is needed to trend the values closer to the actual market evidenced by recent sales prices within a given subdivision/neighborhood. The market adjustment factor calculated for each updated subdivision/neighborhood is applied uniformly to all properties within a neighborhood and as needed in the subdivision. Once the market-trend factors are applied, a second set of ratio studies is generated that compares recent sale prices with the proposed appraised values for these sold properties. From this set of ratio studies, the appraiser judges the appraisal level and uniformity in both updated and non-updated subdivision/neighborhoods, and finally, for the school district as a whole. E. Performance Tests A. Sales Ratio Studies The primary analytical tool used by the appraiser to measure and improve performance is the ratio study. This helps to insure that the appraised values that it produces meet the standards of accuracy in several ways. Overall sales ratios are generated for each ISD to allow the appraiser to review general market trends and provide an indication of market appreciation or depreciation over a specified period of time. Sales ratio reports are run several times prior to the setting of preliminary values as well as after finalization of appraisal values in order to catch any inaccuracies, value anomalies, or outliers. An independent test of the appraisal performance of the district is conducted by the State of Texas Comptroller’s Office through the annual property value study. The study determines the degree of uniformity and the median level of appraisals by the appraisal district within each major category of property. The comptroller publishes a report of the study, which includes in the report the median levels of appraisal for each major category of property, the coefficient of dispersion around the median level of appraisal for each category of property, and any other standard statistical measures that the comptroller considers appropriate. EXAMPLE OF LOT VALUE CALCULATION: Most residential lots, both improved and vacant are calculated using the appraisal districts’ “L” Method. Lot square foot times dollar per square foot times % adjustment for size 81 1.Example formula would be; 14,000 sq.ft. lot size $3.50 per sq.f.t 25% adj for lots over 14,000 sq.ft. Lot size is 16,500 1st 14,000 @ $3.50 = $49,000 2nd 2,500 @ $3.50 @ 25% = $ 2,187 Total value of lot $51,187 In this scenario the lots vary in size and the larger lots in the neighborhood would need to be adjusted otherwise the larger lots would be over-appraised. 2. Example formula would be; 1 sq.ft lot size $50,000 per sq.ft. 0% adj for lot size 1st 1 @ $50,000 = $50,000 In this scenario all of the lots would be very similar in size and the neighborhood very homogeneous. 2.08 Individual Value Review Procedures A. Field Review Property field inspections may be initiated for a variety of reasons. A property owner might dispute the district’s appraisal attributes or data concerning his property. Typically, a new field check is then requested to verify this evidence for the current year’s valuation or for the next year’s valuation. Additionally, if a building permit is filed for a particular property indicating a change in characteristics, a field check is then scheduled for that property. Finally, even though every property cannot be inspected each year, each appraiser typically designates certain segments of their area of responsibility to conduct field checks. Commercial appraisers are somewhat limited in the time available to field review all commercial properties of a specific use type. Still, a major effort is made by appraisers to field review properties and economic areas experiencing large numbers of remodels, renovations or retrofits, changes in occupancy levels or rental rates, new leasing activity, new construction, or wide variations in sale prices. Additionally, the appraiser frequently field checks subjective data items such as building class, quality of construction, condition, and physical, functional and economic obsolescence factors contributing significantly to the market value of the property. Sometimes field reviews are warranted when sharp 82 changes in occupancy or rental rate levels occur between building classes or between economic areas. Appraisers also physically inspect sold and unsold properties for comparability and consistency of values. In addition to conducting field reviews on a priority basis as discussed above, the commercial department physically reviews all properties every 6 years as outlined in the IAAO Standard on Mass Appraisal. Each appraiser identifies 1/6th of the properties within their area of responsibility and conducts field inspections at the same rate every year, until 100% of the properties have been inspected. Commercial data collectors should present themselves in a polite and businesslike manner and be prepared to deal with a variety of situations and personalities. Data collectors should always take the time to fully explain the reason for their visit, and are required to carry DCAD issued photo identification badges and business cards. B. Office Review Office reviews are completed on properties not subject to field inspections. Valuation reports comparing previous values against proposed and final values are generated for all commercial improved properties. Also, previous values resulting from a formal hearing protest, lawsuit, and others from informal hearings are individually reviewed to determine if the value remains appropriate for the current year. When reviewing these properties, each appraiser considers all currently available cost, market, and income data before deciding on the final appraised value. Once the appraiser is satisfied with the level and uniformity of value for each commercial property within their area of responsibility, the new values are entered into the district’s mainframe computer. Because the value estimates are determined in a computerized mass appraisal environment, appraisers review value reports for anomalies before the final appraised value is released for noticing. 2.09 Performance Tests A. Sales Ratio Studies The primary tool used to measure mass appraisal performance is the ratio study. A ratio study compares appraised values to market values. In a ratio study, market values (value in exchange) are typically represented by sales prices (i.e. a sales ratio study). Independent, expert appraisals may also be used to represent market values in a ratio study (i.e. an appraisal ratio study). If there are not enough sales to provide necessary representation, independent appraisals can be used as indicators for market value. This can be particularly useful for commercial, warehouse or industrial real property for which sales are limited. In addition, appraisal ratio studies can be used for properties that are by statute not appraised at market value, but reflect the use-value requirement. An example of this are multi-family housing projects subject to subsidized rent provisions or other governmental guarantees as provided by legislative statutes (affordable housing) or agricultural lands to be appraised on the basis of productivity or use value. Sales ratio studies are an integral part of establishing equitable and accurate market value estimates, and ultimately assessments for taxing jurisdictions. The primary uses of sale ratio studies include the 83 determination of a need for general reappraisal; prioritizing selected groups of property types for reappraisal; identification of potential problems with appraisal procedures; and, assist in market analyses. Pursuant to Chapter 5, of the Texas Property Tax Code, and Section 403.302, of the Texas Government Code, the Comptroller’s Property Tax Division (PTD) conducts an annual property value study (PVS) of each Texas school district and each appraisal district. As a part of this annual study, the code also requires the Comptroller to: use sales and generally accepted auditing and sampling techniques; test the validity of school district taxable values in each appraisal district and presume the appraisal roll values are correct when values are valid; and, determine the level and uniformity of property tax appraisal in each appraisal district. The methodology used in the property value study includes stratified samples to improve sample representation and techniques or procedures of measuring uniformity. This study utilizes statistical analysis of sold properties (sale ratio studies) and appraisals of unsold properties (appraisal ratio studies) as a basis for assessment ratio reporting. For appraisal districts, the reported measures include median level of appraisal, coefficient of dispersion (COD), the percentage of properties within 10% of the median, the percentage of properties within 25% of the median, and price-related differential (PRD) for properties overall and by state category. 2.10 Value Defense Procedures The appeals process begins with an informal meeting between the appraiser and the property owner to discuss any errors, discrepancies of market value and/or equity, and any claims of exemptions or special valuations (agricultural use, restricted use value, etc.). The informal review may be handled by mail, in person, or by telephone. The review allows for communication and mutual understanding, which will reduce the number of formal appeals. Informal reviews should incorporate the following basic steps: 1)Verify the parcel information; 2)Exchange information; 3)Record the nature of complaint; 4)Use cost, sales, or income information to confirm property value; 5)If a value change is indicated, the appraiser will change the value and enter into a signed agreement with the property owner; 6)If a value change is not warranted, the appraiser should explain the appeal rights and procedures, in case the property owner wishes to make a formal appeal. Commercial field appraisers must get written approval from the Commercial Manager or Supervisors to settle any property with an appraised value of $50,000,000 or higher. Appraisal Review Board hearings (formal appeals) are the next step in the appeals process. Prior to the hearing, the property owner should be given a copy of the evidence the appraiser plans to use in evidence. The appraiser should be prepared to present factual information relating to the property, such as copies of tax maps, pictures of the property, improvement drawings, etc., as well as valuation information, such as the cost, market, and income approaches to value. If there is an equity component to the appeal, the appraiser should be prepared to present a reasonable sample of equity comparables based on sales or income, as appropriate. 84 2.11 Education and Train ing All employees shall have the knowledge and expertise to do their job. Each employee will have a minimum educational standard required for their position. In addition, DCAD will supply the following: A. On the job training – each employee will receive training on procedures, policy, and equipment by their supervisor and other employees in similar positions. B. State required education and registration – all employees so required will achieve and maintain their own educational and registration requirements. C. Additional training and education – from time to time, additional training and education will be required to enhance job performance, knowledge and expertise. Employees will be expected to perform to a minimum standard. 2.12 Data Entry Procedure All appraisal changes and updates are written on appraisal cards and given to the commercial appraisal support specialist. The appraisal support specialist organizes incoming and outgoing appraisal cards by appraiser, date, and legal description at the data entry station. The information is entered by way of a “dump terminal” and keyboard at the data entry station. The commercial appraisal support specialist is responsible for entering abstract, industrial, commercial and residential land, commercial and rural improvements, agricultural valuations, and sales information. Incomplete and erroneous information on appraisal cards is returned to the appraiser for correction. Once appraisal changes have been made, updated appraisal cards are printed, processed, and delivered to the appraisers. After checking the updated cards for accuracy, they are returned to the appraisal support specialist for filing. 2.13 Commercial Department Reappraisal Plan Overview This plan outlines the implementation and completion of all required tasks and reappraisal that is mandated by the State Property Tax Code. The commercial department reappraises all properties every two years, which works out to approximately 50% of properties reappraised in any given year (including 50% of vacant or improved land accounts). The reappraisal consists of a property inspection (office and/or field), as well as income, sales, and equity analysis, as warranted. Rapidly changing market areas will be reappraised on an annual basis as time permits. Building permits are collected from each city on a monthly basis. The permits are processed and attached to the applicable account, after which the appraiser conducts a physical inspection and office review for the current appraisal year. All value related building permits issued from December 1, 2017 through 85 November 30, 2018 will be inspected and reappraised for the 2019 appraisal year. All value related building permits issued from December 1, 2018 through November 30, 2019 will be inspected and reappraised for the 2020 appraisal year. Additionally, all buildings that were partially complete as of January 1 will be coded for reappraisal the following year. Property characteristic data, entered by appraisal support personnel, is verified and corrected by appraisers based on field inspections or office review utilizing aerial photography. The following data characteristics are added to each property account as applicable: Land Value, SPTD Code, Building Class, Gross Building Area, Net Leasable area, Actual Year Built, Effective Age, Number of Stories, Construction Quality/Condition Codes, Number of Buildings, Foundation Type, Percent Finish Out, Exterior Wall Type, Interior Finish Type, Heating/Cooling, Plumbing, Roof Covering, Story Height, Docks, Sprinkler System, Elevators. In addition to the physical characteristics, data is collected on an annual basis for income producing properties – including: Net Leasable Area, Rent Adjustments and CAM Charges, Vacancy percentage, Secondary Income, Expense Recoveries, Expense Information, and Cap Rates. Income producing property categories such as multi-family, retail, office, and industrial are coded with an economic area code, which groups properties located within the same competing market area. The economic area boundaries follow school district or city limit lines. Income models (based on the collected data) are then developed for each comparability code (A, B, C) for the respective property types. Income model data entered into the PACS appraisal system thereby produces an “income schedule” value, which should reflect the market influences that affect the market values within each economic area. The income schedule value can be used to check for equality and uniformity by property type within an economic area, or to create an income value for those properties not previously valued by the income approach. Commercial sales ratio studies are conducted annually by economic area and property type. The ratio studies compare the recent sales prices of properties to the appraised values of the sold properties. If there are sufficient sales of a specific property type, the market approach can be employed to determine market values and uniformity of appraised values. Part C. Agriculture Use The Texas Constitution permits special agricultural appraisal only if the land meets specific requirements defined as agricultural use. Section 23.51 of the Property Tax Code sets the standards for determining whether land qualifies. 2.21 Application The property owner must apply for the agricultural use appraisal. The property tax code provides applications for 1-d (Agricultural Appraisal), 1-d-1 (Open Space Agricultural Appraisal), 1-d-1 (Open Space Land, Timber Land) and 1-d-1 (Open Space Agricultural Valuation Wildlife Management). The 86 applications are received in January through the end of April (April 30th is the deadline to file). Applications can be filed after the deadline up until the time the appraisal roll is approved by the Appraisal Review Board (ARB) and if approved is assessed a 10% late filing penalty for that year only. Currently DCAD does not have any applications filed under 1-d or 1-d-1 Timber Land. The property owner is required to notify the Appraisal District if there is a change of use or if there is any change in the application requiring updating. Applications are requested to be updated on a 5 year basis once the property is approved to keep files current. 2.22 Qualification To qualify the property for the agricultural appraisal the following must be met: I. The land must be currently devoted principally to agricultural use. 1. Agricultural use includes production of crops, livestock, poultry, fish, or cover crops. It also can include leaving the land idle for a government program or for normal crop or livestock rotation. Land used for raising certain exotic animals to produce human food or other items of commercial value, and cutting wood for use in fences or structures on adjacent agricultural land also qualifies. 2. Timberland must be used with the intent to produce income and be devoted principally to the production of timber. 3. Both agricultural land and timberland must be devoted to production at a level of intensity that is common in the local area. 4. The land must have been devoted to agricultural and/or timber production for at least five of the past seven years. 5. Repealed by legislature 6. Using land for wildlife management is an agricultural use. Wildlife management means actively using land that at the time the wildlife management use began was appraised as qualified open-space land. The land must be used in at least three of seven ways to propagate a sustaining breeding, migrating, or wintering population of indigenous wild animals for human use, including food, medicine, or recreation. Bee Keeping Guidelines Beekeeping is a qualifying agricultural use if used for the pollination or for the production of human food or other tangible products having a commercial value. (Sec. 23.51(2) Tax Code) Acreage requirements are set by Texas Property Tax Code to be a minimum of 5 acres and a maximum of 20 acres to qualify for beekeeping as an agricultural use. Typically the number of hives per acre is as follows: 87 First 5 acres ………………..5 – 6 hives Additional 10 acres ………..4 additional hives Remaining 5 acres …………12 hives maximum The property will need to have a history of agricultural use or the owner will have to establish the 5 year history with the bee operation to qualify. II. The qualifications under section 1-d are the same, with the following exceptions: 1. The land has been devoted exclusively to or developed continuously for agriculture for the three years proceeding the current year. 2. The owner is using and intends to use the land for agriculture as an occupation or a business venture for profit during the current year. 3. The land must be owned by an individual. Land does not qualify under 1-d if it is owned by a corporation, partnership, trust or other association. 4. Agriculture is the owner’s primary occupation and primary source of income. Visual inspections are done on all properties where an application has been filed. The appraiser views the property, makes notes based on the inspection and takes a photograph of both the qualifying property and the properties determined to be denied. The applications, appraiser’s field notes and photographs are scanned to the account. Those properties that are approved receive a letter stating the approval. Properties that have been denied receive a letter denying the application, the reason for the denial, and an explanation on how to protest the denial. The property owner is required to notify the Appraisal District if there is a change of use or if there is any change in the application requiring updating. Applications are requested to be updated on a 5 year basis once the property is approved to keep files current. 2.23 Appraisal of Agricultural Land Each year the Chief Appraiser or his or her designee shall prepare an agricultural value schedule using the guidelines as set out in the “Manual for the Appraisal of Agricultural Land,” published by the Comptroller of Public Accounts, Property Tax Division. A copy of the value schedule may be obtained by the taxpayer upon request. Introduction The importance of data collection in the appraisal of agricultural land is crucial to accurate productivity values and to assess property as the law intended. The data collected in this appraisal process is as important as data used in the market value calculation. Purpose and Use This outline is used to layout the procedures and steps to go through in the collection of agricultural data in the process of setting the “Agricultural Appraisal Values”. This process is undertaken by the department manager or supervisor staff of the department responsible for the agricultural appraisal. 88 Procedures Denton Central Appraisal District sends out reappraisals on an annual basis, therefore the agricultural appraisal value is reviewed annually. The “net to land” calculations, categories, and sub categories are changed with new agricultural information obtained by the district. (A) Our primary and best source of information comes from the Agricultural Advisory Board. Denton CAD Agricultural Advisory Board members are a hands on source of information that the district can ask questions that it needs answered. The board members are a good representation of the different types of agriculture we have in this county. One member is a cattle rancher and crop producer. Another member is a crop producer, sod farmer, improved grass hay and leases land. The other member is mainly involved in the cattle industry. These activities cover most of the typical agricultural activities for this county. The district has records of the Agricultural Advisory Boards meetings back to 1990 and feels this is a very important part of our valuation process. (B) The Denton County AgriLife Extension Service office is the next source of information the district uses on a regular basis. Denton Appraisal District has had a good standing relationship with the Denton County AgriLife Extension office; both organizations assist the other. DCAD has performed many presentations for the DCAE and their participants, and DCAE has done the same for DCAD staff. The annual data collected by the extension office is very valuable and informative in our yearly analysis. (C) Denton CAD sends out with application requests an “optional” survey on agricultural use. A survey is also requested on any beekeeping application. The surveys that are returned with the applications provide us with information about the activities these producers are involved in and industry norms. These surveys are reviewed with each application process, but can also be pulled together for cumulative field information. (D) The district has members of the agricultural advisory board, county extension agent, and agricultural appraisal staff fill out the Comptroller’s “Texas Farm and Ranch Survey” on an annual basis. (E) The Denton area FSA and USDA office has also been a good partner in obtaining land information needed by the district. These offices are located in close proximity to the DCAD office. These organizations use our maps in the determinations of property size and location for their participants and DCAD uses their land soil maps for land categories. It is also helpful to have a person from that organization that can explain their data if need be. (F) Denton County is a rapidly growing urban area and agricultural land is being consumed by urban sprawl. DCAD utilizes information from the surrounding districts to help establish typical or normal agricultural activities. A lot of the information that this district receives from leases is skewed by the desire for the investors of the land to save taxes on the property for a short period of time. This has been the cause of what we call 89 negative leases, where the property owner is paying a farmer to work the land to get the tax savings. (G) Other sources of information include publications, manuals, and websites. Some of those websites include; USDA.gov, agecoext.tamu.edu/budgets/, window.state.tx.us, and tpwd.state.tx.us. All information gathered from these sources is kept in an agricultural appraisal file and a digital copy is stored in our database under F: resident, AGRICULTURE. This share file allows all employees involved in the appraisal of agricultural land access to review the information as needed. Files pertaining to specific accounts are scanned and kept with the account. Conclusion The procedures and sets the appraisal district takes in the agricultural appraisal process are defined in depth in the Manual for the Appraisal of Agricultural Land under section 3 “Agricultural Appraisal Process”. 2.24 Rollback Procedure 1. The law imposes a rollback tax on 1-d-1 land when it is taken out of agricultural use. The rollback tax equals the difference between the taxes the owner paid in the five years preceding the change in use and the taxes the owner would have paid on his property’s market value. 2. The property owner can trigger the rollback by ending agricultural operation or diverting the property to non-agricultural use. Selling the property does not trigger the 1-d-1 rollback. If the property owner diverts only part of a property to a non-agricultural use, the rollback tax only applies to the changed portion. 3. The Chief Appraiser determines if and when the change of use occurs and must send the owner written notice of the determination. Field appraisers are expected to periodically inspect agricultural use properties throughout the year to determine if a change of use has occurred. If the owner does not protest the determination or the Appraisal Review Board decides the use has changed, the tax assessor will calculate the amount of additional tax due, add the appropriate amount of interest, and send a rollback tax bill. The rollback procedures under section 1-d are the same, with the following exceptions: 1. Section 1-d requires a rollback tax when the property is taken out of agricultural use or when it is sold. 2. The rollback recaptures taxes for the three preceding years. 90 NOTE: The agricultural appraisal procedures and requirements discussed in this section are general in nature. For specific legal requirements, the appraiser should refer to the Property Tax Code and the “Manual for the Appraisal of Agricultural Land.” AGRICULTURAL USE AND ROLLBACKS Who is exempt from paying rollback taxes? 1) Federal government 2) State government 3) Local government a. City b. School c. County d. Special districts Chapter 23.55 subsection (f) (f) The sanctions provided by Subsection (a) of this section do not apply if the change of use occurs as a result of: 1) a sale for right-of-way; 2) a condemnation; 3) a transfer of the property to the state or a political subdivision of the state to be used for a public purpose; or 4) a transfer of the property from the state, a political subdivision of the state, or a nonprofit corporation created by a municipality with a population of more than one million under the Development Corporation Act (Subtitle C1, Title 12, Local Government Code) to an individual or a business entity for purposes of economic development if the comptroller determines that the economic development is likely to generate for deposit in the general revenue fund during the next two fiscal biennium an amount of taxes and other revenues that equals or exceeds 20 times the amount of additional taxes and interest that would have been imposed under Subsection (a) had the sanctions provided by that subsection applied to the transfer. 91 What about religious organizations? Chapter 11.20 subsection (6) (6) the land that the religious organization owns for the purpose of expansion of the religious organization’s place of regular religious worship or construction of a new place of regular religious worship if: 1) the religious organization qualifies other property, including a portion of the same tract or parcel of land, owned by the organization for an exemption under Subdivision (1) or (5); and 2) the land produces no revenue for the religious organization; Chapter 23.55 1) (l ) The sanctions provided by Subsection (a) of this section do not apply to land owned by an organization that qualifies as a religious organization under Section 11.20(c) of this code if the organization converts the land to a use for which the land is eligible for an exemption under Section 11.20 of this code within five years. 2) (i ) The use of land does not change for purposes of Subsection (a) of this section solely because the owner of the land claims it as part of his residence homestead for purposes of Section 11.13 of this code. What about a cemetery? (j) The sanctions provided by Subsection (a) do not apply to a change in the use of land if: 1) the land is located in an unincorporated area of a county with a population of less than 100,000; 2) the land does not exceed five acres; 3) the land is owned by a not-for-profit cemetery organization; 4) the cemetery organization dedicates the land for a cemetery purpose; 5) the cemetery organization has not dedicated more than five acres of land in the county for a cemetery purpose in the five years preceding the date the cemetery organization dedicates the land for a cemetery purpose; and 6) the land is adjacent to a cemetery that has been in existence for more than 100 years. 92 What is not exempt from a rollback? 1. Any property owner who is not a governmental entity, a religious organization, cemetery. How does this apply to new subdivision? All of the land in the development is subject to a rollback except land dedicated to public street, dedicated or deeded to a governmental entity. Open space lots, common areas, streets in a gated community, HOA lots are ALL subject to rollback. 2.25 Wildlife Management In 2001 the 77th Legislature enacted House Bill 3123 for the purpose of Wildlife Management (Tax Code 23.51(1) and (7). The intent of the bill was to; Encourage the preservation of open space for wildlife management and conservation of the state’s natural heritage in all areas of the state 1. To create definitive standards for tax appraisers to follow in determining the qualification of the property for appraisal on the basis of wildlife management use. (Comptroller’s Rule 9.4003 in acted in 2003, repealed 12-2008, new Comptroller Rule 9.2001 replaces rule 9.4003.) 2. To create a mechanism in addition to traditional agricultural use to allow ranchers, farmers, and land managers to conserve open space. 3. To affirm local control of property taxation. 4. To preserve revenue neutrality for all concerned parties and 5. To allow each property currently qualified in wildlife management use to continue appraised as open space land. Qualifications (7) The definition of “wildlife management” per the Texas Property Tax Code Section 23.51 (7) and (8) is as follows: (A) Actively using land that at the time the wildlife-management use began was appraised as qualified open-space land under this subchapter or as qualified timber land under Subchapter E in at least three of the following ways to propagate a sustaining breeding, migrating, or 93 wintering population of indigenous wild animals for human use, including food, medicine, or recreation: (i) Habitat control; (ii) Erosion control; (iii) Predator control; (iv) Providing supplemental supplies of water; (v) Providing supplemental supplies of food; (vi) Providing shelters; and (vii) Making of census counts to determine population; (B) Actively using land to protect federally listed endangered species under a federal permit if the land is: (i) Included in a habitat preserve and is subject to a conservation easement created under Chapter 183, Natural Resources Code; or (ii) Part of a conservation development under federally approved habitat conservation plan that restricts the use of the land to protect federally listed endangered species; or (C) Actively using land for a conservation or restoration project to provide compensation for natural resource damages pursuant to the comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Oil Pollution Act of 1990, the Federal Water Pollution Control Act, or Chapter 40, Natural Resources Code. (8) “Endangered species,” “federal permit,” and “habitat preserve” have the meanings assigned by Section 83.011, Parks and Wildlife Code. A. Texas parks and wildlife region description In order to implement Comptroller’s Rule 9.2001 the appraisal district refers to the Texas Parks and Wildlife Department (www.tpwd.state.tx.us) to determine the Eco region that the appraisal district (county) is located. Denton County is located in Region 6; Cross Timbers and Prairies. Per the Texas Parks and Wildlife this region is: A transitional area for many plants and animals. Average annual rainfall averages 28-40 inches per year… Upland soils are light colored, acidic sandy loam or sands. Bottomland soils may be light brown to dark gray and acidic with textures ranging from sandy loams to clays. The landscape of the region is gently rolling to hilly. (TPWD Website) 94 A map of this region is available on the Texas Parks and Wildlife website. Wildlife management practices are described in Guidelines for Qualification of Agricultural Land in Wildlife Management Use (Texas Comptroller, July 2002) and the Comprehensive Wildlife Management Planning Guidelines (TPWD, July 2007) for the Eco region in which the property is located. The chief appraiser, with the advice and consent of the Appraisal District Board of Directors, designated the percentage devoted to wildlife management based on the percentage developed for each Eco region. The percentages for Region 6; Cross Timbers and Prairies as determined by the Texas Parks and Wildlife Department are: at least 93% but not more than 95%. Denton Central Appraisal District’s percentage is 93%. The following formula is used to determine the number of acres that are required for approval of the wildlife management: (x-1)/x = wildlife use requirement. Where “x” represents the number of acres in the application. Example would be (20 acres – 1)/ 20 acres = 95%. In this example the acreage would qualify. Another example would be (13 acres – 1)/13 = 92.8%. In this example the acreage would not qualify. Using 93% as the minimum and the formula prescribed, the minimum number of acres that would qualify for wildlife management for Denton CAD would be slightly less than 14.50 acres. Existing properties in wildlife management are grandfathered and not affected by the adoption of the new Comptroller’s Rule 9.2001. Properties receiving wildlife management under the old Comptroller’s Rule will not be affected unless the property owner sells part of the land and the remaining acres do not meet the requirements of the new Rule 9.2001. B. Qualification for agricultural appraisal wildlife management DCAD requires that a wildlife management form be filed along with a 50-129 for the conversion of the land into wildlife management. All applications and annual reports are date stamped as soon as the district receives them. The information is first scanned into the system by a data clerk, and then filed by school district in a filing cabinet for appraiser review. Then the agricultural appraiser, supervisor, or the appraiser that works that school district can pull the forms for that area and go work them. During field inspection we look to see if the activities on the property matches what was described on the management plan. 1. A wildlife management plan should be completed on the form (WMP) prescribed by Texas Parks and Wildlife Department for each tract of land for which qualification for agricultural appraisal under wildlife management is requested. The chief appraiser may not require that the property owner use the WMP form but all required information must be provided. (A copy of the wildlife management and wildlife management annual report form can be found at Denton Central Appraisal District (DCAD) or DCAD’s website; www.dentoncad.com, or the Texas Parks and Wildlife website; www.tpwd.state.tx.us/landwater/land/private/agricultural_land/ .) 95 2. The property must have been receiving 1-d-1 Open Space for agricultural use under section 23.51 (1). 3. The property must be used in 3 out of the 7 listed wildlife management practices. Property must be actively managed to sustain a breeding, migrating, or wintering population of indigenous wildlife. a. Habitat control; b. Erosion control; c. Predator control; d. Providing supplemental supplies of water; e. Providing supplemental supplies of food; f. Providing shelters; and g. Making of census counts to determine population; 4. The number of acres in the application must meet the required amount based on the calculation using the formula prescribed. C. Inspections of wildlife management applications and annual reports The chief appraiser may request an annual report be filed on any properties approved under wildlife management. A copy of the form can be located on our website at (www.dentoncad.com) and links to the other related agencies are also available there as well. The procedures for inspecting an application for wildlife management or an annual report are the same as the application for 1-D-1 agricultural appraisal. Visual inspections are done on all properties when an application has been filed. The appraiser views the property, makes notes based on the inspection and takes a photograph of both the qualifying property and the properties determined to be denied. The applications, appraiser’s field notes and photographs are scanned to the account. Those properties that are approved receive a letter stating the approval. Properties that have been denied receive a letter denying the application, the reason for the denial, and an explanation on how to protest the denial. Part D. Residential Properties (Improved Properties and Vacant Residential Lots) 2.31 Introduction A. Definition of Appraisal Responsibility The Residential Department of the Denton Central Appraisal District (DCAD) is responsible for developing fair and uniform market values for residentially-classed improved properties and for vacant residential lots. There are approximately 210,000 improved residential properties in Denton County. 96 Required education, under section 5.04 of the Texas Property Tax Code, is achieved by attending courses developed through the Texas Comptroller’s Property Tax Division and licensing through the Texas Department of Licensing and Regulation (TDLR). Continuing education is achieved by attending in- house training, classes held by TAAO, TAAD, Dallas Central Appraisal District, Tarrant Appraisal District, and any other sources available for the district to use. B. Legal and Statutory Requirements The provisions of the Texas Property Tax Code (TPTC) and relevant legislative measures involving appraisal administration and procedures control the work of the appraisal district. The district is responsible for estimating the market value of each property, as of January 1, for ad valorem tax purposes. The district is required to periodically reappraise all real property at least once every three years. DCAD reappraises real property each year. IAAO Standards on Mass Appraisal 3.3.4 C. Administrative Requirements An appraisal management policy should reflect regulatory obligations, mandate due diligence, ensure conformance to professional standards, generate current and meaningful valuations, and establish criteria for a thorough review process. DCAD subscribes to the standards of the International Association of Assessing Officers (IAAO) and to the standards promulgated by the Appraisal Foundation known as the Uniform Standards of Professional Appraisal Practice (USPAP) regarding its appraisal practices and procedures. (Refer to copy of USPAP manual on file at the Denton Central Appraisal District.) Residential Department submits an annual budget to the Deputy Chief Appraiser. The department is responsible for completing mass appraisal assignments in a timely manner, within the cost constraints of said budget. D. Appraisal Resources Personnel - The Residential Department staff consists of a manager, two supervisors, three senior appraisers, thirteen field appraisers each assigned to geographic areas. One senior administrative support position and six support clerks. The manager reports to the Deputy Chief Appraiser. Data - A common set of data characteristics for each residential dwelling in Denton County is collected in the field and data entered to the DCAD mainframe computer. The property characteristic data drives the computer-assisted mass appraisal approach to valuation. A common set of data characteristics for each land account in DCAD is collected and data is entered to the DCAD mainframe computer. Information on sold properties is reviewed by calling to the purchaser or seller, visual inspection, using GIS and aerial photography. Sales are plotted on the map to review location, access, and topography of the sold land. The property characteristic data drives the computer- assisted mass appraisal approach to valuation. Data - The data used by the Residential Department includes verified sales of improved properties and vacant lots and the pertinent data obtained from each (sales price levels, income multipliers, land to 97 building ratios, etc.). Another example of data used by the department would be rental information. This information will be used to determine a gross rent multiplier. In addition to the actual data obtained from specific properties, market data publications are also reviewed to provide additional support for local and regional market trends, such as: Tierra Grande (Journal of the Real Estate Center at Texas A&M University) – Provides information on land around the state. Texas Farm & Ranch (Catalogue of Fine Rural Real Estate) – Provides information on high dollar farm and ranch property. Fair & Equitable (IAAO). – Provides information on appraisal and assessment offices throughout the U.S. and Canada. DuPont Registry – Provides information on high end homes throughout U.S. Marshall & Swift Exceptional Homes – Marshall & Swift Home Repair and Remodel – N.A.D.A – Provides Realty Trac – Marshall & Swift Residential Valuation – Marshall & Swift Commercial Valuation - National Association of Independent Fee Appraisers (NAIFA) Information Systems - The mainframe systems are augmented by the databases that reside as various applications on the DCAD Local Area Network (LAN). DCAD offers a variety of systems for providing property owners and public entities with information services. Appraisal Support fields many of the public’s questions or redirects them to the proper department. PC stations are located in the customer service area for the public’s use. Access to the district’s appraisal data is also available through the appraisal district’s website, www.dentoncad.com. 2.32 Valuation Approach (model specification) Improved Residential Properties A. Area Analysis Data on regional economic forces such as demographic patterns, regional location factors, employment and income patterns, general trends in real property prices and rents, interest rates trends, availability of vacant land, and construction trends and costs are collected from private vendors and public sources. Information is gleaned from real estate publications and sources such as real estate professionals, Dallas Business Journal, Marshall & Swift, IAAO, Texas A&M Real Estate Department, Realty Trac, National Association of Independent Fee Appraisers (NAIFA), foreclosure listing and applicable sources found on the Internet such as; realtor.com. Monitoring this helps to give the appraisal staff a current economic outlook on Denton County’s real estate market. The residential department analyzes collected information described above in its analysis of defined subdivision/neighborhoods and geographical areas. The district routinely inventories properties in the appraisal district either through on-site inspections, the use of 98 district aerials, and in limited cases the use of recent photographs of the property. (Aerials are provided from COG and from Pictometry, each flown every other year.) B. Neighborhood Analysis Market areas are defined by Neighborhoods (the Residential Neighborhood list is available upon request at Denton CAD). Neighborhoods are defined as groups of properties that exhibit similar characteristics such as size, age, construction quality, market area, value range, and other characteristics that affect value. Neighborhood groupings are designed to allow properties that are similar to be analyzed together. Physical and legal boundaries may be starting points for delineating neighborhoods, however; ultimately the appraiser should use good judgment in determining if the properties in that neighborhood grouping are of a similar nature. Neighborhood codes and classifications will utilize a coding system to identify the primary entity it resides in. For example: a neighborhood code of DC05001 would indicate that the property is located within Denton County (“D”), within a city limit (“C”), City of Denton (“05”), and then the numerical code for that neighborhood (“001”). The numerical code for the neighborhood code is simply an identifier, there is no attribute associated with the code. Neighborhood analysis involves the examination of how physical, economic, governmental and social forces and other influences affect property values. The effects of these forces are also used to identify, classify, and organize comparable properties into smaller, manageable subsets of the universe of properties known as neighborhoods. Neighborhoods are defined by grouping properties based on having similar market preferences and influences. Generally speaking, many neighborhoods will have physical boundaries that define their perimeter such as major roads, as well as land features such as creeks, greenbelts, golf courses, etc. some neighborhoods will be delineated based upon other factors such as construction quality, age, and other structure related factors. Sales and income information are gathered on each neighborhood area and used to formulate overall appraised values for that neighborhood C. Highest and Best Use Analysis For the vast majority of residential properties, the current use will be the properties highest and best use (HBU). Unique properties located in areas of transition will need additional research and analysis to determine HBU and valuation methods that are in compliance the Texas Property Tax Code. Appraisers need to be aware of HBU limitations regarding Homestead Properties. 99 2.33 Data Collection/Validation A. Data Collection Manuals Field data collection requires organization, planning, and supervision of the field staff. Data collection procedures have been established for land, residential, commercial, and personal property. An appraisal manual and a residential procedure manual for the district is published and distributed to all appraisers involved in the appraisal and valuation of residential properties. Both manuals are reviewed and revised to meet the changing requirements of field data collection. Field appraisers use these manuals during their initial training and as a guide in the field inspection of properties. The residential appraisal manual is updated annually and procedure manual as needed. B. Sources of Data The district’s property characteristic data was originally received from the ISD’s, Denton County Tax Office as well as the surrounding cities. And where absent, collected through a massive field data collection effort coordinated by the district over a period of time. The appraisal support position within the residential department collects new and miscellaneous construction permit data through onsite visits to each city permit office. Information on new home starts in the rural areas is gathered from the Denton County Health Department, septic permit and through the use of mechanics liens. New home starts, remodeling, living additions and other permit-required improvements are also discovered through field inspection. Still the main focus is on field inspection and visual review. Tax assessors, city and local newspapers, and the public often provide the district information regarding new construction, market patterns, and other useful facts related to property valuation. Aerial photographs are also sometimes used to find hard to locate improvements. C. Data Collection Procedures Field data collection requires organization, planning, and supervision of the field staff. Data collection procedures have been established for residential, commercial, and personal property. Appraisers conduct field inspections and record information on an appraisal card or on their IPad. It is this information collected by the appraiser that is entered into the district’s computer system and serves as the basis for the valuation of real property. In addition to field inspections, DCAD utilizes the YOTTA Sketch Verification program, which compares the PACS building sketch to the most recent aerial photograph of the building. Appraisers’ field inspection finds discrepancies and makes corrections as necessary. The DCAD boundaries are divided into geographic areas with each appraiser assigned an area for which they are responsible for data collection. The residential department conducts periodic meetings where each appraiser gives a verbal report of their work progress. Additionally, each appraiser’s work is reviewed by the appraisal supervisor before it is given to appraisal support for data entry. These procedures are an important tool in analyzing future departmental staffing needs, as well as showing each individual appraiser’s progress and error rate. While production standards are established and upheld for 100 the various field activities, quality of data is emphasized as the goal and responsibility of each appraiser. New appraisers are trained in the specifics of data collection set forth in the appraisal manual as procedures to follow. Experienced appraisers are routinely brought up to date on changes in procedures prior to major field projects such as new construction, sales validation or data review. The Residential department manager routinely reviews the work being performed by all the field appraisers. The department manager is also charged with the responsibility of ensuring that appraisers follow listing procedures, identify training issues and provide uniform training throughout the appraisal staff. 2.34 Class System A class system for residential properties has been developed to help ensure appraisal uniformity. The residential class system currently consists of classes 1 through 5C for frame homes and 6 through 11C for brick, stucco, etc. Some classes have a corresponding “E” class. The exceptions for “E” are additional refinements in material and workmanship. Classes are based on types of construction and finish out. When classing a particular property, the appraiser will choose a class which best meets the defined descriptions of quality, and workmanship. The different classes will reference the computer to cost tables developed from the Marshall Valuation Service, which is an appraisal guide for developing replacement costs for a wide range of construction quality levels. Marshall Valuation Service software utilizes the comparative unit method to derive a cost per unit for the structure being appraised. Typical building specifications are developed for each quality level, which are used to determine the base cost of benchmark structures. Once the benchmark base costs are in place, construction costs for each class at various size increments are developed. Adjustments for variations from base cost specifications are also developed for each class. And finally, local modifiers are used to make the cost data applicable to Denton County, these local modifiers are referred to as “Neighborhood Factors”. The DCAD also collects actual cost data from local developers and property owners. Whenever possible, actual costs are compared to Marshall Valuation Service costs. If there are inconsistencies between the two costs, adjustments will be made to the appropriate DCAD classes. Actual local costs are given more weight than Marshall Valuation costs in these circumstances. If, in the appraiser’s judgment, the cost tables do not fit the property being appraised, but that property does fit into a class, the appraiser should class the property by the class that most resembles that property. The computer system will allow the appraiser to override the tables and enter the cost value he deems correct. All residential class costs are updated annually, based on data that is published closest to January 1. Classes cannot be established for every residential property within Denton County. A small percentage of the properties will require special pricing by the appraiser. This can be accomplished either by use of the Marshall Valuation Service or flat pricing. Each of these two methods requires that the appraiser utilize his or her best judgment on items that are too infrequent or unusual to fit efficiently into the present class system. The appraiser should consult with either their supervisor or department manager if uncertain about cost methods for unique properties. 101 Sales ratio reports and Marshall and Swift cost manuals are used to review cost manuals each year. Class 8 homes are considered the benchmark class then the class 9’s. Ratio reports are ran on both classes to determine whether changes need to occur in the pricing. All other classes are reviewed in the same manner however; class 8’s and 9’s general indicate the general direction of the changes. The lower class frames, classes 1, 2, and 3 are reviewed using Marshall and Swift since sales of these properties limited. 2.35 Valuation and Statistical Analysis (model calibration) The Residential Department is responsible for estimating the market value for all residential improved and vacant lots. Provisions of the Texas Property Tax Code (TPTC) and relevant legislative measures involving appraisal administration and procedures control the work of the appraisal district. The district is responsible for appraising property on the basis of its market value as of January 1 for ad valorem tax purposes for each taxing unit that imposes ad valorem taxes on property in the district. DCAD reappraises property on an annual basis. A. Cost Approach The cost approach to estimating value is the most common approach used for mass appraisal of residential properties because it can be applied to all improved properties. The cost method combined with the market approach will provide the most broad based valuation tool possible for a wide range of applications. However, the appraiser must always be conscious of the difference between cost and value. Because of this difference, the appraiser must exercise judgment when measuring applicable depreciation. For the cost approach, a class system based on construction quality has been programmed into the computer. The cost figures for each class were taken from the Marshall Valuation manual, with modifications to reflect the Denton County market. A description of each class, and the quality levels in which that class can be found, is included at the end of this section. All DCAD residential cost schedules are evaluated and updated on an annual basis by the department manager. The uniqueness of some properties will necessitate use of the unit-in-place or segregated cost method. The appraiser will manually make the calculations using the Marshall Valuation Manual and enter the figures directly into the computer. If the appraiser can get actual costs on new construction, he can use those costs in the cost approach. Care must be taken to ensure that any costs provided represent actual total costs. Cost can be defined as the total expenditure necessary to construct an improvement and place it in the hands of the consumer. The appraiser may use actual new construction costs, as long as those figures represent actual total costs. In other words, the appraiser must make sure all indirect costs, as well as direct costs, are included. This will require a detailed breakdown of the submitted cost information. Summarized costs provided by tax consultants or taxpayers should be avoided unless substantial support for those figures can be provided. 102 The costs included in the Marshall Valuation Manual are the actual costs to the owner and include direct costs (materials, equipment rentals, utilities, labor, and supervision), as well as indirect costs (plans and plan check, site preparation, architectural and engineering fees, building permits, title and legal fees, and interest and fees on construction loans). Indirect costs also include the contractor’s profit and overhead, which includes fire, liability and unemployment insurance, and workmen’s compensation. When classing a structure, the appraiser must first ascertain the quality of the structure because the majority of DCAD classes are based on construction quality levels and amenities. The quality levels used in the DCAD residential class system can be grouped into three distinct levels: tract, custom, and luxury grade construction. Construction quality can be difficult to determine in buildings where the importance of appearance and amenities is equal to or greater than the importance of pure utility. It is usually true that a well-framed building is a well-finished structure. And it is also true that if a builder cuts corners on framing, he will probably also cut corners on finish-out and mechanical equipment. If an appraiser is having difficulty in determining the quality level of a building, he should refer to the DCAD and/or Marshall Valuation Manual for guidance. The final step in the cost approach is to establish the level of depreciation experienced by the improvement. Depreciation occurs in three forms: physical, functional, and economic. Physical deterioration is the loss in value due to the wear and tear of the property. The DCAD utilizes the Marshall Valuation Service residential depreciation tables to measure physical deterioration. These tables are a modified version of the overall Age-Life method. Whereas the Age-Life method assumes that a building depreciates by a constant percentage over its economic life, the Marshall Valuation tables recognize that a building is in the prime of life up until mid-life. This non-linear approach accounts for a slower depreciation rate in the early years as compared to the later years when diminishing serviceability and higher maintenance can accelerate depreciation. As part of the physical depreciation analysis, the appraiser should consider the “effective age” of the building. The effective age of a building is its actual age, less the age which has been taken off by structural face-lifting or reconstruction, removal of functional inadequacies, updating of equipment, etc. Functional obsolescence is the overall usefulness and desirability of a property. Functional obsolescence is the loss of value in a property improvement due to changes in style, taste, technology, needs, and demands. It exists where property suffers from poor or inappropriate architecture, poor floor plans, room sizes, etc. In these instances, buyers perceive a loss in utility; therefore, the price offered is lower due to reduced demand. Economic obsolescence (or external obsolescence) is the loss in value caused by outside forces such as in the highest and best use of a property due to market shifts or governmental actions, restrictions on income, zoning, neighborhood decline, etc. This can influence both land and improvements. Field inspection is required for the analysis and measurement of all forms of accrued depreciation. The appraiser should consider all conditions that diminish utility and estimate their combined effect on market value. Physical depreciation, functional and economic obsolescence, and effective age are also influenced by competition and market conditions. The appraiser, therefore, should also analyze the income and sales 103 of comparable properties when deciding on a measurement of accrued depreciation. All forms of depreciation are expressed as a percent good. Once the estimated depreciated improvement value is determined, it is then added to the land value resulting in an estimated total property value. The cost approach is used as a comparison to the market schedules. The cost schedule, based on construction of similar improvements, is developed from information gathered from reliable sources such as Marshall & Swift, a national publication of building cost; and local builders, local suppliers and any other sources considered reliable. The cost approach consists of calculating the replacement cost new for each improvement and then deducting for normal depreciation. The causes of accrued depreciation fall into three general categories: physical deterioration, functional obsolescence, and external (economic) obsolescence. Physical deterioration and functional obsolescence are inherent in the property itself, whereas external (economic) obsolescence is the result of outside forces. Physical deterioration is the loss in value due to the wear and tear of the property. There are curable and incurable forms of physical depreciation. It depends on whether the value added by curing them exceeds the cost to cure (it is not economically prudent to cure the condition). Effective age is the number of years of age of the improvement as indicated by its condition. If the improvement has been well maintained, its effective age may be less than the actual age; if there has been poor maintenance, it may be greater. The appraiser based on inspections determines this. Functional obsolescence is the overall usefulness and desirability of a property. Functional obsolescence is the loss of value in a property improvement due to changes in style, taste, technology, needs, and demands. It exists where property suffers from poor or inappropriate architecture, poor floor plans, room sizes, etc. Physical depreciation tables are taken from Marshall & Swift. Each of the different classes of homes are tied to different depreciation tables. The CAMA software applies the amount of depreciation based on either the actual age of the property or the effective age. The effective age of the structure is determined by the appraiser based on onsite inspects of the property. External obsolescence is the loss in value caused by outside forces such as in the highest and best use of a property due to market shifts or governmental actions, restrictions on income, zoning, neighborhood decline, etc. This can influence both land and improvement. Once the estimated depreciated improvement value is determined it is then added to the land value giving an estimated total property value. The cost approach is used as a comparison to the market schedules. V = LV + (RCN – D) (Value = Land Value + (Replacement Cost New – Depreciation) $142,084 = $22,297 + ($140,150 – 23%) 104 B. Market Approach The market approach to value is the preferred method for residential properties because they sell frequently and have a high degree of similarity within neighborhoods and market areas. The market approach provides the most accurate representation of value in an active real estate market. If and when a market becomes stagnant, or there are too few sales to create a comparable sales model, it may be necessary to utilize one of the other methods, including the cost approach. When using the market approach, the appraiser should take care to assure that the sales price is the total consideration given for the property. This is important because residential properties can include special financing arrangements, closing costs, points, etc. For example, many sales can include significant closing costs. It is important to determine what is “typical” for the neighborhood or market. If these sales are used in ratio studies, the value of the special financing, points, closing costs, personal property, etc. must be estimated and subtracted from the sale price in order to determine the purchase price for the real property alone if the inclusion of those items is considered non-typical for the market. Personal property consists of furniture, fixtures, machinery, equipment, etc. Appraisers should scrutinize each sale for these items, estimate their market value, and deduct it from the total purchase price. If the financing or personal property component of a sale cannot be estimated, the sale can be excluded from ratio studies. The appraiser should gather as many details as possible on any sales he may collect to allow that information to be used in the future as comparable sales. Pertinent data from actual sales of properties, both vacant and improved, is pursued throughout the year in order to obtain relevant information that can be used in all aspects of valuation. For example, sales of similarly improved properties can provide a basis for setting benchmarks for the market area. Improved sales are also used in ratio studies, which afford the appraiser an excellent means of judging the present level and uniformity of appraised values. C. Sales Information All sales information collected is the responsibility of the Sales and Research Department. Residential improved and vacant land sales are collected from a variety of sources including, but not limited to, district questionnaires sent to buyer and seller, field discovery, protest hearings, Roddy Report, builders, real estate professionals, and fee appraisers. A system of type, source, and validity codes was established to define salient facts related to a property’s purchase or transfer. Neighborhood and ISD sales reports are generated as a tool for the appraiser in the development of value estimates. Sales information is stored in the mainframe database. A system of type, source, and validity codes are established to define salient facts related to a property’s purchase or transfer (see type codes and validity codes below). ISD, neighborhood, and subdivision sales reports are generated as an analysis tool for the analyst in the development of value estimates. Sales information is entered into the sold account to generate a sales ratio. (DCAD estimate of market value divided by purchase price equals ratio.) 105 TYPE CODES VALIDITY CODES o A Appraisal I Invalid o C Confidential Sale V Valid o CI Confidential Imp Sale o CISRT Confidential Imp Short Sale o CL Confidential Land Sale o F Foreclosure o FCI Confidential Foreclosure Imp Sale o FCL Confidential Foreclosure Land o FI Foreclosure with Imp o FL Foreclosure Land o I Improvement Sale o IPC Partial Complete Imp o ISRT Imp Short Sale o L Land sale o M Miscellaneous Addition o P Pool added o Q Questionable The first phase involves subdivision/neighborhood ratio studies which compare the recent sales prices the appraised values of those properties that have recently sold. This set of ratio studies affords the appraiser an excellent means of judging the present level of appraised value and uniformity of the sales. In reviewing the sold properties the appraiser makes a determination as to the validity of the information. Foreclosed properties are used in our analysis, but if the neighborhood has more arms’ length sales than foreclosures the appraiser may determine that one foreclosure does not carry much weight. If the analysis determines that foreclosures are the norm in the neighborhood the appraiser needs to research the sale and determine the conditions of the foreclosure. Some foreclosed properties have been found to have the interiors striped of fixtures and appliances. Any sales that have been determined to be outside of a normal transaction or trend are recoded as “I” invalid. D. Income Approach The income approach to value is applied to those real properties which are typically viewed by market participants as “income producing,” and for which the income methodology is considered a leading value indicator. Because single family residences are typically owner occupied, the income method is generally the least used method of the three approaches. DCAD obtains rental rates for housing to develop Gross rent Multiplier (GRM) rates for areas that have rental properties. GRM rates will vary widely, and will require a substantial amount of information about the subject and comparable to be considered accurate. Because the DCAD computerized program utilizes the direct capitalization method, the GRM will be performed manually by the appraiser as needed. A discussion of the income approach is provided for properties where the income method is applicable. 106 E. Statistical Analysis The appraisers in the Residential Department perform statistical analysis annually to evaluate whether values are equitable and consistent with the market. Ratio studies are conducted on each subdivision, neighborhood and ISD to judge the two primary aspects of mass appraisal accuracy--level and uniformity of value. Appraisal statistics of central tendency and dispersion generated from sales ratios are available for each subdivision and/or neighborhood within an ISD and summarized. These summary statistics include, but not limited to, the median, the mean, the weighted mean, standard deviation, coefficient of dispersion (COD), and coefficient of variation (COV), provide the analysts an analytical tool by which to determine both the level and uniformity of appraised value of a subdivision and/or neighborhood basis. The level of appraised values can be determined by the weighted mean for individual properties within a subdivision/neighborhood, and a comparison of subdivision/neighborhood weighted means can reflect the general level of appraised value between comparable subdivision/neighborhoods. Review of the standard deviation, coefficient of dispersion and the coefficient of variation can discern appraisal uniformity within and between subdivision/neighborhoods. Pac software allows the appraiser to pull in information about all of the properties within a neighborhood includes but is not limited to; class, depreciation, year built, land size, and land value can be looked at for equity. The appraiser is able to sort the information in many different ways to look for problems, trends, equity, and anything else that shows itself. The profiling feature gives the appraiser quick information on the neighborhood based on the sold properties. See example below: 107 108 There are also several options within the software (as shown above) used to help the appraiser locate possible trends and or bias in the sold properties. The information includes, but is not limited to, location, square foot, classifications, age and depreciation, and any sales data. This is usually done by subdivision/neighborhood and then analyzed for inequality within the given data. Analysis is also conducted by downloading information from the district’s CAMA software to excel spreadsheets using the querying functions in the CAMA software. The appraiser, based on the sales ratio statistics, analysis derived from Pacs software and query information to a spreadsheet, makes a preliminary decision as to whether the value level in the subdivision/neighborhood needs to be re- evaluated, or whether the value in the subdivision neighborhood is at a defendable estimated of market value. 109 F. Market Adjustment or Trending Factors Market adjustment factors are developed from appraisal statistics provided from ratio studies and are used to ensure that estimated values are consistent with the market. The district’s primary approach to the valuation of residential properties uses a hybrid cost-sales comparison approach. This type of approach accounts for neighborhood market influences not specified in the cost approach. The following equation denotes the hybrid model used: MV = LV + ((CN - D) MA) Market Value = Land Value + ((Cost New – Depreciation) Market Adjustment) $142,084 = $22,297 + (($140,150 – 23%) 1.11%) Where the market value equals the land value plus the replacement cost new less depreciation time market adjustment factors. As the cost approach separately estimates both land and building values and uses depreciated replacement costs, which reflect only the supply side of the market, it is expected that adjustments to the cost values are needed to bring the level of appraisal to an estimate of market value. If the subdivision/neighborhood is to be updated, the appraiser uses a ratio study that compares recent sales prices of properties within a delineated subdivision/neighborhood with the properties’ appraised value. The calculated ratio derived from the sum of the sold properties’ appraised value divided by the sum of the sales prices indicates the subdivision-neighborhood level of value based on the unadjusted value for the sold properties. This comparison of appraised value-to-sale ratio determines the market adjustment factor for each subdivision/neighborhood. This market adjustment factor is needed to trend the values closer to the actual market evidenced by recent sales prices within a given subdivision - neighborhood. The market adjustment factor calculated for each updated subdivision-neighborhood is applied uniformly to all properties within a neighborhood and as needed in the subdivision. Once the market-trend factors are applied, a second set of ratio studies is generated that compares recent sale prices with the proposed appraised values for these sold properties. From this set of ratio studies, the appraiser judges the appraisal level and uniformity in both updated and non-updated subdivision-neighborhoods, and finally, for the school district as a whole. 2.36 Individual Value Review Procedures A. Field Review Property field inspections may be initiated for a variety of reasons. A property owner might dispute the district’s appraisal attributes or data concerning his property. Typically, a new field check is then requested to verify this evidence for the current year’s valuation or for the next year’s valuation. Additionally, if a building permit is filed for a particular property indicating a change in characteristics, a field check is then scheduled for that property. Finally, even though every property cannot be inspected each year, each appraiser typically designates certain segments of their area of responsibility to conduct field checks. 110 Residential appraisers are somewhat limited in the time available to field review all residential properties in a given area. Still, a major effort is made by appraisers to field review properties and economic areas experiencing large numbers of remodels, renovations, rental rates, new construction, or wide variations in sale prices. Additionally, the appraiser frequently field checks subjective data items such as class, quality of construction, condition, and physical, functional and economic obsolescence factors contributing significantly to the market value of the property. Sometimes field reviews are warranted when sharp changes in sales quantity and price levels occur between building classes or between market areas. Appraisers also physically inspect sold and unsold properties for comparability and consistency of values. In addition to conducting field reviews on a priority basis as discussed above, the residential department physically reviews all properties every 6 years as outlined in the IAAO Standard on Mass Appraisal. This review could be either onsite or by current aerials. Residential department manager along with the department supervisors determine the areas for onsite reviews each year. Residential appraisers should present themselves in a polite and professional manner and be prepared to deal with a variety of situations and personalities. Appraisers should always take the time to fully explain the reason for their visit, and are required to carry DCAD issued photo identification badges and business cards. B. Office Review Given the resources and time required to conduct a routine field review of properties, homogeneous properties consisting of tract housing with a low variance in sales ratios and other properties having a recent field inspection date are value reviewed in the office. Valuation reports comparing previous values against proposed and final values can be generated for all residential improved properties. Previous values resulting from a formal hearing protest and others from informal hearings are individually reviewed to determine if the value remains appropriate for the current year. Once the appraiser is satisfied with the level and uniformity of value for each subdivision-neighborhood within his area of responsibility, the residential department manager and department supervisors review the estimates of value. Although the value estimates are determined in a computerized mass appraisal environment, appraiser review helps to identify value anomalies before the value is released for noticing. 2.37 Performance Tests A. Sales Ratio Studies The primary tool used to measure mass appraisal performance is the ratio study. A ratio study compares appraised values to market values. In a ratio study, market values (value in exchange) are typically represented by sales prices (i.e. a sales ratio study). Independent, expert appraisals may also be used to represent market values in a ratio study (i.e. an appraisal ratio study). If there are not enough sales to 111 provide necessary representation, independent appraisals can be used as indicators for market value. This can be particularly useful for real property for which sales are limited. In addition, appraisal ratio studies can be used for properties that are by statute not appraised at market value, but reflect the use-value requirement. An example of this is homesteaded, residential properties that are located in an area of transition, that have a high likelihood of being sold or rezoned for commercial use. Sales ratio studies are an integral part of establishing equitable and accurate market value estimates, and ultimately assessments for taxing jurisdictions. The primary uses of sale ratio studies include the determination of a need for general reappraisal; prioritizing selected groups of property types for reappraisal; identification of potential problems with appraisal procedures; and, assist in market analyses. Pursuant to Chapter 5, of the Texas Property Tax Code, and Section 403.302, of the Texas Government Code, the Comptroller’s Property Tax Division (PTD) conducts an annual property value study (PVS) of each Texas school district and each appraisal district. As a part of this annual study, the code also requires the Comptroller to: use sales and generally accepted auditing and sampling techniques; test the validity of school district taxable values in each appraisal district and presume the appraisal roll values are correct when values are valid; and, determine the level and uniformity of property tax appraisal in each appraisal district. The methodology used in the property value study includes stratified samples to improve sample representation and techniques or procedures of measuring uniformity. This study utilizes statistical analysis of sold properties (sale ratio studies) and appraisals of unsold properties (appraisal ratio studies) as a basis for assessment ratio reporting. For appraisal districts, the reported measures include median level of appraisal, coefficient of dispersion (COD), the percentage of properties within 10% of the median, the percentage of properties within 25% of the median and price-related differential (PRD) for properties overall and by state category. B. Limitation of Appraised Value on Homesteads In 1997, the Texas Legislator, with the approval from the voting population enacted Section 23.23 of the Texas Property Tax Code. Section 23.23 provides that the appraised value of a residence homestead for a tax year will be limited to the lesser of either its market value or the sum of the market value of any new improvements and 110 percent of the appraised value for the preceding year. If an appraisal district reappraise each year then each year the property could be subject to the 10 percent limitation. If the district reappraise every 2 years then the increase would be as much as 20 percent and every 3 years it would be 30 percent. The Denton Central Appraisal District does reappraise every year. In an increase market this procedure can and will compound. The limitation takes effect the following year after the first year that the residential homestead was granted. The limitation expires on January 1 of the first year that neither the owner of the property when the limitation took effect nor the owner’s spouse or surviving spouse qualifies for the homestead exemption. 112 Example: 1 Market Value for 2017 $150,000 Market Value for 2018 $175,000 Limited Assessed Value Calculation for 2018 $150,000 * 1.10 = $165,000 Under these circumstances the market value is greater than the limited assessed value. The limited assessed value would then become the value used for tax calculation. Market Value for 2019 $190,000 Limited Assessed Value Calculation for 2019 $165,000 * 1.10 = $181,500 Again the market value is greater than the limited assessed value. The limited assessed value would then become the value used for tax calculation. Example: 2 Market Value for 2017 $120,000 Market Value for 2018 $150,000 *** Pool added to roll for 2018 Limited Assessed Value Calculation for 2018 $120,000 * 1.10 = $132,000 + $10,000 (pool) = $142,000 In this example a pool was added to the appraisal roll for 2018. The value of the pool is not subject to the “homestead cap”. The calculation for the limited assessed value is performed by using the 2017 value times 1.10 plus the value of the “new pool”. In this example even with the added value of the pool the limited assessed value is less than the market value. The limited assessed value would then be the value used for tax calculation. Market Value for 2019 $155,000 Limited Assessed Value Calculation for 2019 $142,000 * 1.10 = $156,200 For 2019 the pool would now become part of the value calculation for the limited assessed value “homestead cap”. The market value was $155,000 for 2019 and the limited value is $156,000. Since the market value is the lesser of the two, the market value would then become the value used for tax calculation. The value of any new improvements (new structures or the complete remodeling of the improvement) is added after the calculation of the limited assessed value. 113 Example: 3 In this example the property is receiving the open space valuation on the land for the year 2018. Improvement Value 2017 (House) $100,000 Improvement Value 2017 (Barns) $ 15,000 Land Homesite (1 acre) $ 7,500 Land Ag Use (19 acres) $ 2,090 Market Value of Land Receiving Ag Use (19 Acres) $142,000 Total Market Value $264,500 Total Assessed Value $124,590 Calculation of the limited assessment value for 2018 $100,000 (house) + $7,500 (land homesite) = $107,500 * 1.10 = $118,250 (Limited assessed value for homesite) $118,250 (limited assessed value) + $15,000 (improv. Non-homesite) + $2,090 (Ag Land) = $135,340 The limited assessed value for the portions receiving the homestead would be $118,250 adding in the portions not receiving the homestead $17,090 equals $135,340. 114 Example: 4 Adding land to homestead by combining 2 accounts; 229442 Lt 27, Lot size 0.1716 Market Value for 2017 $392,586 Homesteaded account 229443 Lt 28, Lot size 0.3926 Market Value for 2017 $ 32,615 Total Combined Value for 2017 $425,201 Do not combine the land segments in the first year that the lots are combined. PID 229442 is the current account and PID 229443 is deleted. Add a new segment line in the land for the size of lot 28 under the general tab. On the upper right hand side there is a box to click next to “ADD NEW TO HS FOR” PACs will enter the year. 229442 Lt 27,28; Lot size 0.5642 Market Value for 2018 $422,942 2018 Market Value is less than 2017 Market Value there is no cap. 115 Example: 5 Adding land to homestead by combining 2 accounts; 41115 J. Smith Tr. 16, 1.00 acres Market Value for 2017 $ 92,151 Homesteaded account 84168 J. Smith Tr. 17, 1.50 acres Market Value for 2017 $ 37,849 Total Combined Value for 2017 $130,000 (on distribute) Appraised Notice $138,922 Do not combine the land segments in the first year that the lots are combined. PID 41115 is the current account and PID 84168 is deleted. Add a new segment line in the land for the acres in TR 17 under the general tab. On the upper right hand side there is a box to click next to “ADD NEW TO HS FOR” pacs will enter the year. Improvement flag as New Value “Improv Detail” 41115 J. Smith Tr. 16 & 17, 2.50 acres Market value for 2018 Improv HS $ 80,486 Improv Non-HS $ 324 add to Homestead for 2018 Land HS $ 45,667 Land Non-HS $ 68,500 add to Homestead for 2018 Current market value for 2018 $194,977 Total Homestead value for 2018 2017 Market Value $130,000 * 1.10 = $143,000 Limited Assessed Value Calculation for 2018 $143,000 + $324 +$68,500 = $211,824 Cap Limit Calculation is higher than 2018 Market Value so there is no cap after combining accounts. **FLAG THE ADDED IMPROVEMENT 116 2.38 Value Defense Procedures The appeals process begins with an informal meeting between the appraiser and the property owner to discuss any errors, discrepancies of market value and/or equity, and any claims of exemptions or special valuations (agricultural use, restricted use value, etc.). The informal review may be handled by mail, in person, or by telephone. The review allows for communication and mutual understanding, which will reduce the number of formal appeals. Informal reviews should incorporate the following basic steps: 1) Verify the parcel information; 2) Exchange information; 3) Record the nature of complaint; 4) Use cost, sales, or income information to confirm property value; 5) If a value change is indicated, the appraiser will change the value and enter into a signed agreement with the property owner; 6) If a value change is not warranted, the appraiser should explain the appeal rights and procedures, in case the property owner wishes to make a formal appeal. Residential appraisers must get written approval from the Residential Manager or Supervisors to settle any property with an appraised value of $1,000,000 or higher. Appraisal Review Board hearings (formal appeals) are the next step in the appeals process. Prior to the hearing, the property owner should be given a copy of the evidence the appraiser plans to use in evidence. The appraiser should be prepared to present factual information relating to the property, such as copies of tax maps, pictures of the property, improvement drawings, etc., as well as valuation information, such as the cost, market, and income approaches to value as necessary. If there is an equity component to the appeal, the appraiser should be prepared to present a reasonable sample of equity comparable based on cost, sales, or income as appropriate. 2.39 Education and Training All employees shall have the knowledge and expertise to do their job. Each employee will have a minimum educational standard required for their position. In addition, DCAD will supply the following: A. On the job training – each employee will receive training on procedures, policy, and equipment by their supervisor and other employees in similar positions. B. State required education and registration – all employees so required will achieve and maintain their own educational and registration requirements. C. Additional training and education – from time to time, additional training and education will be required to enhance job performance, knowledge and expertise. Employees will be expected to perform to a minimum standard. 117 Denton Central Appraisal District Residential Department Field Classification Guide Revised January, 2014 Note: This manual is intended to be used as a guide. It is not intended to address individual characteristics and the minor variations between similar properties. It is possible that structures may have part or all of the features that are described in each class. Enhancements or detraction from the cost schedule are handled individually. 118 Basic category groupings for classifications: Class 1 Basic, Low Cost Structure Very Basic Class 2 Fair, Low Cost Structure Class 3 Average / Low Quality Tract Home Individually Blt/ Class 4 Above Average Quality Tract Home or Tract Home Class 5 Premium Quality Tract / Semi-Custom Home Class 5A Semi-Custom Home Custom Class 5B Semi/Full Custom Home Class 5C Full Custom, Luxury Home Special Pricing Highly Unique, Exceptional Quality, Luxury Estate Some classifications have a corresponding “E” class. The “E” class has the same basic specifications. The exceptions for “E” are additional refinements in material and workmanship. Ornamentation will be more defined in some cases. Classes with the “E” are improved version of the class without the “E”, but are not worthy of being moved into a higher class. Note: All Class Descriptions are adapted from the Marshal & Swift Residential Cost Handbook, ©2009 Marshal & Swift; and Exceptional Homes, A Cost Guide for High-Value and Unique Residences, ©2009 Marshal & Swift. 119 Class 1 Class 1 structures will be of low cost construction quality and materials. These structures will meet the minimum standards for local building codes. Interior finishing will be plain and inexpensive and designed for functionality, with little or no attention given to appearance. The exterior finish will be plain, with little to no trim. Windows and doors will be of low cost grade to meet minimum building standards. The interior of Class 1 structures will meet the minimum requirements for local building codes. All fixtures will be of low cost quality and minimal in quantity. Class 2 Class 2 structures will be of inexpensive construction quality designed and built typically for mass production. Windows and doors will be inexpensive with little trim. The overall quality of workmanship is below average, but not below building code standards. A class 2 house will meet minimum construction requirements of lending institutions. The design will most likely be from stock plans. The interior of Class 2 structures will be finished with inexpensive grade materials. Fixtures will be inexpensive and sufficient in quantity for the application. Flooring will be of inexpensive, mass produced quality. Interior trim will be minimal. Class 3 Class 3 structures will be of average quality construction and materials. Most structures will be built as standardized plans with minimal options, but could have additional refinements to the interior and exterior. Doors and windows will be of average quality, mostly stock & widely available materials. The overall quality of construction will be average. Exterior trim will have sufficient ornamentation, average quality masonry design, and average quality fenestration. The interior of a class 3 will be of average quality, using standard grade materials and workmanship. Flooring will be of average, stock quality. Fixtures will be of average quality and quantity. Some rooms of the structure may receive slight levels of enhancement with trim for appearance. Class 4 Class 4 structures will be of above average quality construction and materials. Most structures will be built as standard plans, and may be built with mass production construction techniques and methods. Structures will have individual variances in the ornamentation and finish of the exterior. Roofing materials will be of a moderately good quality weight and appearance. Structures will generally exceed building code standards and requirements of lending institutions. Structure is best described as a good quality tract home with individually selected standardized variations. The interior of a Class 4 structure will generally be of above average quality. Interiors are well finished with above average level of attention is given to interior refinements and detail. Flooring will be of good quality materials. Ample amounts of cabinetry in kitchen area of good quality. Overall interior finish and craftsmanship is of average to above average, and good quality. 120 Class 5 Class 5 structures are of high quality construction and materials. These structures will frequently have individual attention to detail. Some structures will be designed from tract type construction plans that may have multiple options and variations. Roofing material will be of good to high quality materials. This class is best described as a high quality tract home, or individually designed structure with individual options and ornamentation. The exterior of the Class 5 structure will have more attention to detail, and will have different levels of ornamentation and fenestration. The interior of Class 5 structures will be above average to high quality throughout. Flooring will be of high grade materials. Interior ceiling height could likely to be greater than 8’, with vaulted, stepped or cathedral ceilings in some areas such as master bedrooms and main living areas. Hardware will be above average to high quality. Crown molding or additional trim is likely to be present in main living areas, kitchens, and master bedroom areas. Fixtures will be more than adequate, well placed, and above average to high quality. Kitchens will have high quality cabinets with high quality hardware. Kitchens may include items such as island counters, etc. Overall interior finish and craftsmanship is of high quality. Class 5A Class 5A structures are of excellent quality construction and materials. The term “excellent” is not to be interpreted as “best” or “highest”. These structures will be, for the most part, individually designed with individual attention to detail. Some Class 5A structures will be built from a standardized builder plan, but are likely to be modified to individual preferences. Class 5A structures are best described as a semi-custom home with individually selected features that exhibit a level of uniqueness in their appearance. The exterior of Class 5A structures will be of excellent quality, but not the highest or best quality. Roofing materials will be of excellent quality, heavy-weight materials, and will occasionally include metal or masonry-type material. High quality windows with high quality sash, and insulation features will be standard. Non-masonry siding will be of high quality materials and installation. These structures will have some custom ornamentation, excellent quality masonry work, and individually selected masonry styles. The interior of Class 5A structures will be of excellent quality construction and materials. The term “excellent” is not to be interpreted as “best” or “highest”. Interior ceiling height for a Class 5A house is likely to be 9 to 10 Feet. High quality interior doors and hardware will be standard. Vaulted, stepped or cathedral ceilings in areas such as master bedrooms and main living areas will be common. Cabinetry will be individually selected for the residence. Bedrooms will have spacious closets. Interior fixtures will be of excellent quality, abundant, and well placed. Some fixtures may be unique in design. Kitchens will have high quality cabinets with high quality hardware. Kitchen design may include items such as island counters, wet bars, etc. Master Bath areas will be spacious, and may include separate tub and shower areas. High grade plumbing fixtures will be standard. Class 5B Class 5B structures are of excellent quality construction and materials, and are characterized by custom quality workmanship and materials. These structures will be individually designed with significant individual attention to detail. Class 5B structures will be built from a custom designed plan and will have a high degree of customization to individual preferences. Class 5B structures are best described as a full custom home that exhibits a high degree of uniqueness in appearance. The exterior of Class 5B structures 121 will be of excellent quality including high quality windows with high quality sash and high quality non- masonry siding. These structures will have custom ornamentation including exposed wood, cast or cut stone, high quality natural stone, etc. with excellent quality masonry work and individually selected masonry styles. Some structures will utilize stucco or similar material. Roofing materials will be of excellent quality, heavy-weight materials, and will occasionally include metal, clay tile, slate or other masonry-type material. Roof design will typically have a moderately steep pitch with multiple ridges and valleys. The interior of a Class 5B structure will be of custom, excellent quality materials and construction. typically interior ceiling height for a Class 5B house is 9 to 10 Feet. Interiors may likely have solid core doors with high quality custom grade hardware. Interior finish will include custom textures for walls, high quality crown molding, trim, and additional accent features. Vaulted, stepped or cathedral ceilings in areas such as master bedrooms and main living areas are typical. Cabinetry and built in shelving will be individually selected for the residence, and will have high quality finish and hardware. Interior fixtures will be of custom grade quality, abundant, and well placed. Kitchens will have high quality custom cabinets with high quality materials, finish, and hardware. Kitchen design will include items such as island counters, wet bars, etc. Master Bath areas will be spacious, and may include separate tub and shower areas. High grade plumbing fixtures will be standard. High quality, custom grade wood or tile flooring will be standard. Stairwells for 2-story homes could have custom detailed banisters. Overall, the interior of Class 5B home is of excellent quality materials, custom design, and excellent quality custom workmanship. Class 5C Class 5C structures are of the highest quality construction and materials, and are characterized by custom quality workmanship throughout the entire structure. These structures will be individually designed with a high level of attention to detail. Class 5C structures will be built from an individually custom designed plan and will have a high degree of customization to individual preferences. Class 5C structures are best described as a full custom home with luxury features that exhibit a very high degree of uniqueness in appearance. The exterior of Class 5C structures will be of the highest quality including highest quality windows and doors with highest quality sash and highest quality non-masonry siding. Entry doors will be custom designed with substantial detail and workmanship. These structures will have significant levels of custom ornamentation including exposed wood, cast or cut stone, high quality natural stone, etc. with the highest quality masonry work and individually selected masonry styles. Stucco type materials will be common at this level of quality. Roofing materials will be of the highest quality, heavy-weight materials, and will include metal, clay tile, slate or other masonry-type material. Roof design will typically have a steep pitch with multiple ridges and valleys. Highest quality gutters and downspouts will be standard. The interior of a Class 5C structure will be of the highest quality custom, luxury materials and construction techniques. Normally the minimum interior ceiling height for a Class 5C house is 10 Feet. Many structures will have ceiling height greater than 10 feet. Interiors could have solid core doors with the highest quality custom grade hardware. Interior finish will include the highest quality custom textures for walls, individually selected high quality crown molding, trim, and additional accent features. Vaulted, stepped or cathedral ceilings in areas such as master bedrooms and main living areas are typical, ceilings will typically have individually customized, and coffered/vaulted panel designs using the highest grade custom materials. Cabinetry and built in shelving will be individually selected and of the highest grade materials and include the highest quality custom hardware. Bedrooms will have spacious closets. Interior fixtures 122 will be of the highest quality and custom grade, abundant, and well placed. Kitchens will have the highest quality custom cabinets with highest quality materials, finish, and hardware. Kitchen design will include items such as island counters, wet bars, etc. Master Bath areas will be spacious, luxurious, and will include separate tub and shower areas with the highest quality finish including custom designed vanities, lighting, etc. Highest grade plumbing fixtures will be standard. Highest quality, custom grade wood or tile flooring will be standard. Materials such as terrazzo, high grade marble, granite, or other luxury grade materials are commonly used. Stairwells for 2-story homes will have custom designed and highest quality wood or other materials used in banister construction. Overall, the interior of Class 5C home is of the highest quality materials, custom, luxurious design, and the highest quality custom workmanship. Class Special Price (SP) Use of Special Price Class should be limited to residences that exceed the base cost of Class 5C by the addition of extensive amounts of fixtures and accessories that are not covered in the basic cost calculations for that class. 123 Denton Central Appraisal District Residential Department Field Classification Guide Revised January, 2014 Beginning Use in 2014 Note: This manual is intended to be used as a guide. It is not intended to address individual characteristics and the minor variations between similar properties. It is possible that structures may have part or all of the features that are described in each class. Enhancements or detraction from the cost schedule are handled individually. 124 Basic category groupings for classifications: Class 6 Basic, Low Cost Structure Class 7 Low / Avg. Quality Tract Home Class 8 Tract Class 9 Above Average / High Quality Tract Home Class 10 Premium Quality Tract / Semi-Custom Home Class 10A Custom Class 10B Full Custom Home Class 10C Full Custom, Luxury Home Class 10D Class 11 Class 11A Premium Quality Luxury Home Luxury Class 11B Class 11B&11C Highest Quality Premium Luxury Home Special Pricing Highly Unique, Exceptional Quality, Luxury Estate Some classifications have a corresponding “E” class. The “E” class has the same basic specifications. The exceptions for “E” are additional refinements in material and workmanship. Ornamentation will be more defined in some cases. Classes with the “E” are improved version of the class without the “E”, but are not worthy of being moved into a higher class. Note: All Class Descriptions are adapted from the Marshal & Swift Residential Cost Handbook, ©2009 Marshal & Swift; and Exceptional Homes, A Cost Guide for High-Value and Unique Residences, ©2009 Marshal & Swift. 125 Class 6 Class 6 structures will be of low cost construction quality and materials. These structures will meet the minimum standards for local building codes. All architecture will be designed for functionality, with little or no attention given to appearance. The exterior finish will be plain, with little to no trim. Windows and doors will be of low cost grade to meet minimum building standards. The interior of Class 6 structures will meet the minimum requirements for local building codes. All fixtures will be of low cost quality and minimal in quantity. Very little or no attention will be given to detail for interior finish. Flooring will be low cost, and will meet the minimum building code requirements. Class 7 Class 7 structures will be of inexpensive construction quality designed and built typically for mass production. Class 7 structures are best described as a basic tract home. Most structures will be built from a standardized set of plans with few options. Architecture will usually be standardized to allow for the use of mass produced, inexpensive materials. Windows and doors will be inexpensive with little trim. Exterior trim and ornamentation will be limited to the front of the structure. The overall quality of workmanship is below average, but not below building code standards. The interior of Class 7 structures will be finished with inexpensive grade materials. Fixtures will be inexpensive and sufficient in quantity for the application. Flooring will be of inexpensive, mass produced quality. Interior trim will be minimal. Class 8 Class 8 structures will be of average quality construction and materials. Most structures will be built as standardized plans with minimal options, but will have additional refinements to the interior and exterior. Doors and windows will be of average quality, mostly stock & widely available materials. The overall quality of construction will be average. Exterior trim will have sufficient ornamentation, average quality masonry design, and average quality fenestration. The interior of a class 8 will be of average quality, using standard grade materials and workmanship. Flooring will be of average, stock quality. Fixtures will be of average quality and quantity. Some rooms of the structure may receive slight levels of enhancement with trim for appearance. Class 9 Class 9 structures will be of above average quality construction and materials. Most structures will be built as standard plans, and may be built with mass production construction techniques and methods. Class 9 structures will have individual variances in the ornamentation and finish of the exterior. Roofing materials will be of a moderately good quality weight and appearance. Structures will exceed building code standards in nearly all categories. A class 9 structure is best described as a good quality tract home with individually selected standardized variations. The interior of a Class 9 structure will be of above average quality. Interiors are well finished with above average level of attention is given to interior refinements and detail. Flooring will be of good quality 126 materials. Ample amounts of cabinetry in kitchen area of good quality. Some areas of the interior may have vaulted, stepped, or cathedral ceilings. Overall interior finish and craftsmanship is of above average, and good quality. Class 10 Class 10 structures are of high quality construction and materials. These structures will frequently have individual attention to detail. Some structures will be designed from tract type construction plans that may have multiple options and variations. Roofing material will be of high quality materials, including but not limited to metal. A class 10 structure is best described as a high quality tract home, or individually designed structure with individual options and ornamentation. The exterior of Class 10 structures will have considerable attention to detail, and will have considerable levels of ornamentation and fenestration. The interior of Class 10 structures will be high quality throughout. Flooring will be of high grade materials. Interior ceiling height is likely to be greater than 8’, with vaulted, stepped or cathedral ceilings in some areas such as master bedrooms and main living areas. Hardware will be high quality. Corners and coves will receive additional detail and trim. Crown molding or additional trim will likely be present in main living areas, kitchens, and master bedroom areas. Fixtures will be abundant, well placed, and of high quality. Kitchens will have high quality cabinets with high quality hardware. Kitchens may include items such as island counters, wet bars, etc. Overall interior finish and craftsmanship is of high quality. Class 10A Class 10A structures are of excellent quality construction and materials. The term “excellent” is not to be interpreted as “best” or “highest”. These structures will be, for the most part, individually designed with individual attention to detail. Some Class 10A structures will be built from a standardized builder plan, but are likely to be modified to individual preferences. Class 10A structures are best described as a semi- custom home with individually selected features that exhibit a level of uniqueness in their appearance. The exterior of Class 10A structures will be of excellent quality, but not the highest or best quality. Roofing materials will be of excellent quality, heavy-weight materials, and will occasionally include metal or masonry-type material. High quality windows with high quality sash, and insulation features will be standard. Non-masonry siding will be of high quality materials and installation. These structures will have some custom ornamentation, excellent quality masonry work, and individually selected masonry styles. The interior of Class 10A structures will be of excellent quality construction and materials. The term “excellent” is not to be interpreted as “best” or “highest”. Interior ceiling height for a Class 10A house is likely to be 9 to 10 Feet. High quality interior doors and hardware will be standard. Vaulted, stepped or cathedral ceilings in areas such as master bedrooms and main living areas will be common. Cabinetry will be individually selected for the residence. Bedrooms will have spacious closets. Interior fixtures will be of excellent quality, abundant, and well placed. Some fixtures may be unique in design. Kitchens will have high quality cabinets with high quality hardware. Kitchen design may include items such as island counters, wet bars, etc. Master Bath areas will be spacious, and may include separate tub and shower areas. High grade plumbing fixtures will be standard. 127 Class 10B Class 10B structures are of excellent quality construction and materials, and are characterized by custom quality workmanship and materials. These structures will be individually designed with significant individual attention to detail. Class 10B structures will be built from a custom designed plan and will have a high degree of customization to individual preferences. Class 10B structures are best described as a full custom home that exhibits a high degree of uniqueness in appearance. The exterior of Class 10B structures will be of excellent quality including high quality windows with high quality sash and high quality non- masonry siding. These structures will have custom ornamentation including exposed wood, cast or cut stone, high quality natural stone, etc. with excellent quality masonry work and individually selected masonry styles. Some structures will utilize stucco or similar material. Roofing materials will be of excellent quality, heavy-weight materials, and will occasionally include metal, clay tile, slate or other masonry-type material. Roof design will typically have a moderately steep pitch with multiple ridges and valleys. The interior of a Class 10B structure will be of custom, excellent quality materials and construction. Typically interior ceiling height for a Class 10B house is 9 to 10 Feet. Interiors may likely have solid core doors with high quality custom grade hardware. Interior finish will include custom textures for walls, high quality crown molding, trim, and additional accent features. Vaulted, stepped or cathedral ceilings in areas such as master bedrooms and main living areas are typical. Cabinetry and built in shelving will be individually selected for the residence, and will have high quality finish and hardware. Bedrooms will have spacious closets. Interior fixtures will be of custom grade quality, abundant, and well placed. Kitchens will have high quality custom cabinets with high quality materials, finish, and hardware. Kitchen design will include items such as island counters, wet bars, etc. Master Bath areas will be spacious, and may include separate tub and shower areas. High grade plumbing fixtures will be standard. High quality, custom grade wood or tile flooring will be standard. Stairwells for 2-story homes will have custom detailed banisters. Overall, the interior of Class 10B home is of excellent quality materials, custom design, and excellent quality custom workmanship. Class 10C Class 10C structures are of the highest quality construction and materials, and are characterized by custom quality workmanship throughout the entire structure. These structures will be individually designed with a high level of attention to detail. Class 10C structures will be built from an individually custom designed plan and will have a high degree of customization to individual preferences. Class 10C structures are best described as a full custom home with luxury features that exhibit a very high degree of uniqueness in appearance. The exterior of Class 10C structures will be of the highest quality including highest quality windows and doors with highest quality sash and highest quality non-masonry siding. Entry doors will be custom designed with substantial detail and workmanship. These structures will have significant levels of custom ornamentation including exposed wood, cast or cut stone, high quality natural stone, etc. with the highest quality masonry work and individually selected masonry styles. Stucco type materials will be common at this level of quality. Roofing materials will be of the highest quality, heavy-weight materials, and will include metal, clay tile, slate or other masonry-type material. Roof design will typically have a steep pitch with multiple ridges and valleys. Highest quality gutters and downspouts will be standard. 128 The interior of a Class 10C structure will be of the highest quality custom, luxury materials and construction techniques. Minimum interior ceiling height for a Class 10C house is 10 Feet. Many structures will have ceiling height greater than 10 feet. Interiors will have solid core doors with the highest quality custom grade hardware. Interior finish will include the highest quality custom textures for walls, individually selected high quality crown molding, trim, and additional accent features. Vaulted, stepped or cathedral ceilings in areas such as master bedrooms and main living areas are typical, ceilings will typically have individually customized, and coffered/vaulted panel designs using the highest grade custom materials. Cabinetry and built in shelving will be individually selected and of the highest grade materials and include the highest quality custom hardware. Bedrooms will have spacious closets. Interior fixtures will be of the highest quality and custom grade, abundant, and well placed. Kitchens will have the highest quality custom cabinets with highest quality materials, finish, and hardware. Kitchen design will include items such as island counters, wet bars, etc. Master Bath areas will be spacious, luxurious, and will include separate tub and shower areas with the highest quality finish including custom designed vanities, lighting, etc. Highest grade plumbing fixtures will be standard. Highest quality, custom grade wood or tile flooring will be standard. Materials such as terrazzo, high grade marble, granite, or other luxury grade materials are commonly used. Stairwells for 2-story homes will have custom designed and highest quality wood or other materials used in banister construction. Overall, the interior of Class 10C home is of the highest quality materials, custom, luxurious design, and the highest quality custom workmanship. Class 10D Class 10D structures are of the best quality construction and materials, and are characterized by the best quality workmanship throughout the entire structure. These structures will be individually designed with the best level of attention to detail. Class 10D structures are similar to Class 10C structures with additional levels of luxury features. A Class 10 D structure is best described as a very high quality luxury home with completely custom designed features. Exteriors will have the best quality windows and doors. Exterior walls will be as thick as 8-12 inches. Clay, slate, or high grade metal roofing material will be standard. Large roof overhangs of up to 3 feet are common. The interior of a Class 10D is similar to a Class 10C, but with additional levels of luxury materials, fixtures, and craftsmanship. Flooring will be of luxury grade, or exotic type hardwoods, tile, or other material that is finished to a very high level, and are rated for high sustainability. Substantial levels of trim, moldings, and textures applied to ceilings and walls. Some residences will have plaster walls and ceilings creating a highly refined look. Stairwells for 2-story homes will be made from custom stone or hardwoods, and include a high grade custom banister with substantial ornamentation. Kitchen areas will have elaborate cooking and preparations areas with the highest grade appliances and ventilation systems, in addition to luxury grade cabinetry and countertops. Sinks and basins will be of custom, high grade design and materials. Master bathrooms will be finished elaborately with substantial detail. Tub and shower design will be of a custom luxury level. Overall, the interior of a Class 10D home is of the best quality materials with custom, luxurious design, and the best custom workmanship. 129 Class 11 Class 11 structures are of the finest quality construction and materials, and are characterized by the very best quality workmanship throughout the entire structure. These structures will be individually designed with the finest level of attention to detail. Class 11 structures are similar to Class 10D structures with additional levels of finish and extensive attention to luxury features. A Class 11 structure is best described as an extensively appointed, exceptionally high quality luxury home with completely custom designed features. Class 11 structures will generally require extensive engineering costs due to the complexity of the design and the environmental control systems required. The construction of many Class 11 structures will require the use of steel reinforcement (I-beams, etc.) for large spans within the structure and for additional support for the second floor. The exterior of Class 11 structures will have substantial levels of detail and fenestration. Doors and windows will be custom designed and of the very best quality. Roof design will have exceptional quality materials and will have substantial levels of detail and ornamentation. The interior of a Class 11 is similar to a Class 10D, but with additional levels of luxury materials, fixtures, and craftsmanship. Flooring will be of premium luxury grade, or exotic type hardwoods, tile, or other material that is finished to a very high level, and are rated for high sustainability. Flooring will frequently have custom inlaid materials, unique designs, patterns or artwork. Extensive levels of trim, moldings, and textures applied to ceilings and walls. Residences will often have plaster walls and ceilings creating a highly refined look. Trim/molding may include hand-fabricated custom materials, and may be finished with high levels of detail. Ceilings may have plaster moldings or embossed metals for additional detail. Hand painted murals on ceilings and walls are common at this level. Interior layouts will include elaborate special- purpose rooms such as libraries, theaters, reception areas, hidden rooms, etc. Some residences may have additional master suites or an elaborate guest suite. Master bedrooms will be extensively appointed with the finest materials. Master closets will have peninsula or island type dresser cabinetry that is custom designed with high grade materials and hardware within each of the his/her closets, and the closets will be very spacious with luminous lighting. Some structures may have additional kitchens or kitchenette areas for convenience. Minimum ceiling height for most class 11 structures will exceed 12 feet in height. Overall, a Class 11 interior is of the very best quality luxury materials and workmanship with elaborate levels of detail and refinement. Class 11A Class 11A structures will be of the finest quality of construction and workmanship. Class 11A structures will be completely unique in design and workmanship. Structures of this quality will have extraordinarily high levels of detail and luxury items. Class 11A structures are best described as individually designed, unique, custom structures with extraordinary levels of detail, refinement, and luxury; and will incorporate only the finest quality materials and workmanship. A partial steel frame for construction is common for residences of this quality to accommodate large spans in open areas. The exterior of a Class 11A will be of the finest quality materials, and workmanship. Nearly all windows and doors will be custom designed for that residence, and will be of the finest quality available. Exterior trim will feature extraordinary levels of detail to ornamentation and fenestration. Structures may have exposed wood beams, or other unique ornamentation. Most exterior walls will be approximately 12” thick. Roof design will incorporate steep slopes and will use the finest custom materials with extensive ornamentation. Some roof materials may be imported from “one of a kind” sources. Some High quality flashing, such as copper or other high grade metals will be used. Gutters will be of the finest quality and will be custom designed for the residence. Front entries will have extraordinary levels of detail and incorporate the finest quality materials available. 130 Interiors of Class 11A structures will be of the finest quality of construction, design, and craftsmanship. Most structures will have the finest grade plaster walls with extraordinary levels of molding and trim. Nearly all doors and windows will have molding and trim. Flooring will be of premium quality, custom, luxury grade materials. Only the finest materials including imported tiles, terrazzo, high grade marble, custom exotic parquet or plank hardwood flooring with custom, hand tailored finishes will be used. Ceilings will contain extensive and elaborate designs including vaulted, coffered, ceilings with embossed tin or plaster moldings. Some ceilings will have hand painted murals in addition to other custom artwork throughout the structure. Nonstandard corners, angles, and radii will frequently be used for wall and ceiling design. Electrical design will frequently incorporate extensive home automation systems to control lighting, sound, climate, etc. Lighting fixtures will be extensive, well-placed, and of the finest quality. Lighting may include several elaborately designed fixtures in prominent areas. Kitchens will spacious and feature the finest quality materials and uniqueness in design. Some structures may feature separate kitchen areas to be used by staff or for food preparation. The primary kitchen area will be used as a focal point, or for entertaining. Master bathrooms will incorporate spacious areas with separate tub and shower facilities. Plumbing fixtures are of the finest quality. Master bathrooms may have separate his/hers toilets. Showers will be spacious and custom designed with elaborate materials and custom fixture arrangement. Showers will likely have multiple spray heads, valves, and temperature controls. Master Bedroom closet areas will be custom designed with elaborate cabinetry and storage design. Only the finest quality materials and hardware will be used. Many structures will contain multiple rooms designed for specific purposes, such as libraries, wine rooms, theaters, reception areas, gift wrapping rooms, craft rooms, recording studios, etc. These rooms will be individually designed for the owner with only the finest materials and craftsmanship. Minimum ceiling height for most class 11A structures will exceed 12 feet in height. Overall, Class 11A interiors will be characterized by extraordinary levels of design, detail, and luxury. Class 11B Class 11B structures exemplify the very finest quality of workmanship, with the very finest, superior quality luxury materials and workmanship. At a minimum, Class 11B structures will incorporate the features and qualitative aspects of an 11A structure with additional levels of refinement and luxury. Although the Class 11B represents the use of the very finest luxury materials and workmanship for home construction, it does not represent the highest cost for residential construction. Nearly every aspect of a Class 11B structure will utilize superior grade luxury materials and craftsmanship. Rooflines of Class 11B homes will typically be highly complex and steep in design with superior grade materials. Exterior design will be highly unique with extensive and superior levels of fenestration detail. Turrets, bay windows, non- standard angles, and complex architecture are very common. The interior of Class 11B will exemplify the very finest quality of workmanship, with the very finest, superior quality luxury materials and workmanship. At a minimum, Class 11B structures will incorporate the interior features and qualitative aspects of an 11A structure with additional levels of refinement and luxury. Use of multiple textures on walls such as plaster, wood paneling, stone/tile walls, etc. is common. Extensive levels of superior, luxury grade paneling, trim, and molding will be present in all main areas. Ceilings will receive superior grade design with only the very finest of materials. Staircases may have multiple curves, including “floating staircases” with superior grade hardware, handrails, and balusters. Arched entries with extensive ceiling treatments into rooms and hallways are common. Use of one of a kind and historically significant materials or fixtures is common. 131 CLASS 11C Class 11C structures do not appear frequently and has many variations in specifications and installation of special features. In most cases the very best possible materials have been used with a tendency toward the elaborate. This type of house has been especially designed by an architect to meet the owners’ requirements and will contain many special features. The house will have been built under architectural supervision by a good contractor, using the best type of labor available. Use of class 11C should be limited to residences that exceed the base cost of Class 11B by the addition of extensive amounts of fixtures and accessories that are not covered in the basic cost calculations for that class. Class Special Price (SP) Use of Special Price Class should be limited to residences that exceed the base cost of Class 11B by the addition of extensive amounts of fixtures and accessories that are not covered in the basic cost calculations for that class. 132 AREAS CODES FOR PRICING SEGMENTS Living Area's Code % Of Base Price First Floor MA 100 Attached Addition MAAA 100 Attached Addition MAA50 50 Attached Addition MAA66 66 Attached Addition MAA75 75 Game Room MAGM 100 Bonus Room MABR 100 Basement MABA 100 MA2 94% ALL 10'S,3,3E,4,4E,ALL 5'S MA2 90% 7,7E,8,8E,9,9E MA2 100% 1,1E,2,2E,6,6E,11,11A,11B MA3 94% ALL 10'S,ALL 5'S MA3 90% 7,7E,8,8E,9,9E MA3 100% 1,1E,2,2E,3,3E,4,4E,6,6E,11,11A,11B MA4 90% 10D,10DE,11,11A,11B Barn BRN 100 Stables STB 100 Pool PL 100 Arena ARN 100 Outdoor Kitchen ODKIT FLAT PRICE Storage STG 100 LIVING AREA'S AT A PERCENT OF BASE PRICE Living Area's New Code % Of Base Price Game Room GM75 75 Game Room GM66 66 Game Room GM50 50 Basement BA75 75 Basement BA50 50 DETACHED LIVING AREA'S Living Area's New Code % Of Base Price Detached Living Quarters DL66 66 Detached Living Quarters DL50 50 Living Quarters LQ66 66 Living Quarters LQ50 50 Bath House BH50 50 Bath House BH33 33 PORCHES, CARPORTS, DECKS New Code % Of Base Price Balcony, Open Porch BL,OP 15 Balcony, Open Porch BL25,OP25 25 Balcony, Open Porch BL10,OP10 10 133 Carports, Decks CP,DK 15 Carports, Decks CP25,DK25 25 Carports, Decks CP10,DK10 10 Gazebo GZ 15 Gazebo GZ25 25 Gazebo GZ10 10 Glass Porch, Porch Area GP,PA 33 Glass Porch, Porch Area GP66,PA66 66 Glass Porch, Porch Area GP50,PA50 50 Glass Porch, Porch Area GP25,PA25 25 GARAGE & STORAGE New Code % Of Base Price Attached Garage AG 33 Attached Garage AG25 25 Storage SA 33 Storage SA50 50 Storage SA25 25 Enclosed Garage EG 40 Enclosed Garage EG75 75 Enclosed Garage EG33 33 Detached Garage DE33 33 Detached Garage DE25 25 134 EXAMPLE OF VALUE CALCULATION: This is an example of a class 8 house, total living area of 3,200. The house has 2 stories, an attached 2 car garage, and covered porches. MA 2,400 (1st floor) MA2 800 (2nd floor) AG 528 (attached garage) OP 160 (covered porch) Codes Area Unit Price Dep. NBHD MA 2,400 x $ 50.25 x 98% x 105% = $ 124,097 MA2 800 x $ 45.23 x 98% x 105% = $ 37,233 AG 528 x $ 16.58 x 98% x 105% = $ 9,008 OP 160 x $ 7.54 x 98% x 105% = $ 1,241 Value of Improvement $ 171,580 Land Value 32,000 Total Indicated Value of Property $ 203,580 135 CLASS 1740 RESIDENTIAL TENNIS COURTS Class 1740RN No Contributory Value 1740RB Basic (court only) 1740RA Average (court & fence) 1740RG Good (court, fence, lighting) 1740RE Excellent (court, fence, lighting) Note: Tennis Courts classes 1740, 1740A, and 1740B will be used for commercial only. CLASS 1750 RESIDENTIAL SWIMMING POOL Class 1750B (Basic) 1750A (Average) 1750G (Good) 1750E (Excellent) 1750S (Superior) Minus (-) can be applied to any class for pools in poor condition. Add for therapeutic pool Part E. Appraisal of Manufactured Homes (Mobile Homes) As defined by International Association of Assessing Officers (IAAO) “Standard on Automated Valuation Models (AVMs) a manufactured home is a residential structure built in a factory. Construction standards for manufactured housing are controlled and monitored by the Department of Housing and Urban Development (HUD). The Residential Department values all mobile homes occupied as residences. This includes mobile homes located in mobile home parks, subdivision lots or abstract tracts. Mobile homes used for commercial purposes or mobile homes held as inventory for sale would not be valued by the Residential Department. Locating mobile homes are done through inventories, park rosters, installation permits, the Texas Department of Housing and Community Affairs (TDHCA), homestead applications, and Department of Transportation report on movement of mobile homes in and out of Denton County. 136 2.41 MH Park Inventories Numerous areas across the county have been identified as subdivision developments. Most of these are platted, but some remain as un-platted abstract tracts. Appraisal cards are printed on every account in the subdivision or abstract. Each account is checked to see if a mobile home has been removed or moved in. Label and serial numbers are checked and recorded. Any changes are so noted on the appraisal card and the changes are processed. 2.42 Park Rosters At the end of each year DCAD mails to each park manager and park owner a list (park roster) of DCAD’s current ownership and location of mobile homes in the park. A letter is sent with each park roster requesting an update on ownerships. The park managers/owners are asked to supply any changes that had occurred during the year in the ownership of the mobile home, new ones moved in or out. After the first of January and throughout the spring months, an appraiser will field check each park. The manager’s information is used to verify mobile home removals and new mobile homes moved into the park. When a roster is not returned to DCAD with the requested information an appraiser will first notify the park manager then do a complete inventory of that park. 2.43 Installation Permits, TXDOT movement reports County and city permits, Texas Department of Housing and Community Affairs and Texas Department of Transportation are used to discover mobile homes in areas inside and outside mobile home parks. City and county permits are obtained through copies of the permit by either electric means or visiting that entity. Information on the permits such as situs and/or legal descriptions are used to locate the correct accounts. The permit is then forwarded to the appraiser who then field checks the account. Texas Department of Housing and Community Affairs (TDHCA) website; http://mhweb.tdhca.state.tx.us/mhweb/title_view.jsp and Texas Department of Transportation website; http://txpros.txdot.gov/mhreports.aspx are used to update the districts’ records of ownership and movement of mobile homes. 2.44 Taxpayer Property owners are also a source of ownership or movement of the mobile home. If the mobile home is sold the new owner and address are required to make the change of ownership. Homestead applications are a very good source of information on ownership and movement. The landowner may request to render the mobile home as an Improvement Only account to be set up in the mobile home owner’s name rather than placed on his land account. 137 2.45 Field Inspection Data is collected and recorded on the size of the mobile home, actual age, effective age, and the label number of the mobile home. Mobile homes manufactured after 1979 are required to have the label number on the exterior of the mobile homes. The label number is also used to identify ownership using TDHCA website. Label and serial numbers are added to the account if either is located. It is also helpful to note any distinguishing features about the home, such as color. 2.46 Classification of Mobile Home Classifications for mobile homes are developed using Marshall and Swift’s basic descriptions. Classifications begin with the lowest quality construction to the highest quality construction for both single and double wide mobile homes. Mobile home classes for DCAD range from MS1 to MS4 for single wide and MD1 to MD4 for double wide. Using the DCAD appraisal manual mobile homes are assigned a class based on the quality of construction as defined in each class. Variations may occur using plus and minus techniques to each class. Any other structures present would be measured, classed and added to the mobile home account. These could include porches, carports, decks, detached garages, and outbuildings. Anything attached to the main structure will be values using segment codes that are set to value based on a percentage of the main area class. If the appraiser cannot get to the mobile home due to dogs, locked gates, inaccessible roads, or for other reasons, all information must be estimated. While in the field, the appraiser needs to determine or verify our mobile home ownership/address and all data. This could be done through conversations with owners, renters, or neighbors. Mailboxes can also be used for a name. 2.47 Creation of Improvement Only When the mobile homeowner does not own the land on which the mobile home is situated and is carried as personal property with TDHCA the mobile home is created as an “Improvement Only” account with no land segment included. This applies to all units in a mobile home park since they are located on leased spaces and for mobile homes located on leased land. This would also include accounts where the owner has a contract for deed. In this situation the land account is carried in the land owner’s land until such time as a warranty deed is issued. 138 A. Legal Description Each park, subdivision, or abstract have an assigned subdivision code number or abstract number. The new account is coded with the number in which the improvement is located. The legal description must match the land account’s legal description exactly except in the case of mobile home parks. The park accounts will have the park name and space number as the legal description. Along with the legal description the term "Imp Only" is added. The serial number (if located) and HUD number is entered into the account for all mobile homes whether listed as personal property or as real property. B. Owner and Entity Information The owner name and a complete address must be complete on the appraisal card. Also, entity codes must be assigned for each account. To determine which entity codes are needed for the county, school, city, or special districts, the appraiser must refer to and match the codes on the land account. C. Avoiding Duplication of Accounts When creating new mobile home accounts the appraiser must make sure he/she is not duplicating the mobile home. The mobile homes could have been located in a different jurisdiction and then moved to a new location. To avoid duplication queries can be run using the label and/or serial number to locate duplication in the data. 2.48 Maintenance Improvement Only Accounts All Mobile Home accounts are to be set up as they exist on January 1st in the title owner’s name and at their location on that date. The Texas Department of Transportation (TxDot), per House Bill 785, provides each appraisal district with a list of mobile home movements that have occurred within that county. Access to this information is through TxDot’s website; http://txpros.txdot.gov/mhreports.aspx. Mobile homes are not sold in the same manner as real estate. No deeds are filed when a transfer occurs. Mobile homes are moved in and of the area throughout the year. Often information on ownership and location is submitted after the rolls are certified. In these cases ownership changes and movement of mobile homes are updated by supplemental changes after roll certification. If the owner defaults on their mobile home loan and is repossessed by the lienholder the account is transferred into the lienholders’ name. If the mobile home was removed before January 1st, the account is deleted. If the mobile home owner before January 1st, gets deeded title to his land after a contract is paid off, the Improvement Only account needs to be deleted. The mobile home would be placed on the land account. 139 2.49 Mobile Home on Land Accounts If the mobile home owner has the warranty deed on his land account, the mobile home is combined on this land account. Mobile homes provide a unique situation. The lien for the land can be different from that of the mobile home. If the whole or parts of the property are foreclosed upon at the request of the new owner the mobile home will be split from the land account. The account will be split for as many years allowable by the Texas Property Tax Code. The land account will be supplemented and a corrected notice of appraised value will be mailed for the mobile home for the years involved. This procedure will only occur when the liens are separate. 2.50 Mobile Home Valuation In mass appraisal, the classification system is utilized to value properties. The eight classes of mobile homes (see Appraisal Manual) each generates a per square foot unit price. The class is determined by quality. Each mobile home is depreciated based on its effective age and condition. A mobile home depreciation schedule is used in the valuation (see Appraisal Manual). A. Cost The cost schedule, based on construction of similar improvements, is developed from information gathered from reliable sources such as Marshall & Swift, a national publication of building cost, and using the current N.A.D.A. Mobile/Manufactured Housing Appraisal Guide. The cost approach consists of calculating the replacement cost new for each improvement and then deducting for normal depreciation. The causes of accrued depreciation fall into three general categories: physical deterioration, functional obsolescence, and external (economic obsolescence). Physical deterioration and functional obsolescence are inherent in the property itself, whereas external (economic) obsolescence is the result of outside forces. Physical deterioration is the loss in value due to the wear and tear of the property. There are curable and incurable forms of physical depreciation. It depends on whether the value added by curing them exceeds the cost to cure (it is not economically prudent to cure the condition). Effective age is the number of years of age of the improvement as indicated by its condition. If the improvement has been well maintained, its effective age may be less than the actual age; if there has been poor maintenance, it may be greater. The appraiser based on inspections determines this. 140 Functional Obsolescence is the overall usefulness and desirability of a property. Functional obsolescence is the loss of value in a property improvement due to changes in style, taste, technology, needs, and demands. It exists where property suffers from poor or inappropriate architecture, poor floor plans, room sizes, etc. External Obsolescence is the loss in value caused by outside forces such as in the highest and best use of a property due to market shifts or governmental actions, restrictions on income, zoning, neighborhood decline, etc. This can influence both land and improvement. Once the estimated depreciated improvement value is determined it is then added to the land value giving an estimated total property value. The cost approach is used as a comparison to the market schedules. V = LV + ((CN – D) (Value = Land Value + (Cost New – Depreciation) 65,000 = $15,000 + ($62,500 – 20%) B. Market DCAD mobile home schedules are cost driven. Sales analysis is used in areas where mobile home and land are sold together as one unit. C. Sales Information All sales information collected is the responsibility of the Land and Sales Department. Residential improved sales are collected from a variety of sources including, but not limited to, district questionnaires sent to buyer and seller, field discovery, protest hearings, various sales vendors, builders, and local real estate professionals. A system of type, source, and validity codes was established to define salient facts related to a property’s purchase or transfer. ISD, neighborhood, and subdivision sales reports are generated as an analysis tool for the analyst in the development of value estimates. Sales information is stored in the mainframe database. D. Depreciation A depreciation schedule has been built and entered in the computer. The actual age, if known, is listed on the account and the field appraiser estimates the effective age. Based on the field appraisers’ estimates the percent good is pulled from the table based upon the effective age. DCAD residential depreciation tables are built using Marshall & Swift depreciation tables. E. Calculation The square footage determined from the field inspection is then multiplied by a per square foot unit price to indicate the RCN (Replacement Cost New) for the mobile home. The RCN is then multiplied by a physical percent to give a depreciated value. 141 CLASS MS1 MOBILE HOME CONSTRUCTION STANDARDS: Meets minimum requirements: Older Homes (constructed prior to 1976) may be below minimum requirements. QUALITY/DESIGN: Basic, inexpensive quality. No special features. No attention to details. EXTERIOR COVERING: Prefinished aluminum panels, exposed screw fasteners. Some with vinyl covering. No trim. ROOF: Flat pitch. Light gauge galvanized steel, loose fitting. TOW BAR: Non-detachable - attached to frame. WINDOWS: Crank louvered or awning type. Non-removable screens. Minimum fenestration. No window trim. DOORS: Entrance - Sliding glass or hollow metal. Back - hollow metal, swing out, no windows. WIDTH: Single wide - Typically 10' or 12'. 142 CLASS MS2 MOBILE HOME CONSTRUCTION STANDARDS: Meets or exceeds minimum requirements. QUALITY/DESIGN: Average quality. Few, if any, special features. EXTERIOR COVERING: Often prefinished aluminum with concealed fasteners. Some with masonite paneled siding. Some trim on front side. ROOF: Medium pitch. Medium gauge galvanized steel, snug fitting. TOW BAR: Attached to frame - some can be unassembled. WINDOWS: Crank awning or horizontal sliding, few double hung. Removable screens. Minimum to adequate fenestration. Color coordinated panels for trim. DOORS: Entrance - sliding glass and metal or wood, with window. Back - metal or wood, swing in or out, with window. WIDTH: Single wide - Typically 12' or 14'. 143 CLASS MS3 MOBILE HOME CONSTRUCTION STANDARDS: Exceeds all minimum requirements. QUALITY/DESIGN: Above average quality. Some special features (custom), attractive architectural design. EXTERIOR COVERING: Usually wood siding, as with flush-type masonite paneled siding. Some trim on all sides. ROOF: Gable pitch. Usually average to good asphalt shingles. Some with heavy gauge galvanized steel, tightly fitting. Some slit-roof. TOW BAR: Detachable. WINDOWS: Double hung windows (some with bay across front). Removable screens. Adequate fenestration. Two-tone, contrasting material for trim. DOORS: Entrance - recessed, wood (house-type). Back-wood with window, swing-in. WIDTH: Single wide - Typically 14'. 144 CLASS MS4 MOBILE HOME CONSTRUCTION STANDARDS: Exceeds all minimum requirements. QUALITY/DESIGN: Excellent quality. Many special features. Best in design, workmanship and materials. EXTERIOR COVERING: Like conventional, house-type coverings, as shiplap, clapboard, stucco, brick, board and batten. Usually wood siding. Trim/decor on all sides. ROOF: Usually gable pitch: or, other conventional house type. Usually best asphalt shingles. TOW BAR: Detachable. WINDOWS: Double hung, often dual pane. Removable screens. Ample fenestration. Decorative, special trim (as, for example, shutters) on all windows. DOORS: Recessed, wooden solid core. Some with double entry. WIDTH: Single wide - Typically 14' or 16' 145 EXAMPLE OF VALUE CACULATION: This is an example of a class MS2 mobile home (14’ x 70’), total living area of 980 sqft. The mobile home does not have a porch or garage. The mobile home is estimated to be 74% good. MA 980 x $31.45 x 74% = $22,807 Land Value + $15,000 Total Indicated Value of Property = $37,807 CLASS MD1 MOBILE HOME CONSTRUCTION STANDARDS: Meets minimum requirements: Older homes (constructed prior to 1976) may be below minimum requirements. QUALITY/DESIGN: Basic inexpensive quality. No special features, no attention to details. EXTERIOR COVERING: Prefinished aluminum panels, exposed screw fasteners. Some with vinyl covering. No trim. ROOF: Gable pitch. Light gauge galvanized steel or low-cost asphalt shingles. No overhead. WINDOWS: Crank louvered or awning type. Non-removable screens. Minimum fenestration. No window trim. DOORS: Entrance - sliding glass or metal, Back- metal, swing out, no windows. WIDTH: Double-wide. 146 CLASS MD2 MOBILE HOME CONSTRUCTION STANDARDS: Meets or exceeds minimum requirements. QUALITY/DESIGN: Average quality. Few, if any, special features. EXTERIOR COVERING: Prefinished aluminum with concealed fasteners or masonite paneled siding. Some trim on front side. ROOF: Gable pitch. Low-cost to average asphalt shingles. Small overhang. WINDOWS: Often double hung, some crank awning or horizontal sliding. Removable screens. Minimum to adequate fenestration. Color coordinated panels for trim. DOORS: Entrance - Sliding glass and metal or wood, with window. Back- Metal or wood, swing in or out, with window. WIDTH: Double-wide. 147 CLASS MD3 MOBILE HOME CONSTRUCTION STANDARDS: Exceeds all minimum requirements. QUALITY/DESIGN: Above average quality. Some special features (custom), attractive architectural design. EXTERIOR COVERING: Usually wood siding, as with flush-type masonite paneled siding. Some trim on all sides. ROOF: Gable pitch. Good asphalt shingles. Good overhang. WINDOWS: Double hung windows (some with bay). Removable screens. Adequate fenestration. Two-tone, contrasting material for trim. DOORS: Entrance - Recessed, wood (house-type). Back - Wood with window, swing in. WIDTH: Double-wide. 148 CLASS MD4 MOBILE HOME CONSTRUCTION STANDARDS: Exceeds all minimum requirements. QUALITY/DESIGN: Excellent quality. Many special features. Best in design, workmanship and materials. INTERIOR COVERING: Like conventional house-type coverings, as shiplap, clapboard, stucco, brick, board and batten. Usually wood siding. Trim/decor on all sides. ROOF: Usually gable pitch, or other conventional house-type. Usually best asphalt shingles. Some slate, shake or tile. WINDOWS: Double hung, usually dual pane. Removable screens. Ample fenestration. Decorative, special trim (as, for example, shutters) on all windows. DOORS: Recessed, wooden solid core. Some with double entry. WIDTH: Double-wide. 149 EXAMPLE OF VALUE CALCULATION: This is an example of a class MD3 mobile home, total living area of 1,440. The mobile home has a detached garage and covered porches. MA 1,440 AG 528 (attached garage) OP 160 (covered porch) Codes Area Unit Price Dep. NBHD MA 1,440 x $ 34.31 x 98% x 105% = $ 50,839 DE25 528 x $ 8.58 x 98% x 105% = $ 4,661 OP 160 x $ 5.15 x 98% x 105% = $ 847 Value of Improvement $ 56,347 Land Value 18,000 Total Indicated Value of Property $ 74,347 150 MH AREA'S TO ESTABLISH PRICE PER SQ.FT. Living Area's New Code % Of Base Price Main Area MA 100 Attached Addition MAAA 100 LIVING AREA'S AT A PERCENT OF BASE PRICE Living Area's New Code % Of Base Price Attached addition MAA50 50 Attached addition MAA66 66 Attached addition MAA75 75 PORCHES, CARPORTS, DECKS New Code % Of Base Price Open Porch OP 15 Open Porch OP25 25 Open Porch OP10 10 Carports, Decks CP,DK 15 Carports, Decks CP25,DK25 25 Carports, Decks CP10,DK10 10 Glass Porch, Porch Area GP,PA 33 Glass Porch, Porch Area GP66,PA66 66 Glass Porch, Porch Area GP50,PA50 50 Glass Porch, Porch Area GP25,PA25 25 151 GARAGE & STORAGE New Code % Of Base Price Attached Garage AG 33 Attached Garage AG25 25 Storage SA 33 Storage SA50 50 Storage SA25 25 Enclosed Garage EG 40 Enclosed Garage EG75 75 Enclosed Garage EG33 33 Detached Garage DE75 75 Detached Garage DE33 33 152 EXAMPLE OF VALUE CALCULATION: This is an example of a class MD3 mobile home, total living area of 1,440. The mobile home has a detached garage and covered porches. MA 1,440 AG 528 (attached garage) OP 160 (covered porch) Codes Area Unit Price Dep. NBHD MA 1,440 x $ 34.31 x 98% x 105% = $ 50,839 DE25 528 x $ 8.58 x 98% x 105% = $ 4,661 OP 160 x $ 5.15 x 98% x 105% = $ 847 Value of Improvement $ 56,347 Land Value 18,000 Total Indicated Value of Property $ 74,347 153 Part F. Sales and Research 2.51 Sales and Research Department The Sales and Research Department is responsible for several functions of the Denton Central Appraisal District (DCAD). One of the main responsibilities is the collection and processing of real estate sales information. The quality of the process and execution of this responsibility is vital to the integrity of establishing the appraisal roll. Gathered sales information is used to establish class schedules and verify that values placed on Denton Central Appraisal District appraisal rolls are as accurate as possible. Another important function of the Sales and Research Department is responding to public request, comments and complaints. This includes open records requests and dealing with comments and/or complaints from the public in regard to appraisal district operations. The Supervisor in the Sales and Research Department is typically responsible for overseeing and coordinating appropriate responses to open records requests and a taxpayer liaison officer (TLO) is generally responsible for responding to comments and/or complaints. Overviews, guidelines, and procedures demonstrated in this section are followed by the Sales and Research Department of the Denton Central Appraisal District. 2.52 Education and Training All employees shall have the knowledge and expertise to do their job. Each employee will have a minimum educational standard required for their position. In addition, DCAD will supply the following: A. On the job training – each employee will receive training on procedures, policy, and equipment by their supervisor and other employees in similar positions. B. State required education and registration – all employees so required will achieve and maintain their own educational and registration requirements. C. Additional training and education – from time to time, additional training and education will be required to enhance job performance, knowledge and expertise. Employees will be expected to perform to a minimum standard. 154 2.61 Introduction An appraisal management policy should reflect regulatory obligations, mandate due diligence, ensure conformance to professional standards, generate current and meaningful valuations, and establish criteria for a thorough review process. DCAD subscribes to the standards of the International Association of Assessing Officers (IAAO) regarding its appraisal practices and procedures. DCAD also subscribes to the standards promulgated by the Appraisal Foundation known as the Uniform Standards of Professional Appraisal Practice (USPAP). A current copy of the USPAP manual is on file at DCAD. The department is responsible for completing mass appraisal assignments in a timely manner. A. Definition of Appraisal Responsibility The Sales and Research Department of the Denton Central Appraisal District is responsible for ascertaining and processing sales information to assist appraisers in developing fair and uniform market values for all real accounts in DCAD. B. Legal and Statutory Requirements The provisions of the Texas Property Tax Code (TPTC) and relevant legislative measures involving appraisal administration and procedures control the work of the appraisal district. The district is responsible for appraising property on the basis of its market value as of January 1 for ad valorem tax purposes for each taxing unit that imposes ad valorem taxes on property in the district. DCAD typically reappraises property on an annual basis but is required to do so every three years per the Texas Property Tax Code. C. Administrative Requirements An appraisal management policy should reflect regulatory obligations, mandate due diligence, ensure conformance to professional standards, generate current and meaningful valuations, and establish criteria for a thorough review process. DCAD subscribes to the standards of the International Association of Assessing Officers (IAAO) regarding its appraisal practices and procedures. DCAD also subscribes to the standards promulgated by the Appraisal Foundation known as the Uniform Standards of Professional Appraisal Practice (USPAP). A current copy of the USPAP manual is on file at DCAD. D. Appraisal Resources Personnel – The Sales and Research Department staff consists of a manager, supervisor, research specialist, coordinator specialist/liaison officer and support position. In addition, there are several part- time support positions that are utilized throughout the year. 155 Information Systems – The mainframe systems are augmented by the databases that reside as various applications on the DCAD Local Area Network (LAN). DCAD offers a variety of systems for providing property owners and public entities with information services. Appraisal Support fields many of the public’s questions or redirects them to the proper department. Computer terminal stations are located in the customer service area for the public’s use. Access to appraisal data is also available through various sources such as the district’s website 2.62 Sales and Statistical Analysis B. Sales Information The Sales and Research Department is responsible for the collection and processing of all sales information. Collection is done by a variety of sources including, but not limited to, district questionnaires/surveys sent to buyers and sellers, real estate brokers and appraisers, builders, developers, field discovery, protest hearings, informal settlement conferences, adjoining appraisal districts, the State of Texas Comptroller’s Office, and private sale service providers/vendors, such as local Association of Realtor’s MLS, LoopNet, and CoStar. As much pertinent information as possible is gathered about the sale to help determine the quality and conditions of the sale; for example, does the sale appear to be an arm’s length transaction or not. A system of type, source and validity codes has been established to help define these salient facts related to a property’s purchase or transfer. Entity, neighborhood and subdivision sales reports are generated as an analysis tool for the appraisal analyst in the development of value estimates. Sales information is stored in the mainframe database. Refer to the software user’s manual for software implementation. C. Statistical Analysis Appraisers in the appraisal departments perform statistical analysis annually to evaluate whether values are equitable and consistent with the market. Ratio studies are conducted on each property category, neighborhood and ISD to judge the two primary aspects of mass appraisal accuracy—level and uniformity of value. Appraisal statistics of central tendency and dispersion generated from sales ratios are available for each property category and/or neighborhood within an ISD and summarized. These summary statistics including, but not limited to, the median, the mean, the weighted mean, standard deviation, coefficient of dispersion (COD), and coefficient of variation (COV), provide the analysts an analytical tool by which to determine both the level and uniformity of appraised value of a property category and/or neighborhood basis. Review of the standard deviation, coefficient of dispersion and the coefficient of variation can discern appraisal uniformity within and between categories and ISD’s. Subdivisions and/or neighborhoods are reviewed annually by the appraiser through the sales ratio analysis process. The first phase involves subdivision/neighborhood ratio studies which compare the recent sales prices with the appraised values of those properties which have recently sold. This set of ratio studies 156 affords the appraiser an excellent means of judging the present level of appraised value and uniformity of the sales. All valid sales that we are aware of are used unless the result is misrepresentative. D. Market Adjustment or Trending Factors Market adjustment factors are developed from appraisal statistics provided from ratio studies and are used to ensure that estimated values are consistent with the market. If the subdivision/neighborhood is to be updated, the appraiser uses a ratio study that compares recent sales prices of properties within a delineated subdivision/neighborhood with the properties’ appraised value. The calculated ratio derived from the sum of the sold properties’ appraised value divided by the sum of the sales prices indicates the subdivision/neighborhood level of value based on the unadjusted value for the sold properties. This comparison of appraised value-to-sale ratio determines the market adjustment factor for each subdivision/neighborhood. This market adjustment factor is needed to trend the values closer to the actual market evidenced by recent sales prices within a given subdivision/neighborhood. The market adjustment factor calculated for each updated subdivision/neighborhood is applied uniformly to all properties within a neighborhood and as needed in the subdivision. Once the market-trend factors are applied, a second set of ratio studies is generated that compares recent sale prices with the proposed appraised values for these sold properties. From this set of ratio studies, the appraiser judges the appraisal level and uniformity in both updated and non-updated subdivision/neighborhoods, and finally, for the school district as a whole. 2.63 Performance Tests B. Sales Ratio Studies The primary analytical tool used by the appraiser to measure and improve performance is the ratio study. This helps to insure that the appraised value that it produces meets the standards of accuracy in several ways. Overall sales ratios are generated for each ISD to allow the appraiser to review general market trends and provide an indication of market appreciation or depreciation over a specified period of time. Sales ratio reports are run several times prior to the setting of preliminary values as well as after finalization of appraisal values in order to catch any inaccuracies, value anomalies, or outliers. An independent test of the appraisal performance of the district is conducted by the State of Texas Comptroller’s Office through the property value study. The study determines the degree of uniformity and the median level of appraisals by the appraisal district within each major category of property. The comptroller publishes a report of the study, which includes in the report the median levels of appraisal for each major category of property, the coefficient of dispersion around the median level of appraisal for each category of property, and any other standard statistical measures that the comptroller considers appropriate. 157 2.64 Data Collection Procedures Overview One of the main responsibilities of the Denton Appraisal District is to estimate the market value of each property within the jurisdiction. The integrity of the property tax is dependent on the accuracy of these estimates of market value. This is accomplished by analyzing market data to determine the price that the property being appraised would probably bring in the marketplace on the date of appraisal. Accuracy is dependent upon proper data collection, verification, adjustments of sales data and entering into computer system. Sales data should be collected, verified, and adjusted as necessary for model calibration and ratio study purposes. Verified sales are always more reliable than unverified sales. Sales information is collected and processed on a regular basis throughout the year to help appraisers in their analyses. Data Collection Sales information is collected by various methods and sources, including: questionnaires to buyers and sellers, renditions, protest hearings, realtors, fee appraisers, brokers, Title companies, builders, property managers, newspaper, attorneys, State Office, developers, adjoining appraisal districts and third-party sources such as MLS, LoopNet, and CoStar. When necessary, staff may try to contact parties involved in a sale to try to confirm the sales price and/or get additional information of details of the sale transaction. This may be done by phone calls, personal interviews, emails, or regular mail. Data collection is overseen by the Sales & Research Department supervisor. This person will coordinate with the appropriate vendors for mail out of internal sale survey letters that are sent to the buyer and seller, with third-party sources (make sure the District is current with paid subscriptions, etc.), and the gathering of sales data during the appeal process. The supervisor will work closely with the appraisal support specialist to monitor their coordination with other District departments and make sure the process is organized, has a timely flow of gathering the sales data to the entering of the data in the mainframe database. Data is gathered on a regular basis throughout the year. Sale survey letters are computer generated based on deed transfers and are typically mailed on a monthly basis. A postage paid/pre- addressed business reply envelope will accompany each letter. The data obtained from third-party sources is typically gathered on a weekly basis. Settlement Statements are often obtained during the appeal process and are considered the most reliable sales verification. Data from other sources will be gathered whenever possible throughout the tax year. A quality control process exists through supervisory review of the work and procedures. The supervisor is charged with the responsibility of ensuring that appraisers and support specialist are following proper procedures, identify and address training issues and provide uniform training throughout the department. Once data is gathered, the next phases begin with the verification/analysis and entering of data. It is vital that the gathering, analyzing and entering of sales data is performed at a high quality level so that the appraisers have the best data available to help them during the appraisal and appeal processes. 158 Data Verification Verification of sales data is an important aspect in the data collection process. It is important to remember all sales should be considered valid unless there is sufficient documentation to prove differently. While it is imperative that sales be verified uniformly and accurately, it is also important to process and verify sales in a timely manner so they are available for analysis. Sales should be trimmed for outliers during the statistical phase, not during the verification phase of mass appraisal. Useful sales information gathered should include the following when possible: Full consideration (actual sales price) Names of buyer and seller Addresses, phone numbers, and other contact information of buyer and seller or their legal designee Relationship of buyer and seller (if any) Legal description, address, and parcel identifier Type of transfer Method of marketing (ex. Owner or Broker) Time on the market Type and terms of financing Personal property (if any, and if so, how much) Business value attributed (if any) Date of Sale Deed Instrument number Closing costs involved (who paid, etc.) Other – any information the buyer, seller or contact believes is important Sales should be verified to determine whether they reflect the market value of the real property transferred. Specific objectives for sales verification include but are not limited to the following: Sale prices reflect only the market value of the real property transferred and not the value of personal property, financing, or leases. 159 Sales occurred during the time frame being tested or modeled. Sales are excluded only when they fail to meet the requirements of an open-market, arm’s length transaction. All sales meeting the definition of market value should be entered as valid transactions unless one of the following two conditions exists: Data for the sale are incomplete, unverifiable, or suspect. The sale fails to pass one or more specific tests of acceptability. All sales should be considered as valid sales unless sufficient information can be documented to show otherwise. Reason codes or comments may be established for valid and invalid sales for both ratio studies and model calibration. Staff should use their judgment in determining if sales are valid or invalid, but they should not be arbitrary. Importance of Sales Verification Sales data are needed for the valuation process and for sales ratio studies. The reliability of any valuation model or sales ratio study depends on the quality and quantity of its data. Sales data should be collected, edited, and adjusted (if necessary) to obtain valid indicators of market value. If there is a question or concern about a sale, staff should try to contact a party to the sale to verify or clarify the question or concern. Staff should be familiar with sales involving: Adjoining property owner Auctions Internet marketing Sale leasebacks Personal property Property characteristic changes Related parties Sealed bids Uninformed buyers and sellers IRS 1031 exchanges 160 REITs Trades Financial institutions Short sales In regard to validity, sales that may be considered invalid are: Sales involving government agencies Sales involving charitable, religious, or educational institutions Sales involving financial institutions as buyer or seller Sales between relatives or between corporate affiliates Sales settling an estate Forced sales resulting from a judicial order Sales of doubtful or questionable title Staff should use careful judgment in their determination before coding sales as invalid. Entering Sales Information Once sales data is collected by staff, the next phase begins with the entering of the data in the computer system. Entering includes the actual entering of sales information with proper coding as well as scanning the sales verification information into the appropriate property account. This electronic file will be permanently stored in the account image location so that confirmation of the sales price is readily attainable. The District has a documentation form for staff to use when entering sales information. Sales & Research staff will either enter the information/documentation in the mainframe database themselves or will give to the appraisal support specialist to enter in the database (and excel spreadsheet if appropriate). Proper coding and entering is essential to maintain a consistency in the quality and integrity of sales data to help appraisers in their analysis and ratio studies. A system of type, source and validity codes was established to define salient facts related to a property’s purchase or transfer. Sales is not only stored in the mainframe database but also sometimes in excel spreadsheets. The following is a set of established codes and types that are utilized by the Denton Appraisal District to provide consistency in entering sales data: 161 The appraisal support specialist is responsible for organizing incoming and outgoing sales documentation and fee appraisal reports/data. The specialist will coordinate with other departments to make sure sales and fee appraisal documentation is gathered and entered properly. The Sales & Research Supervisor is also responsible to oversee the collection and entering process of sales data and work closely with the appraisal support specialist. Sale Adjustments Sales should be adjusted to represent only the value of the real property as of the assessment date. Adjustments to the sale price may be considered or needed if any of the following exist: Assumptions (non-market rates) Closing costs (if atypical or seller paid) INSTRUCTIONS / CODES TO USE FOR ENTERING SALES UNDER THE "SALE CONFIRMATION" SCREEN IF "SOURCE" OF SALES INFORMATION IS FROM:------------------------"SOURCE" CODE TO USE COSTAR CO* MLS M SETTLEMENT STMT OR ANY OTHER TYPE OF CLOSING DOC SS SALES LETTER SL FEE APPRAISAL / APPRAISER A BROKER B CONFIDENTIAL (AT TAXPAYER'S REQUEST) C ANY OTHER SOURCE OTHER UNDER THE "SALE INFORMATION" SCREEN IF "SALE TYPE" IS FROM ANY OF THESE:----------------------------------"SALE TYPE" CODE TO USE MLS / COSTAR / LOOPNET CI (CONFIDENTIAL WITH IMPROVEMENTS) CL CONFIDENTIAL LAND ONLY) CONFIDENTIAL (AT TAXPAYER'S REQUEST) C (CONFIDENTIAL) For "confidential sales, always remember to check the "confidential" box. SALES LETTER I (FOR IMPROVED SALES) L (FOR LAND ONLY SALES) SETTLEMENT / CLOSING / HUD STATEMENT I (FOR IMPROVED SALES) L (FOR LAND ONLY SALES) APPRAISER OR COMPS USED IN A FEE APPRAISAL I (FOR IMPROVED SALES) L (FOR LAND ONLY SALES) BROKER I (FOR IMPROVED SALES) L (FOR LAND ONLY SALES) FEE APPRAISAL (ON SUBJECT PROPERTY)A IMPROVEMENT "PARTIAL COMPLETE"IPC ISRT (IMPROVEMENT "SHORT SALE") CISRT (CONFIDENTIAL IMPROVEMENT "SHORT SALE") LA (LAND APPRAISAL) LC (LAND CONFIDENTIAL) *** FOR LAND ONLY SALES, ALWAYS BE SURE TO CHECK THE "LAND ONLY SALE" BOX IN THE "SALE INFORMATION SCREEN" IF THE SALE IS A FORECLOSURE:--------------------------------------------"SALE TYPE" CODE TO USE FI (FORECLOSURE WITH IMPROVEMENTS) NON CONFIDENTIAL FL (FORECLOSURE LAND ONLY) NON CONFIDENTIAL FCI (FORECLOSURE CONFIDENTIAL WITH IMPROVEMENTS) FCL (FORECLOSURE CONFIDENTIAL LAND ONLY) TYPE OF SALE--------------------------------------------------------------------------"RATIO" CODE TO USE ARMS LENGTH OR FORECLOSURE SALES V (VALID) ATYPICAL SALES, IE:(FAMILY / RELATED PARTIES)I (INVALID) FI (FORCLOSURE INVALID) U (UNCONFIRMED) 162 If included delinquent taxes paid by buyer Special financing (non-market rates or terms) Gift programs Personal property included in sale Repair allowances Time Business value (goodwill) This is especially true for nonresidential properties. The real property tax is based on the market value of real property alone as of a specific date. This value may not be the same as investment value and should not include the value of personal property or financing arrangements. If adjustments for more than one purpose are to be made, they should be made in the following order: Adjustments that convert the price to a better representation of the market value as of the date of sale. Adjustments that develop or isolate the price paid for taxable real property. Adjustments for differences in market value levels between the date of sale and the date of analysis (time adjustments) Time adjustments should be based on market analysis and be appropriately supported. Acceptable time adjustment techniques are as follows: Tracking sales-to-appraisal ratios over time Including date of sale as a variable in regression or feedback models Analyzing resales Paired sales analysis On all adjustments, the Denton Appraisal District will use appropriate and accepted methods as set forth in the standards of the International Association of Assessing Officers (IAAO) and/or the Uniform Standards of Professional Appraisal Practice (USPAP). 163 2.65 Procedures for Analyzing and Adjusting Sales Prices One of the primary responsibilities of the Denton Appraisal District is estimating the market value of each property within the jurisdiction. The integrity of the property tax is dependent on the accuracy of the estimates of market value established by the Appraisal District. This is accomplished by analyzing market data to determine the price that the property being appraised would probably bring in the marketplace on the date of appraisal. Sales data analysis ensures that only sales that meet the definition of market value and that have been appropriately adjusted (if needed) are used in developing these estimates of market value. Accuracy is dependent upon proper verification and adjustment of sales data. Once sales data is collected, appraisers and appraisal support specialist are required to analyze the source of the sales price, terms and conditions of the sales price (if possible), motivations of the sales price (if possible) and any other factors that could influence the validity of the sales price. This requires reviewing the source and making contact with the parties involved in the sales transactions to ascertain more details of the sale or clarify conditions of the sale. This can be done by phone calls, written request, email or personal interviews. Sale Adjustments Sales should be adjusted to represent only the value of the real property as of the assessment date. Adjustments to the sale price may be considered or needed if any of the following exist: Assumptions (non-market rates) Closing costs (if atypical or seller paid) If included delinquent taxes paid by buyer Special financing (non-market rates or terms) Gift programs Personal property included in sale Repair allowances Time Business value (goodwill) This is especially true for nonresidential properties. The real property tax is based on the market value of real property alone as of a specific date. This value may not be the same as investment value and should not include the value of personal property or financing arrangements. 164 If adjustments for more than one purpose are to be made, they should be made in the following order: Adjustments that convert the price to a better representation of the market value as of the date of sale. Adjustments that develop or isolate the price paid for taxable real property. Adjustments for differences in market value levels between the date of sale and the date of analysis (time adjustments) Time adjustments should be based on market analysis and be appropriately supported. Acceptable time adjustment techniques are as follows: Tracking sales-to-appraisal ratios over time Including date of sale as a variable in regression or feedback models Analyzing resales Paired sales analysis On all adjustments, the Denton Appraisal District will use appropriate and accepted methods as set forth in the standards of the International Association of Assessing Officers (IAAO) and/or the Uniform Standards of Professional Appraisal Practice (USPAP). 2.66 Value Defense Procedures for Informal Meetings and Formal Hearings Informal Meetings During the appeals process, the Sales & Research Department staff will sometimes need to help out other departments. This involves informal meetings with property owners and/or authorized tax agents to discuss any errors, discrepancies of market value and/or equity, and any claims of exemptions or special valuations (agricultural use, restricted values, etc.) The informal review may be handled by mail, in person, email or telephone. The review allows for communication and mutual understanding, which will reduce the number of formal appeals. Informal reviews should incorporate the following basic steps: Verify the parcel information Exchange information Record the nature of complaint Use cost, sales or income information when appropriate to confirm property value 165 If a value change is indicated, change the value and enter into a signed agreement If value change is not warranted, explain proper appeal rights and procedures Appraisers in the Sales & Research Department must get written approval from an appropriate manager or supervisor to settle any property with an appraised value of $50,000,000 or higher. Formal Hearings Appraisal Review Board hearings (formal appeals) are the next step in the appeals process. Prior to the hearing, the property owner/agent should be given a copy of the evidence the appraiser plans to use in the hearing (if requested). The appraiser should be prepared to present factual information relating to the property, such as tax maps, pictures of the property, improvement drawings, etc. as well as valuation information, the cost, market and income approaches to value. If there is an equity component to the appeal, the appraiser should be prepared to present a reasonable sample of equity comparables based on sales, income, as appropriate. 2.67 Procedures for Responding to the Public Disclosure of Records The District shall comply in all respects with the Texas Open Records Act and Government Code Chapter 552. District staff shall ensure that all requests for records will be responded to timely, professionally and courteously. Any request for records that are or may be confidential by law shall be promptly transmitted to legal counsel for appropriate response. Definition of Public Information “Public Information” means information that is collected, assembled, or maintained under a law or ordinance or in connection with the transaction of official business: 1. by a governmental body; or 2. for a governmental body and the governmental body owns the information or has a right of access to it. Requests for Information The District may from time to time receive verbal or written requests for information that would not necessarily constitute a “record” of the District. This would include questions concerning procedures and practices engaged in by the District but not the subject of any written policy or rule. District staff shall endeavor to answer such requests and questions whenever possible and practical, subject to the exceptions below. 166 Staff may decline to respond to public request and questions not covered by the Open Records Act in the following instances: a. Where legal counsel determines that such information should not be disclosed. b. Where the information sought has been previously provided to the requester. c. Where the Board of Directors and the Chief Appraiser determines that a response would require an unreasonable expenditure of time or would interfere with a staff member’s job duties. d. Where the information sought can be derived from written records of the District through an open records request, or by the District’s public access computer terminal or website. (but in such cases, the requester will be informed of the existence and availability of such records). e. Where the Chief Appraiser has determined that the request is made for the purpose or has the effect of harassment, annoyance, interference with District operations, or other similar reasons. 2.68 Reproduction Costs of Open Records The Denton Central Appraisal District will make available records for public examination under the guidelines of the Texas Open Records Act (Texas Government Code, Chapter 552). It is not the Districts intention to deny anyone access to records that are considered “open” for public examination. Furthermore, the District upon receiving a written request from the interested party, will reproduce requested information in the original form for a reproduction fee that is recommended by the State Purchasing and General Services Commission. A. Statutory Reference 552.228. Providing Suitable Copy of Record Within Reasonable Time It shall be a policy of a governmental body to provide a suitable copy of a public record within a reasonable time after the date on which the copy is requested. 552.261. Determining Cost of Copies (a) A governmental body may not charge an excessive amount for noncertified, photographic reproductions of public records composed of pages that are legal size or smaller. (b) The cost of obtaining a standard or legal size photographic reproduction shall be an amount that reasonably includes all costs related to reproducing the record, including costs of materials, labor, and overhead, unless the request is for 50 or fewer pages of readily available information. (c) The General Services Commission shall periodically determine guidelines for the actual cost of standard size reproductions and shall periodically publish these cost figures for use by governmental bodies in determining charges under this subchapter. 167 552.262. Cost for Nonstandard Records The charge for access to public records that are comprised in a form other than standard or smaller sized pages, or that are in computer records banks, microfilm records, or other similar record keeping systems shall be set: (1) making every effort to match the charge with the actual cost of providing the record; (2) after consultation between a governmental body’s officer for public records and the General Services Commission; and (3) in an amount that reasonably includes all costs related to providing the record, including costs of materials, labor, and overhead. COST OF COPIES OF OPEN RECORDS Texas Administrative Code (Title 2, Chapter 111) It will be the policy of the Denton Central Appraisal District to follow the guidelines of the office of the Attorney General when determining charges for reproductions. From time to time, the Denton Central Appraisal District will exchange information with parties outside the district office. The consideration for supplying the information will be the information we receive from the other party. Cost of Copies of Public Information from the Texas Administrative Code: (a) The charges in this section to recover costs associated with providing copies of public information are based on estimated average costs to governmental bodies across the state. When actual costs are 25% higher than those used in these rules, governmental bodies other than agencies of the state, may request an exemption in accordance with §111.64 of this title (relating to Requesting an Exemption). (b) Copy charge. (1) Standard paper copy. The charge for standard paper copies reproduced by means of an office machine copier or a computer printer is $.10 per page or part of a page. Each side that has recorded information is considered a page. (2) Nonstandard copy. The charges in this subsection are to cover the materials onto which information is copied and do not reflect any additional charges, including labor, that may be associated with a particular request. The charges for nonstandard copies are: (A) Diskette--$1.00; (B) Magnetic tape--actual cost; (C) Data cartridge--actual cost; (D) Tape cartridge--actual cost; (E) Rewritable CD (CD-RW)--$1.00; (F) Non-rewritable CD (CD-R)--$1.00; (G) Digital video disc (DVD)--$3.00; (H) JAZ drive--actual cost; (I) other electronic media--actual cost; (J) VHS video cassette--$2.50; (K) Audio cassette--$1.00; (L) Oversize paper copy (e.g.: 11 inches by 17 inches, greenbar, bluebar, not including maps and photographs using specialty paper--See also §111.69 of this title )--$.50; 168 (M) Specialty paper (e.g.: Mylar, blueprint, blueline, map, photographic--actual cost. (c) Labor charge for programming. If a particular request requires the services of a programmer in order to execute an existing program or to create a new program so that requested information may be accessed and copied, the governmental body may charge for the programmer's time. (1) The hourly charge for a programmer is $28.50 an hour, which includes fringe benefits. Only programming services shall be charged at this hourly rate. (2) Governmental bodies that do not have in-house programming capabilities shall comply with requests in accordance with §552.231 of the Texas Government Code. (3) If the charge for providing a copy of public information includes costs of labor, a governmental body shall comply with the requirements of §552.261(b) of the Texas Government Code. (d) Labor charge for locating, compiling, and reproducing public information. (1) The charge for labor costs incurred in processing a request for public information is $15 an hour, which includes fringe benefits. The labor charge includes the actual time to locate, compile, and reproduce the requested information. (2) A labor charge shall not be billed in connection with complying with requests that are for 50 or fewer pages of paper records, unless the documents to be copied are located in: (A) Two or more separate buildings that are not physically connected with each other; or (B) A remote storage facility. (3) A labor charge shall not be recovered for any time spent by an attorney, legal assistant, or any other person who reviews the requested information: (A) To determine whether the governmental body will raise any exceptions to disclosure of the requested information under the Texas Government Code, Subchapter C, Chapter 552; or (B) To research or prepare a request for a ruling by the attorney general's office pursuant to §552.301 of the Texas Government Code. (4) When confidential information pursuant to a mandatory exception of the Act is mixed with public information in the same page, a labor charge may be recovered for time spent to redact, blackout, or otherwise obscure confidential information in order to release the public information. A labor charge shall not be made for redacting confidential information for requests of 50 or fewer pages, unless the request also qualifies for a labor charge pursuant to Texas Government Code, §552.261(a)(1) or (2). (5) If the charge for providing a copy of public information includes costs of labor, a governmental body shall comply with the requirements of Texas Government Code, Chapter 552, §552.261(b). (6) For purposes of paragraph (2)(A) of this subsection, two buildings connected by a covered or open sidewalk, an elevated or underground passageway, or a similar facility, are not considered to be separate buildings. (e) Overhead charge. (1) Whenever any labor charge is applicable to a request, a governmental body may include in the charges direct and indirect costs, in addition to the specific labor charge. This overhead charge would cover such costs as depreciation of capital assets, rent, maintenance and repair, utilities, and administrative overhead. If a governmental body chooses to recover such costs, a charge shall be made in accordance with the methodology described in paragraph (3) of this subsection. Although an exact calculation of costs will vary, the use of a standard charge will avoid complication in calculating such costs and will provide uniformity for charges made statewide. (2) An overhead charge shall not be made for requests for copies of 50 or fewer pages of standard paper records unless the request also qualifies for a labor charge pursuant to Texas Government Code, §552.261(a)(1) or (2). 169 (3) The overhead charge shall be computed at 20% of the charge made to cover any labor costs associated with a particular request. Example: if one hour of labor is used for a particular request, the formula would be as follows: Labor charge for locating, compiling, and reproducing, $15.00 x .20 = $3.00; or Programming labor charge, $28.50 x .20 = $5.70. If a request requires one hour of labor charge for locating, compiling, and reproducing information ($15.00 per hour); and one hour of programming labor charge ($28.50 per hour), the combined overhead would be: $15.00 + $28.50 = $43.50 x .20 = $8.70. (f) Microfiche and microfilm charge. (1) If a governmental body already has information that exists on microfiche or microfilm and has copies available for sale or distribution, the charge for a copy must not exceed the cost of its reproduction. If no copies of the requested microfiche or microfilm are available and the information on the microfiche or microfilm can be released in its entirety, the governmental body should make a copy of the microfiche or microfilm. The charge for a copy shall not exceed the cost of its reproduction. The Texas State Library and Archives Commission have the capacity to reproduce microfiche and microfilm for governmental bodies. Governmental bodies that do not have in-house capability to reproduce microfiche or microfilm are encouraged to contact the Texas State Library before having the reproduction made commercially. (2) If only a master copy of information in microform is maintained, the charge is $.10 per page for standard size paper copies, plus any applicable labor and overhead charge for more than 50 copies. (g) Remote document retrieval charge. (1) Due to limited on-site capacity of storage of documents, it is frequently necessary to store information that is not in current use in remote storage locations. Every effort should be made by governmental bodies to store current records on-site. State agencies are encouraged to store inactive or non-current records with the Texas State Library and Archives Commission. To the extent that the retrieval of documents results in a charge to comply with a request, it is permissible to recover costs of such services for requests that qualify for labor charges under current law. (2) If a governmental body has a contract with a commercial records storage company, whereby the private company charges a fee to locate, retrieve, deliver, and return to storage the needed record(s), no additional labor charge shall be factored in for time spent locating documents at the storage location by the private company's personnel. If after delivery to the governmental body, the boxes must still be searched for records that are responsive to the request, a labor charge is allowed according to subsection (d) (1) of this section. (h) Computer resource charge. (1) The computer resource charge is a utilization charge for computers based on the amortized cost of acquisition, lease, operation, and maintenance of computer resources, which might include, but is not limited to, some or all of the following: central processing units (CPUs), servers, disk drives, local area networks (LANs), printers, tape drives, other peripheral devices, communications devices, software, and system utilities. (2) These computer resource charges are not intended to substitute for cost recovery methodologies or charges made for purposes other than responding to public information requests. (3) The charges in this subsection are averages based on a survey of governmental bodies with a broad range of computer capabilities. Each governmental body using this cost recovery charge shall determine which category(ies) of computer system(s) used to fulfill the public information request most closely fits its existing system(s), and set its charge accordingly. Type of System--Rate: Mainframe--$10 170 per CPU minute; Midsize--$1.50 per CPU minute; Client/Server--$2.20 per clock hour; PC or LAN-- $1.00 per clock hour. (4) The charge made to recover the computer utilization cost is the actual time the computer takes to execute a particular program times the applicable rate. The CPU charge is not meant to apply to programming or printing time; rather, it is solely to recover costs associated with the actual time required by the computer to execute a program. This time, called CPU time, can be read directly from the CPU clock, and most frequently will be a matter of seconds. If programming is required to comply with a particular request, the appropriate charge that may be recovered for programming time is set forth in subsection (d) of this section. No charge should be made for computer print-out time. Example: If a mainframe computer is used, and the processing time is 20 seconds, the charges would be as follows: $10 / 3 = $3.33; or $10 / 60 x 20 = $3.33. (5) A governmental body that does not have in-house computer capabilities shall comply with requests in accordance with the §552.231 of the Texas Government Code. (i) Miscellaneous supplies. The actual cost of miscellaneous supplies, such as labels, boxes, and other supplies used to produce the requested information, may be added to the total charge for public information. (j) Postal and shipping charges. Governmental bodies may add any related postal or shipping expenses which are necessary to transmit the reproduced information to the requesting party. (k) Sales tax. Pursuant to Office of the Comptroller of Public Accounts' rules sales tax shall not be added on charges for public information (34 TAC, Part 1, Chapter 3, Subchapter O, §3.341 and §3.342). (l) Miscellaneous Charges: A governmental body that accepts payment by credit card for copies of public information and that is charged a “transaction fee” by the credit card company may recover that fee. (m) These charges are subject to periodic reevaluation and update. Format for Copies of Public Information (a) If a requesting party asks that information be provided on computer-compatible media of a particular kind and the requested information is electronically stored and the governmental body has the capability of providing it in that format and it is able to provide it at no greater expense or time, the governmental body shall provide the information in the requested format. (b) The extent to which a requestor can be accommodated will depend largely on the technological capability of the governmental body to which the request is made. (c) A governmental body is not required to purchase any hardware, software or programming capabilities that it does not already possess to accommodate a particular kind of request. (d) Provision of a copy of public information in the requested medium shall not violate the terms of any copyright agreement between the governmental body and a third party. (e) If the governmental body does not have the required technological capabilities to comply with the request in the format preferred by the requestor, the governmental body shall proceed in accordance with §552.228(c) of the Public Information Act. (f) If a governmental body receives a request requiring programming or manipulation of data, the governmental body should proceed in accordance with § 552.231 of the Public Information Act. Manipulation of data under §552.231 applies only to information stored in electronic format 171 2.69 Taxpayer Information on Open Records The purpose of the following policy is to provide the employee’s a succinct synopsis of the Texas Open Records Act. The information in this section should always be referred to when a property owner asks that their property records be sealed: As required by the Texas Open Records Act, it is the policy of the Denton Central Appraisal District that every person, upon request, is entitled to complete access to public information regarding governmental affairs and the official acts of public officers and employees. Public information is defined as information which is contained in documents, writings, letter, memoranda, or other printed, typed, copied, or developed material which is collected, assembled, or maintained by or for the Denton Central Appraisal District in accordance with laws or ordinances, or in connection with the transaction of official business. Unless specifically exempted all such public information shall be made available to the public during the Denton Central Appraisal District’s normal business hours. Public information not accessible at the time of the request will be made available within a reasonable time. The District may not legally withhold from public inspection any documents except as specifically allowed by law. The following information is not subject to public disclosure: A. Rendition statements and real and personal property reports that are filed with the Denton Central Appraisal District under the understanding that such statements or reports are to remain confidential. B. Information regarding real or personal property sales prices that is voluntarily disclosed to the Denton Central Appraisal District after a promise that such information will remain confidential. C. Information relating to the business affairs, operations, profits, losses or expenditures of a taxpayer including, but not limited to, corporate taxpayers, which are obtained through an examination of the taxpayers’ books, records, papers or employees. D. All federal tax returns or federal tax return information that a taxpayer is required to file with a state tax return or report. E. All applications for agricultural designation (1-d) which a taxpayer files with the Denton Central Appraisal District’s Chief Appraiser. F. Statements, declarations, or reports filed with the Denton Central Appraisal District by either motor vehicle dealers or vessel and outboard motor dealers for the purposes of assessing inventory value for the tax year. (Effective 1-1-96) G. All information that, if released, would give a competitor or bidder any type of unfair advantage. H. All information relating to the location of real or personal property to be used for public purposes before any public announcement of the proposed project. I. All information relating to the price of real or personal property to be used for a public purpose before the award of contracts for the property. 172 This list of exceptions is intended only to cover commonly received taxpayer records, and is not the complete list of statutory exceptions to the requirement that records be open. Sources: 1. V.A.T.C.S. Government Code §552.001, 552.002, 552.003, 552.021, 552.025, 552.101, 552.104, 552.105 (West, 1994) 2. V.A.T.C.S. Tax Code §22.27, 23.45, 23.12(f), 23.123, 111.006, 171.206 (West, 1994) 2.70 Taxpayer Liaison Officer The Denton Central Appraisal District has a Taxpayer Liaison Officer (TLO). The primary focus of the TLO is to improve the Appraisal District’s relationship with the public and requires the TLO to be credible, knowledgeable and responsive to the public with no conflicting interests. The duties and responsibilities of the Taxpayer Liaison Officer may include: Resolving issues regarding the Board of Directors, the Chief Appraiser, or Denton Central Appraisal District employees. May provide information and/or materials designed to assist property owners in understanding the appraisal process, protest procedures, taxing unit matters and other related issues. Reporting to the board at each meeting (if necessary) on inquiries or public complaints filed and their status. Reports to the Board may be an oral or written presentation and may include the nature of the issues and concerns with a follow up to ensure their resolution. In addition, the taxpayer liaison officer may handle public access and informational matters. The liaison officer also resolves complaints that fall outside the jurisdiction of the appraisal review board. At each regular meeting of the board, the taxpayer liaison officer reports on the number, nature and status of resolution on any complaints (if any). The TLO also coordinates many administrative matters for the ARB. If you are having some difficulty with the protest system, or have questions concerning the ARB, contact the TLO. If your question cannot be resolved directly, you will receive an appropriate referral to someone who can help you. The Taxpayer Liaison Officer contact information will be posted on the Appraisal District’s website to help accessibility to the public. The Texas Property Tax Code defines the Taxpayer Liaison Officer as: 173 §6.052. Taxpayer Liaison Officer (a) The board of directors for an appraisal district created for a county with a population of more than 125,000 shall appoint a taxpayer liaison officer who shall serve at the pleasure of the board. The taxpayer liaison officer shall administer the public access functions required by Sections 6.04(d), (e), and (f), and is responsible for resolving disputes not involving matters that may be protested under Section 41.41. (b) The taxpayer liaison officer may provide information and materials designed to assist property owners in understanding the appraisal process, protest procedures, and related matters. (c) The taxpayer liaison officer shall report to the board at each meeting on the status of all complaints filed with the board under Section 6.04(g). (d) The taxpayer liaison officer is entitled to compensation as provided by the budget adopted by the board of directors. (e) The chief appraiser or any other person who performs appraisal services for the appraisal district for compensation is not eligible to be the taxpayer liaison officer for the appraisal district. Added by Acts 1989, 71st Leg., ch. 796, § 8, eff. Jan. 1, 1990. Amended by Acts 1991, 72nd Leg., ch. 371, § 2, eff. Sept. 1, 1991; Acts 2007, 80th Leg., ch. 1086, § 1, eff. Sept. 1, 2007. 174 SUBSECTION 3. APPRAISAL OF BUSINESS PERSONAL PROPERTY 3.01 Introduction A. Definition of Appraisal Responsibility The Business Personal Property Department of the Denton Central Appraisal District (DCAD) is responsible for developing fair and uniform market values for all taxable Business Personal Property accounts in the DCAD. B. Legal and Statutory Requirements The provisions of the Texas Property Tax Code (TPTC) and relevant legislative measures involving appraisal administration and procedures control the work of the appraisal district. The district is responsible for appraising property on the basis of its market value for ad valorem tax purposes for each taxing unit that imposes ad valorem taxes on property in the district. The district is required to periodically reappraise all property at least once every three years. DCAD reappraises property each year. C. Administration Requirements DCAD subscribes to the standards of the International Association of Assessing Officers (IAAO) regarding its appraisal practices and procedures. DCAD also subscribes to the standards promulgated by the Appraisal Foundation known as the Uniform Standards of Professional Appraisal Practice (USPAP). The Business Personal Property Department submits annual budget requests to the Deputy Chief Appraiser and is bound to produce mass-appraisal estimates on Business Personal properties within the cost constraints of said budget. D. Appraisal Resources Personnel - The Business Personal Property Department staff consists of a manager, a supervisor, four field appraisers assigned to geographic areas and three information specialists. The manager reports to the Deputy Chief Appraiser. E. Scope of Work The Business Personal Property Department of the Denton Central Appraisal District (DCAD) is responsible for developing fair and uniform personal property values for all industrial, business, and mineral properties. 175 3.02 General Policies and Procedures The most difficult tasks encountered by an appraiser are the discovery and assessment of personal property. The law requires that all property not specifically exempt be taxed. However, because personal property is easily concealed and frequently moved and because of the need to determine situs, and ownership, the taxation of personal property is more difficult than the taxation of real property. Items not permanently affixed to or part of real estate is generally considered to be personal property. To differentiate between real and personal property the appraiser must consider the manner in which the property is attached or secured in the location, the purpose for which the property is used and whether it is to remain permanently affixed or be removed at some time. A general rule is that an item is personal property if it can be removed without serious injury to the real estate or to the item itself. A. Data and Research It is the goal of this department to gather information that can be used to establish class schedules and verify that values placed on DCAD Appraisal Rolls are as accurate as possible. Any information that would indicate value will be considered. When information is received from whatever source, it is verified by personal contact, third party information, or direct access to financial information. Staff will work with any reliable source to acquire information. B. Education and Training All employees shall have the knowledge and expertise to do their job. Each employee will have a minimum educational standard required for their position. In addition, DCAD will supply the following: 1. On the job training – each employee will receive training on procedures, policy, and equipment by their supervisor and other employees in similar positions. 2. State required education and registration – all employees so required will achieve and maintain their own educational and registration requirements. 3. Additional training and education – from time to time, additional training and education will be required to enhance job performance, knowledge and expertise. Employees will be expected to perform to an acceptable standard. 176 C. Work Schedule Timeline August 1st – September 1st – Discovery Process September 1st – February 1st – Review, survey, & analyze existing accounts and value new accounts. February 1st – April 1st – Price, evaluate, and process renditions. April 2nd – May 1st – Process renditions May 3rd – Approximate Date to Mail Notices May 18th – June 15th – Formal hearings, interviews, and settle values. June 16th – July 31st – Prepare for discovery 3.03 Methods of Discovery Since most personal property is movable in nature, the most difficult step in the assessment of personal property is developing a system of discovery and recognizing the appropriate trade level. How Business Personal Property is appraised: The application of appraisal for the purposes of Business Personal Property is divided into the categories of variable and fixed. Fixed tasks include recognizing, inspecting and setting up new accounts, review and reappraisal of an assigned geographical area as well as deleting accounts that have ceased doing business. This category is for accounts that have a single physical location. Variable accounts are accounts that may have multiple locations or be specialty accounts. Multiple location accounts include leased equipment, telecommunications, utilities, pipelines and billboards. Specialty accounts include tenant accounts and special inventory accounts for auto, boat, heavy equipment and manufactured housing dealers. The BPP department also reviews accounts that were not rendered in the previous year. Also accounts are reviewed that may have been questioned and a different value applied based on comparable property type. Due to the dynamic nature of personal property, information gathered from certified renditions, verified balance sheets, invoices, and asset listings verified through national cost services (Marshall & Swift and other appropriate sources) have been determined as the best comparable and benchmarks for the property being valued. This process can be used to develop pricing guides by property type. Property type is noted by classification referenced by an SIC CODE. The information is then converted into a price per square foot representation multiplied by the square footage of the subject. 177 Benchmark Properties – Personal Property does not normally lend itself to being tested by benchmark sales. The best indicators of a benchmark for personal property are certified renditions, balance sheets, invoices, and asset listings. Marshall and Swift valuation software is also used as a test and adjunct tool in assisting in developing benchmarks. Fixed Tasks – These accounts are taken from the previous year’s certified roll. They are generated in an account ledger format sometimes carried in book form, but in the case of the Denton BPP department an Apple iPad. This allows for immediate account conformation and entry of recognized new accounts. Fixed accounts are separated into geographical areas. These areas are based upon cities and school districts. Within these areas certain designated accounts are noted for special attention. This category includes properties that did not file a rendition the previous year or the rendition filed was questioned and was not used for the property’s valuation. Each appraiser inspects every account on their route. Upon inspecting the accounts on the assigned route, the appraiser verifies and makes any appropriate change. Sources that can be used as an adjunct to aid them in their task of identifying new accounts are: certificates of occupancy, newspaper articles and business journals. Variable accounts – Variable accounts are represented by leased equipment, telecommunications, utilities, mineral and VIT accounts. These accounts are rendered by electronic transmission. The information is reviewed and entered by the assigned staff. The rendered and depreciated information is then incorporated into the final value for the current year. A. Business Personal Property Rendition The use of a personal property rendition is by far the most important method of discovering personal property. This method requires that the appraisal district develop and use suitable rendition forms and vigorously pursue their accurate completion by taxpayers. The rendition process is particularly important for commercial, industrial and utility taxpayers whose inventory, equipment and supplies constitute a large part of their taxable property. The rendition is often used by the appraiser to obtain information necessary for the appraiser to apply the districts own depreciation schedules to equipment, furniture and fixtures; the rendition does not necessarily contain requisite information for such depreciation calculations. The Business Personal Property Rendition is due on or before April 1st. All renditions must be signed and completed. An additional 30 days if requested in writing will be approved. Any additional extensions past the original 30 days must show cause and be approved by the Chief Appraiser. Properties that do not comply with the deadlines will be subject to a 10% penalty. A property owner can request in writing a waiver from the 10% penalty if goods cause is shown. The Appraiser is responsible to research the request and all information on the account to determine if a penalty can be waived. 178 B. Prior Year Tax Roll A review of the prior year’s tax roll is a good base from which the appraiser can work. Although particular items may change from year to year, the basic nature of the property will remain unchanged in most cases. C. Publicized Material The use of newspapers, press releases and trade journals will often assist the appraiser in locating the addition of personal property that results from new businesses opening or old businesses expanding within his jurisdiction. D. Telephone and City Directories Telephone and city directories are particularly valuable in locating commercial, service or industrial operations new to the jurisdiction. E. Physical Inspection Visual inspection to assure that all taxable personal property is assessed is used by the appraiser an assigned area of the appraisal district. F. Registration Records County vehicle registration records are the best source for vehicle information. These lists provide most of the information necessary to assess such property. G. Federal Government Records The FAA supplies data consisting of the name and addresses of airplane owners and a description of the type of planes they own. H. Building Permits Building permits also will indicate the existence of new business or the replacement of one business for another when existing commercial property is remodeled. I. Sales Tax Listing Business or “sales tax” lists from the State Comptroller’s office are also good sources for discovering the existence of many businesses that otherwise may go unnoticed, along with providing ownership and good mailing address information. 179 J. County Clerk DBA Records These are filings that are recorded at the County Clerk’s office stating the assumed name of the company. 3.04 Procedures for Informal Meetings and Participating in Appraisal Review Board Hearings The appeals process begins with an informal meeting between the appraiser and the property owner to discuss any errors, discrepancies of market value and/or equity, and any claims of exemptions or special valuations (Freeport, abatement, foreign trade, etc.). The informal review may be handled by mail, in person, or by telephone. The review allows for communication and mutual understanding, which will reduce the number of formal appeals. Informal reviews should incorporate the following basic steps: 1) Initiate inquiry record; 2)Verify the parcel information; 3)Exchange information; 4)Record the nature of complaint; 5)Use cost, sales, or income information to confirm property value; 6)If a value change is indicated, the appraiser will change the value and enter into a signed agreement with the property owner; 7)If a value change is not warranted, the appraiser should explain the appeal rights and procedures, in case the property owner wishes to make a formal appeal. Appraisal Review Board hearings (formal appeals) are the next step in the appeals process. Prior to the hearing, the property owner should be given a copy of the evidence the appraiser plans to use. Formal Hearings – The appraiser is given the responsibility of identifying protested accounts that fall within their scope of responsibility. Any information that was incorporated in the valuing of the account is to be presented at the hearing. Each side is given an opportunity to present their information before the ARB gives their decision. After the board gives their decision a board order is mailed informing the protester of the decision if there is a change. A. Procedures on Maintaining Confidential Information All confidential information (renditions, contracts, balance sheets, etc.) are kept secure and prohibited from public view. Confidential documents must be requested in writing and the persons requesting must be the owner, agent, or an authorized employee of the business. 3.05 Situs and Inspection of Personal Property Field Instructions – The appraiser is instructed and will endeavor to be aware of the accounts that are on their route. As to the extent that personal property can be assessed depends on its discovery. A. Situs of Personal Property Another difficult task in assessing personal property is determining the situs of the property for taxation purposes. The general rule in taxation of personal property is that a taxing jurisdiction can only assess 180 property that has situs within its boundaries. The basic law for determining situs of personal property involves identifying the owner’s intent for the property. If personal property has not acquired an actual situs of its own by being located at one place more or less permanently, it is taxable at the domicile of the owner. Expansion of situs questions can be found in the States General Appraisal Manual, the Property Tax Code, and personal property course texts. B. Measurement of Area The appraiser must measure the area in which inventory is held for sale or stored for future use and apply the averaging density factor tables for like property to arrive at a consistent estimate of value. C. Property Inspection The personal property appraiser should first inspect the property to be appraised. Next, the appraiser should examine or audit the books and records of the business to be appraised if the financial statements are available. From the inspection and examination, basic data may be extracted for the appraisal of the operating unit. The inspection and audit program should develop the following basic data: 1. Source of costs declared by the taxpayer 2. Reliability of cost information 3. Condition of property 4. Description of the property by item or class 5. Year acquired – new or used 6. Economic (Useful) Life – by item or classes D. Evaluation of Inventory Items of inventory must be evaluated in bulk as a class or category assessable to a particular taxpayer, unlike other items of “tangible personal property” (furniture and fixtures, machinery, equipment and vehicles) which, under normal circumstances, are to be evaluated and assessed separately. In the recognized methods of evaluation of inventory on an aggregate or bulk basis, the appraiser should first determine the level of trade; i.e., manufacturing, wholesale or retail at which the inventory is held. The product of this method would be the amount that would be received by the taxpayer in a sale of the total of such items of inventory assessable to him, to another person, firm or corporation who would continue the business. The principal of substitution dictates that inventory value would be the replacement cost to the owner of an acceptable substitute having comparable utility. Business personal property accounts that are valued over 2 million will be reviewed by the supervisor or manager. 181 All freeport and abatement applications will be reviewed by the supervisor or manager of the department. All pollution control accounts will be reviewed by the supervisor or manager. E. Data Entry Procedures Example of the process that the appraiser uses to acquire information from the account records by queries. Queries: Query 1: Route by city (query will produce results for each city separately and saved in excel on F: drive). Query 2: out-of-city route. Query results will be everything out of city limits. (Query will be saved in excel on F: drive). Query 3: DBA route. Query results pull all L1 & L2 accounts in Denton County in DBA order. (Query will be saved in excel on F: drive). Printing: Query 1: route by city – print 1 master copy Query 2: out-of-city route – print 1 master copy Query 3: DBA route – print 1 master copy All route information is placed on iPads. Color Coding for iPads: Red – delete Green – active (no data entry needed) Yellow – requires data entry. Explain in comments exactly what needs to be changed Pink – recheck, revalue, etc. Blue - tenant list Data Entry: Clerical staff will make all necessary changes to account The date and initial will be put in the done section when any changes are made Changes will be made by clerk on the appraisers in days 182 New Accounts: Appraiser will use new card template when setting up a new account After appraiser types up new card it will be emailed to BPP Helpdesk Clerical staff will check BPP Helpdesk inbox Once clerical staff sets up new account and scans the document, it will be dropped in that appraisers new account folder located on the Shared (F:) drive in the BPP folder. Appraiser will check new account folder. Check all data entry in PACS and add any additional information needed to account Quality Control: Supervisor will check each appraisers worked folder. Weekly reports are turned into Manager and Supervisor. Supervisor conducts field checks of each appraisers work. Appraisers are monitored to be in their work areas at their assigned times. 3.06 Estimation of Property Value The method used to value personal property is usually controlled by such considerations as the type of property, whether there is an active and open market for such property and specific information as age, quality or quantity. The key to mass appraisal of personal property revolves around standardizing the method of processing data and applying the three traditional approaches to value. The market-data approach, the cost approach and the income approach can be applied in assessing personal property through the use of renditions, schedules and appraisal guides that are developed and used by the appraisal district. Inventory that is bought in bulk quantities must meet the test of an arm’s length sale and should not include business liquidation. In determining the “market value” of items of inventory, the appraiser should consider the invoice cost, the condition of the inventory and other factors as required by law, or recognized using generally accepted accounting practices (GAAP), and correctly employs generally accepted appraisal techniques or methods (GAAT) to produce and communicate credible appraisals. The appraiser shall endeavor not to commit a substantial error of omission or commission that significantly affects a mass appraisal nor render a mass appraisal in a careless or negligent manner. A. On-Site Appraisal An “on-site” appraisal will be made of each individual, firm, partnership, co-partnership, association, society, corporation, or any other legal entity that owns, holds, or uses personal property in connection with a business or profession. Established accounts will be rechecked annually and new accounts will be established upon discovery. 183 Appraisers will make a detailed report for each business visited to include: – Business Name and Location – Owner, Principal Officer, or Representative – Mailing Address (If different) – Business Telephone Number – Person Contacted (At the business) – Date Business Opened (New accounts only) – County, City, School, and/or Special District – Refused Entry and By Whom – Square foot area occupied and leased – Appropriate listing and description of Personal Property – Property by category showing quality, condition, density of material, etc. – Method or Technique and appraisal approach utilized – Disclose any extraordinary assumptions or limiting conditions that effect value and indicate the impact – Appraised Value – Initials of Appraiser and Name of any Assisting Appraiser – Date of Appraisal Each DCAD Personal Property Account is identified by a unique computer assigned account number and a business type using the Standard Industrial Classification System, and a property use code. Accounts are maintained on the Personal Property worksheet and kept in the appraisers’ office files (see below). 184 B. BPP Pricing Guide The BPP manual is the current version used by the Property Tax Division of the State Comptroller’s office utilized in ratio studies, and adopted for use by the Denton Central Appraisal District. The BPP manual gives guidelines for appraising property in this manner. The following pages detail how the density tables are to be used as supplied in the manual. All depreciation tables referred to are 2001 revised 2002 & 2003 for purposes of these following examples; values for business are estimated as if being appraised for the 2001 tax year. INVENTORY D (Quality) E FAIR AVERAGE GOOD N LOW 1 4 7 S I AVERAGE 2 5 8 T Y HIGH 3 6 9 _________________________________________________________________________ FURNITURE, FIXTURES, & EQUIPMENT D FAIR AVERAGE GOOD E N LOW 1 4 7 S I AVERAGE 2 5 8 T Y HIGH 3 6 9 Figure 1 Pricing Grids 185 Shown in Figure 1 is a blank sample of the pricing “grids” The top grid is for “Inventory” while the lower is for “Fixed Assets.” Across the grid are three (3) columns headed FAIR, AVERAGE, and GOOD. Generally, speaking, these columns represent the estimated “Quality” of the inventory or fixed assets. Reading from top to bottom and down the left hand side, can be seen LOW, AVERAGE, and HIGH. Again, generally speaking, these headings indicate the estimated amount or quantity of inventory. As can be seen, Class “5” is the center point of the pricing system. Realistically all adjustments up or down should start from this point as “average” is the most common and therefore the easiest, most accurate point of reference. 186 Hardware Store Table 5251 INVENTORY (Quality) D FAIR AVERAGE GOOD E N LOW 1 8.00 4 15.00 7 27.00 S I AVERAGE 2 10.00 5 18.00 8 32.00 T Y HIGH 3 13.00 6 22.00 9 40.00 _________________________________________________________________________ FURNITURE, FIXTURES & EQUIPMENT (Quality) D FAIR AVERAGE GOOD E N LOW 1 1.00 4 5.00 7 10.00 S I AVERAGE 2 2.00 5 6.00 8 12.00 T Y HIGH 3 4.00 6 8.00 9 14.00 187 *Most hardware stores will be in the Fair and Average FF&E columns. Percent Good .90 .80 .70 .60 .50 .40 .30 .20 .10 Age 1yr. 2yrs. 3yrs. 4yrs. 5yrs. 6yrs. 7yrs. 8yrs. 9 + yrs. Figure 2 Density Tables Using Figure 2, the first example used is a 5,860 sq. ft. hardware store that was established in 1995. After obtaining all pertinent information to set up the account, it is estimated that this location has average quality inventory with average density. The fixed assets are estimated to be average for this business but in well-maintained condition. The effective age is estimated for the year 1997. By indexing the inventory table, this location is classed a “5” with a price of $18.00 per sq. ft. The fixed asset table also indicates a class “5” for $6.00 per sq. ft. After checking the depreciation table under a ten (10) year life, we find that the fixed assets are estimated to be 60% good for a 1997 asset purchase. In this example, the value is estimated as follows: Inventory 5,860 sq. ft. @ $18.00 = $105,480 Fixed 5,860 sq. ft. @ $ 6.00 X 60% = 21,096 $126,576 In the second example, we have another hardware store with a size of 4,725 sq. ft. The inventory quality and mix are very similar to what is normally seen. However, it appears there is more of it on the shelves rather than in the stock room. The fixtures are older wooden examples that were normally seen in the 1940’s and 1950’s period with wear and tear typical to fixtures of that age. For this example, date established is estimated in 1952. In estimating the value for this location, we are classing the inventory as average with a higher density. By checking the grid, the “class” for this location for inventory is a “6” or $22.00 per sq. ft. The fixtures will be classed “2” or $2.00 per sq. ft. with the depreciation schedule indicating 20% remaining. (Not going below “normal” ten year life figure as fixtures are still in use and in “average” condition for fixtures of that age.) Therefore, overall effective age is 1993. 188 The value on this business is estimated below: Inventory 4,725 sq. ft. @ $22.00 = $103,950 Fixed 4,725 sq. ft. @ 2.00 X 20% = 1,890 $105,840 C. The Historical or Original Cost 1. Cost Determination The cost as shown on the accounting records reflects different cost “basis” for items acquired. The property may have been acquired by cash purchase; by contract on a deferred payment plan; by exchange, or trade; by issuance of securities or other property; by self-construction; by gift or discovery; or by other cost “basis.” Accountants generally adhere to the base price established at the time the property was acquired. This principle has wide acceptance in the accounting profession. The property accounts seldom depart from the historical price base to reflect depreciated values of the assets. However, the accounting term cost typically is referred to as the cost of acquiring an asset on the date of acquisition. Thus the value recorded for the assets of a company may be described as the “all inclusive” costs. The accounting records generally have property acquisitions reported on an “original” cost basis. These accounts may be adjusted for the determination of depreciation, etc. The cost then would be on an “adjusted” cost basis. 2. Examination of Accounting Records The appraiser should examine the books and records of the business. The accounting records may be a complete or standard set of records or a modified system of records. The report of the appraiser should indicate what records were examined and describe the type of records examined for the appraisal. A determination must be made as to the cost basis used to record property in the records. This cost basis should reflect the minimum cash outlay necessary for the acquisition of the property. This cash outlay should also represent all the expenditures up to the time the property is put to its ultimate use. The appraiser must determine the cost basis recorded for either new or used property and if it is representative of the current value at the time of acquisition. The historical or original cost may be the only reliable source data available for the appraisal of personal property. The source data may reflect historical costs for new or used property according to the date of acquisition. The appraiser may have to adjust the cost basis of the accounting records if these costs do not reflect “current value at the time of acquisition.” The historical or accounting cost bases, after appraisal adjustments, are factored to current replacement costs new. 189 D. Invoice Cost Appraisers should first consider the taxpayer’s invoice cost. Such cost should include delivery or freight charges but not sales tax if any, and should be reduced by any trade quantity, cash or similar substantiated discounts allowed to the taxpayer. The condition of the goods, including depreciation and appreciation may indicate an adjustment in value from invoice cost. Invoice cost should be reduced when losses in value occur due to damage, shrinkage, out of season, out of style, or similar factors that reduce the market value of the inventory below the invoice cost. When aging or curing or other similar factors enhance value, invoice cost should be increased to reflect this appreciation. In certain situations, the value of inventory consisting of work in process may increase as the manufacturing process continues. In this situation, the invoice cost must be increased to reflect this appreciation. E. Flat Pricing On accounts that do not fall into a “class” or where actual figures are known, do not use the Density Tables when a different figure is needed for the final value estimate. This final estimate is entered (on the worksheet and terminal) as a flat price figure. On locations where verification has been presented or obtained, the appraiser is also expected to flag the worksheet and computer (there is a specific field for this purpose on each) that the location’s value is verified. A file (referred to as a “data file”) must be set up and maintained with supporting documentation. This is then available to the personal property supervisor for checking and analysis. F. Fixed Asset Depreciation As with all appraisals, depreciation based on effective age is the critical variance to the final estimate of value. Therefore, to audit depreciation more closely, overall effective age of the fixed assets is a requisite of the appraiser to make the pricing system work. Furthermore, it requires all appraisers district wide to use the Depreciation Tables for standardization and appraisals that are more “fair and equal.” This information can then be analyzed on a printout with other businesses in the same category where a comparison of values will be more meaningful with better conclusions being achieved by the appraisers. G. Economic Life 1. Measuring Economic Life The physical life of a property is that period extending from the time a piece of equipment is new until it is physically no longer usable or has had a substantial amount of life restored by rebuilding. The economic life of a property is the estimated time measured from the date the item is new until the disappearance of its capacity to produce a greater yield than its expense or upkeep. Without economic and functional obsolescence, economic and physical life may be identical. Economic life may be greater than, equal to, or less than the physical life of an item. 190 2. Estimation of Economic Life The appraiser should estimate the reasonable economic life for commercial type property by item. Commercial type property usually has a longer economic life than other types of personal property. This is due to limited use, enhanced design, better maintenance and less obsolescence. Guidelines for economic lives are found in the IRS Code, the Marshall Valuation Service manual, and other sources using generally accepted appraisal practices (GAAP). 3. Economic Life Tables The appraiser judges the economic life by physical inspection of the property and determination of the actual use of the property. As a guide the appraiser may use Depreciation Guidelines Life Expectancy Tables by the predominate use of the property. The tables are supplied with the BPP manual. The appraiser must then select the economic life for a particular property based on operating conditions, experience of the industry, and his informed judgment. H. Percent Good Tables Depreciation is estimated by the use of a remaining value or Percent Good Table. Normal depreciation allows for the decline in value of the property over its estimated economic life. The rate of depreciation or Percent Good Table relates not only to the measurement of time, but to other factors as well. Some of these particular factors are the operating policies regarding repairs, maintenance, and replacement. The other factors affect normal depreciation and must be considered by the appraiser to estimate the current value of any personal property. The use of the property has an effect on the remaining economic life and the current value. Depreciation rates are based on average condition for age. The appraiser has determined the Replacement Cost New (RCN). An economic life has been assigned to the property. The appraiser determines the following 1. Replacement Cost New (RCN) = 28,250 (assumed number for example) 2. The assigned life of 10 years, on a composite rate. 3. The age of the property is determined to be eight (1993–2001) years. 4. Using the Percent Good Table, he finds 20% remaining value for average condition. This is determined by using the 10 year Normal Depreciation column and the age of 8 years. The estimated remaining life indicated is 2 years. 5. The Replacement Cost New (RCN) multiplied by the percent good (%) (remaining value) gives the appraiser the estimate of Replacement Cost New Less Normal Depreciation (RCNLND). The following is an example of estimating the replacement cost less normal depreciation, using the Percent Good Table: 191 1. Replacement Cost New, RCN = $28,25 2. Normal Life – 10 years 3. Age of Property – 8 years 4. Percent Good Table – Normal Depreciation 10 years 5. Percent Good (Remaining Value) 20% 6. RCN $28,250 X Percent Good 20% 7. $28,250 X 20% = $5,650 RCNLND Figure 3 Using Percent Good Using Figure 3, the replacement cost new is adjusted for depreciation according to age. Next, depreciation is considered in view of the condition of the property. This depreciation is based on physical factors, and can be less, equal to or greater than depreciation from age only. I. Trending Factors A cost index, such as in Marshall & Swift, is designed to show specific rates and directions of price movements. Cost Indexes’ are used to trend historical cost to current costs. The index is converted to factors using the year before the appraisal year as the base year. The costs data used in appraising property are generally historical costs. Historical costs are factored to current costs by the use of conversion factors. 1. Determine the historical or acquisition cost from the books and records. The cost basis must be representative of current value at the time of acquisition. These costs should be factored by compositions grouped or summarized within years of acquisition. 2. Determine the factor which is to be used based on the acquisition date. 3. Multiply the original cost by the factor. 192 The result is the trended historical cost or the estimate of the replacement cost new. The following is an example of estimating Replacement Cost New (RCN) using the 1992 Cost Factors: SMALL OFFICE – FURNITURE & FIXTURES 1. Cost Basis = $10,000 2. Acquisition Date 1983 3. Replacement Cost Factor = 132 4. Cost $10,000 X 132% = $13,200 = RCN Using Cost Index Factor Cost basis is trended to estimate Replacement Cost New (RCN). These costs are factored by the use of conversion factors. Finally, the estimate of the economic life or remaining life of the property is made. Normal depreciation is then applied to the value. The RCNLND is the result of using the cost factors and the Percent Good Column. J. Obsolescence In the appraisal of commercial personal property as in all other types of property, the problem of obsolescence must be considered in estimating value. The appraiser should consider obsolescence a factor in the valuation of any property. Obsolescence may be defined as loss of value caused by technological change or innovation, changes in demand of product, or other causes. 1. Functional Obsolescence When the loss of value is due to technological change or innovation, it is usually referred to as functional obsolescence. It can be recognized by lack of utility in the property; inadequate capacity or size. Since the obsolescence is present in the property (i.e., lack of capacity or size) it can sometimes be overcome by remodeling. 193 2. Economic Obsolescence When the loss of value is due to change in product or demand, it is customarily referred to as economic obsolescence. Economic obsolescence is caused by external factors and cannot be overcome. 3. Measurement of Obsolescence Obsolescence is not difficult to recognize in personal property, but it is difficult to measure with accuracy. This is because obsolescence is best measured by market evidence. Adequate market evidence of value cannot always be found for all types of personal property. The appraiser should look to the market for any evidence of value loss due to obsolescence after having estimated the value using the cost approach. Appraisers must consider what an informed purchaser is willing to pay for this property as an operating unit on a going concern basis. The appraiser will first determine Replacement Cost New Less Normal Depreciation (RCNLND.) The ratio of the RCNLND to the RCN should be compared to the overall condition of the operating unit. Then consideration must be given for an adjustment due to obsolescence; economic, functional, or both. To estimate the amount of obsolescence, the appraiser must use good appraisal judgment. A review of all the external and internal factors, including market evidence should be employed whenever available. K. Salvage & Scrap Value of Personal Property There are times when the appraiser in the field encounters a business that has remodeled or replaced worn out equipment, but older/idle equipment remains on the company books. This equipment has value, if only salvage or scrap, which must be considered in the valuation of the business. Salvage value is the price at which the owner can dispose of an asset after its useful service life has expired. The price usually includes removal of all or part of the property from the premises for use elsewhere, usually with refurbishing. Scrap value is the lowest value property will have and is measured for its content (pounds of iron, aluminum, copper, etc., or other component parts) to be used for recycling. L. Procedures for Verifying the Accuracy of Work All renditions are verified and checked by the appraiser. The supervisor takes random samples from each employee. Various value reports are reviewed to ensure equality, uniformity and accuracy are accomplished. M. Procedures on Accepting Renditions and Assessing or Waiving Penalties The Business Personal Property Rendition is due on or before April 1st. All renditions must be signed and completed. An additional 30 days if requested in writing will be approved. Any additional extensions past the original 30 days must show good cause and be approved by the Chief Appraiser. 194 Properties that do not comply with the deadlines will be subject to a 10% penalty. A property owner can in writing request a waiver from the 10% penalty if good cause is shown. The Appraiser is responsible to research the request and all information on the account to determine if a penalty can be waived. Utility accounts maintained by an outside appraisal firm are updated from the computer generated listing provided by the firm. O. Policies and Procedures for Performing, Analyzing and Using Internal Ratio Studies Analysis The District utilizes internal computer generated queries to help in ascertaining proper ratios. The queries are performed to locate outlier spread. This would include properties that increased by more than the designated percentages and amounts. This would give an indicator of properties that fell outside the indicated ranges. Summary statistics including, but not limited to, the median, weighted mean, and standard deviation provide the analysts an analytical tool by which to determine both the level and uniformity of appraised value by SIC code. Review of the standard deviation can discern appraisal uniformity. 195 DENTON CENTRAL APPRAISAL DISTRICT PERSONAL PROPERTY WORK SHEET PROP ID: NV: BUSINESS NAME: OWNER’S NAME: SITUS LOCATION: MAILING ADDRESS: PHONE NUMBERS: PROPERTY DESCRIPTION: LINKED PROPERTY R STATE CODE: SIC: TAXING UNITS: 20 EXEMPTIONS / COMMENTS 1. INVENTORY – GOODS, WARES, MDSE SF: 2. FURNITURE & FIXTURES SF: 3. MACHINERY & EQUIPMENT 4. VEHICLES YEAR MAKE TYPE LIC# TOTAL: APPRAISER: DATE: INFO FROM: 196 BILLBOARD VALUATION WORKSHEET (1) NAME OF COMPANY: __________________________________________ (2) DATE: _______________________ (3) PERSON TO CONTACT: ________________________________________ (4) NUMBER: _____________________ (5) COUNTY NAME: _______________________________________________ (6) TELEPHONE: _________________ (7) LOCATION OF STRUCTURE & BILLBOARD #: _____________________________________________________ (8) NEAREST ADDRESS & ENTITIES: _________________________________________________________________ (9) NEAREST LOCATION: ____________________________________________________________________________ (10) ORIGINAL CONSTRUCTION DATE: ____________________________ (11) AGE (IN YEARS): ______________ (12) TYPE OF CONSTRUCTION (WOOD, STEEL, MONOPOLE): __________________________________________ (13) CLASS: _______________________________________ (14) HAGL: ________________________________________ (15) ILLUMINATION: YES________ NO________ (16) LARGEST DISPLAY SURFACE: ______________________________________________________________ (17) NUMBER OF DISPLAY SURFACES: ____________________________________________________________ (18) PLATFORM #______________________ YES_________ NO_________ (19) APRON # _________________________ YES_________ NO_________ BASE PRICE PER SQUARE FOOT _____________ X _____________ SQ FT = _________________________ (A) NUMBER OF ADDITIONAL SURFACES ____________ X _____________ PER SURFACE = __________________________ (B) BASE STRUCTURE COST = _________________________________ (C) (ADD A & B) CONSTRUCTION ADJUSTMENTS HAGL – BASE STRUCTURE COST _________________ X ________________ PERCENTAGE = _______________________ (D) MONOPOLE – BASE STRUCTURE COST ________________ X ________________ PERCENTAGE = ___________________ (E) STACKS – BASE STRUCTURE COST _________________ X __________________ PERCENTAGE = ____________________ (F) TOTAL ADJUSTED BASE COST = ____________________________ (G) TOTAL OF C + ( D, E, & F ) ADDITIONAL IMPROVEMENTS ILLUMINATION - # OF SURFACES ___________________ X __________________ PER SURFACE = ___________________ (H) PLATFORM – PER LINEAR FOOT ___________________ X ___________________ LINEAR FEET = ____________________ (I) APRON – PER LINEAR FOOT ___________________ X ___________________ LINEAR FEET = ________________________ (J) TOTAL OTHER ADDITIONS = _______________________________ (K) ( ADD H, I, & J ) REPLACEMENT COST NEW ( RCN ) ______________________ (L) ( ADD G & K ) VALUATION OF BILLBOARD REPLACEMENT COST NEW RCN (L) ________________ X _________________ PCT GOOD = ________________________ 197 198 199 200 201 202 203 204 205 206 207 3.07 Motor Vehicle Dealer’s Special Inventory Instructions for Filing Forms and Paying Property Taxes For property tax purposes, Texas law requires that a motor vehicle dealer’s inventory is appraised based on the total sales of motor vehicles in the prior year. Dealers must file with the county appraisal district a Dealer’s Motor Vehicle Inventory Declaration form listing the total value of the inventory sold in the prior year. Also, the dealer must file with the county tax office a monthly form — Dealer’s Motor Vehicle Inventory Tax Statement — listing the motor vehicles sold, and prepay their property taxes for each vehicle. Instructions for filing both forms follow. Texas law permits the Comptroller’s office to act only as an advisory agency with regard to property taxes. The Comptroller helps property owners and tax officials interpret the property tax laws. Texas law also requires the Comptroller to adopt forms for filing the motor vehicle dealer’s inventory. Steps to calculate, report and pay dealer’s inventory property taxes: Step 1 – A dealer files the Dealer Motor Vehicle Inventory Declaration form. file one declaration per year; file each January, between January 1 and 31; file with the county appraisal district and send a copy to the county tax office; and if you are a new dealer, file a declaration form within 30 days of the issuance of the dealer’s general distinguishing number (GDN). A chief appraiser has the discretion to designate a different date. Step 2 – A dealer reports current year’s inventory market value. Complete the following items on the Dealer’s Motor Vehicle Inventory Declaration form: breakdown of sales for prior year (January – December); breakdown of sales amounts for prior year (January – December); and other general information about the retail business — mailing address, name and business location. 208 Divide sales amounts for inventory sales by 12 for current year’s market value: the current year’s tax bills received in October will be based on this market value and the current year’s tax rates; and the inventory’s market value is not the value of the dealer’s motor vehicles on January 1 but an average of the regular monthly inventory sales from the preceding year. Penalties The chief appraiser of the county appraisal district must report to the Texas Department of Transportation any dealer that sells fewer than five vehicles in a prior year. The Department will begin dealer license termination proceedings. A dealer who does not file a declaration form by February 1 of each year commits a misdemeanor punishable by a fine of up to $500 per day until filed. A tax lien can be attached to the dealer’s business personal property to secure payment of the penalty. A dealer forfeits an additional penalty of $1,000 for each month or portion of the month that it is not filed. Step 3 – A dealer files the Dealer’s Motor Vehicle Inventory Tax Statement: file 12 statements per year; file each month by the 10th of the following month. For example, file January inventory tax statement by February 10th. file with the county tax office, including a check for prepayment of taxes. Send a copy of the form to the county appraisal district. If you do not sell a motor vehicle during the month, you must file a tax statement indicating no sales; and if a new dealer, file each month, but do not send a prepayment of taxes. Step 4 – A dealer makes a prepayment of taxes. Calculate the unit property tax factor. Find the aggregate tax rate by adding the preceding year’s tax rates for each taxing unit that taxes the retail business. Look either at the preceding year’s tax bills or call the county tax collector. Each property is taxed by a county and by a school district. It also may be taxed by a city and special districts (such as a junior college and/or hospital district, depending on where the business is located). 209 Example of 2004 tax rates: Divide the aggregate tax rate by 12 for a tax rate per month. Example: $2.45/12 = $0.20417 per $100 of value. Divide the aggregate tax rate per month by $100 for a tax rate per $1.00 of sales price. Example: $0.20417/$100 = $0.0020417 rate per $1.00 (unit property tax factor). Change the unit property tax factor each January to use the preceding year’s tax rates. Example: Use the 2004 adopted rates to determine the unit property tax factor for January through December 2005. Report and pay the unit property tax payment. Multiply the sales price of the motor vehicle by the unit property tax factor. Subtract the motor vehicle’s manufacturer’s rebate from the sales price, but do not subtract the trade-in. Example: $20,000 x $0.0020417 = $40.83 in tax prepayment. Apply unit property tax factor to each motor vehicle sold in a month and report to the county tax office, along with the tax prepayment. Send a copy of the monthly tax statement to the county appraisal district. Remember, it is considered a sale, even if the motor vehicle is taken out of Texas. Step 5 – A dealer files a report of inventory sales monthly. Report the following on the Dealer’s Motor Vehicle Inventory Tax Statement: date of sale; model year of motor vehicle; make of motor vehicle; vehicle identification number; County tax rate = $0.40 School tax rate = $1.40 City tax rate = $0.60 Special district tax rate = $0.05 Aggregate rate = $2.45 per $100 of value 210 purchaser’s name; type of sale: A. MV — regular motor vehicle inventory sale — a motor vehicle is a fully self-propelled vehicle with at least two wheels which has the primary purpose of transporting people or property and includes a towable recreational vehicle. Motor vehicle does not include equipment or machinery designed and intended for a specific work-related purpose other than transporting people or property; B. FL — fleet sale — sales of five or more motor vehicles from the dealer’s inventory to the same buyer within one calendar year; C. DL — dealer sales — sales of vehicles to another Texas dealer or a dealer who is legally recognized in another state as a motor vehicle dealer; D. SS — subsequent sales — dealer-financed sales of motor vehicles that, at the time of sale, have dealer financing from the inventory in this same calendar year. The first sale is reported as a motor vehicle inventory sale, with sale of this same vehicle later in the year classified as a subsequent sale; sales price — is set forth on the application for Title, or would appear if that form was used; unit property tax value; total unit property tax value for each page and for the total report; and total sales — number of vehicles for each type of sale and by total sales amounts. The chief appraiser may examine the books and records of the dealer by personally delivering a written request to the custodian of the records at the dealer’s location. The request must be delivered at least 15 days prior to the date of the request to view the records and must contain a statement notifying the dealer that he or she may seek judicial relief from compliance with the request. File the report and payment by the 10th day of the following month. Step 6 – On behalf of the dealer, the county tax collector pays the annual inventory taxes from the dealer’s escrow account and bills the dealer for any additional amount due. Receives annual property tax bills, usually in October and November: taxing units send a copy of the dealer motor vehicle inventory tax bill to the county tax assessor- collector; dealer pays all other tax bills to the taxing units; 211 county tax assessor-collector pays the inventory tax bill from the escrow account — usually in early January after the dealer’s December payment — to the taxing units. Receive tax receipt for payment and any additional tax bill from county tax assessor-collector for any deficiency in the escrow account: dealer must pay the deficiency by January 31 to avoid delinquent penalty and interest; if taxes become delinquent, dealer pays each taxing unit, plus penalty and interest; taxing units receive any excess taxes that remain in escrow account; the dealer may not withdraw funds from the escrow account; and the escrow account begins with a zero balance for the next tax year’s prepayments. Penalties A dealer who does not file the monthly tax statement by the 10th day of the following month commits a misdemeanor punishable by a fine up to $100 per day until filed. A tax lien can be attached to the dealer’s business personal property to secure payment of the $100 penalty. A dealer forfeits an additional penalty of $500 for each month or portion of month that it is not filed. Furthermore, a dealer who fails to remit the taxes due pays a 5 percent late payment, with another 5 percent due if not paid within 10 days. 3.08 Utility, Mineral Property All personal property of utility companies and coops consisting of electric, telephone, railroad, gas distribution systems, pipelines, compressors & pump stations, telecommunications, cable TV, and water utilities are valued by a consulting firm contracted for this specific function. Along with the above, this firm will also value interests in energy mineral properties – i.e., oil, gas, lignite, and uranium. While these values are generated outside the appraisal district, they are monitored for accuracy and reasonableness, as well as correct allocation to the taxing jurisdictions, by the personal property supervisor. It is the district’s policy to follow the recent decision of the Texas Supreme Court in regards to assessing near surface minerals such as sand, gravel, limestone, granite, talc and sulfur; it states that those minerals not mined or stockpiled, or part of a mine or quarry, are not taxable. 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 3.09 Valuation Bibliography Reference materials are used by the appraisal district to value or to verify rendered values for specific items, such as automobiles, trucks, aircraft, heavy construction equipment, etc. Sources include, but are not limited to, the following publications: DEPT #203 – PERSONAL PROPERTY (1) VEHICLE REGISTRATION LIST (2) AIS –NEW CAR COST GUIDE (3) NADA –USED CAR GUIDE (4) NADA – OLDER USED CAR GUIDE (5) NADA – COMMERCIAL TRUCK GUIDE (6) NATIONAL MARKET REPORT TRUCK BLUE BOOK (7) NATIONAL MARKET REPORT OLDER TRUCK BLUE BOOK (8) INSURED AIRCRAFT TITLE LIST (9) AIRCRAFT BLUE BOOK PRICE DIGEST (10) MARSHALL & SWIFT – UPDATE (11) COLE DIRECTORY – DALLAS (12) COLE DIRECTORY – FORT WORTH ACCT #5340 – DEED, SALES, AND VALUE INFORMATION (13) POLK CITY DIRECTORY (14) ZIP CODE DIRECTORY (15) NATIONAL MARKET REPORT TRUCK BODY (16) NATIONAL MARKET REPORT COMM TRAILER BLUE BOOK (17) COLE DIRECTORY – DENTON (18) VREF AIRCRAFT VALUE REFERENCE (19) APPRAISAL OF PERSONAL PROPERTY, VARIOUS TEXTS – PTD (20) GENERAL APPRAISAL MANUAL – STATE PROPERTY TAX BOARD An independent test of the appraisal performance of the district is conducted by the State of Texas Comptroller’s Office through the annual property value study. The study determines the degree of uniformity and the median level of appraisals by the appraisal district within each major category of property. The comptroller publishes a report of the study, which includes in the report the median levels of appraisal for each major category of property, the coefficient of dispersion around the median level of appraisal for each category of property, and any other standard statistical measures that the comptroller considers appropriate. 231 2019 CALENDAR OF EVENTS January 2019 Appraisal Date (except for properties appraised under Sec 23.12(f)) BPP renditions and exempt property applications mailed March 2019 Field work for real property to be completed PTAD ARB Training for new members Oil & Gas Orientation PTAD ARB Training for existing members April 2019 Estimates of taxable value sent to entities (sent weekly until certification) BPP Rendition deadline (without extension request) Deadline for appraisers to turn work in for data entry Process real property appraisal notices Turn records over to the ARB Deadline for exemption applications including Ag, Freeport and Pollution Mail real property appraisal notices May 2019 Meeting with the City Managers of Denton County Mineral notices mailed Meeting with the Superintendents and Denton County Judge BPP rendition deadline (with extension) Process BPP appraisal notices Mail BPP appraisal notices Protest deadline for real property June 2019 ARB hearings begin Protest deadline for BPP Mineral hearings July 2019 ARB approves records Chief Appraiser certifies roll August 2019 EPTS & EARS reports submitted to PTAD Field work begins for next appraisal year September 2019 Appraisal date for Sec 23.12(f) properties **Actual day is tentative. 232 2020 CALENDAR OF EVENTS January 2020 Appraisal Date (except for properties appraised under Sec 23.12(f)) BPP renditions and exempt property applications mailed March 2020 Field work for real property to be completed PTAD ARB Training for new members Oil & Gas Orientation PTAD ARB Training for existing members April 2020 Estimates of taxable value sent to entities (sent weekly until certification) BPP Rendition deadline (without extension request) Deadline for appraisers to turn work in for data entry Process real property appraisal notices Turn records over to the ARB Deadline for exemption applications including Ag, Freeport and Pollution Mail real property appraisal notices May 2020 Meeting with the City Managers of Denton County Mineral notices mailed Meeting with the Superintendents and Denton County Judge BPP rendition deadline (with extension) Process BPP appraisal notices Mail BPP appraisal notices Protest deadline for real property June 2020 ARB hearings begin Protest deadline for BPP Mineral hearings July 2020 ARB approves records Chief Appraiser certifies roll August 2020 EPTS & EARS reports submitted to PTAD Field work begins for next appraisal year September 2020 Appraisal date for Sec 23.12(f) properties **Actual day is tentative.