Analysis phase of the Appraisal Cycle
Following the conclusion of the discovery phase, the appraisal process transitions to the data analysis phase. During this time, appraisers and technicians are reviewing and updating characteristics of existing construction and/or land parcels for the purpose of uniformly applying property values per market derived data. Analysis tools are utilized to assist in staff efficiency, and ensure proper valuations and equitable results during the assigned time for this phase. This process requires sales and market related data as well as the information obtained during the prior phase of discovery.
WCAD has prepared a video that details the analysis, or valuation, phase. Residential Valutaion Video
Per Texas Code 23.01(a), all taxable property is appraised at its market value as of January 1.
This is accomplished by using the market analysis of comparable sales and local cost data, or specific income and expense data, applied to valuation models in compliance with the International Association of Assessing Officers (IAAO) and Uniform Standards of Professional Appraisal Practices (USPAP). Using ratio studies established by the IAAO standard on Ratio Studies, these values are tested for accuracy and uniformity.
Residential Real Property Analysis
Data is gathered within the areas that tend to determine certain economic forces such as demographic patterns, location factors, income patterns, general trends in real property prices and rents, and interest rate trends. Availability of vacant land, and construction trends and costs are collected from private vendors and public sources to provide the appraisers a current economic outlook on the real estate market. Information is obtained from real estate publications and/or general determinations of the local markets.
Neighborhood or Market Area Analysis
Neighborhood analysis involves the examination of the effect of physical, economic, governmental and social forces, as well as other influences, that can affect property values. The effects of these forces are also used to identify, classify, and stratify comparable properties into specific identified subsets of the universe of properties known as neighborhoods. Common boundaries could be school districts or detailed market analyzed boundaries based upon homes, zoning, and/or value.
The IAAO defines a neighborhood as the environment of a subject property that has a direct and immediate effect on value, whereas, USPAP for mass appraisal in general, is the process of valuing a universe of properties as of a given date utilizing standard methodology, allowing for statistical testing.
Highest and Best Use Analysis
Market actions create market values; therefore the highest and best use of property may be the most probable use that supports the highest present value as of the date of the appraisal. In Texas, the specific time is January 1 of each calendar year. The highest and best use must be legal, physically possible, and financially feasible. Appraisers may consider that the current use of the property is most likely its highest and best use, but for some types of property, local zoning and deed restrictions often determine highest and best use. Transitional areas, or properties leveraging as an example between rural to subdivision land, may need more analysis to determine the full ranges of highest and best use. Highest and best use may not be the present use of the property due to potential differences in the alignment of land, labor, capital, and management.
During the valuation analysis, the three approaches to valuation: market, cost, and income are applied appropriately to supporting properties. Residential parcels within the district are valued based on cost schedules using a comparative unit method. The cost schedules are reviewed regularly as a result of Section 23.011 (Texas Property Tax Code), including the requirement that the appraisal district cost schedules be within a range of 10% of generally accepted cost data. Cost data is adjusted yearly within the district’s appraisal software. For those properties producing income or potential for producing income, the income approach is utilized with annually updated data tables and current cap rates.
Improved and vacant sales are collected from a variety of sources including, but not limited to: District questionnaires sent to the buyer or seller, field discovery, inquiries, protest hearings, realtors, brokers, builders, and appraisers. Systematic coding of the source, validity and verification codes are used to define information regarding the property’s purchase or transfer.
Land analysis for mass valuation utilizes the market approach for valuation of commercial and residential land parcels. Comparable sales that are improved, both allocation and abstraction methods are used for producing land values. Almost all of the land parcels within this district are now ‘tabled’ or indexed, allowing specialized computer programs to produce equitable valuations from the market.
Specific land influences are discovered and noted from field inspections, protests, and/or GIS programs. When the market indicates, these properties are adjusted for such factors as view, shape, size, and/or topography.
Ratio studies are conducted by residential class (quality of construction) and by neighborhood to measure appraisal accuracy. Appraisal statistics of central tendency and dispersion generated from sales ratios are calculated for each market area used in the the residential classification. These statistics provide the district a tool by which to determine both the level, and uniformity of appraised value. Neighborhood improvement factors are reviewed annually by appraisers with the use of sales analysis statistical software. With comparison of recent sales prices to values within each neighborhood, the appraiser is able to determine the present level and uniformity of appraised values. With the statistical levels of central tendencies, recalculations are preformed to neighborhoods to achieve appropriate levels of market values as required by the State Comptroller.
Business Tangible Personal Property
Most income producing business personal property located within the county is subject to appraisal by the district. Not only are the personal property types (inventory, furniture, fixtures, leased assets, vehicles) appraised by the district, these property types and their cost, market and income schedules are reviewed yearly. Utilizing renditions from the property owner, district schedules are reviewed and calculated against the rendition values for accuracy and to assist in determining changes to the property. Once value is determined, depreciation of the property is calculated using age/life method.
This generalization of the Analysis Phase serves as a guideline, or introduction, to the various processes that occur within an Appraisal District for creating taxable values per the Texas State Code and adhering to the Uniform Standards of Professional Appraisal Practice, Standard rule 6-9.