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POTTER – RANDALL APPRAISAL DISTRICT
2017-2018 Reappraisal Plan
The Potter-Randall Appraisal District is pleased to present
this reappraisal plan, highlighting our district’s
responsibilities and reappraisal activities.
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TABLE OF CONTENTS
TABLE OF CONTENTS ___________________________________________ 2
I N T R O D U C T I O N ___________________________________________ 5 Scope of Responsibility............................................................................................... 5 Standards of Operation/Appraisals ............................................................................. 5 Statutory Requirements ............................................................................................... 6 Jurisdiction .................................................................................................................. 9 Human Resources ...................................................................................................... 11
Education & Training ................................................................................................ 13 Computer-Assisted Mass Appraisal (CAMA) System ............................................. 13 Pictometry and Associated Tools .............................................................................. 14 ArcMap GIS .............................................................................................................. 15
PRAD Website .......................................................................................................... 16 Partition of Formerly-Shared Appraisal District Boundaries.................................... 16
Independent Performance Test / Property Value Study ............................................ 16 Methods and Assistance Program (MAPS) Review ................................................. 17 Appraisal Phases/Dates ............................................................................................. 19
POTTER-RANDALL APPRAISAL PROCESS _________________________ 20 Appraisal Staff and Responsibilities ......................................................................... 20
Data Quality Assurance ............................................................................................. 21 Appraisal Record Development ................................................................................ 22 Data Maintenance ...................................................................................................... 26
Property Damaged in a Disaster Area ....................................................................... 26 PRAD Sales Ratio Study ........................................................................................... 26
RESIDENTIAL VALUATION APPRAISAL PROCESS ___________________ 29
RESIDENTIAL APPRAISAL RESOURCES ........................................................ 29 Appraisers ................................................................................................................. 29 Data ........................................................................................................................... 29
ANALYSES OF GEOGRAPHICAL AREAS ........................................................ 30 Analysis of Land ....................................................................................................... 30 Regional Analysis and Market Areas ........................................................................ 30 Neighborhoods and Market Analyses ....................................................................... 31 Highest and Best Use Analysis ................................................................................. 33
VALUATION AND STATISTICAL ANALYSIS (MODEL CALIBRATION) ............ 34 Cost Schedules .......................................................................................................... 34 Sales Information ...................................................................................................... 34 Statistical Analysis .................................................................................................... 35 Market and Cost Reconciliation and Valuation ........................................................ 35 Appraisal of Residential Homesteads ....................................................................... 37 Residential Reappraisal Schedule ............................................................................. 37
INDIVIDUAL VALUE REVIEW PROCEDURES .................................................. 43 Field Review ............................................................................................................. 43 Qualification of High or Low Sales .......................................................................... 43
Office Review ........................................................................................................... 43
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APPRAISAL PERFORMANCE TESTS ............................................................... 44 Sales Ratio Study & Management Review ............................................................... 44
COMMERCIAL & INDUSTRIAL VALUATION APPRAISAL PROCESS _____ 45
COMMERCIAL/INDUSTRIAL APPRAISAL RESOURCES ................................. 45 Appraisers ................................................................................................................. 45 Data ........................................................................................................................... 46
ANALYSES OF GEOGRAPHICAL AREAS ........................................................ 46 Regional Analysis ..................................................................................................... 46
Market Neighborhood Analyses and Neighborhood Codes...................................... 46 Highest and Best Use Analysis ................................................................................. 47 Land Valuation .......................................................................................................... 47
MARKET FORCE ANALYSIS ............................................................................. 47
DATA COLLECTION .......................................................................................... 48 Data Collection Procedures ....................................................................................... 48
Sources of Data ......................................................................................................... 48 Valuation and Statistical Analysis (Model Price Calibration) .................................. 49
Commercial Property Valuation Approaches ........................................................... 49 Cost Approach ........................................................................................................... 49 Sales Comparison (Market) Approach ...................................................................... 51
Income Approach ...................................................................................................... 51 Final Valuation Schedules......................................................................................... 53
Statistical and Capitalization Analysis ...................................................................... 53 Commercial Reappraisal Schedule ........................................................................... 54
INDIVIDUAL VALUE REVIEW PROCEDURES .................................................. 59 Field Review ............................................................................................................. 59
Qualification of High or Low Sales .......................................................................... 59 Office Review ........................................................................................................... 59 Appraisal Performance Tests .................................................................................... 60
Sales Ratio Study ...................................................................................................... 60 Comparative Appraisal Analysis ............................................................................... 61
BUSINESS PERSONAL PROPERTY VALUATION PROCESS ____________ 62
BUSINESS PERSONAL PROPERTY APPRAISAL RESOURCES .................... 62 Appraisers ................................................................................................................. 62 Data ........................................................................................................................... 63
VALUATION AND MODEL DEVELOPMENT ..................................................... 63 Property Characteristics Assignment (PCA) Code Analyses.................................... 63 Data Collection Procedures ....................................................................................... 63 Computer-Assisted Business Personal Property Appraisals ..................................... 64 Business Personal Property Reappraisal Schedule ................................................... 67
Ratio Studies ............................................................................................................. 68
LIMITING CONDITIONS __________________________________________ 69
CERTIFICATION STATEMENT ____________________________________ 70
Attachment A __________________________________________________ 71
Attachment B __________________________________________________ 74
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Attachment C __________________________________________________ 75
Attachment D __________________________________________________ 77
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POTTER-RANDALL APPRAISAL DISTRICT
2017 - 2018 Reappraisal Plan
I N T R O D U C T I O N
Scope of Responsibility
A property’s market value changes over time - it either increases or decreases. Because of this simple
fact, periodic reappraisal of property is needed to update values and eliminate inequities that occur due to
changes in the local real estate market. The most important function of the Potter-Randall Appraisal
District (PRAD) is to assure that appraisals reflect changes in the market for the purpose of taxing
property, also known as ad valorem tax, so that each property’s value is the same
across all the taxing entities involved. Fairness and equity in property appraisals
are PRAD’s foremost goal and the primary reason for our existence. To maintain
the goal of overall equity in appraisals and to highlight our district’s
responsibilities and reappraisal activities, the Potter-Randall Appraisal District is
pleased to develop this written reappraisal plan and mass appraisal report.
By assimilating this plan, PRAD is acting in compliance with the Texas Property Tax Code; however,
there are additional benefits. This written plan can be used as an informational resource to both the Potter
County and Randall County Boards of Directors, the taxing entities within our jurisdiction, as well as the
citizens and taxpayers we serve. This document provides an overview of our responsibilities that are
critical in fulfilling our purpose as an appraisal district. In addition, it details our organizational structure,
staffing levels and functions, along with our appraisal and reappraisal techniques and procedures.
The cities/villages, school districts, college district and other political subdivisions within Potter and
Randall counties are the taxing entities served by PRAD. PRAD provides the taxing entities with the
appraised values each year so the taxing entities can assess the taxes needed to meet their respective
budgetary needs and to perform their functions. The Potter-Randall Appraisal District and the taxing
entities are distinctly separate operations that function independently from one another as required by law.
PRAD is responsible for assigning market value to properties and administering exemptions and the taxing
entities use that value to adopt tax rates, while Potter County and Randall County tax offices calculate and
mail bills and collect the taxes due on the properties.
For clarification purposes, appraisal districts don’t create, set or influence property values. They measure
the differences that occur over time and reflect the market value of properties according to the market
activity. In actuality, values are set by buyers and sellers of local properties through their real estate
transactions.
Standards of Operation/Appraisals
PRAD adheres to the standards of the International Association of Assessing Officers (IAAO) regarding
its appraisal practices and procedures, and to the standards set forth by the Uniform Standard of
Professional Appraisal Practice (USPAP) where the regulations apply.
“Fairness and equity in property appraisals are
PRAD’s foremost goal and the primary reason
for our existence.”
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IAAO promotes innovation and excellence in property appraisal, assessment administration, and
property tax policy through professional development, education, research, and technical
assistance.
USPAP provides quality control and performance standards for real property, mass appraisal and
business personal property.
PRAD management and appraisal staff interacts and shares pertinent information with assessment officials
at other Texas appraisal districts, especially those adjacent to the Potter-Randall Appraisal District, to
assure compliance with State statutes. This personal contact with other appraisal district officials is one
way to ensure a high level of appraisal compliance throughout the State. PRAD also shares information
via professional trade organizations including the IAAO, Texas Association of Appraisal Districts and its
subchapter Texas Metropolitan Association of Appraisal Districts and the Texas Association of Assessing
Officers. Further, PRAD staff maintains their appraisal skills and professionalism through continuing
education by taking Property Tax Education Coalition courses approved by the Texas Department of
Licensing and Regulation.
PRAD contracts with Pritchard & Abbott, Inc., a private consulting firm that provides professional tax
appraisal services for minerals, oil and gas, utilities, fiber optics, underground pipelines, and other
specialized real properties that are outside the expertise of PRAD’s appraisers. Pritchard & Abbott also
performs special valuation projects at our request. Because of this contractual association, Pritchard &
Abbott’s mass appraisal report and biennial reappraisal plan are in Attachment D (Contracted Appraisal
Services).
Statutory Requirements
The Texas Property Tax Code, together with related case law created from decisions of the appeals court
and Supreme Court and the Texas Attorney General’s written legal opinions, govern property tax
administration for all appraisal districts in Texas, including PRAD. Texas appraisal districts must prepare
reappraisal plans to meet all the regulations and to assure Texas property owners of equity in property
valuations. Throughout this document other State property tax laws will be quoted. However at the outset,
we want to acknowledge the following Texas Property Tax Code statutes that require and set forth the
overall standards of this written plan:
Sec. 6.05. Appraisal Office.
(i) “To ensure adherence with generally accepted appraisal practices, the board of directors
of an appraisal district shall develop biennially a written plan for the periodic reappraisal
of all property within the boundaries of the district according to the requirements of
§25.18 and shall hold a public hearing to consider the proposed plan. Not later than the
10th day before the date of the hearing, the secretary of the board shall deliver to the
presiding officer of the governing body of each taxing unit participating in the district a
written notice of the date, time, and place for the hearing. Not later than September 15 of
each even-numbered year, the board shall complete its hearings, make any amendments,
and by resolution finally approve the plan. Copies of the approved plan shall be
distributed to the presiding officer of the governing body of each taxing unit participating
in the district and to the comptroller within 60 days of the approval date.”
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Sec. 25.18. Periodic Reappraisals.
(a) “Each appraisal office shall implement the plan for periodic reappraisal approved by the
board of directors under §6.05(i).
(b) The plan shall provide for the following reappraisal activities for all real and personal
property in the district at least once every three years;
(1) identifying properties to be appraised through physical inspection or by other reliable
means of identification, including deeds or other legal documentation, aerial
photographs, land-based photographs, surveys, maps, and property sketches;
(2) identifying and updating relevant characteristics of each property in the appraisal
records;
(3) defining market areas in the district;
(4) identifying property characteristics that affect property value in each market area,
including;
(A) the location and market area of property;
(B) physical attributes of property, such as size, age, and condition;
(C) legal and economic attributes; and
(D) easements, covenants, leases, reservations, contracts, declarations, special
assessments, ordinances, or legal restrictions;
(5) developing an appraisal district model that reflects the relationship among the
property characteristics affecting value in each market area and determines the
contribution of individual property characteristics;
(6) applying the conclusions reflected in the model to the characteristics of the properties
being appraised; and
(7) reviewing the appraisal results to determine value.”
As required by TPTC §6.05(i), every two years the Board of Directors of each appraisal district is to adopt
a written plan for the reappraisal of properties. This statute in State law also details the approval process
for the plan. The TPTC §25.18 (a) & (b), requires each appraisal district to implement a written plan to
periodically update appraised values for real property and personal property at least once every three years.
It also explains how the reappraisals are to be accomplished.
Except as provided by the Texas Property Tax Code in other statutes, all
property is appraised at its market value as of January 1 of each year. In general
terms, market value is the amount of money a buyer would pay and a seller
would accept for property in an open and competitive market, assuming neither
is under undue pressure to buy or sell. According to the TPTC, §1.04(7),
“Market value means the price at which a property would transfer for cash or
its equivalent under prevailing conditions if:
exposed for sale in the open market with a reasonable time for the seller to find a
purchaser;
both the seller and the purchaser know of all the uses and purposes to which the property
is adapted and for which it is capable of being used and of the enforceable restrictions on
its use; and
”Market value is the amount of money a buyer would pay and a seller would accept for property in an open and
competitive market …”
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both the seller and purchaser seek to maximize their gains and neither is in a position to
take advantage of the exigencies of the other.”
The Texas Property Tax Code provides further requirements and details special appraisal provisions for
different types of personal property and real property as cited below:
allocation of value for interstate use personal property (§21.03),
allocation of value for commercial aircraft (§21.05),
allocation of value for business aircraft (§21.055),
value of real property inventory (§23.12),
value of dealer inventory (§23.121, §23.124, §23.1241 and §23.127), nominal value of real
properties owned by a non-profit homeowners’ organization for the benefit of its members
(§23.18),
value of nonexempt property used for low-income housing (§23.215),
limitation on the value of residential homestead property (§23.23),
value of land designated for agricultural use (§23.41), and
appraisal of restricted-use property such as land used exclusively for recreational, park or scenic
use (§23.83), and
appraisal of restricted lands used as public access airport property §23.93).
According to §23.12(f), the owner of real or personal property inventory may choose to have the inventory
appraised at its market value as of September 1 of the year preceding the tax year to which the appraisal
applies. This can be done by filing an application with the Chief Appraiser before August 1 of the
preceding year to request that the inventory be appraised as of September 1.
PRAD Reappraisal Frequency
In compliance with State law, it is Potter-Randall Appraisal District’s current policy to conduct a general
reappraisal of real property every three years or even more frequently as needed depending on ratio
studies. Some property values are reviewed annually and are subject to change to stay in sync with current
market values and equalization. The properties that are reviewed annually are:
Business personal properties
Mobile and manufactured homes
Minerals, oil and gas
Utilities
Railroad rights-of-way
Industrial real & personal properties (These properties are reviewed annually because equipment
attached to industrial real property may be either added or removed, thereby affecting the value.)
The required triennial reappraisal requires an inspection (on-site or aerial photograph review) of the
property to document all property characteristics that have changed since the last reappraisal, such as
changes in size, conditions, additional buildings or attached equipment, etc. Also, PRAD appraisers
inspect all new construction every year.
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Jurisdiction
On January 1, 1980, PRAD became a legal entity created by the State of Texas. As such, PRAD began
fulfilling its appointed function at its present office location in 1981. PRAD is geographically responsible
for assessing properties in both Potter and Randall Counties, totaling 1,845 square miles. Each county
has its own six-member Board of Directors, appointed by the taxing units within each respective county.
Together the two Boards form PRAD’s governing body. The Chief Appraiser, who is the chief
administrator and chief executive officer of PRAD, is appointed by the two Boards of Directors.
Property appraisals (estimated values of property determined by the appraisal district) are used by the
taxing entities to equitably distribute taxes collected for public purposes. The appraisals are based on each
property’s worth or market value. Funding for PRAD is proportionately shared among all the taxing units
located within the two counties. PRAD is responsible for property tax appraisals and exemption
administration for the following twenty-one taxing entities. Maps showing the general location of the
taxing entities are in Attachment A:
POTTER-RANDALL APPRAISAL DISTRICT
Taxing Entities
2 Counties:
Potter Co.
Randall Co.
6 Cities/Villages:
City of Amarillo
City of Canyon
City of Happy
Village of Bishop Hills
Village of Palisades
Village of Timbercreek Canyon
3 Water Districts:
High Plains Water – Potter
High Plains Water – Randall
Panhandle Groundwater
7 Independent School Districts:
Amarillo ISD
Bushland ISD
Canyon ISD
Happy ISD
Highland Park ISD
River Road ISD
Wildorado ISD
1 Junior College District:
Amarillo College
1 Hospital District:
South Randall Hospital
1 Noxious Weed District:
Randall Co. Noxious Weed Control
PRAD also determines eligibility for and administration of various types of property tax exemptions, such
as those for residential homestead exemptions, exemptions for age over 65, disabled individuals, disabled
veterans, charitable or religious organizations, and government-owned properties. Other exemptions
overseen by PRAD are pollution control (to ensure that capital expenses required to comply with
environmental mandates does not result in an increase in a facility’s property taxes), minimum value for
business personal property, Freeport goods (“goods-in-transit” are goods that are held in Texas for a short
time, then transported out of Texas), leased personal vehicles and vehicles used for both personal and to
produce income.
I I
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In addition, PRAD maintains records on abatements, tax deferrals, historically-designated properties and
public improvement districts (PID) boundaries. Property owners in PIDs are assessed for funds to
maintain common areas within specified City of Amarillo subdivisions in order to pay for maintenance
services provided by the City. PRAD also maintains records on Tax Increment Reinvestment Zone (TIRZ)
values. TIRZ is a way to subsidize redevelopment or community improvement projects by freezing
property values at a specific point in time. It is theorized that property values will increase over the
lifetime of the TIRZ when the properties are reappraised due to the improvements made in the area.
As of 2016, there are 141,603 total accounts for which PRAD is responsible. The five-year span between
2012 and 2016 indicates an increase of 4,710 accounts (3.4% overall increase). The PRAD Account
History table shown below illustrates how the number of accounts has risen annually over the past five
years.
POTTER – RANDALL APPRAISAL DISTRICT Account History (2012 – 2016)
TAX ACCT TYPE 2012 2013 2014 2015 2016
Real Estate Accounts 107,374 108,228 109,054 109,844 110,189
Bus. Personal Property 12,269 13,253 13,466 13,259 13,485
Mobile Homes 5,914 5,929 5,933 5,805 5,780
Oil/Gas Accounts 11,336 12,858 12,642 13,019 12,151
TOTAL ACCOUNTS 136,893 140,268 141,095 142,197 141,603
# of Accts Added/Year 1,424 3,375 827 1,102 (594)
% Annual Increase 1.05 % 2.47 % .59 % .78 % (.04 %)
Source: PRAD District Totals Report by each year (i.e. value_recap 2016 all districts)
With regard to appraised value in Potter and Randall Counties, the bulk of the valuation is
residential/multi-family real property 64%, followed by business personal property at 13%, and utilities,
oil & gas at 5%. Commercial/industrial valuation comprises 16%, while vacant land, open space and rural
land values make up only 2% of the overall appraised values for which PRAD is responsible for assessing.
The percentages are illustrated in the following chart.
\
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POTTER – RANDALL APPRAISAL DISTRICT Percentage of Value by Property Type (2016)
Source: PRAD PCS Recap Report for 2016
Human Resources
The Potter-Randall Appraisal District operates with a philosophy of “teamwork” as there is a benefit of
being resourceful, working in harmony and helping each other achieve mutual goals. Our mission is to
uphold and enforce the Texas Property Tax Code and to be public servants to the community in a fair and
equal manner. Our entire office promotes the highest standard of ethical conduct as required by Title 16,
Part 4, Chapter 94, Rule 94.100 of the Texas Administrative Code pertaining to property tax professionals.
Further, our office maintains the confidentiality of specific information as mandated by the Texas Property
Tax Code.
The Potter-Randall Appraisal District staff consists of 39 full-time employees, plus two part-time workers
hired as contract labor for appraiser and GIS/mapping support. As previously stated, the Chief Appraiser
is appointed by the Boards of Directors of Potter County and Randall County and manages all aspects of
PRAD’s operations. In addition to the Chief Appraiser, there are four supervisory and management staff
members who oversee 34 full-time employees. PRAD is organized into three areas of responsibility
(departments) – the Information Technology (IT) Department, the Appraisal Department, and the
Operations Department, as illustrated in the PRAD Organizational Chart below.
Residential/ Multi-Family
64%
Commercial/ Industrial
16%
Vacant or Open Land
13%
Utilities, Oil & Gas
2%
Bus. Personal Property
5%
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POTTER – RANDALL APPRAISAL DISTRICT Organizational Chart 2016
Potter-Randall
Board of Directors
Chief Appraiser
Jeffrey Dagley
Director of IT
Wiley Harp
Deputy Chief Appraiser
Justin Floyd
IT Dept.
(5 Employees)
Appraisal Dept.
(17 Employees)
Operations Dept.
(14 Employees)
The Information Technology Department is responsible for systems analyses and
application, data management, CAMA coordination with software vendors, Internet
support functions, data communications, network and personal computer workstation
support, information assistance to the public, programming, production, Geographic
Information System (GIS) mapping and database maintenance, and acquisition of digital
aerial photography.
The Appraisal Department is responsible for the valuation of all real and personal property.
The property types appraised include residential, commercial, business personal, industrial,
land and manufactured housing. A list of Appraisers Providing Mass Appraisal Assistance
that includes appraiser name, title, Personal Tax Professional (PTP) number and the type
of assistance provided toward mass appraisal is included in Attachment B.
The Operations Department’s function is to plan, organize, direct and control the business
support functions related to human resources, budget, finance, records management,
purchasing, fixed assets, facilities and postal services. This department includes front-line
staff members who are capable of answering customer questions regarding ownership and
exemptions and are able to perform basic property research for customers.
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Education & Training
Potter-Randall Appraisal District employees are viewed as assets to our organization whose value is
enhanced by further training, development and education. In the Appraisal Department, all PRAD
appraisers hold bachelor’s degrees in various fields of study. After being hired, each new appraiser
receives extensive on-the-job training and gains experience in data-gathering, fieldwork processes,
statistical analyses and proper customer service techniques from senior appraisers. The trainee
accompanies the more-experienced appraisers to real estate sites and assists in property valuation using
all available resources.
PRAD appraisers are registered with the Texas Department of Licensing and Regulation (TDLR), an
agency that ensures appraisers are professional, knowledgeable, competent and ethical. TDLR oversees
the statewide program of registration, education, experience, testing and certification for all property tax
professionals. PRAD appraisers have earned the Registered Professional Appraiser (RPA) designation
from TDLR or are in the process of training and being educated toward the RPA designation. To keep
their knowledge current, PRAD appraisers must continue their education by completing courses in the
most current appraisal practices and techniques, and on newly available technology and tools by attending
workshops, classes and seminars. Appraisers must complete a minimum of 30 hours of continuing
education every two years to maintain their certification. Workshops/classes address topics such as
appraisal approaches, procedures and methods, appraisal analysis, assessment, collection as well as
property tax laws. Appraisers are also trained on Ethics, Uniform Standards of Professional Appraisal
Practices (USPAP), and legislative updates. A list of Property Tax Professional Core Education courses
and Continuing Education Courses for Property Tax Professionals can be found on the TDLR website.
All the training that both new and experienced appraisers receive ensures equality and uniformity of
appraisal of all types of property. In addition, supervisors meet with appraisal staff regularly to introduce
new procedures and monitor appraisal activity to ensure that standardized appraisal procedures are
followed.
Computer-Assisted Mass Appraisal (CAMA) System
The Potter-Randall Appraisal District purchased its current computer-assisted mass appraisal (CAMA)
system in 2002. This software program is essential in establishing fair and equitable real estate appraisals
for all properties. CAMA provides large amounts of data storage and utilizes sales information, property
characteristics and statistical techniques to estimate the value of individual properties using sales
information from many properties. It assures that all properties within the same class and geographical
area are treated the same.
This system efficiently stores, maintains and secures detailed information on all properties within PRAD’s
jurisdiction. The CAMA system helps manage data such as property ownership, sales data & history,
legal description and other property location information, taxing entities that apply to the property,
physical property characteristics for land and buildings, valuation, and photographs of all buildings on the
land. The CAMA system also stores data on exemptions, abatements and is the basis for preparing
numerous reports for informational and analytical purposes.
Since numerous properties need to be valued annually, individual appraisals for each parcel are not
financially feasible or logistically possible. For annual revaluation using mass appraisal techniques,
PRAD statistically analyzes groups of sold properties to determine the annual update of property values
in each classification. Differences are considered such as age, location and land use to appraise all the
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properties in each class. CAMA applies the same appraisal principles as when an individual property is
appraised, but applies these principles to groups of properties. In general terms, mass appraisal involves:
1) analyzing properties that are grouped by similar market influences and physical
characteristics,
2) developing statistics from that data, and
3) applying the results (valuation adjustments) to properties en masse.
CAMA helps provide uniformity in tax appraisals because the valuation
process is more equalized and fairly applied. Greater consistency in the work
of appraisers is possible when using this tool because similar homes in similar
neighborhoods receive similar market adjustments. Property owners within
PRAD’s jurisdiction can be more confident that their property is being treated
the same as others, with no bias. CAMA has proven to be a very effective tool
in providing efficient management of property tax assessment.
Thomson Reuters, our CAMA software consulting firm and vendor, customizes CAMA for PRAD’s
specific needs. This technological consulting firm was hired to develop our CAMA system and over the
years has helped us modify and maintain the CAMA program to meet our needs. Revisions to the CAMA
system are reviewed and regularly scheduled with PRAD’s Information Technology Department and the
software vendor.
The CAMA system also interfaces with ArcGIS, a geographic information system that is described later
in this document. Using CAMA and GIS along with recognized/accepted appraisal methods and
techniques, PRAD’s appraisers can better compare information with data for similar properties, and with
recent cost and market data.
Pictometry and Associated Tools
The Potter-Randall Appraisal District joins with other legal entities in the area, particularly the 9-1-1
Administrative Offices, to purchase geo-referenced, oblique/orthogonal aerial photography, known as
Pictometry. These special aerial photographs that are flown every two years provide invaluable visual
intelligence to help appraisers and mapping staff locate properties and identify property characteristics.
Pictometry captures high-resolution images obliquely, from four different angles, which allows land
features and structures to be viewed clearly. Measurement tools within the Pictometry software allows
our appraisers to verify the height of a building, determine property frontage, square footage of a building
footprint, area of property, determine slope, discover and accurately locate improvements and other
property information. It is also helpful to mapping staff and other PRAD personnel to accurately locate
properties. Along with Pictometry, there are other associated tools (ChangeFinder and Sketch Check,
discussed below) that are used by appraisers to identify errors or needed corrections/adjustments. All
three of these high-technology programs are used to verify properties and enhance our due diligence in
locating and identifying property correctly.
ChangeFinder is a software program related to Pictometry that detects changes from one set of Pictometry
aerial photos to the next. This program superimposes an aerial photo over the previously-flown photo. It
automatically detects and highlights the differences so the appraiser can check the property further for
changes and updating of records. The ChangeFinder system identifies property changes, new
construction, additions, changes to existing structures, demolished buildings, etc. ChangeFinder is helpful
in detecting physical improvements that have not yet been appraised because they may have been
”CAMA has proven to be a very effective tool in providing
efficient management of
property tax assessment.”
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overlooked in the past because a building permit or other type of locational permit was not issued, or
possibly a manufactured home was moved in/out, etc. The ChangeFinder results are reviewed by
appraisers to confirm that there is in fact a difference and whether the difference has already been recorded
for that individual property. If a difference does truly exist that is not on the appraisal roll, the
improvement is added.
Sketch Check is another add-on software program created to work with Pictometry. This program creates
geo-referenced shape files from CAMA-based sketch files and verifies them using Pictometry. Any
discrepancies between the image and the sketch are flagged and categorized by degree of inconsistency.
This prioritizes parcels needing verification by a PRAD appraiser. In 2012, PRAD ran the Sketch Check
program to identify any discrepancies in measurements between our records and those shown in
Pictometry. Due to its characteristics, this program does not need to be performed frequently. Once the
program has been run and all needed corrections have been found and made, it is unlikely to be beneficial
again for several years, as any changes will be flagged using ChangeFinder. The reason to run it again at
some point in the far future would simply be for reassurance that all real estate records and measurements
continue to be precise and error-free using ChangeFinder.
ArcMap GIS
Digital maps offer an effective way to visually convey large
amounts of information in an easy to understand format.
PRAD operates and maintains a geographic information
system (GIS), known as ArcMap GIS, purchased from
Environmental Systems Research Institute. In 2006, the GIS/Mapping Department was established by
PRAD under the purview of the Information Technology Department. The ArcMap GIS system and
geodatabase now enhances our operation and appraisal process. ArcMap GIS is an intelligent mapping
system that stores, displays, edits and analyzes up-to-date geographic information of all real property
within PRAD’s jurisdiction. GIS is a tool used to analyze data and produce multi-functional maps. The
end-product maps resulting from GIS work may be used for numerous applications.
GIS displays raster images and multiple layers of shapefiles and point files with geographic and
descriptive information from various sources. Some examples of data layers are parcel boundaries (each
with a unique tax account number), detailed parcel information (such as lot/block, subdivision,
dimensions, acreage, etc.), subdivision plats, aerial photography, etc. In Potter and Randall Counties, it
is a common practice for all local governmental offices who maintain GIS layers to share public
information shapefiles & point files with each other. PRAD has access to shapefiles and data from the
City of Amarillo for zoning, city limits, and other pertinent data. The 9-1-1 Administrative Offices
provide information to PRAD, such as road shapefiles showing streets and highways, and point files
showing addresses for parcels within Potter and Randall Counties.
The GIS database depicts ownership lines, the property boundaries and location of all real properties
within our jurisdiction. On a regular basis, the Operations Department receives deeds and plats from both
the Potter County and Randall County Clerk offices. Ownership changes are made in CAMA by the
Operations Department. However, if the deed’s legal description indicates that the property has been split
or combined with another property, the GIS/Mapping Department carries out the process of
splitting/combining properties and makes the necessary changes in GIS and CAMA. Also, at the property
owner’s request, PRAD will split out or combine accounts that are under the same ownership and do not
have separate mortgages. The split/combine process requires cooperation between the GIS/Mapping
Department and the Appraisal Department. The Appraisal Department provides the necessary details for
”ArcGIS is an intelligent mapping system that stores, displays , edits, and analyzes geographic information
of all real property within PRAD’s jurisdiction.”
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valuation of the split/combined properties. ArcMap GIS is linked to the CAMA database for use by PRAD
staff for analysis of property sales, neighborhoods and market trends. Also, it has proven particularly
useful for the public’s convenience in researching properties online.
PRAD Website
PRAD’s database is available to the public via the Internet at www.prad.org. This service provides easy
and convenient access to individual property information and is useful for parcel query purposes, such as
property search (by owner name, address or tax account number), property characteristics data, certified
values of each property, current ownership and ownership history, as well as exemption information. It
includes square footage of the buildings, land size, age, construction type and other useful information for
researching properties. According to State law, PRAD and other Texas appraisal districts may not post
photographs, sketches or floor plans of structures or improvements on the Internet; however, aerial
photography is allowable. Also HB 394, effective September 1, 2015, states that appraisal district
websites cannot display information that indicates the age of a property owner, including information
indicating that a property owner is 65 years of age or older.
In addition, the website offers information regarding the public meetings for the Board of Directors and
Appraisal Review Board, important tax dates, and a list of tax codes/rates, business personal property
schedules and forms, and appraisal capitalization rates for low-income housing and links to other websites
related to property taxes and research. The website provides public access to the PRAD budget. Also, the
most recent reappraisal plan is available for review on this website.
Partition of Formerly-Shared Appraisal District Boundaries
Prior to 2008, PRAD had overlapping properties with Swisher County Appraisal District and Oldham
County Appraisal District. In accordance with TPTC §6.025, a written and signed agreement with each
county appraisal district now exists that outlines the procedures coordinating our appraisals with bounding
appraisal districts. This coordination minimizes differences and reduces errors in maintaining tax account
records for both entities and has proven to be beneficial to the property owner, as well. Because of this
agreement, PRAD appraises only the portion of a split property that is physically located within our
jurisdiction. The remaining portion of the property is appraised by the reciprocal appraisal district.
Starting in 2008, the Potter-Randall Appraisal District’s geographical boundaries are the county lines.
Since that time, PRAD is responsible for the appraisal of the property located in Happy ISD, Wildorado
ISD and the City of Happy located in Randall County.
Independent Performance Test / Property Value Study
In compliance with State law, the State Comptroller’s Property Tax Assistance Division conducts a
property value study every two years in order to estimate a school district’s taxable property value. The
purpose is to make sure funding for public education is distributed in an equitable fashion across the State;
therefore, the results of the study can affect each school district’s state funding. The study helps to
distribute the education funds more equitably so each school district has about the same amount of money
per student to spend, regardless of the actual property wealth of the school district. In theory, the school
districts with low property values will qualify to receive the same amount of funding per student as a
school district with high property values. Another reason to conduct a property value study is to measure
each appraisal district’s overall performance, and the data collected during the study helps determine the
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level and uniformity of property tax appraisals across the State. The statute requiring ratio studies is cited
below:
TPTC Sec 5.10 Ratio Studies
“(a) At least once every two years, the comptroller shall conduct a study in each appraisal district
to determine the degree of uniformity of and the median level of appraisals by the appraisal district
within each major category of property. The comptroller shall publish a report of the findings of
the study, including 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 major
category of property, and any other standard statistical measures that the comptroller considers
appropriate. In conducting the study, the comptroller shall apply appropriate standard statistical
analysis techniques to data collected as part of the study of school district taxable values required
by §403.302, Government Code.
(b)The published findings of a ratio study conducted by the comptroller shall be distributed to all
members of the legislature and to all appraisal districts.
(c) In conducting a study under this section, the comptroller or the comptroller’s authorized
representative may enter the premises of a business, trade, or profession and inspect the property
to determine the existence and market value of property used for the production of income. An
inspection under this subsection must be made during normal business hours or at a time mutually
agreeable to the comptroller or the comptroller’s authorized representative and the person in
control of the premises.”
The statistics used in the independent school district property value study (weighted mean ratio, stratified
weighted mean ratio and margin of error) is a subset of the statistics calculated by PRAD for the appraisal
district ratio studies. These three statistical measures are described in PRAD Performance Testing on
page 27 of this document.
Biennial ratio studies are developed for the five independent school districts that are located entirely within
PRAD’s boundaries and the two independent school districts located partially within PRAD’s boundaries.
The preliminary results of this study are released in January in the year following the year of certification.
The final results of this study are certified to the Education Commissioner of the Texas Education Agency
(TEA) the following July of each year for the certified year under study. This outside, third-party ratio
study provides additional assistance to PRAD in determining the areas of market activity or changing
market conditions.
Methods and Assistance Program (MAPS) Review
As of January 1, 2010, the Texas Property Tax Code requires each appraisal district to undergo a detailed
review to:
assure the appraisal district is being governed properly,
assure taxpayers are properly assisted, and
determine the appraisal district’s compliance with accepted standards, procedures and
methodologies for appraising properties and with all associated State regulations.
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The State statute discussing the MAPS review is as follows:
“TPTC, Sec 5.102 Review of Appraisal Districts
(a) At least every two years, the comptroller shall review the governance of each appraisal district,
taxpayer assistance provided, and the operating and appraisal standards, procedures, and
methodology used by each appraisal district, to determine compliance with generally accepted
standards, procedures, and methodology. After consultation with the advisory committee
created under §403.302, Government Code, the comptroller by rule may establish procedures
and standards for conducting and scoring the review.
(b) In conducting the review, the comptroller is entitled to access to all records and reports of the
appraisal district, to copy or print any record or report of the appraisal district, and to the
assistance of the appraisal district’s officers and employees.
(c) At the conclusion of the review, the comptroller shall, in writing, notify the appraisal district
concerning its performance in the review. If the review results in a finding that an appraisal
district is not in compliance with generally accepted standards, procedures, and methodology,
the comptroller shall deliver a report that details the comptroller’s findings and
recommendations for improvement to:
1. The appraisal district’s chief appraiser and board of directors; and
2. The superintendent and board of trustees of each school district participating in the
appraisal district.
(d) If the appraisal district fails to comply with the recommendations in the report and the
comptroller finds that the board of directors of the appraisal district failed to take remedial
action reasonably designed to ensure substantial compliance with each recommendation in the
report before the first anniversary of the date the report was issued, the comptroller shall notify
the Board of Tax Professional Examiners, or a successor to the board, which shall take action
necessary to ensure that the recommendations in the report are implemented as soon as
practicable.
(e) Before February 1 of the year following the year in which the Board of Tax Professional
Examiners, or its successor, takes action under Subsection (d), and with the assistance of the
comptroller, the board shall determine whether the recommendations in the most recent report
have been substantially implemented. The presiding officer of the board shall notify the chief
appraiser and the board of directors of the appraisal district in writing of the board’s
determination.”
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Appraisal Phases/Dates
The Texas Property Tax Code lists several important dates/deadlines for appraisal districts. Because the
various requirements and deadline dates, the calendar does not necessarily run from January to December
for appraisal districts, but rather from August through July. After July 25 (the deadline for appraisal
districts to certify the values to the taxing entities), there are important dates set forth in the law that the
taxing entities must follow such as assessing properties, mailing values, and collecting taxes. For the
appraisal districts, however, a new calendar year begins in August with the process of reappraising
property for the next year. The calendar year for PRAD is divided into three phases: the data collection
phase; the analysis and valuation phase; and the notification and appeals phase.
Data Collection Phase: Data collection and property inspections generally takes place beginning
in August when field appraisers perform on-site inspections to measure new structures, determine
and measure any additional improvements, compile information of building permits, list prices,
sales prices, review new and existing businesses, collect pertinent data regarding characteristics
for both real and personal property, take photographs and verify/ correct any data to update
PRAD’s appraisal records. GIS and CAMA are updated with new subdivision plats/replats filed
after January 1 of that year.
Analysis & Valuation Phase: Analysis and valuation typically begins after the Data Collection
Phase. The appraisers continue to assimilate and analyze sales information and sales ratio studies
to interpret market trends. This information is used in the mass appraisal process to establish
values for the January 1 official date of appraisal mandated by the State. Business personal
property appraisers review, make decisions, and take actions on renditions filed by owners or their
designated agents. PRAD mails notices of appraised value to all property owners in April.
Notification & Appeals Phase: The notification and appeals phase starts when the property
owners receive their notices of value and continues until July 25, the deadline for the values to be
certified to the taxing entities. During this phase, property owners may protest their valuation
within a specified time after receiving their notice. The owner may informally meet with a PRAD
appraiser, but also has the opportunity to meet with the Appraisal Review Board in a formal
hearing of the matter.
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POTTER-RANDALL APPRAISAL PROCESS
The Texas Property Tax Code (TPTC) requires that Texas appraisal districts assign a value to all properties
within their jurisdiction as of January 1 of each year. This requirement also includes property where the
improvements are partially completed. State tax laws require that only the property in existence as of the
assessment date be taxed; therefore, improvements that are under construction as of January 1 are assessed
only for the portion that existed on the property as of that time. For example, during an on-site inspection
and using guidelines for estimating completion percentages, if a field appraiser finds that a home is only
half completed as of January 1, it will be appraised at 50% of the value. The next year as of January 1 the
property will be re-inspected to see if the improvements have been completed, and if so, the property will
be appraised at 100% of the market value.
Numerous actions take place in the Potter-Randall Appraisal District office to make all
appraisals/reappraisals true and accurate. Reliable and relevant information must be gathered and the data
analyzed to understand market trends and influences. Data, such as property characteristics, ownership,
and exemption information, is established and maintained for over 141,000 real, oil and gas and personal
property accounts within PRAD’s jurisdiction. Property characteristic data on new construction is updated
annually in cooperation with the code enforcement offices of the cities of Amarillo and Canyon; however,
building permits are not required outside city limits. For those properties located outside city limits, new
construction or major reconstruction projects are updated using well and/or septic tank installation permits
issued by the City of Amarillo’s Environmental Health Department. New construction is also discovered
by information provided by Xcel Energy that indicates locations of new electric meters. Because of these
cooperative alliances, these types of locational permits are readily available to PRAD to aid in discovery
of new property.
Property characteristic data on existing property is maintained through a field review and inspection. Sales
are researched through the local multiple listing service, PRAD’s sales letters, new construction and
account review through field inspections, telephone conversations or office visitations. General trends in
the different classifications of property are acquired through various sources, internal surveys conducted
by PRAD personnel, questionnaires to buyers, sellers, current owners and vendors.
Real estate appraisals are calculated using specific characteristic information about each property (TPTC
§23.01). PRAD maintains accurate ownership, legal descriptions, and recording information from deeds
and subdivision plats that have been recorded in the county clerk’s offices of Potter and Randall Counties.
To update accounts, deed and plat information is entered into PRAD’s CAMA software system.
As part of the mass appraisal process, the appraisers assimilate pertinent data and create mathematical
models based on the amount of contribution made to sale prices by various characteristics (i.e. location,
size, age, use, physical characteristics, etc.). From that data, the value of each property in the two counties
is calculated based on those models. The resulting values are reviewed and tested to make sure they are
as fair and equitable as possible before the property owner is mailed a Notice of Appraised Value.
Appraisal Staff and Responsibilities
To determine the fair market value of properties, the Potter-Randall Appraisal District employs 17 full-
time managers, senior appraisers and field appraisers, four appraisal assistants and one contract part-time
appraiser. The role of each PRAD appraiser is to provide an objective, impartial, and unbiased opinion of
property value using their knowledge of the appraisal profession and the numerous resources available.
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PRAD’s Appraisal Department oversees the activities of the appraisers who discover, collect and maintain
property characteristic data on all residential, mobile homes, manufactured homes, as well as all
commercial/industrial and personal property in PRAD’s jurisdiction. Information on each property’s
location, physical description and attributes are stored in the CAMA appraisal records of all real property
and personal property.
Residential properties in the two-county area are inspected at least once every three years using physical
inspection, Pictometry and ChangeFinder. Manufactured homes and mobile homes are inspected using
building permits, manufactured home/mobile home park lists, Pictometry and ChangeFinder. One-third
of commercial property is inspected each year, but meeting this benchmark is dependent on legislative
changes and market trends. Our goal is to field inspect business personal property annually. Data for
minerals, pipelines and utilities are provided by PRAD’s appraisal services contractor (Pritchard &
Abbott, Inc.) each year.
Data Quality Assurance
PRAD emphasizes the importance of accurate data collection and maintenance. Written procedures and
guidelines are available to all PRAD staff members to aid in the performance of their job tasks. It is every
PRAD appraiser’s responsibility to maintain high data quality, and new appraisers are trained in the
specifics of data collection and the classification system guidelines to be followed. Quality assurance is
achieved by the more experienced appraisers closely supervising work being performed by field
appraisers. Experienced appraisers are responsible for ensuring that field appraisal staff is properly trained
and follow PRAD’s policies, listing procedures, and proper valuation techniques. On a daily basis, senior
appraisers review the fieldwork of the field appraisers whom they supervise to maintain the high standards
of performance required by the district. By reviewing their work daily, any potential areas of concern are
addressed and corrected immediately. It can be determined quickly if there are issues of consistency or if
there are areas where additional training may be needed. At that time, procedures or methods of data
collection may need to be reevaluated and revised. In addition, senior appraisers are re-trained
periodically to ensure their knowledge of new procedures for new property, sales validation, data review,
etc.
Data collection procedures have been established for the residential, commercial and personal property
areas. PRAD field appraisers are assigned to work in specific areas within both Potter and Randall
counties to conduct field inspections. Appraisers conduct field inspections and record any changes either
on a real property appraisal card or a personal property worksheet. Building permits (documents issued
by a city giving the property owner permission to build on or modify an existing building on their own
property) and associated building information are transferred into PRAD’s CAMA system that produces
a paper record worksheet. The worksheet initiates a field inspection by a field appraiser; however, special
tools such as Pictometry, ChangeFinder and Sketch Check qualify as alternatives to periodic on-site
inspections under IAAO Standard 3.3.5 on Mass Appraisal of Real Property.
A property owner may request a reappraisal of their property wherein a PRAD recheck form will be used
to consider information both for the current and upcoming appraisal years. To collect and record field
data, appraisers use a Commercial Field Worksheet for Business Personal and a Mobile Home &
Manufactured Homes Field Worksheet. Completion of these worksheets ensures that the quality of data
collected is complete and concise for the purpose of establishing accurate values for all types of property.
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Appraisal Record Development
A beginning step in developing appraisal records is to discover properties that have not previously been
listed on the appraisal rolls or were substantially undervalued for some reason. Discovery also may
include property that has an exemption, but does not qualify for the exemption. During discovery, the
field appraiser determines the property type (whether it is real or personal property) and the general
classification, such as residential, commercial, agricultural, etc. PRAD receives, collects and maintains
data through numerous sources to determine taxable value, such as:
field reviews of neighborhoods,
new construction field reviews by the field appraisers,
deed records from both Potter and Randall County Clerk’s Offices
subdivision plats,
building permits from the cities of Amarillo and Canyon,
septic system permits from the Amarillo Bi-County Health Department,
data requests mailed by the district,
exemption applications,
city of Amarillo hotel/motel occupancy report,
local commercial surveys conducted by real estate brokers,
sales data received through the local multiple listing service,
tenant lists,
ARB hearings,
newspaper articles or advertising,
telephone book and other local publications,
correspondence from the property owner via telephone, mail, and/or e-mail,
request letters from the State Comptroller’s office,
assumed name certificates,
mobile home installation reports from Texas Department of Housing & Community Affairs
mobile home park lists
9-1-1 Emergency District address reports,
Pictometry, ChangeFinder, and Sketch Check,
the Internet,
fee appraisals provided to PRAD,
local economic influences and disasters,
periodic regional seminars and meetings with other Appraisal Districts.
Property owners are one of the best sources for identifying inaccurate information that would generate a
field check by an appraiser, or trigger the appraiser to investigate other sources for confirmation.
Renditions may also serve as a good source for the discovery of property. A primary goal of the Potter-
Randall Appraisal District is to be highly accurate in property descriptions and property characteristic data
as the foundation of accurate appraisals depend on such data.
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For appraisal purposes, property is divided into two categories:
real property - land, buildings and any other improvements attached to the land,
tangible personal property - items that are owned but not attached to the land and are used to
produce income, such as furniture, fixtures, equipment, inventory, motor vehicles, aircraft, etc.
State law requires business owners to annually file a personal property rendition form with a list
of all personal property assets used for business to the appraisal district so that the appraisal district
can determine the value of the property as of January 1 with the exception of owners who have
applied for September 1 inventory appraisal.
To appraise improvements on a property, the assigned field appraiser determines the situs of the subject
property, and documents the taxing entities in which the property is located. During the visit, the appraiser
inspects the property and records property characteristics. While inspecting the property, the appraiser
measures and makes a diagram of the buildings (including all stories of a multi-story building) and any
other significant structures on the property. Photographs of each structure’s exterior are also taken for the
property records.
Because business personal property (BPP) is typically mobile by nature, there are four considerations to
determine situs of the property by the TPTC:
1) Was the personal property within the taxing unit on January 1 and was it there for more than a
temporary time period?
2) Is the personal property normally located in the taxing unit, but is temporarily away on January 1?
3) Does the personal property usually return to a place in the taxing unit between uses that take it
outside the taxing unit and is not in another place for more than a temporary time period?
4) Does the owner live in or is the owner’s place of business in the taxing unit and the property is not
taxed by another taxing unit?
BPP accounts are assigned a Property Characteristics Appraisal (PCA) code, a three-digit numerical code
used by PRAD to group business types with similar characteristics. PCA codes are based on State Use
Codes and Standard Industrial Classification (SIC) codes. These codes are used by PRAD to analyze
comparable properties and help in mass appraisal methodologies.
Using all the information available to the appraisers, the property is assigned a class and quality rating.
The class/quality code assigned to each improvement on the property is based on guidelines from Marshall
& Swift (now part of CoreLogic). Marshall & Swift is a nation-wide firm dedicated to providing
residential and commercial real estate industries with the most current and accurate building cost data. A
coded use-type classification system identifies the use of a structure, and a quality/class rating is used to
rank each structure. Together these two parameters are used in determining the property’s classification.
Below is a listing of the classification codes and their corresponding use-types:
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M & S*
CODE USE-TYPE
A Single Family Residence
C Vacant Land
D Rural/Agricultural Land
E Rural Buildings on Agricultural Land
M Mobile Homes
B Multiple Family
F Commercial / Industrial
L Personal Property
G Oil, Gas & Minerals
J Utility
X Exempt Property
* Marshall & Swift
For properties with Codes A, C, D, E and M, property inspections are referred to the
Residential/Agricultural Appraisers; the properties with Codes B and F are referred to the Commercial
Appraisers; Code L properties are given to the Personal Property Appraisers; and Codes G & J properties
are evaluated by Pritchard & Abbott, Inc., a private appraisal firm with whom PRAD contracts for
appraising utilities, minerals, oil & gas. Code X Exempt Properties are referred to the Director of
Appraisals for processing to grant or deny the exemption according to State guidelines.
In addition, structures are classified according to their type and quality of construction. The Field
Appraiser’s Guide provided by Marshall & Swift includes photographs of typical buildings to serve as
examples of each parameter to help the appraiser find a building comparable to the subject property. The
alphabetical codes and their respective meanings are shown in the following two tables.
PRAD
CODE TYPE OF EXTERIOR
1 Stucco
2 Siding/Shingle/Metal
3 Masonry/Veneer
7 Concrete Block
10 Tilt Wall
11 Log
12 Earth Shelter
33 Stone Veneer
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M & S*
CODE
PRAD
CODE
PRAD QUALITY OF
CONSTRUCTION
L A Low
F B Fair
A C Average
G D Good
VG E Very Good
E F Excellent
--- G Superior
--- I Industrial Real Property
* Marshall & Swift equivalency to PRAD Code
For each property, the appraiser makes an estimate of depreciation that results in a decrease of the
property’s value. Depreciation is a loss in property value due to any cause such as physical, external or
functional obsolescence. It is the difference between the value of a new structure or new piece of
equipment and the value of it on the date of valuation. In considering all factors, depreciation is a judgment
call by the appraiser.
Finally the appraiser determines the correct neighborhood code that may further adjust the value of the
subject property. Each neighborhood code is grouped by location and is defined by boundaries such as
streets, counties, school districts, etc. Neighborhood codes identify general areas with similar value
influences.
Since Texas is a “non-disclosure” state, the sale prices of property are not required to be stated on the deed
or other property transactions and are not available to the public. Therefore, PRAD must rely on other
sources, such as property owners who respond to sale price inquiries sent by the district or sales data
provided by sellers, buyers, realtors, etc.
All real property and business personal property is taxable; however, Texas law makes allowances for
partial or complete exemptions from local property taxes. A total exemption excludes the entire property
from taxation, whereas a partial exemption removes a percentage or fixed dollar amount of the property’s
value from taxation. Some examples of exemptions are: residential homestead exemptions, exemptions
for homeowners age 65 or older, disabled individuals or disabled veterans, charitable or religious
exemptions, government-owned property exemptions, exemptions for pollution control, Freeport goods,
leased personal vehicles and vehicles used to produce income. To attain an exemption, the property owner
must file a written exemption application before May 1.
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Data Maintenance
PRAD’s appraisal assistants are responsible for entering the fieldwork data provided by the field
appraisers into the CAMA account records. After data entry, the work is verified by the records
management supervisor. For business personal property, field appraisers enter data directly into CAMA
and the appraisal assistants audit the account data for accuracy.
Property Damaged in a Disaster Area
When requested by the governing body of a local taxing unit, PRAD is required to complete a reappraisal
as soon as practicable of all property damaged in a disaster if the area is declared a disaster area by the
Texas Governor. This authority is outlined in the Texas Property Tax Code §23.02 and the following
information is to be included in the appraisal records in accordance with the State Law:
1) Date of the disaster;
2) The appraisal value of the property after the disaster; and
3) If not all taxing entities authorize the reappraisal, a listing of those entities to which the reappraisal
applies.
PRAD Sales Ratio Study
The sales ratio study is performed by PRAD appraisers for the purpose of determining the market
influences and factors leading to equitable market values in local neighborhoods in Potter and Randall
Counties.
A properly designed ratio study is a powerful tool for analyzing
appraisal performance, evaluating CAMA system models, and for
suggesting improvement strategies. The Potter-Randall Appraisal
District’s real estate appraisers are responsible for conducting ratio
studies and comparative analyses. PRAD uses ratio studies as a primary
mass appraisal testing procedure and is our most important performance
analysis tool as it helps provide fair and equitable assessment of all
property.
A ratio study is a statistical analysis that compares the assessed value of a property as determined by the
appraisal district with the market value (sale price). It is referred to as a “ratio study” because the assessed
value is divided by the market value and the resulting ratio is used as a factor in evaluating and improving
PRAD’s mass appraisal performance. If the assessed value is greater than the market value, the ratio is
greater than one; however, if the assessed value is less than the market value, then the ratio is less than
one. In general terms, properties with ratios greater than one are over-assessed and properties with ratios
less than one are under-assessed.
Ratio studies are conducted on properties located within certain neighborhoods or market areas delineated
by the appraisal staff. The sale ratios and comparative analyses of sold property to appraised property are
the basic building blocks to determine market influences and factors for each neighborhood (i.e. market
area). This information is the foundation used to update and auto-correct property valuations for the whole
market area. Sale ratios are based on the condition and value of the property as of the date of sale, not
”A properly designed ratio study is a powerful tool for analyzing appraisal
performance, evaluating CAMA system models, and for suggesting
improvement strategies.”
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after the sale. For a study such as this, appraisers may conduct field inspections to ensure that the sales
ratios produced are accurate for the property sold, and that the appraised values used are based on accurate
property data characteristics observed at the time the property was sold.
The Potter Randall Appraisal District conducts ratio studies in compliance with the IAAO “Standard on
Ratio Studies”, approved April 2013. The seven basic steps in performing ratio studies are outlined on
page 44 of this reappraisal plan. The statistical measures used in PRAD’s local ratio studies are also used
by the State Comptroller’s Property Tax Assistance Division (PTAD) to measure the district’s overall
performance. The mean, median, and other statistical measures are calculated for properties in each
reporting category to measure the level of appraisal accuracy. The methodology used in performance
testing includes stratified samples (homogeneous groupings) to improve sample representation and the
techniques/procedures of measuring uniformity. This study uses statistical analyses of sold properties
(sale ratio studies) and appraisals of unsold properties (appraisal ratio studies) as a basis for assessment
ratio reporting. The total number of valid sales is the sample size, as only valid sales are used in ratio
studies. The sale ratio statistics, briefly described below, are the standard industry measurements used to
evaluate mass appraisal performance:
Median Ratio - This is the preferred measure of central tendency for most sale ratio studies as it
is easily understood and is less influenced by outliers (extremely high or low ratios). The median
level of appraisal is the middle ratio in an array of sales ratios that are sorted from lowest to highest.
Fifty percent of the ratios are above the median and 50% are below it.
Mean Ratio – This statistical measure is the average of the ratios, calculated by adding all the
ratios and dividing by the number of ratios. The mean ratio is more affected by outliers than the
median ratio.
Weighted Mean Ratio – This measure is the value-weighted average of the ratios where the
weights are proportional to the sales prices. This ratio is the result of dividing the sum of the
appraised values by the sum of the sales prices. The purpose of the weighted mean ratio is to give
equal weight to each dollar value in the sample, whereas the median and the mean give weight to
each parcel.
Stratified Weighted Mean Ratio – Properties are stratified (grouped) by property use, such as
single-family residential, multi-family residential, commercial, etc. and by property value. This
over-all property category ratio is calculated by combining the weighted mean ratios of the various
groupings. These ratios are used as a mechanism to adjust the sample to represent all properties,
taking into consideration location effect and construction type. There are several steps in
calculating this ratio; therefore, the details will not be presented here.
Margin of Error – This measure is used to determine if the local market value of sampled property
categories in a given school district are valid. If the school district’s local value is within the
accepted margin of error (not exceeding 5% of the total value studied), the value is accepted as
being statistically valid.
Coefficient of Dispersion (COD) – This is the most common statistic to measure appraisal
uniformity and equity. The COD is a proportional measure that describes how much variation
exists between individual sale ratios and the median ratio. A low COD index shows that appraisals
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are uniform, whereas a high COD measurement shows that the properties are being appraised at
values inconsistent with market values. There are several steps in calculating COD; therefore, the
details will not be presented here.
Percentage of Properties within 10% and 25% of the Median Ratio – The percentage of
properties within a 10% and 25% range of the median is a measure of how consistently the
appraisal district appraises properties at the same level without regard to the value of the properties.
Price-Related Differential (PRD) – This statistic measures value-related inequities in the
appraisal system, referred to as regressivity or progressivity. The PRD is calculated by taking the
mean (average) ratio of the sample and dividing it by the weighted (aggregate) mean ratio. This
index compares the treatment of less expensive property with that of more expensive property by
evaluating the relative tax burdens of owners of low and high valued properties. Although this
statistic ideally should be close to 1.00, the State’s standard PRD tolerance level falls between .98
and 1.03 for an appraisal district to be in compliance. Appraised values are regressive (PRDs
above 1.03) if low value properties are over-appraised relative to high value properties and are
progressive (PRDs below .98) if low value properties are under-appraised relative to the high value
properties. To measure any price-related bias, the district calculates PRD for all properties
stratified by State use-type categories: A-single family residential, B-multi-living unit property,
C-unimproved land, D-value of agricultural land and F1-commerical improved property. The
study also includes L1-business personal property, G-oil, gas and minerals and J-utilities. It should
be noted that PRD is not reliable when the sample is small or when the sample is heavily influenced
by outliers.
In analyzing an appraisal district’s level of appraisal, the ratio studies statistically measure how close
appraisals are to market value. While the desired level of appraisal is 1.00, the acceptable compliance
range or confidence interval by the State is 95% to 105% of the overall level of appraisal. Using the
various statistical measurements herein described, PRAD complies with this level of appraisal
requirement.
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RESIDENTIAL VALUATION APPRAISAL PROCESS
The Potter-Randall Appraisal District (PRAD) residential appraisers are responsible for developing
uniform and equal market values for residential improved parcels, manufactured homes/mobile homes
and vacant property. There are 34,611 residential improved parcels, 2,239 mobile home and manufactured
housing parcels and 9,547 vacant land parcels that include agricultural parcels in Potter County. Randall
County has 43,703 residential improved parcels, 2,217 mobile home and manufactured housing parcels
and 9,352 vacant land parcels, including agricultural parcels.
PRAD uses the most current and accurate building cost data provided by Marshall & Swift (M&S), a
nation-wide cost estimating firm. This firm compiles a Residential Cost Handbook specifically for
residential construction costs that includes local multipliers and several classifications for building quality.
Periodic updates are received from M&S that provides the most recent building cost data and market
trends to evaluate industry standards. Because new data becomes available from M&S, PRAD’s cost
schedules are updated regularly. The residential cost figures are loaded into the district’s CAMA system
and through the use of an area modifier, the figures are customized to fit Potter and Randall counties local
residential building and labor market. The property characteristics data collected for each residence and
valued according to M&S are key parameters in driving the CAMA approach to valuation.
Residential Appraisal Resources
Appraisers
In addition to management staff/appraisers, the residential appraisal staff consists of six appraisers, four
appraisal assistants and one part-time contract appraiser. Below is a list of appraisers who are responsible
for researching and estimating the market value of residential properties:
Director of Appraisals – Residential & Land
Senior Appraiser – Residential & Land
Senior Appraiser – Rural Residential & Land
Field Appraisers (6)
Appraisal Assistants (4)
Part-Time Appraiser (1)
Data
A specific set of property characteristic data for each residential property in
Potter and Randall counties is collected, updated and maintained in PRAD’s
CAMA system because this data is the power behind the mass appraisal
approach to property valuation. The property data attributes are verified and
corrected based upon on-site field inspections as well as through office
review using photographs, aerial photography, Pictometry and other
associated resources. Property characteristics are captured on each appraisal record that contribute to the
property’s estimate of value.
”Property characteristics are captured on each appraisal record that contribute to the
property’s estimate of value.”
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Analyses of Geographical Areas
Analysis of Land
Land supply/demand changes over time, and influences property values. The location of property is often
a major factor in determining its value. The value of residential land is affected by its proximity to schools,
employment, recreation, transportation and the quality of services provided by local governments, etc.
Being that the location of property plays a major role in residential valuation, the land value is based on
market sales of comparable properties. Comparable land sales are analyzed based on characteristics that
influence the market price. The land characteristics that are used to value parcels within neighborhoods
are stored in computerized tables. If there are any unusual factors affecting the property such as access,
view, shape, size or topography, the appraiser must make a judgment of value considering these factors.
Appraisers use abstraction and allocation methods to ensure that estimated land values best reflect the
contributory market value of the land to the overall property value. Inventory lots for residential real
property are appraised as required by the Texas Property Tax Code §23.12. After residential land
valuation analysis is completed, then neighborhood sales analysis is conducted.
Regional Analysis and Market Areas
When estimating property values, economic and social trends are considered, as well as governmental
regulations and environmental conditions that influence the property. To help in valuing properties, field
appraisers review data on regional economic forces to gain perspective on the current economic outlook
that affects the real estate market. Some of the parameters that influence the regional economy are
population and demographic patterns, regional locational 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 that are collected from private vendors and public resources. Appraisers
acquire regional economic information extracted from real estate publications and other resources, such
as continuing education courses and seminars offered by the Property Tax Education Coalition (PTEC),
the Texas Association of Appraisal Districts (TAAD) and the North Plains Chapter of the Texas
Association of Assessing Officers (TAAO).
Physical, economic, governmental, and social forces are some of the factors that influence property values
and define market areas. In PRAD’s jurisdiction, the market areas for use-types A (single family
residences), C (vacant land) and M (mobile homes) are the City of Amarillo, City of Canyon, Potter
County and Randall County. Market areas for use-type categories D (rural/ag land) and E (rural buildings
on ag land) are Potter County and Randall County. A general explanation of the market areas are discussed
below, followed by a table illustrating their respective demographics:
1) City of Amarillo –Amarillo is the county seat of Potter County, even though part of the city extends
into Randall County. The Potter-Randall County line traverses through the City of Amarillo.
2) City of Canyon – This market area is located in Randall County about 12 miles south of the City
of Amarillo and is the county seat of Randall County. As shown in the table below, Canyon has
high renter occupancy than the other market areas primarily due to the West Texas A&M
University campus being located in the City of Canyon. Canyon’s college student population tends
to be renters rather than homeowners. Also, since Canyon is fairly close to the larger city of
Amarillo, many of the residents living in Canyon commute back and forth to Amarillo for work.
IHHH
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3) Potter County – Potter County has a total area of 922 square miles. The City of Amarillo, the
largest city in the Texas Panhandle, is the county seat of Potter County.
4) Randall County – The Randall County market area has a total area of 923 square miles and includes
Palo Duro Canyon, the second largest canyon in the United States. The City of Canyon is the
designated county seat of Randall County.
Demographics of the four major market areas within PRAD’s jurisdiction are organized in the following
table for comparison purposes. Data for this table was attained from the “Texas Hometown Locator”
website as the information is conveniently compiled in one reference site. The website provides
community profile data by city and county that are derived annually from Census demographic
information and is the most recent residential demographic data available at the time of this writing.
GENERAL DEMOGRAPHICS FOR PRAD MARKET AREAS
(As of July 1, 2016)
Demographic City of
Amarillo
City of
Canyon
Potter
County
Randall
County
Population 201,324 14,276 124,309 132,196
Housing Units (HU) 86,051 5,941 50,266 55,764
Households (occupied HU) 78,407 5,507 44,675 52,207
Occupancy Rate 91% 93% 89% 94%
% Owner-Occupied 60% 50% 55% 68%
% Renter-Occupied 40% 50% 45% 32%
Average Household Size 2.54 2.33 2.63 2.47
Median Household Income $46,085 $38,847 $37,693 $60,507
Source: TX HomeTownLocator.com at http://texas.hometownlocator.com/tx/
Neighborhoods and Market Analyses
Potter-Randall Appraisal District appraisers performed a detailed review of the market areas and have
further delineated the market areas into neighborhoods. Defining the neighborhoods into smaller, more
manageable parts of the larger market areas allows appraisers to value the properties more equally and
uniformly. Properties in the same neighborhood typically have similar characteristics, such as the style
of house, land areas, size of residence, quality of construction and location. However for analytical
purposes, PRAD appraisers delineate neighborhood boundaries as to not cross independent school district
lines.
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In a market-driven economy such as ours, prices for real estate are influenced by supply and demand that
may vary across a jurisdiction. The demand is measured by how many qualified buyers want to purchase
the property, and the supply is the number of similar properties that are available for sale. Analysis of
supply/demand as it pertains to comparable market sales is an important factor in estimating sales activity
in a market area or neighborhood. A basic premise of the sales comparison approach is the “principle of
substitution”, which assumes a buyer will pay no more for a property than it would cost to buy equally-
desirable, substitute properties that have sold recently. The sales comparison is commonly used to
estimate the value of single-family homes and land. PRAD appraisers interpret the effects of market
forces to determine the market price ranges and property component changes as of the date of the appraisal.
A neighborhood (defined as a group of similar properties in the same location that share common traits)
is the best search area for comparable market data. A neighborhood is the largest geographic area where
property’s physical, economic, governmental and social forces are generally similar and uniform.
Therefore, identifying areas with similar characteristics and then geographically delineating each
neighborhood is a good starting point for appraisers to perform detailed neighborhood analyses. In
delineating a neighborhood, the appraiser considers factors such as location, sales price range, lot size,
age of dwelling, quality of construction and condition of dwelling, square footage of living area and story
height. Although neighborhood delineation typically is shown visually on a map, PRAD instead assigns
a numerical neighborhood code and identifying name to the neighborhood. A written synopsis of the 312
residential neighborhoods in PRAD’s jurisdiction describes the neighborhood along with its major
property features and attributes. The neighborhood code where the property is located is part of each
CAMA appraisal record.
PRAD appraisers are aware that analyzing neighborhood cycles (i.e. growth, stability, decline and
revitalization) is another important element in the valuation process as it influences the real estate market
within the neighborhood. Neighborhoods grow during time of development and new construction. The
newly-developing neighborhoods often compete with older, existing neighborhoods, thereby creating
population shifts from the older homes to newer homes. During times of stability, the real estate supply
and demand in the neighborhood is balanced. During this cycle, neighborhoods are described as being
more desirable because of their static residential character and good neighborhood quality due to proper
home maintenance, good community facilities, etc. To avoid neighborhood decline, residents in stable
neighborhoods need to be vigilant in home maintenance. A couple of poorly-maintained residences can
negatively affect an entire block and eventually will spread to other blocks in the neighborhood causing
overall neighborhood decline. The decline reflects diminishing demand or desirability of housing sales in
the neighborhood. Sometimes older neighborhoods experience revitalization and renewal that promotes
increased demand and economic desirability. “Gentrification” of a neighborhood refers to deteriorated
urban properties being restored and upgraded by more affluent residents moving back into the area causing
positive economic and physical change in the neighborhood character. As a sidebar, gentrification may
be positive regarding property values and neighborhood revitalization, but it has the potential of displacing
economically-disadvantaged residents.
All the residential analysis work done in association with the residential valuation process is neighborhood
specific. Identifying and delineating neighborhoods are the most important tasks that contribute to
accurately appraising residential properties within PRAD’s jurisdiction. Through field inspections,
appraisers have been able to observe the homogeneous aspects of the properties and determine the best,
most logical boundaries for each neighborhood. Since neighborhoods tend to ebb and flow over time
depending upon market influences, PRAD appraisers periodically review neighborhood delineation to
determine if any boundary changes are warranted. Neighborhood groups are similar neighborhoods in a
similar location. A residential neighborhood is part of a larger neighborhood group based on homogeneity
among the neighborhoods. Organizing neighborhoods into groups is highly beneficial in cost-derived
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areas where there are a limited number of sales or no sales, or for use in direct sales comparison analysis.
By grouping or clustering like neighborhoods together, appraisers have access to comparable properties
outside a given neighborhood, thereby increasing the market data available to them for analysis. Sales
ratio analysis, a key tool in the review and equalization of values, is ideally performed on a neighborhood
basis, but in a neighborhood where the number of sales is limited, the analysis is performed at the
neighborhood group level.
To estimate residential value, the cost and market approaches are the basic techniques used to interpret
sales. Although multi-family properties are residential in nature, this property type is addressed in a later
section that discusses the commercial and industrial property valuation process. It is more appropriately
described in that section because the income approach to valuation is used to estimate an opinion of value
for investment level residential property such as apartments.
Highest and Best Use Analysis
The “highest and best use” of a property is the most reasonable and
probable use that would produce the highest value for a property as of the
date of appraisal, regardless of its actual current use. The highest and best
use must be legally allowable, physically possible, and financially feasible
and must result in the maximum market value for the property. In most
cases, the highest and best use of residential property is its current use
because many residential developments are limited by local zoning laws
or deed restrictions that restrict the allowable land uses in the subdivision. In fact, as of January 1, 2010,
the Texas Property Tax Code (TPTC) §23.01 (d) requires that “The market value of a residence homestead
shall be determined solely on the basis of the property’s value as a residence homestead, regardless of
whether the residential use of the property by the owner is considered to be the highest and best use of the
property”.
Some existing residential neighborhoods are stable in their nature, while others are in transition.
Transitional neighborhoods may be negatively influenced by lack of home maintenance or the conversion
of home sites into businesses creating a mix or residential and retail/commercial uses. In areas such as
these, the highest and best use for properties that affects residential valuation in the neighborhood may
need to be reconsidered as to whether it should remain primarily residential or continue transitioning to
retail/commercial. In contrast, an older residential neighborhood in transition may also involve positive
changes such as increases in residential property values due to gentrification, as previously discussed. In
each neighborhood, the appraiser must review and analyze all the facts and the real estate market to
conclude the highest and best use of the selected properties. However, the highest and best use
determinations by PRAD appraisers always must be in compliance with TPTC §23.01 (d), as stated above.
”The highest and best use must be legally allowable, physically possible, financially feasible and must result in the maximum
market value for the property.”
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Valuation and Statistical Analysis (Model Calibration)
Cost Schedules
Essentially, the cost approach to property valuation involves estimating
the cost of the land plus the replacement cost of any improvements on
the property, less depreciation of those improvements. For replacement
cost evaluation, newly-constructed properties that have recently sold in
the district are considered as they represent varying levels of
construction quality. In appraising residential properties, the cost approach is a reliable method for newer
buildings, but is less reliable for older buildings. Because of this fact, the Potter-Randall Appraisal District
uses a hybrid of the cost and sales comparison approach. Residential parcels are valued from building
class cost schedules using a comparative unit method. The comparative unit method (aka square-foot
method) is used to develop the basic cost of a structure. Cost adjustments are then made for amenities
added to it and for depreciation, if any.
PRAD uses residential cost schedules from Marshall & Swift (M&S), a nationally recognized cost
estimator service. The cost figures by M&S are adjusted to reflect current local labor, materials and other
costs. The residential cost schedule is reviewed and evaluated annually and indexed to identify
neighborhood factors and influences. Replacement costs are compared against the M&S data, as well as
the estimated replacement cost derived from the market sales of comparable structures. The property data
characteristics of the properties are verified and photographs are taken of the samples. The resulting
figures are statistically analyzed and stratified by class and quality, and the building plus land costs are
compared to the actual sales prices. The results of the comparison, an indicator of neighborhood
economics, provide a regional modifier or economic index factor that is used in PRAD’s cost schedule.
PRAD’s residential cost schedules were updated August 2013 for the 2014 reappraisal year.
Sales Information
For real property records maintained in our CAMA system, PRAD has a sales data file in which all
pertinent sales data is stored as of the date of sale. The appraisers collect residential improved and vacant
land sales that are maintained in a sales information system. There are numerous sources from which
information is attained, for example: sales questionnaires sent by PRAD to the buyer, on-site field
inspections, board and protest hearings. Good sources of sales data are also available from third-parties,
such as: Board of Realtor’s Multiple Listing Service, local real estate professionals, fee appraisers,
attorneys, builders, and the Texas Comptroller of Public Accounts. Appraisers collect, verify and adjust
sales data as necessary for model calibration and ratio study purposes using the IAAO Standard on
Verification and Adjustment of Sales (approved November 2010) as a guide. In performing this work,
appraisers follow the guidelines so that only market value sales are included. This is done by analyzing
that the property was for sale for a reasonable length of time, the buyer and seller had full knowledge of
the uses and restrictions of the property and both were motivated to buy/sell with neither being under
duress, and that the value of other comparable residential property was considered, meeting all statutory
appraisal requirements.
To determine relevant market sales prices and to document facts related to a property’s purchase or
transfer, PRAD uses a coding system to identify the property type and sales source. Further, additional
codes are established for screening (used to extract data for further stratification), sale verification, and to
document the validity of the sale.
” … the Potter-Randall Appraisal District uses a hybrid of the cost and
sales comparison approach.”
35
Within the current market area, PRAD employs certain analytical tools to help determine and estimate the
effects of price changes, as indicated by sale prices for similar properties. Tools include neighborhood
sales reports used to develop and estimate market price ranges and property component value estimates.
Abstraction and allocation of property components based on sales of similar property is also an important
analytical tool to interpret market sales under the cost and market approaches to value.
Statistical Analysis
PRAD’s residential Director of Appraisals annually performs and oversees statistical analyses to evaluate
whether estimated property values are equitable and consistent with the existing residential real estate
market. A ratio study is conducted for each residential neighborhood within PRAD’s jurisdiction so that
the two primary aspects of mass appraisal accuracy (level and uniformity of value) may be more accurately
determined. Sales ratios are evaluated and analyzed generating central tendency statistics for each
neighborhood. The level of appraised value is determined by the weighted mean ratio (explained on page
27) for sales of individual properties within a neighborhood, and a comparison of neighborhood weighted
means reflect the general level of appraised value between comparable neighborhoods.
Using sales ratio analysis, every neighborhood is reviewed annually. First, the neighborhood ratio study
compares the most recent sales prices of neighborhood properties to the appraised valued of those same
properties. The neighborhood ratio studies provide the appraisers an excellent means to judge the present
level of appraised value and uniformity of sales. Based on the sales ratio statistics and factors affecting
valuations, the appraiser can make a decision as to whether the value level in a neighborhood needs to be
updated or whether it is already at an acceptable level.
Market and Cost Reconciliation and Valuation
Reconciliation is the analysis of the different approaches used to determine the value of a property. Some
valuation approaches are better for specific types of property. The best approach for each property type
is given the most weight, with value adjustments from one of the other approaches. For single-family
residential analysis and valuation, appraisals of sold properties are modified by neighborhood factors,
resulting in acceptable sale ratios in which to reconcile the market and cost approaches. These statistics
are used to ensure that estimated values are consistent with the market and to reconcile cost indicators.
Therefore as its primary approach for valuing residential properties, the Potter-Randall Appraisal District
uses a hybrid cost-sales comparison approach. This type of approach accounts for neighborhood market
influences not particularly specified in a purely cost model.
The hybrid cost-sales comparison model is represented by the following equation:
MV = LV + (RCN – AD)
Where: MV = Market Value (estimated) LV = Land Value RCN = Replacement Cost New (of property improvements) AD = Accrued Depreciation
According to the market approach, the subject property’s estimated market value is the basic unit of
property that is multiplied by the market price range per unit for sales of comparable properties. For
36
residential property, the price per square foot of living area or the improvement’s contribution to the price
is typically the unit of comparison.
Except under special conditions, land typically does not depreciate, but the improvements on the land do
depreciate. Improvement depreciation is the loss of value due to any cause and is either curable or
incurable. The rate of change or depreciation of the improvements is a major component of the hybrid
cost-sales comparison approach as it relates to total property value. The annualized accrued depreciation
rate is the best measure of change. This cost-related factor is best determined by sales of similar properties.
When improvements are abstracted from the property sale price, the market approach reflects the
depreciated value of the improvement component. The amount of contribution of the improvement to the
property value is measured by abstracting comparable market sales, which is the property sale price less
land value. In evaluating costs in the cost approach, accrued depreciation is the loss in value attributed to
the increased age and changing condition of the improvements. The evaluation of this market and cost
information is the basis of reconciliation and is an indication of property valuation under this hybrid
model.
The contributing values of both the land and buildings are estimated
separately in the cost approach. This approach also uses depreciated
replacement costs which reflect the market supply, but not demand.
Because of this, adjustments to the cost values may be necessary to
equitably balance the appraisal as indicated by the market sales. With regard to supply/demand, economic
factors influence the market demand and are also considered in the cost approach. To account for
locational differences between market areas or across certain jurisdictions, locational adjustments may be
abstracted and applied uniformly within neighborhoods.
To evaluate a delineated neighborhood, the field appraisers use a sale ratio that compares recent sales
prices of properties with the properties’ actual cost value. The value of the properties is the depreciated
replacement cost of the improvements plus the land value. To arrive at the sales ratio based on sold
properties in the neighborhood, the sum of the appraised values of sold properties are divided by the sum
of the sales prices of the properties. The measures of central tendency are calculated and reviewed, but
the median value is emphasized. The resulting ratio is compared to the acceptable appraisal ratio (95%
to 105%) as is used in the State property value study. If the neighborhood’s appraisal level is outside the
acceptable ratio range, adjustments to the neighborhood are made.
If it is found that the neighborhood needs to be reappraised, the available market sales are analyzed and
adjusted. The value of the improvement component is compared to the estimated replacement cost new
of the component to determine the amount of depreciation due to physical, functional or economic
obsolescence. Using the market analysis results, considering age and observed condition of the
improvements, the depreciation rate can be better estimated. Residential property values in an entire
neighborhood are recalculated using the indicated depreciation rates taken from the market sales. This
depreciation factor is the basis for trending all improvement values. By considering the depreciation of
property, the cost approach may be brought closer to the actual market prices using recent sale prices
within a neighborhood.
Based on an analysis of recent sales and market trends in a given neighborhood, the appraiser can more
accurately apply neighborhood modifiers to all residential properties in that neighborhood. A final ratio
study is generated that compares recent sale prices with the proposed appraised values for the same
properties. Using the ratio studies, it is the PRAD appraiser’s responsibility to use their professional
”The contributing values of both the land and buildings are estimated
separately in the cost approach.”
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judgment whether to update the neighborhood’s appraised values in light of the overall market trends for
that neighborhood.
Appraisal of Residential Homesteads
A residential homestead is the primary residence of a homeowner, for which a homestead exemption has
been claimed. The homeowner claiming the homestead exemption must reside at the property on January
1 of the year the application is made and cannot claim a homestead exemption on any other property. It
is important to note that the market value of a residential homestead is determined solely on the basis of
the property’s value as a residential homestead, regardless of whether the residence is considered the
highest and best use of the property. The Potter-Randall Appraisal District processes each homestead
exemption claim within its jurisdiction. A homestead exemption removes up to $25,000 of the home’s
value from independent school district taxation thereby lowering the property taxes due.
The State of Texas provides special tax appraisal laws for residential properties that have a homestead
exemption. Beginning the second year a property receives a homestead exemption, any increases in the
assessed value of that property are “capped”. According to State law, the assessed value for tax purposes
of a qualified residential homestead is the LESSER of:
• the market value of the property; or
• 110 percent of the previous year’s value (TPTC §23.23 as revised January 1, 2008); PLUS the
value of any new improvements added since the last reappraisal.
Appraised values of capped properties must be recomputed annually. If a capped property sells, the cap
automatically expires as of January 1 of the year following sale of the property, and the property is
appraised at its market value. Per Texas HB 585 passed in 2013, as of January 1, 2014 there are special
provisions for capped residential properties that are involved in a disaster recovery program. As a disaster
relief measure, replacement structures may not be considered as new improvements, if certain
requirements are met.
For partially-completed residential property, the valuation is estimated using the land value plus the
completion percentage of the improvements. This is similar to using the developers/builders construction
costs as a basis of completion on the valuation date. The year following the completion, occupancy or
sale of the residence, the property is appraised at it full market value; and the homeowner may claim a
homestead exemption if it is their primary residence.
Residential Reappraisal Schedule
In compliance with State law, the Potter-Randall Appraisal District reappraises real property every three
years or even more frequently as needed depending on ratio studies. The following schedule outlines the
residential and agricultural department’s reappraisal schedule for 2017-2018.
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2017 RESIDENTIAL SCHEDULE
JULY 2016 Work city residential building permits/rechecks thru field inspection
Field inspection/office review of residential sales
AUGUST 2016 Work city residential building permits/rechecks thru field inspection
Field inspection/office review of residential sales
SEPTEMBER 2016 Reappraise one-third of the residential maps thru the use of Pictometry (aerial images),
Sketchcheck, permits and field inspections. Field inspection/office review of residential sales
o 2017 Neighborhoods
H13-H16, I12-I18, J08-J17, K09-K18, L08-L18, Potter #1-#4, Valley, and N of
River – See Attachment C for map of reappraisal area.
Rural Potter County residential verification thru septic and meter permits
Field inspection/office review of residential sales
OCTOBER 2016 Perform sales ratio analysis on all neighborhoods
Residential reappraisal thru sales ratio studies on all neighborhoods
Continue on reappraisal of one-third of the residential maps thru the use of Pictometry (aerial
images), Sketchcheck, permits and field inspections. Field inspection/office review of residential
sales
Rural Potter County residential verification thru septic and meter permits
Field inspection/office review of residential sales
NOVEMBER 2016 Perform sales ratio analysis on all neighborhoods
Residential reappraisal thru sales ratio studies on all neighborhoods
Continue on reappraisal of one-third of the residential maps thru the use of Pictometry (aerial
images), Sketchcheck, permits and field inspections.
Rural Randall County residential verification thru septic and meter permits
Field inspection/office review of residential sales
DECEMBER 2016 Perform sales ratio analysis on all neighborhoods
Residential reappraisal thru sales ratio studies on all neighborhoods
Continue on reappraisal of one-third of the residential maps thru the use of Pictometry (aerial
images), Sketchcheck, permits and field inspections.
Rural Randall County residential verification thru septic and meter permits
Field inspection/office review of residential sales
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JANUARY 2017 Perform sales ratio analysis on all neighborhoods
Residential reappraisal thru sales ratio studies on all neighborhoods
Work city residential building permits/rechecks thru field inspection
Field inspection/office review of residential sales
FEBRUARY 2017 Work city residential building permits/rechecks thru field inspection
Residential reappraisal thru sales ratio studies on all neighborhoods
Work city mobile home permits thru field inspection
Field inspection/office review of residential sales
MARCH 2017 Work city mobile home permits thru field inspection
Continue on reappraisal of one-third of the residential maps thru the use of Pictometry (aerial
images), Sketchcheck, permits and field inspections.
Residential reappraisal thru sales ratio studies on all neighborhoods
Field inspection/office review of residential sales
APRIL 2017 Finish residential reappraisal thru sales ratio studies
Continue on reappraisal of one-third of the residential maps thru the use of Pictometry (aerial
images), Sketchcheck, permits and field inspections.
MAY 2017 Mail residential Notice of Appraised Values
Informal value discussions with property owners
Begin case work on protests for 2015 thru field inspections and value defense
JUNE 2017 Informal value discussions with property owners
Case work on protests for 2017 thru field inspections and value defense
Appraisal review board hearings
JULY 2017 Case work on protests for 2017 thru field inspections and value defense
Appraisal Review Board Hearings
2018 RESIDENTIAL SCHEDULE
JULY 2017 Work city residential building permits/rechecks thru field inspection
Field inspection/office review of residential sales
AUGUST 2017 Work city residential building permits/rechecks thru field inspection
Field inspection/office review of residential sales
40
SEPTEMBER 2017 Reappraise one-third of the residential maps thru the use of Pictometry (aerial images),
Sketchcheck, permits and field inspections. Field inspection/office review of residential sales
o 2018 Neighborhoods
M08-M16, N06-N15, O06-O15, H27, I25-I27, J26-J28, K27, L27, Randall #1-#8
– See Attachment C for map of reappraisal area.
Rural Potter County residential verification thru septic and meter permits
Field inspection/office review of residential sales
OCTOBER 2017 Perform sales ratio analysis on all neighborhoods
Residential reappraisal thru sales ratio studies on all neighborhoods
Continue reappraisal of one-third of the residential maps thru the use of Pictometry (aerial images),
Sketchcheck, permits and field inspections. Field inspection/office review of residential sales
Rural Potter County residential verification thru septic and meter permits
Field inspection/office review of residential sales
NOVEMBER 2017 Perform sales ratio analysis on all neighborhoods
Residential reappraisal thru sales ratio studies on all neighborhoods
Continue reappraisal of one-third of the residential maps thru the use of Pictometry (aerial images),
Sketchcheck, permits and field inspections.
Rural Randall County residential verification thru septic and meter permits
Field inspection/office review of residential sales
DECEMBER 2017 Perform sales ratio analysis on all neighborhoods
Residential reappraisal thru sales ratio studies on all neighborhoods
Continue reappraisal of one-third of the residential maps thru the use of Pictometry (aerial images),
Sketchcheck, permits and field inspections.
Rural Randall County residential verification thru septic and meter permits
Field inspection/office review of residential sales
JANUARY 2018 Perform sales ratio analysis on all neighborhoods
Residential reappraisal thru sales ratio studies on all neighborhoods
Work city residential building permits/rechecks thru field inspection
Field inspection/office review of residential sales
FEBRUARY 2018 Work city residential building permits/rechecks thru field inspection
Residential reappraisal thru sales ratio studies on all neighborhoods
Work city mobile home permits thru field inspection
Field inspection/office review of residential sales
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MARCH 2018 Work city mobile home permits thru field inspection
Reappraise one-third of the residential maps thru the use of Pictometry (aerial images),
Sketchcheck, permits and field inspections.
Residential reappraisal thru sales ratio studies on all neighborhoods
Field inspection/office review of residential sales
APRIL 2018 Finish residential reappraisal thru sales ratio studies
Continue reappraisal of one-third of the residential maps thru the use of Pictometry (aerial images),
Sketchcheck, permits and field inspections.
MAY 2018 Mail residential Notice of Appraised Values
Informal value discussions with property owners
Begin case work on protests for 2016 thru field inspections and value defense
JUNE 2018 Informal value discussions with property owners
Case work on protests for 2016 thru field inspections and value defense
Appraisal review board hearings
JULY 2018 Case work on protests for 2018 thru field inspections and value defense
Appraisal Review Board Hearings
2017 & 2018 AGRICULTURAL AND RURAL SCHEDULE
July- Review possible problem areas from boards.
Farm and Ranch Survey for State. Second mailing of questionnaires for previous crop year if needed.
Usually this information is gathered at the first of the year for the next year. Accumulate returned
information, have Ag Advisory Committee meet and approve the survey information and send back to
the state.
1st Week of Each Month -Work split-outs and combos until finished
August -50 acres and less Ag tracts
August -February - Check budget surveys to see where we are lacking in information, (Questionnaires
already received, check to see what and where we need information). This information is gathered
through this time frame to use to create the Ag Budget. Not always able to capture some facts by
specific dates.
Check:
1. Co-ops (chemical prices)
2. Spray companies (Childers Spraying Service)
3. Rain & Hail (premiums)
4. Web link information list (Imaging for Links sites)
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5. Grain prices from elevators (Happy, 21st grain, Consumers Fuel, Bushland Co-op,
Attebury Grain)
6. NASS web site, (state gathered info such as planted/harvested acres)
7. Check with T Johnson on Government Payments.
8. Leases (for any new ones).
9. Irrigation Well and windmill expense, fence
Check for new sources (IF NEEDED). This depends on weak information areas or request from the Ag
Advisory Committee.
August -Check sales ratios for both counties (land and residential)
1). Work on neighborhoods in county to see if change is necessary (codes and boundaries).
2). Land values
AUGUST - COUNTY SWEEP-Prepare Sweep, Print Potter 1st and then Randall, give request for all
rural meter & septic permits to be printed . Request Tanglewood permits from Lake Tanglewood
representative. Prepare rechecks, permits and BP for both counties independently and separated to be
worked in designated areas.
September - Start of County Sweep.
October - Check again for more meter & septic permits for the counties.
November - City Land Pricing-check to see if we feel there are any areas that need review.
December – January -Work and check existing & new plats.
January - Send out questionnaires for previous CROP YEAR
February – Prepare and mail Ag Applications. Check for new owners and any other owners that should
receive applications.
February - May- start working Ag applications
March - Work Ag Budget. Meet with Ag Advisory Committee to approve or disapprove budget for
current year.
March to Notice Mailing- Check SQL’s for Ag apps not returned and inventory lots that should be
adjusted. Check for applications we feel that should have been returned and send notice of deadline.
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Individual Value Review Procedures
Field Review
Sales ratio analysis provides information from which the PRAD field appraisers can identify individual
properties that need field inspections. Properties that are sold spur a field review if discrepancies are
discovered in the property characteristics. In addition, if a building permit is filed for a particular property
indicating a change in characteristics, that property is added to a work file for review. Sometimes
information from Pictometry ChangeFinder is used to discover property changes. During field reviews it
is paramount to the appraisal process to identify and update the property characteristics that influence the
overall value of the property.
Qualification of High or Low Sales
Residential sales activity requires appraisers to review and resolve sales outliers. When a residence sells
at an abnormally high or low sale price, PRAD appraisers investigate to determine if the sales price should
be adjusted and qualified for ratio studies. If no adjustments can be made based on the sales price details
and the sales price is not within the ratio study norms, the sale is excluded from the ratio study.
Periodically the sale is reviewed to ascertain whether the sales price is the start of a trend on sales prices
of similar properties, or just a one-time sale that does not reflect the entire market. Based upon the research
performed by the appraiser, the sale will be either qualified or disqualified as a reasonable sale price for
the ratio study.
Office Review
The field review is an important step in the process along with comprehensive reviews of all information
available such as deeds, court records, hearing results, etc. In addition to field reviews, PRAD appraisers
perform in-office reviews of residential property data records. A property data record denotes the previous
value, facts and physical information of a property such as location, size, building type and condition,
access, property restrictions, property defects, etc. that helps real estate professionals establish a better
estimate of the property’s value. The appraiser then identifies, researches and resolves any inconsistencies
in residential property value before the final appraised values are released.
When field reviews are completed, the Director of Appraisals reviews the sales ratios by neighborhood as
outlined in the discussion of PRAD Performance Test/Sales Ratio Study on page 26 of this document.
The ratio study compares PRAD’s appraised values with sales prices. To calculate the ratio, the appraised
value is divided by the property’s sale price and is done throughout the year as sales occur. This research
and analysis helps PRAD appraisers assure uniformity of values for each neighborhood. Once the Director
of Appraisals is satisfied with the level and uniformity of value for each neighborhood, the estimates of
value are used for the current year Notices of Appraised Value. Previous values resulting from a hearing
protest are individually reviewed to determine whether the value remains appropriate for the current year.
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Appraisal Performance Tests
Sales Ratio Study & Management Review
PRAD ensures that the appraised values produced meet high standards of
accuracy. A sales ratio study is the foremost analytical tool used by
appraisers to ensure that properties are uniformly assessed based on
market value. This analysis uses statistical methods to measure the
relationship between a property’s assessed value and its sale price by
grouping individual sales according to property type and geographic area. Conclusions about the overall
level and quality of the assessment are derived from the results of the study. PRAD performs ratio studies
in compliance with the IAAO “Standard on Ratio Studies”, approved April 2013. The seven basic steps
in performing ratio studies are outlined below.
1) define the purpose, scope and objectives – stating the reasons for the study,
2) design the study – using all reasonable, cost-effective steps to maximize reliability of the study,
3) stratification – dividing properties into two or more groups to for a more detailed appraisal
performance and to enhance sample representation,
4) collection and preparation of market data – to assure the sales used in the study reflect market
values,
5) matching of appraisal data and market data – to assure the physical and legal characteristics of
each property used in the ratio study are the same as when sold,
6) statistical analysis – to compute measures of appraisal level, uniformity and reliability for the entire
jurisdiction and each group, and
7) evaluation and use of the results – to analyze appraisal performance, evaluating CAMA system
models, and suggesting strategies for improvement.
Texas does not have mandatory sales disclosure. Therefore, PRAD does not have access to all property
transactions, which limits sales analysis to only those sales acquired by the district through various real
estate professionals or submitted voluntarily by the buyer or seller. Available sales are carefully screened
by appraisers to exclude sales that are not “arms-length” or open market transactions. Examples of sales
that are considered invalid transactions are those sales with unusual financing, sales between relatives,
estate sales, divorce or bankruptcy sales, and sales with partially complete new construction. Further,
adjustments are made for terms of sale.
Overall sales ratios are generated for each neighborhood allowing appraisers to review general market
trends within a given geographic area, and provide an indication of market conditions (appreciation or
depreciation) over a specified period of time.
The ratio studies are designed to emulate the findings of the State Comptroller’s property value study for
category “A” properties (single family residences). The primary objective of this review is to ensure
that the proposed values have met an acceptable level of appraisal.
”PRAD ensures that the appraised values produced meet
high standards of accuracy.”
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COMMERCIAL & INDUSTRIAL VALUATION APPRAISAL PROCESS (includes Multi-Family Residential Properties)
The Potter-Randall Appraisal District commercial appraisers are responsible for establishing fair market
values for all commercial real properties within our jurisdiction. PRAD is responsible for valuing 5,595
commercial improved parcels and 2,089 vacant commercial land parcels in Potter County and 2,806
commercial improved parcels and 685 commercial vacant land parcels in Randall County. The improved
real property appraisal responsibilities are categorized according to major property types of multi-family
or apartment, office, retail, warehouse and special use (i.e. hotels, hospitals, and nursing homes). To fulfill
their responsibilities, the appraisers use professional appraisal principles and methods that follow the
requirements of State law and court-rendered decisions. The process includes discovering and recording
of new commercial properties, checking existing structures for physical changes, and analyzing and
interpreting market sales, cost and income data. New commercial properties are inspected and measured
annually during on-site inspections. Any needed changes to existing properties, such as new additions,
demolitions, or condition, are also made through on-site inspections and by using Pictometry,
ChangeFinder and ArcMap GIS software.
In general, the commercial appraisers use current market conditions, probable future market trends that
include both rising and declining value trends, data sources, and analyses to determine the market value
of commercial properties. The three valuation approaches (i.e. cost, sales comparison and income
approaches discussed later in this section) are considered. In preparing commercial property valuations,
the appraiser explains the reasons an approach was used or omitted, documenting the
advantages/disadvantages of each approach as it pertains to the subject property. The effect of easements,
restrictions, encumbrances, leases, contracts or special assessments are considered on an individual basis.
Divided real property interests, such as for multi-family apartment projects, are also considered
individually. For real property with fractional interests or partial holdings, the whole property is appraised
in fee simple interest, then is divided based on the percentage of ownership. Fee simple interest is the
greatest possible right of ownership with no limitations or conditions, except those imposed by
governmental entities.
Commercial/Industrial Appraisal Resources
Appraisers
In addition to management staff, the commercial appraisal staff consists of five appraisers, four appraisal
assistants and one part-time contract appraiser. Below is a list of appraisers who are responsible for
estimating the market value of commercial and industrial properties:
Director of Appraisals – Commercial, Business Personal & Industrial
Senior Appraiser – Commercial
Senior Appraiser – Business Personal
Field Appraisers (5)
Appraisal Assistants (4)
Part-Time Appraiser (1)
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Data
Property characteristic data for each commercial and industrial property in Potter and Randall counties
are collected, updated and maintained in PRAD’s CAMA system. The success of CAMA is dependent
upon adequate data used for modeling and statistical testing. The commercial appraisers use pertinent
data from verified sales of vacant land and improved properties, actual income and expense data, actual
construction cost data, actual contract rental data and leasing information. In addition to specific property
data, market data publications and local commercial surveys are also reviewed to provide additional
support for market trends. All commercial/ industrial property information is verified and corrected based
upon on-site field inspections as well as through office review.
Analyses of Geographical Areas
Regional Analysis
The combined forces that influence real property values (legal, physical/environmental, economic and
social) are reflected in real property market activities. Because of these forces, area sales analyses are
made and reviewed by PRAD commercial appraisers based on various geographic areas including regional
levels, local levels and market neighborhood levels. In fact, area sales analyses are an integral part of the
valuation process and are often used as quality control measures. Influences on market value include
regional locational factors, employment and income patterns, general trends in real property prices and
rents, interest rate trends, availability of vacant land, construction trends and costs and other demographic
patterns that are collected from private vendors and public sources. These parameters form the framework
for data collection and analysis, highest and best use considerations, valuation applications, and quality
assurance.
Market Neighborhood Analyses and Neighborhood Codes
The Potter Randall Appraisal District appraisers perform a detailed review of the market areas and
delineate them into market neighborhoods, a group of similar properties that share common economic
traits. In the mass appraisal of commercial/industrial properties, a market neighborhood is where the
properties’ physical, economic, governmental and social forces are generally similar and uniform.
Identifying areas with similar characteristics and defining each market neighborhood helps appraisers
perform detailed analyses in order to accurately and uniformly value the properties. A market
neighborhood is the best search area for comparable market data. Appraisers periodically review the
market neighborhoods to determine if revisions are needed. PRAD’s market neighborhood include LCQ
(location, condition, quality) codes. PRAD collects data on all property types, specifically multi-family
residential (apartments), hotel/motels, restaurants, offices, markets/grocery stores, retail shopping centers.
All income model valuation (income approach to value estimates) is specific to each market neighborhood.
For each of PRAD’s market neighborhoods, estimates are made concerning income, occupancy and
expense levels, and capitalization rates, and the income model is prepared.
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Highest and Best Use Analysis
The “highest and best use” of a property is the most reasonable and probable use that would produce the
highest value for a property as of the date of appraisal. The highest and best use must be legally allowable,
physically possible, and financially feasible and must result in the maximum market value for the property.
For improved commercial properties, the highest and best use is evaluated in two ways:
1) as improved, and
2) as if the site were vacant.
These two evaluations help determine whether the existing improvements have a nonconforming use,
multiple uses and excess land or would have a different optimum use if the site were vacant. For vacant
land tracts within PRAD’s jurisdiction, the surrounding land uses are considered in order to speculate the
highest and best use of the land. In most cases, the highest and best use of the property is its current use.
An accurate market value estimate can be ensured by using this highest and best use analysis.
In considering the highest and best use of properties, typically there is more than one potential use for a
property. However at the other end of the spectrum, there may be value of a property to a specific user
for a specific purpose. This is known as value-in-use. Value-in-use is not typically the market value in
an open and competitive market as the worth of a value-in-use property may be more or less that the actual
market value.
Land Valuation
To compare commercial appraised values with recent sales of commercial land in PRAD’s jurisdiction,
commercial/industrial land is analyzed at least every three years. If the commercial appraisers find that
appraised values differ from sale prices being paid for the commercial properties, adjustments are made
to all land in that area. Generally, commercial land is appraised on a price per square foot basis. Factors
that influence value are placed on individual properties, such as corner influence, depth of site, shape of
site, easements across the site, etc. Unless otherwise stipulated in the Texas Property Tax Code, the land
is valued as though it is vacant and is at its highest and best use.
Market Force Analysis
Market studies are used by PRAD to test new or existing procedures or valuation models in a small sample
of properties. They are also used as a basis to update needed changes in valuation. The market studies
focus on specific types of improved properties in evaluating current market prices for rents and for sales
of commercial/industrial real property. These comparable sale studies and sale ratio studies indicate
whether the valuation modeling system is accurately producing reliable and uniform value estimates. If
not, procedural changes are necessary. The commercial appraisers initiate this methodology when
developing cost approach, sales comparison approach, and income approach models.
A study of the market forces affecting supply and demand is known as market analysis. It involves
studying the relationships between social, economic, environmental, governmental, and site conditions.
Current market activity is analyzed to determine market ranges in price, operating costs and expectations
of investment return. The analysis involves sales of commercial properties, new construction, new leases,
lease rates, absorption rates, vacancies, allowable expenses (including replacement reserves), expense
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ratio trends, and capitalization rate studies. To collect the needed data to perform market analyses, PRAD
mails out surveys to measure rental rates and expenses.
Data Collection
Data Collection Procedures
PRAD appraisers have prepared written procedures to follow for data collection and documentation of
commercial/industrial properties. This procedures manual is continually updated, providing a uniform
system of itemizing the numerous components and/or characteristics associated with a given property. All
commercial property located in PRAD’s jurisdiction is coded according to a specific classification system
outlined in the procedures manual. The data characteristics of the property are maintained in PRAD’s
computer assisted mass appraisal (CAMA) system. The information stored in CAMA includes site
characteristics, i.e. land size, and improvement data, such as square footage of building area, year built,
quality of construction and condition.
Sales data is included in PRAD’s sales file database. Sales information is verified and confirmed as it is
received. The confirmed sales are categorized by property and use type.
Whenever possible, income/expense data is also collected from data
received during the appraisal review process and from outside sources.
It is used primarily for income model development for the various
property types. If income data of a sold property is known, it is used
in capitalization rate analysis. Cap rate analysis is the ratio of net
operating income to property asset value, representing the annual
percentage return an investor would receive on their investment.
Sources of Data
The Potter-Randall Appraisal District receives copies of all the deeds recorded in Potter and Randall
Counties. Deeds that convey ownership of commercially-classed properties are entered into the sales
information system and are researched to obtain pertinent sale information. Other sources of sale data
include sales questionnaires, protest hearings, and local, regional and national real estate and financial
publications or websites.
When a change of ownership of commercial property occurs, a sale file is created, beginning the research
and validation process. The first step in sales verification is to mail a questionnaire to both the buyer and
the seller of the property. If the completed questionnaire is returned, the response is recorded into the
computerized sales database. If no response is received, then appraisers attempt to attain information on
the specifics of the sale via other sources, such as brokers involved in the sale, property managers or
commercial vendors. For some commercial properties, local appraisers or other real estate professionals
may have the information needed for sales verification. In addition, an actual closing statement provided
during the hearings process is considered the most reliable and preferred method of sales verification.
Sales data is available to the property owner if the sale was used in the valuation of the subject property,
but the source of the sale data is confidential.
”Cap rate analysis is the ratio of net operating income to property asset value, representing the annual percentage return an investor would
receive on their investment.”
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Valuation and Statistical Analysis (Model Price Calibration)
Although the basic structure of a mass appraisal model (equations, tables and schedules) may be valid for
many years, occasionally the model may need to be adjusted to reflect changes in the current local market
conditions. These adjustments, known as model calibration, can be made to reflect new construction
procedures, materials, and/or costs that may vary from year to year. To update for short periods, trending
factors may suffice. However for longer periods or if the adjustment process becomes too involved, new
model specifications are required or a revised model structure is necessary.
Commercial Property Valuation Approaches
The three methods of appraising commercial real estate described herein are:
1) Cost approach - assumes that the value of the property is the same as the cost to construct or
replace the improvements on the land
2) Sales comparison approach – compares the subject property with other properties with
similar characteristics in the same market area that have recently sold, and
3) Income capitalization approach – the property value is based on its income in comparison to
similar properties.
Each method has its strengths depending upon the situation and type of property involved. It should be
noted that the Potter-Randall Appraisal District’s CAMA system contains a market sales analysis feature
that recaps the cost, sales (market) and income approaches, each of which are discussed separately in this
section.
Cost Approach
The contributing values of both the land and improvements are estimated separately in the cost approach.
This approach also uses depreciated replacement costs which reflect the market supply, but not the
demand. Because of this, adjustments to the cost values may be necessary to equitably balance the
appraisal as indicated by the market sales and income. With regard to supply/demand, economic factors
influence the market demand and are also considered in the cost approach.
The cost approach to commercial property valuation involves estimating the cost of land plus replacement
cost new of all improvements on the property, less depreciation of those improvements. To estimate value
in this way, PRAD uses a hybrid of the cost and sales comparison approach. The hybrid cost-sales
comparison model is represented by the following equation:
MV = LV + (RCN – AD)
Where:
MV = Market Value (estimated) LV = Land Value RCN = Replacement Cost New (of property improvements) AD = Accrued Depreciation
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For land value, PRAD appraisers use the sales comparison approach (discussed below) that compares a
property’s characteristics with those of comparable properties that have recently sold. To estimate the
value of the improvements, the CAMA system uses data acquired in the comparative unit method (aka
square-foot method) to develop the basic cost of a commercial structure. Cost adjustments are made to
any amenities added to it and for depreciation, if any.
Comparative base rates, per unit adjustments, and lump sum adjustments are used to estimate the cost
value of all improvements on the property, including variations in property description, design and types
of construction. For all improvements within its jurisdiction, PRAD develops cost models based on
commercial cost schedules from Marshall & Swift (M&S), a nationally recognized cost service that
estimates hard or direct costs of various improvement types. To account for locational differences between
market areas or across certain jurisdictions, locational adjustments are abstracted and applied uniformly
within the market neighborhoods. Using time and local modifiers, the basic cost figures by M&S are
adjusted to reflect current local labor, materials and other costs specifically for Potter and Randall
Counties. The purpose is to adjust market neighborhoods based on specific market conditions and changes
in costs over time. The commercial cost tables are reviewed annually and updated when necessary.
Estimated replacement cost new reflects all costs of construction and development for improvements as
of the date of appraisal. Replacement costs are compared against M&S data, as well as the estimated
replacement cost derived from the market sales of comparable structures. Evaluating market sales of
newly-developed, improved property is basic to understanding total replacement costs of improvements.
A market analysis of pricing acceptance levels reveals the total property development cost along with the
portion of the cost that is attributed to business profit.
Except under special conditions, land typically does not depreciate, but
the improvements on the land do depreciate. Accrued depreciation is the
loss of value due to any cause (physical deterioration, functional and
economic obsolescence) that negatively affects the amount of
contribution of the improvement to the property value. It is the measured
loss against replacement cost new that occurs for any reason. The annualized accrued depreciation rate is
the best measure of change. When improvements are abstracted from the property sale price, the market
approach reflects the depreciated value of each improvement component. The amount of contribution of
the improvement to the property value is measured by abstracting comparable market sales, which is the
property sale price less land value. In evaluating costs in the cost approach, accrued depreciation is the
loss in value attributed to the increased age and changing condition of the improvements. Accrued
depreciation is estimated based on losses typical for each property type at that specific age and are made
for each major class of commercial property by economic life categories. The depreciation estimates are
calculated for improvements with a range of years of economic life expectancy based on observed
condition and considering actual age of the improvement.
To assure they are reflective of current market conditions, the estimates are continually tested. Both the
actual age and the effective age of improvements are stored in CAMA. The estimated effective age of an
improvement is based on the improvement’s utility compared to where the improvement lies on the range
of years of economic life expectancy for that improvement. If the condition or effective age of the
improvement varies from the norm, a depreciation calculation may be adjusted by an appraiser as long as
the reason for the adjustment is documented on the property data characteristics. Adjustments are typically
applied to a specific condition adequacy or deficiency, property type or location and can be developed via
ratio studies or other market analyses.
”…land typically does not depreciate, but the improvements
on the land do depreciate.”
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Subtracting accrued depreciation estimate from the replacement cost new estimate results in the estimated
contributory value of the improvements. A property value by the cost approach is the result of adding
the estimated land value, as if vacant, to the contributory value of the improvements. Given relevant cost
estimates and market-related measures of accrued depreciation, the property value estimated by the cost
approach is a reliable valuation technique.
Sales Comparison (Market) Approach
The sales comparison approach considers the effect that individual features have on the overall property
value and is the most commonly used appraisal technique. Pertinent data from actual sales of properties,
both vacant and improved, are sought throughout the year to attain relevant information to be used in all
aspects of property valuation.
The basic theory of the market approach is the principle of
substitution, i.e. that a buyer will not pay more for a property than
what it would cost to purchase an equal substitute property. For
this to work well, good comparable sales must be considered.
Although a perfect comparison is seldom found, the appraiser
finds comparable properties have sold in the recent past that are
most like the subject property in terms of use-type, physical
features, location, condition of sale, etc. The appraiser estimates the market value of the subject property
from the adjusted sale prices of the comparable properties based on the component features, financing,
and other criteria.
To acquire information regarding the sale transaction, PRAD mails a sales letter requesting the
information to both the seller and purchaser. Sometimes the appraisers are able to attain sale transaction
information from other reliable sources. Sales of improved commercial properties are used in ratio studies,
helping the appraiser judge the level and uniformity of the appraised values. Sales of similarly-improved
properties can be used as a direct comparison in the sales comparison approach and provides a basis for
depreciation schedules in the Cost Approach, and for rates and multipliers used in the Income Approach
(discussed below).
Income Approach
The income approach determines worth by comparing the commercial property’s net operating income
with other similar properties. The income approach to property valuation is used in commercial real estate
appraisal as it is typically the best method to estimate the market value of income-producing properties,
such as apartments, retail/shopping centers, commercial businesses, offices, warehouses, etc. Appraisers
use this method to estimate commercial property value based on the property’s ability to produce income,
but also factors in risk/loss.
PRAD’s CAMA system includes an income approach feature that uses specific data to arrive at an income
value. There are several factors involved in the income approach, i.e. market rent, vacancy and collection
loss allowance, secondary income, allowable expenses and expense ratios, capitalization rates, and rent
loss due to vacancy, each of which is explained below.
Market rent – Market rental income on a per unit basis is calculated from actual rent data from
property owners, local market surveys conducted by PRAD and information from area rent studies.
The potential gross rent is calculated by multiplying the rental rate per unit by the number of units.
”The basic theory of the market approach is the principle of substitution, i.e. that a buyer will not pay more for a property than what it would cost to purchase an equal
substitute property.”
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Vacancy and collection loss allowance – Appraisers include this allowance in income/expense
estimates for income loss due to vacancy, turnover, nonpayment of rent, and other collection
losses. This allowance, attained from actual data furnished by property owners and local market
survey trends, accounts for periodic fluctuations in occupancy/rent payment. When applicable,
lease-up periods for multi-tenant properties are considered. The annual effective gross rental
income is calculated by subtracting the vacancy and collection loss allowance from the potential
gross rental income estimate.
Secondary income - Examples of secondary income are parking lot income, reimbursements and
other miscellaneous income generated by the operations of real property. This income estimate is
calculated from actual data and available market data and is represented as a percentage of
stabilized effective gross rent. The secondary income estimate is then added to effective gross rent
resulting in an effective gross income estimate.
Allowable expenses and expense estimates – Based on local market studies, operating expenses
may include allowances for non-recoverable expenses such as leasing costs for rental space and
tenant improvements. Allowable expenses also may include replacement reserves which are funds
set aside for the periodic replacement of building components that wear out more rapidly than the
building itself. Replacement reserves are for short-lived items requiring lump sum expenditures,
such as roof or floor coverings, air conditioning or major mechanical equipment or appliances.
When these capital expenses are analyzed for consistency and adjusted, they may be applied on an
annualized basis as stabilized expenses. Annual net operating income is estimated by subtracting
allowable expenses (including non-recoverable expenses and replacement reserves) from the
annual effective gross income.
Under the income approach, rate of return and income multipliers are used to convert operating
income expectations into estimated market value of the property. Rates and multipliers may vary
between property types, location, quality, condition, design, age and other factors. Therefore, the
rates and multipliers are based on a thorough market analysis for individual income property types
and uses.
Capitalization rate analysis – Income capitalization is a
valuation method used by appraisers to estimate the value of
income-producing properties. The direct capitalization of net
operating income is based upon the expectation of future
benefits that helps determine how much the property is worth.
A capitalization rate is simply a ratio of income to value and is an indirect measure of how fast an
investment will pay for itself. The capitalization rate is calculated by dividing the net operating
income of a commercial property by the price paid for the property. Properties are compared by
extracting cap rates from sales of similar properties and applying it to the net income of a subject
property to determine its value. Cap rates for direct capitalization and yield rates for estimating
cap rates for discounted cash flow analysis are derived from the market. Income and expense data
from sales of improved properties are used by appraisers to determine a property’s expected rate
of return at a specific point in time.
If sales data are unavailable to extract a capitalization rate from the market, appraisers may use the
band-of-investment method to estimate capitalization rates. This method presumes that the
property will generate enough income to satisfy the cash flow requirements of the lender (since
most commercial transactions include debt financing) and the equity investor. This satisfies the
estimated market return requirements of both the debt and equity positions in a real estate
”Income and expense data from sales of improved properties are used by appraisers to determine a property’s
expected rate of return …”
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investment. Information for implementing this method is attained from available sales of property,
local lending sources, and from real estate and financial publications.
Rent loss concession – Rent loss concessions are estimated for properties with vacancy problems.
Rental concessions are financial enticements given to attract tenants and accounts for the impact
of lost rental income while the building’s occupancy is trying to be stabilized. Rent loss is
calculated by multiplying the rental rate by the percent difference between the property’s stabilized
occupancy and its actual occupancy. Build-out allowances and leasing expenses are added to the
rent loss estimate and the total adjusted loss from these real property operations is discounted using
an acceptable risk rate. This discounted value (including rent loss due to excessive vacancy, build-
out allowances and leasing commissions) becomes the rent loss concession and is subtracted from
the indicated property value at stabilized occupancy. This technique may vary in order to estimate
a rent loss deduction every year that the property’s actual occupancy is less than the stabilized
occupancy.
For each commercial property, PRAD appraisers insert the previously discussed factors into a blank
CAMA income worksheet template that calculates estimated market value for the property using the
income approach.
Final Valuation Schedules
Using the market data analysis and review as discussed in the cost, sales comparison and income
approaches, the cost and income models are calibrated and finalized. The calibration results are linked to
the schedules and models in the CAMA system to be used on all commercial properties in PRAD’s
jurisdiction. Market factors reflected in the cost and income approaches are evaluated and confirmed
based on market sales of commercial and industrial properties. Using available sales information, PRAD
appraisers review the cost, sales comparison, and income approaches for each of the property types. In
order to arrive at a final estimation of value, appraisers reconcile the value indicators depending on the
weight of the market information available for evaluation/analysis in each of the approaches to value.
Statistical and Capitalization Analysis
The collection of sales data and the statistical analysis of final values
for internal quality control are an integral part of the local assessment
process. The method compares the final value against the standard
and provides a concise measure of appraisal performance. Many
different standards are statistically compared including sales of
similar properties, the prior year’s appraised value, value change
analysis and sales ratio analysis.
Using available sales data, statistical measures of central tendency and dispersion are generated from sales
ratios for each property type. One of several summary statistics used by appraisers is the weighted mean
(described on page 27 of this document) to ascertain the level and uniformity of appraised values of a
specific property type. Comparing weighted means for individual properties of a certain property type
can reflect the general level of appraised value.
“The collection of sales data and statistical analysis of final values for internal quality control are an integral part of the local assessment process.”
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Through the sales ratio analysis process, PRAD appraisers review each commercial property type annually
and compare the recent sales prices of properties to the appraised values of the sold properties. This set
of ratio studies provides the appraiser an excellent means to judge the current level of appraised value and
uniformity of the appraised values. Based on the sales ratio statistics and parameters designated for
valuation update, PRAD appraisers make 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.
Also, the appraisers continuously review potential gross rent estimates, occupancy/vacancy levels,
secondary income, allowable expenses (including replacement reserves), net operating income and
capitalization rates/multipliers. Income model estimates and conclusions are compared to actual
information obtained on individual commercial and industrial income properties during the protest
hearings process, as well as with information from published sources and area property managers/owners.
Commercial Reappraisal Schedule
In compliance with State law, the Potter-Randall Appraisal District reappraises real property at least every
three years. The following schedule outlines the commercial department’s reappraisal schedule for 2017-
2018. 2017 COMMERCIAL/INDUSTRIAL SCHEDULE
July 2016
Work city commercial building permits
Field inspection/office review of commercial sales
August 2016
Work city commercial building permits
Field inspection/office review of commercial sales
Change commercial cost schedules for commercial categories that are scheduled once every
three years
September 2016
Reappraise one-third of commercial land that are scheduled (H-K Tier City of Amarillo)
Collect data and reappraise commercial properties with new cost schedules
o 2017 Reappraisal Categories
Theatres, Bowling Alleys, Schools, Classrooms, Churches, Fire Stations, Home
Group Care, Hospital Convalescent, Home for the Elder, Day Care Centers,
Markets, Warehouse Storage, Warehouse Distribution, Warehouse Cold Storage,
Warehouse Transit, Garage Service, Garage Showroom, Garage Automotive,
Mini-Lube, Garage Parking, Fitness Center, Mortuaries, Jail Police Station, Jail
Correctional, Truck Stop
Field inspection/office review of commercial sales
October 2016
Reappraise one-third of commercial land that are scheduled (H-K Tier City of Amarillo)
Collect data and reappraise commercial properties with new cost schedules -See Reappraisal
New Cost Categories
Rural review of county properties thru septic and meter properties
Field inspection/office review of commercial sales
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November 2016
Reappraise one-third of commercial land that are scheduled (H-K Tier city of Amarillo)
Collect data and reappraise commercial properties with new cost schedules-See Reappraisal New
Cost Categories
Field inspection/office review of commercial sales
Rural review of county properties thru septic and meter properties
Review work for sketch check and Pictometry reviews
December 2016
Collect rent and occupancy data for apartments
Collect data and reappraise commercial properties with new cost schedule-See Reappraisal New
Cost Categories
Field inspection/office review of commercial sales
Rural review of county properties thru septic and meter properties
Review work for sketch check and Pictometry reviews
January 2017
Collect rent and occupancy data for apartments
Collect rent and occupancy data for shopping centers
Collect rent and occupancy for multi-tenant offices
Collect data and reappraise commercial properties with new cost schedules-See Reappraisal New
Cost Categories
Field inspection/office review of commercial sales
Rural review of county properties thru septic and meter properties
Review work for sketch check and Pictometry reviews
Add new trending factors for industrial real property
February 2017
Collect rent occupancy data for hotels
Collect rent and occupancy data for shopping centers
Collect rent and occupancy for multi-tenant offices
Collect data and reappraise commercial properties with new cost schedules-See Reappraisal New
Cost Categories
Field inspection/office review of commercial sales
Rural review of county properties thru septic and meter properties
Review work for sketch check and Pictometry reviews
Reappraise and industrial real property
March 2017
Collect rent occupancy data for hotels
Collect rent and occupancy data for shopping centers
Collect rent and occupancy for multi-tenant offices
Collect data and reappraise commercial properties with new cost schedules-See Reappraisal New
Cost Categories
Field inspection/office review of commercial sales
Rural review of county properties thru septic and meter properties
Review work for sketch check and Pictometry reviews
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Finish reappraisal of commercial and industrial properties
Perform sales ratio studies
April 2017
Perform check programs on commercial property
May 2017
Mail commercial and industrial real property Notice of Appraised Values
Informal value discussions with property owners
Begin case work on protests for 2017 thru field inspections and value defense
June 2017
Informal value discussions with property owners
Case work on protests for 2017 thru field inspections and value defense
Appraisal review board hearings
July 2017
Case work on protests for 2017 thru field inspections and value defense
Appraisal Review Board Hearings
2018 COMMERCIAL/INDUSTRIAL SCHEDULE
July 2017
Work city commercial building permits
Field inspection/office review of commercial sales
August 2017
Work city commercial building permits
Field inspection/office review of commercial sales
Change commercial cost schedules for commercial categories that are scheduled once every
three years
September 2017
Reappraise one-third of commercial land that are scheduled (K-M tiers City of Amarillo)
Collect data and reappraise commercial properties with new cost schedules
o 2018 Reappraisal Categories
Mini Storage Warehouse, Office, Office Medical, Office Dental, Hospital,
Multiple Residence, Apartments, Neighborhood Center, Regional Center,
Community Center, Clubhouse, Store Discount, Store Retail
Field inspection/office review of commercial sales
October 2017
Reappraise one-third of commercial land that are scheduled (K-M tiers City of Amarillo)
Collect data and reappraise commercial properties with new cost schedules-See Reappraisal New
Cost Categories
Rural review of county properties thru septic and meter properties
Field inspection/office review of commercial sales
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November 2017
Reappraise one-third of commercial land that are scheduled (K-M tiers City of Amarillo)
Collect data and reappraise commercial properties with new cost schedules- See Reappraisal
New Cost Categories
Field inspection/office review of commercial sales
Rural review of county properties thru septic and meter properties
Review work for sketch check and Pictometry reviews
December 2017
Collect rent and occupancy data for apartments
Collect data and reappraise commercial properties with new cost schedules- See Reappraisal
New Cost Categories
Field inspection/office review of commercial sales
Rural review of county properties thru septic and meter properties
Review work for sketch check and Pictometry reviews
January 2018
Collect rent and occupancy data for apartments
Collect rent and occupancy data for shopping centers
Collect rent and occupancy for multi-tenant offices
Collect data and reappraise commercial properties with new cost schedules- See Reappraisal
New Cost Categories
Field inspection/office review of commercial sales
Rural review of county properties thru septic and meter properties
Review work for sketch check and Pictometry reviews
Add new trending factors for industrial real property
February 2018
Collect rent occupancy data for hotels
Collect rent and occupancy data for shopping centers
Collect rent and occupancy for multi-tenant offices
Collect data and reappraise commercial properties with new cost schedule- See Reappraisal New
Cost Categories
Field inspection/office review of commercial sales
Rural review of county properties thru septic and meter properties
Review work for sketch check and Pictometry reviews
Reappraise and industrial real property
March 2018
Collect rent occupancy data for hotels
Collect rent and occupancy data for shopping centers
Collect rent and occupancy for multi-tenant offices
Collect data and reappraise commercial properties with new cost schedules- See Reappraisal
New Cost Categories
Field inspection/office review of commercial sales
Rural review of county properties thru septic and meter properties
Review work for sketch check and Pictometry reviews
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Finish reappraisal of commercial and industrial properties
Perform sales ratio studies
April 2018
Perform check programs on commercial property
May 2018
Mail commercial and industrial real property Notice of Appraised Values
Informal value discussions with property owners
Begin case work on protests for 2017 thru field inspections and value defense
June 2018
Informal value discussions with property owners
Case work on protests for 2017 thru field inspections and value defense
Appraisal review board hearings
July 2018
Case work on protests for 2017 thru field inspections and value defense
Appraisal Review Board Hearings
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Individual Value Review Procedures
Field Review
Commercial properties that are sold are flagged for a field review if discrepancies are discovered in the
property characteristics. Field review of each commercial/industrial property is performed at least once
every three years, no matter if it is improved or vacant. Documentation, such as the date of last inspection,
extent of that inspection, and the appraiser responsible, is recorded in PRAD’s CAMA system. If a
property owner disputes PRAD’s data records in a protest hearing, it is possible that the CAMA data may
be changed depending upon the credibility of the evidence provided by the owner. Typically, a new field
check is then performed to verify this information for the current year’s valuation or for the next year’s
valuation. In addition, if a building permit is filed for a particular property indicating a change in
characteristics, that property is added to a work file for review. Sometimes information from Pictometry
ChangeFinder is used to discover property differences.
PRAD’s commercial appraisers focus on neighborhoods with a large number of remodels, renovations
and retrofits, changes in occupancy levels or rental rates, new leasing activity, new construction or with
wide variations in sale prices. Also, appraisers field review data items such as building class, quality of
construction, condition, and other factors contributing to the market value of the property as well as any
physical, functional or economic obsolescence factors. During field reviews, appraisers physically inspect
both sold and unsold commercial properties for comparison purposes and for consistency of valuation.
Qualification of High or Low Sales
Commercial/industrial sales activity requires appraisers to review and resolve sales outliers. When a
commercial property sells at an abnormally high or low sale price, PRAD appraisers investigate to
determine if the sales price should be adjusted and qualified for ratio studies. If no adjustments can be
made based on the sales price details and the sales price is not within the ratio study norms, the sale is
excluded from the ratio study. Periodically, the sale is reviewed to ascertain whether the sales price is the
start of a trend on sales prices of similar properties, or just a one-time sale that does not reflect the entire
market. A Qualification of Sale Form is completed by the PRAD appraiser working the sale. Based upon
the research performed by the appraiser, the sale will be either qualified or disqualified as a reasonable
sale price for the ratio study.
Office Review
In addition to on-site reviews, PRAD appraisers perform in-office reviews of commercial/industrial
properties in compliance with guidelines for the existing classification system. For in-office review of
commercial/industrial properties, appraisers review pertinent data of each property. Within a specified
market neighborhood, appraisers compare the previous value with the proposed values from the various
approaches to value. A commercial property data record shows information such as income model
attributes or overrides, and economic factors (cost overrides). The report also shows special factors
affecting the property valuation, such as new construction status and a three-year sales history (USPAP
property history requirement for non-residential property). This provides the appraiser with information
to identify, research and resolve any inconsistencies in commercial property value before the final
appraised values are released.
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It should be noted that by using the Qualification of Sale Form, all sales are either qualified or disqualified.
The appraiser reviews the details of the methodology to assure completion is in accordance with USPAP,
statutory policies and PRAD policies. After preliminary ratio statistics are calculated and are generally
accepted overall, the review process becomes focused on finding skewed results on an individual basis.
Previous values resulting from protest hearings are also individually reviewed to determine if the value
remains appropriate for the current year based on market conditions.
Since the appraiser’s review is by property type (improved) or geographic area (commercial vacant land),
each parcel is subjected to the value parameters appropriate for its use type. Using preliminary value
estimates, an appraiser can compare the computer-generated values against their own professional
judgment of value. This research and analysis helps PRAD appraisers assure uniformity of values for
each market neighborhood. Once the Director of Appraisals is satisfied with the level and uniformity of
value for each market neighborhood for commercial/industrial properties, the estimates of value are used
for the current year Notices of Appraised Value.
Appraisal Performance Tests
Sales Ratio Study
PRAD appraisers ensure that the appraised values produced meet high
standards of accuracy. The sales ratio study is the main tool used by
appraisers to ensure that properties are uniformly assessed based on
market values. This analysis uses statistical methods to measure the
relationship between a commercial/industrial property’s assessed value
and its sale price by grouping individual sales according to property use
type. Conclusions about the overall level and quality of the appraisal are derived from the results of the
sales ratio study.
Texas does not have mandatory sales disclosure; therefore, PRAD does not have access to all property
transactions, which limits sales analysis to only those sales acquired by the district through various real
estate professionals, lenders, or submitted voluntarily by the buyer or seller. Available sales are carefully
screened by appraisers to exclude sales from the sales ratio study that are not “arms-length” or open market
transactions. Further, adjustments are made for terms of sale.
If there are not enough market price sales for proper representation, independent appraisals can be used to
indicate market value. Using independent appraisals is useful for commercial/industrial real property for
which sales are limited. In some cases, sales ratio studies can be used for properties not appraised at
market value, but reflect the use-value requirement. Some examples 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.
PRAD has adopted and follows the quality assurance policies of the IAAO Standard on Ratio Studies,
approved April 2013, regarding its ratio study standards and practices. Ratio studies generally have seven
basic steps:
1. define the purpose, scope and objectives – stating the reasons for the study,
”The sales ratio study is the main analytical tool used by appraisers to ensure that properties are uniformly assessed based on
market values …”
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2. design the study – using all reasonable, cost-effective steps to maximize reliability of the study,
3. stratification – dividing properties into two or more groups to for a more detailed appraisal
performance and to enhance sample representation,
4. collection and preparation of market data – to assure the sales used in the study reflect market
values,
5. matching of appraisal data and market data – to assure the physical and legal characteristics of
each property used in the ratio study are the same as when sold,
6. statistical analysis – to compute measures of appraisal level, uniformity and reliability for the entire
jurisdiction and each group (stratum), and
7. evaluation and use of the results – to analyze appraisal performance, evaluating CAMA system
models, and suggesting strategies for improvement.
Sale ratio studies are performed for several reasons:
to determine if a general reappraisal is needed,
to prioritize selected property use type for reappraisal,
to identify potential problems with appraisal procedures,
to assist in market analyses, and
to calibrate models used for estimating appraised values during valuation or reappraisal cycles.
Sale ratio studies cannot be used to judge the accuracy of an individual property appraised value. The
Potter and Randall County Appraisal Review Boards may make individual value adjustments based on
unequal appraisal (ratio) protest evidence submitted on a case-by-case basis during the hearing process.
Overall sales ratios are generated for each market neighborhood semi-annually, or more often in specific
areas. These ratios allow appraisers to review general market trends in their area of responsibility and
show indicators of changing market conditions (appreciation or depreciation) over a specified period of
time. In many cases, field checks may be conducted to ensure the sales ratios produced are accurate and
that the appraised values are based on accurate property data characteristics. The primary objective of
this review is to ensure that the proposed values have met an acceptable level of appraisal.
Comparative Appraisal Analysis
In addition to a traditional sales ratio study, PRAD commercial appraisers perform an average unit value
comparison. This comparison study is performed on commercial/industrial properties by use type (such
as apartment, office, retail and warehouse usage, special use, etc.). The main objective of this evaluation
study is to determine appraisal performance of sold and unsold properties. The commercial appraisers
compare the average unit prices of sales with the average unit appraised values of those same sold parcels.
Appraisers also compare the average value changes of sold and unsold properties. These studies are
performed on sub-groups such as building class and on properties within various market neighborhoods
and economic areas. In this way, overall appraisal performance can be evaluated by use type to determine
whether sold parcels have been selectively appraised. When sold parcels and unsold parcels are appraised
equally, the average unit values are similar. These sales and equity studies are performed annually.
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BUSINESS PERSONAL PROPERTY VALUATION PROCESS
Business personal property is all tangible property (except land and buildings) owned by a business that
produces income. Some examples of business personal property (BPP) are furniture/fixtures, computer
equipment, hardware, tools, vehicles, inventory, machinery, equipment and other tangible BPP assets.
Just as for real property, BPP is appraised at its market value as of the date of the appraisal. The reappraisal
of personal property accounts is conducted annually to comply with the Texas Property Tax Code (TPTC),
Chapter 22.
The Potter-Randall Appraisal District (PRAD) business personal property appraisers are responsible for
establishing fair and uniform market values for all business personal property within its jurisdiction. There
are four different personal property types appraised by PRAD’s personal property appraisers:
business property accounts,
leased accounts,
vehicles/aircraft, and
business accounts with multiple locations.
PRAD maintains data for tangible personal property in a separate database from real property accounts.
The district is responsible for valuing about 7,686 personal property accounts located in Potter County
and 6,192 personal property accounts located in Randall County, totaling 13,878 BPP accounts in PRAD’s
jurisdiction.
To provide equitable market values for ad valorem purposes, mass appraisal is the primary tool used to
establish values for business personal property. In fulfilling their responsibilities, BPP appraisers use
generally-accepted appraisal principles and methods that follow the requirements of the TPTC Chapter
22. The process includes discovering and recording of new properties and analyzing market costs.
During the annual review, any needed updates to BPP accounts are made through on-site inspections
and/or BPP renditions (a property report submitted by the property owner to PRAD). In general, the BPP
appraisers use current market conditions, various data sources, and analyses to determine the market value
of business personal properties.
Business Personal Property Appraisal Resources
Appraisers
In addition to management staff/appraisers, the business personal appraisal staff consists of two appraisers,
and four appraisal assistants. Below is a list of appraisers who are responsible for estimating the market
value of BPP accounts:
Director of Appraisals – Commercial, Business Personal & Industrial
Senior Appraiser – Business Personal
Senior Appraiser – Commercial
Field Appraiser (5)
Appraisal Assistants (4)
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Data
Property data characteristics for each BPP account are collected, updated and maintained by BPP
appraisers in PRAD’s CAMA system tangible personal property worksheet. The information to complete
the worksheet is attained from BPP property renditions, valuation services and market data publications.
All BPP information is verified and corrected based upon on-site field inspections as well as through office
review.
Below are some examples of the sources used by PRAD appraisers to help value business personal
property:
Cost less depreciation
Value publications such as the National Automobile Dealers Association (NADA) Bluebook,
Aircraft Bluebook, and trade manuals
Comparable businesses
Adjustments to value (such as allocation) based on the TPTC
Exemptions applied as allowed by TPTC, such as:
- Freeport exemptions (§11.251)
- Leased Personal Vehicles (§11.252)
- Goods in Transit (§11.253)
- Personal Use Vehicles (§11.254)
- Charitable, religious, government & “need to be determined”
(§11.18 & §11.20).
Valuation and Model Development
Property Characteristics Assignment (PCA) Code Analyses
PRAD appraisers classify personal property accounts by Property Characteristics Appraisal (PCA) code,
a three-digit numerical code used by PRAD to group and identify similar businesses by business type.
PRAD’s PCA codes is a derivative of the State Use Codes for business type identification and of Standard
Industrial Classification (SIC) codes assigned by the U.S. government to identify/classify the primary
business types. For analytical purposes, PRAD stratifies the BPP accounts using PCA codes (about 650
codes in all), grouping homogeneous business types based on common business operations, economic
traits, and personal property characteristics. Classifying BPP accounts by PCA code helps appraisers
determine what assets (personal property) are needed to operate the business and is a key element of
business personal property valuation. Further, it allows similar business personal property to be compared
for the purpose of analyzing the level of appraisal and uniformity of all personal property accounts.
Data Collection Procedures
Before mailing BPP rendition forms on January 1 of each year, PRAD appraisers research various sources
of data to discover new businesses or changes in existing business operations or locations. PRAD uses
several different sources, such as various websites for Texas Sales Tax Permits, Texas State Comptroller’s
corporation search and wireless radio tower locater registry with the FCC. Other sources used to discover
new businesses are InfoNation Commercial registry for commercial vehicles and trailers, publications
such as Amarillo Globe Newspaper, Amarillo Business Journal, local telephone books, Amarillo City
Directory, county-filed Assumed Name Certificates, tenant lists, new business signs or advertisements
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(car signs, yard signs, billboards, business cards, or advertisements of any nature), as well as word-of-
mouth information from commercial brokers/developers and other businesses’ renditions for lease
companies. Field appraisers also conduct reviews of business personal accounts to verify new businesses
and existing businesses by on-site inspections and annual field drive-outs. The field review locates new
businesses that are not found through any other sources and provides other pertinent details about existing
businesses.
As soon as possible after January 1 of each year, business personal
property rendition forms are mailed to the business owner of record,
including definitions for the various fields to be completed. The
rendition form to be completed by the business owner for each
account provides PRAD with the description, location, cost, acquisition date, etc. for personal property
owned by a business. According to State law, all businesses are required to render all assets used in the
production of income, therefore, business owners must submit a completed rendition form to PRAD
between January 1 and April 15 of each year unless an extension is filed. PRAD appraisers use this
information to help estimate the market value of business personal property for ad valorem tax purposes.
The completed forms are scanned into PRAD’s imaging system when the rendition forms are received
(either by mail or hand-delivered) at the PRAD office. As the rendition forms arrive, the business personal
property appraisers begin entering all details into CAMA and working on the associated BPP account.
BPP valuation is based upon the original cost and year of acquisition. The appraiser determines the
depreciation schedule to be used, other determinations of value and any adjustments to value needed for
the assets.
Computer-Assisted Business Personal Property Appraisals
PRAD uses cost data from Marshall & Swift, a nation-wide cost service, to estimate percent good factors
and trending factors particularly the indices to bring historical costs up to replacement costs. The
industrial personal properties or larger commercial properties use the appropriate published valuation
guides, historical costs, depreciation tables and trending factors for each specialized property. Department
codes are assigned to each of the categories of personal property, such as office equipment, computer
equipment, furniture and fixtures, machinery, vehicles, supplies, etc. The depreciation tables that
correspond to each department code are downloaded into the tangible CAMA database.
PRAD primarily uses the cost approach to value business personal property. The replacement cost new
(RCN) is reported by the property owner along with the year acquired. The appraiser enters this data into
the rendition worksheet on the tangible system along with a description for each line item listed on the
owner’s rendered personal property for each account. The appraiser verifies the department code in which
the owner has listed each line item. If necessary, the appraiser adjusts department codes on the rendition
worksheet, but not on the property owner’s submitted rendition. The computerized calculation shows the
depreciated value of the asset. It is common practice for PRAD appraisers to use the depreciated value of
the asset in the valuation of each account to ensure equality and uniformity for all business personal
property accounts.
Present value factors are calculated differently for commercial personal properties and industrial personal
properties as are represented by the following equations:
”According to State law, all businesses are required to render all assets used in
the production of income …”
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For commercial BPP:
PVF = HC x % Good
Where: PVF = Present value factor HC = Historical cost % Good = Percent good factor
For industrial BPP:
PVF = (HC x IF) x % Good
Where: PVF = Present value factor HC = Historical cost IF = Index factor % Good = Percent good factor
Historical costs, trending factors and percent good factors are used to develop present value factors (PVF)
according to year of acquisition.
Upon receipt of the rendition form, either by mail or hand-delivered, it is date-stamped and imaged into
the account history record file of PRAD’s imaging database, known as the Electro Communication (EC)
Image System. The rendition form is given to the assigned appraiser for reappraisal review. The owner’s
rendered value or opinion of market value of each item on the rendition is entered into the rendered value
column on the rendition worksheet. The appraiser may use their judgment of whether to use the owner’s
rendered value or the appraiser’s opinion of market value instead of the depreciated value calculated by
the computer.
In the event that a property owner fails to comply with TPTC §22.01 by not rendering their business
personal property for the business, the appraiser may compare the non-rendered account with comparable
rendered property within the same PCA code for the most accurate appraised value available. The
appraiser researches the properties with currently-filed renditions to place an appraised value for the
property. This is done to maintain the level of appraisal and uniformity among the business personal
property accounts. All non-rendered personal property accounts are reappraised with a current appraised
value using this comparison prior to the printing and mailing of the business personal property rendition
forms. PRAD appraisers may place notes on each account that is reappraised to define the changes in
appraised value. New business personal property accounts follow the same procedure for the valuing
process.
Account flags are added to identify each property that has not rendered property in a timely fashion as
mandated by TPTC §22.01. Per State law, these properties receive a 10 percent penalty for not filing on
time. The appraiser also flags each account for which the property owner files a written request for the
mandatory automatic extension filing deadline date of May 15 and an extension filing deadline date of
May 30 when the owner provides an acceptable reason for doing so to the Chief Appraiser. The Chief
Appraiser has the discretion to approve or deny the May 30 extension. Both extension deadlines must be
filed in writing to PRAD prior the rendition-filing deadline of April 15 as provided in the Texas Property
Tax Code §22.23. The PRAD staff notifies the property owner by letter of whether the May 30 extension
request was approved or denied. The letter is imaged in to the account record as verification of
acknowledging the request.
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PRAD appraisers may request in writing to the property owner any additional information or clarification
of the information provided in the rendition. The property owner has 21 days to respond to the request
without penalty. If the property owner fails to respond within the 21-day time limit (from the date the
letter is mailed), State law allows that a 10 percent penalty be imposed on the account. If no further
information is received from the property owner, the appraiser will place a value on the account using
their best judgment using the data available and comparing the property with rendered accounts in the
same PCA category. A Notice of Appraised Value is mailed after the 21-day time limit has expired when
the date is after April 15 or after the date for which an extension was granted.
There are several actions taken by PRAD staff to assure that all business personal property accounts are
accurate as described as follows:
An appraisal assistant audits each personal property account to ensure accuracy and consistency
of the information entered into the computer rendition worksheet. The audit also ensures that the
appropriate columns are filled in so that a correct value is calculated.
Field appraisers/senior appraisers research Assumed Name Certificates recorded at each county
(Potter and Randall) that are filed after January 1 of each year. These certificates identify new
businesses in the area and therefore, new business personal property accounts for the next year.
Appraisal assistants assist in researching Motor Vehicle Registration lists and local telephone
books by categories to help discover new businesses and business personal property accounts.
Annually, field appraisers obtain contact lists for leased tenant space for office buildings, shopping
centers, strip retail centers, consignment merchandise malls, airport and taxing-jurisdiction owned
property and they conduct a review of accounts for each location and space. Annual lists are
compiled for in-home daycare, warehouse storage, aircraft, real estate agents and vehicle inventory
tax (VIT) accounts for review. PRAD mails letters requesting the tenant lists and when received,
the lists are verified against the tangible appraisal roll for changes from the prior year.
Field appraisers conduct field reviews street by street to verify the business personal property roll
within the city limits of Amarillo and Canyon. The rural property appraisers are responsible for
working the business personal property located outside the city limits of Amarillo and Canyon.
Field appraisers research returned mail that is received after the annual business personal property
renditions are mailed for the current year.
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Business Personal Property Reappraisal Schedule
2017 SCHEDULE
July 2016
Review and research begins using all available sources to look for new or existing businesses not
on the roll.
August 2016 - September 2016
Review Assumed Name Certificates that were filed after January 1 of the previous year to begin
setting up new account.
Begin working prior year field notes to make all necessary changes to roll.
September 2016 - December 2016
Begin field work/drive-by phase of verification of all business personal accounts in the City of
Amarillo and Canyon by the Senior Appraiser and two Field Appraisers in the BP department.
Residential appraisers verify accounts in rural areas during the county verification process.
VIT roll is to be verified and updated by the Senior Appraiser. New declaration and monthly
statement forms are printed and mailed mid-December.
January 2017 - May 2017
Rendition forms are printed and mailed.
Update industrial trending factors from Marshall & Swift. Review all non-rendered accounts
from prior year to verify values are in equalization.
As filed renditions are returned, the appraisers work these to place values on accounts for 2017.
May 2017 – July 2017
Begin casework for filed protests.
Informal meetings with taxpayers.
Formal protest hearings.
2018 SCHEDULE
July 2017
Review and research begins using all available sources to look for new or existing businesses not
on the roll.
August 2017 - September 2017
Review Assumed Name Certificates that were filed after January 1 of the previous year to begin
setting up new account.
Begin working prior year field notes to make all necessary changes to roll.
September 2017 - December 2017
Begin field work/drive-by phase of verification of all business personal accounts in the City of
Amarillo and Canyon by the Senior Appraiser and two Field Appraisers in the BP department.
Residential appraisers verify accounts in rural areas during the county verification process.
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VIT roll is to be verified and updated by the Senior Appraiser. New declaration and monthly
statement forms are printed and mailed mid-December.
January 2018 - May 2018
Rendition forms are printed and mailed.
Update industrial trending factors from Marshall & Swift. Review all non-rendered accounts
from prior year to verify values are in equalization.
As filed renditions are returned, the appraisers work these to place values on accounts for 2017.
May 2018 – July 2018
Begin casework for filed protests.
Informal meetings with taxpayers.
Formal protest hearings.
Ratio Studies
In compliance with State law, the State Comptroller’s Property Tax Assistance Division conducts a
property value study every two years for two main reasons: 1) to make sure funding for public education
is distributed in an equitable fashion across the State, and 2) to measure each appraisal district’s overall
performance. Rather than a property value study, the personal property value study uses State cost and
depreciation schedules to develop comparative personal property values. These values are then compared
to Potter-Randall Appraisal District personal property values and ratios are calculated.
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LIMITING CONDITIONS
The appraised value estimates provided by the Potter-Randall Appraisal District are subject to the
following conditions:
1. The appraisals were prepared exclusively for ad valorem tax purposes.
2. The property characteristic data upon which the appraisals are assumed to be correct. Exterior
inspections of the property appraised were performed as staff resources and time allowed.
3. Validation of sales transactions was attempted through letters to buyers and sellers, the local
multiple listing service and telephone or field research by PRAD district staff.
4. Included within this document is a list of PRAD appraisers who provide mass appraisal
assistance to the Chief Appraiser signing this certification.
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CERTIFICATION STATEMENT
“I, Jeffrey Dagley, Chief Appraiser for the Potter-Randall Appraisal District, solemnly swear that I will
make or cause to be made a diligent inquiry to ascertain all property in the district subject to appraisal by
me, and that I will include in the records all property that I am aware of at an appraised value which, to
the best of my knowledge and belief, is determined as required by law.”
Jeffrey Dagley
Chief Appraiser
Attachment A TAXING ENTITY LOCATION MAPS
Potter & Randall Counties Independent School Districts within PRAD Jurisdiction within PRAD Jurisdiction
71 71
Attachment A TAXING ENTITY LOCATION MAPS
Potter & Randall Counties
within PRAD Jurisdiction
Independent School Districts within PRAD Jurisdiction
Water Districts Other Taxing Entity’s Districts within PRAD Jurisdiction within PRAD Jurisdiction
72 72
Water Districts
within PRAD Jurisdiction
Other Taxing Entity’s Districts within PRAD Jurisdiction
Cities and Villages within PRAD Jurisdiction
73 73
Cities and Villages within PRAD Jurisdiction
74
Attachment B APPRAISERS PROVIDING MASS APPRAISAL ASSISTANCE
PTP * Name Title NUMBER TYPE OF ASSISTANCE
Greg Looney, RPA, CTA Director of Appraisals 63760 Oversees Residential & Land Appraisal
Garry Robison, RPA, CTA Director of Appraisals 61295 Oversees Business Personal & Commercial Appraisal
Todd Walsh, RPA, CTA Senior Appraiser 66742 Supervise Data Collection Commercial & Value Correlation
Carol Yirak, RPA Senior Appraiser 61302 Supervise Data Collection Business Personal & Value Correlation
Dennis Cheyne, RPA, CTA Senior Appraiser 61562 Supervise Data Collection Rural Residential & Land & Value Correlation
Rod Banister, RPA Senior Appraiser 71041 Supervise Data Collection City Residential & Land & Value Correlation
C. Paige Miller, RPA Field Appraiser 61287 Update Property Data & Valuation Correlation
Kristy Havens, RPA Field Appraiser 71308 Update Property Data & Valuation Correlation
Scott Langford Field Appraiser 74995 Update Property Data & Valuation Correlation
Tanner Standley Field Appraiser 74931 Update Property Data & Valuation Correlation
Roman Garcia Field Appraiser 74996 Update Property Data & Valuation Correlation
David Gustin Field Appraiser 73684 Update Property Data & Valuation Correlation
Michael Plumlee Field Appraiser 74295 Update Property Data & Valuation Correlation
Ryan Liedtke Field Appraiser 74293 Update Property Data & Valuation Correlation
Danielle Saied Field Appraiser 74294 Update Property Data & Valuation Correlation
Ron Huyck, RPA Field Appraiser 61166 Update Property Data & (Part-Time) Valuation Correlation
* Property Tax Professional
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Attachment D
For Tax Years:
2017 and 2018
S.B. 1652* BIENNIAL REAPPRAISAL PLAN
FOR THE ANNUAL APPRAISAL FOR
AD VALOREM TAX PURPOSES OF
MINERAL, INDUSTRIAL, UTILITY AND
RELATED PERSONAL PROPERTY
Originally Printed: June 1, 2016
*Senate Bill 1652 passed by the Texas Legislature, 79th Regular Session in 2005, amending Section 6.05 of the TexasProperty Tax Code, adding Subsection (i) as follows:
“To ensure adherence with generally accepted appraisal practices, the board of directors of an appraisal district shalldevelop biennially a written plan for the periodic reappraisal of all property within the boundaries of the districtaccording to the requirements of Section 25.18 and shall hold a public hearing to consider the proposed plan. Not laterthan the 10th day before the date of the hearing, the secretary of the board shall deliver to the presiding officer of thegoverning body of each taxing unit participating in the district a written notice of the date, time, and place for thehearing. Not later than September 15 of each even-numbered year, the board shall complete its hearings, make anyamendments, and by resolution finally approve the plan. Copies of the approved plan shall be distributed to thepresiding officer of the governing body of each taxing unit participating in the district and to the comptroller within 60days of the approval date.”
REAPPRAISAL PLAN OF MINERAL, INDUSTRIAL, UTILITY AND RELATED PERSONAL PROPERTYPRITCHARD & ABBOTT, INC.TAX YEARS 2017 AND 2018
TABLE OF CONTENTS
Item Page
P&A POLICY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ETHICS RULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RECORD KEEPING RULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SCOPE OF WORK RULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
JURISDICTIONAL EXCEPTION RULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
MASS APPRAISAL (USPAP STANDARD 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
REAPPRAISAL OF MINERAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
REAPPRAISAL OF INDUSTRIAL, UTILITY AND RELATED PERSONAL PROPERTY . . . . . . . . . . . . . . . . 20
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POLICY STATEMENT OF PRITCHARD & ABBOTT, INC., ON THEREAPPRAISAL OF MINERAL, INDUSTRIAL, UTILITY AND RELATED PERSONAL PROPERTY
Pritchard & Abbott, Inc., (P&A), a privately held company engaged primarily, but not wholly, in the ad valorem tax valuationindustry endorses Uniform Standards of Professional Appraisal Practice (USPAP) as the basis for the production of soundappraisals. Insofar as the statutory requirement to appraise groups (or a “universe”) of real and personal property within anestablished period of time using standardized procedures--and subjecting the resulting appraisals to statistical measures--isthe definition of mass appraisal, P&A subscribes to USPAP Standard 6 (Mass Appraisal, Development and Reporting)whenever applicable in the development and defense of values. When circumstances clearly dictate the use of single propertyappraisal procedures, P&A adheres to the spirit and intent of the remaining USPAP Standards within all appropriate, practical,and/or contractual limitations or specifications.
The USPAP definition of “appraiser” is one who is expected to perform valuation services competently and in a manner thatis independent, impartial, and objective. USPAP Advisory Opinion 21 states that this expectation (by clients and intendedusers of appraisal reports) is the basis that creates an ethical obligation to comply with USPAP, even if not legally required.
The majority of property types that P&A typically appraises for ad valorem tax purposes are categorized as unique, complex,and/or “special purpose” properties (mineral interests, industrial, utility, and related personal property). These categoriesof properties do not normally provide sufficient market data of reliable quality and/or quantity to support the rigorous useof all USPAP-prescribed mass appraisal mandates (Standard 6), particularly with regards to some, but not all, of the modelcalibration and statistical performance testing confines. However, P&A does strive to employ all or most elements of massappraisal techniques with regards to the definition and identification of property characteristics and model specification andapplication.
Residential real estate property appraisers most frequently apply mass appraisal methods within the sales comparison (market)approach to value. Through the use of standardized data collection (i.e., actual market sales), specification and calibrationof mass appraisal models, tables, and schedules are possible. Through ratio study analysis and other performance measures,a cumulative summary of valuation accuracy can thus be produced in order to calibrate the appraisal model(s). Wheresufficient data of reliable quality exists, mass appraisal is also used for other types of real estate property such as farms,vacant lots, and some commercial uses (e.g., apartments, offices, and small retail).
P&A will clearly state or otherwise make known all extraordinary assumptions, limiting conditions, hypothetical assumptions,and/or jurisdictional exceptions in its appraisals as they are conveyed to our clients. The client and all intended users shouldbe aware that mass appraisals, as opposed to most “fee” appraisals, are somewhat inherently “limited” versus “complete” andthat appraisal reports, unless otherwise contracted for by the client, will most often be of a “restricted” nature whereasexplanations of appraisal methods and results are more concise versus lengthy in order to promote brevity, clarity, andtransparency to the intended user(s). Although the reporting verbiage in USPAP Standard 6 does not specifically offer orpromulgate a “Restricted Appraisal Report” such as in Standard 2 (Real Property Appraisal, Reporting) and Standard 8(Personal Property Appraisal, Reporting), it is understood that: a) all mass appraisals and mass appraisal reports deal withreal and personal property; and b) P&A is a private consulting firm, a fact which may necessitate the withholding of certaindata and/or appraisal models/techniques which are deemed privileged and/or proprietary in nature. The use of “limited”appraisals in conjunction with “restricted” reports in no way implies non-compliance with USPAP. P&A believes, with itsvast experience and expertise in these areas of appraisal, that all values rendered are credible, competent, uniform andconsistent; and most importantly for ad valorem tax purposes, achieved in a cost-efficient and timely manner.
Per previous ASB comments under Standard 6-2(b) [scope of work... special limiting conditions]:
“Although appraisers in ad valorem taxation should not be held accountable for limitations beyond their control, they arerequired by this specific requirement to identify cost constraints and to take appropriate steps to secure sufficient fundingto produce appraisals that comply with these standards. Expenditure levels for assessment administration are a function ofa number of factors. Fiscal constraints may impact data completeness and accuracy, valuation methods, and valuationaccuracy. Although appraisers should seek adequate funding and disclose the impact of fiscal constraints on the massappraisal process, they are not responsible for constraints beyond their control.”
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In any event, however, it is not P&A’s intent to allow constraints, fiscal or otherwise, to limit the scope of work to such adegree that the mass appraisal results provided to our clients are not credible within the context of the intended use(s) of theappraisal.
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PREAMBLE
The purpose of USPAP is to establish requirements and conditions for ethical, thorough, and transparent property valuationservices. Valuation services pertain to all aspects of property value and include services performed by appraisers and otherprofessionals including attorneys, accountants, insurance estimators, auctioneers, or brokers. Valuation services includeappraisal, appraisal review, and appraisal consulting. The primary intent of these Standards is to promote and maintain a highlevel of public trust in professional appraisal practice.
It is essential that professional appraisers develop and communicate their analyses, opinions, and conclusions to intendedusers of their services in a manner that is meaningful and not misleading. The importance of the role of the appraiser placesethical obligations upon those who serve in this capacity. These USPAP Standards reflect the current standards of theappraisal profession.
These Standards are for both appraisers and users of appraisal services. To maintain a high level of professional practice,appraisers observe these Standards. However, these Standards do not in themselves establish which individuals orassignments must comply. The Appraisal Foundation nor its Appraisal Standards Board is not a government entity with thepower to make, judge, or enforce law. Compliance with USPAP is only required when either the service or the appraiser isobligated to comply by law or regulation, or by agreement with the client or intended users. When not obligated, individualsmay still choose to comply.
USPAP addresses the ethical and performance obligations of appraisers through DEFINITIONS, Rules, Standards, StandardsRules, and Statements. USPAP Standards deal with the procedures to be followed in performing an appraisal or appraisalreview and the manner in which each is communicated. A brief description of the USPAP Standards are as follows: # Standards Rules 1 and 2: establish requirements for the development and communication of a real property appraisal.# Standards Rule 3: establishes requirements for the development and communication of an appraisal review.# Standards Rules 4 and 5: retired in 2015.# Standards Rule 6: establishes requirements for the development and communication of a mass appraisal.# Standards Rules 7 and 8: establish requirements for the development and communication of a personal property
appraisal.# Standards Rules 9 and 10: establish requirements for the development and communication of a business or intangible
asset appraisal.
Section 23.01(b) [Appraisals Generally] of the Texas Property Tax Code states:
“The market value of property shall be determined by the application of generally accepted appraisal methodsand techniques. If the Appraisal District determines the appraised value of a property using mass appraisalstandards, the mass appraisal standards must comply with the Uniform Standards of Professional AppraisalPractice....” (underline added for emphasis)
Consequently, USPAP Standards Rule 6 is assumed to be the applicable standard for ad valorem tax purposes in Texas, ifmass appraisal practices are in fact being used to appraise the subject property. USPAP Advisory Opinion 32 suggests severalUSPAP standards other than Standard 6 can or should apply in ad valorem tax work. However, it appears that an appraiserengaged in ad valorem tax work in Texas is not specifically required by law to follow these USPAP standards if in fact massappraisal practices have not been used to appraise the subject property. In this case it could be deemed appropriate to invokethe Jurisdictional Exception Rule which is applicable when there is a contradiction between the requirements of USPAP andthe law or regulation of a jurisdiction. Please see the P&A Policy Statement on USPAP as provided elsewhere in this reportfor a more detailed discussion regarding this matter.
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ETHICS RULE
Because of the fiduciary responsibilities inherent in professional appraisal practice, the appraiser must observe the higheststandards of professional ethics. This Ethics Rule is divided into three sections:
• Conduct;• Management;• Confidentiality.
This Rule emphasizes the personal obligations and responsibilities of the individual appraiser. However, it should be notedthat groups and organizations which are comprised of individual appraisers engaged in appraisal practice effectively sharethe same ethical obligations. To the extent the group or organization does not follow USPAP Standards when legallyrequired, individual appraisers should take steps that are appropriate under the circumstances to ensure compliance withUSPAP.
Compliance with these Standards is required when either the service or the appraiser is obligated by law or regulation, or byagreement with the client or intended users, to comply. Compliance is also required when an individual, by choice, representsthat he or she is performing the service as an appraiser.
An appraiser must not misrepresent his or her role when providing valuation services that are outside of appraisal practice.
Honesty, impartiality, and professional competency are required of all appraisers under USPAP Standards. To documentrecognition and acceptance of his or her USPAP-related responsibilities in communicating an appraisal or appraisal reviewcompleted under USPAP, an appraiser is required to certify compliance with these Standards.
CONDUCT
An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation ofpersonal interests.
An appraiser must perform ethically and competently in accordance with USPAP and not engage in conduct that is unlawful,unethical, or improper. An appraiser who could reasonably be perceived to act as a disinterested third party in rendering anunbiased appraisal, review, or consulting service must perform assignments with impartiality, objectivity, and independenceand without accommodation of personal interests; in short, the appraiser must not perform an assignment with bias.
An appraiser must not advocate the cause or interest of any party or issue, or accept an assignment that includes the reportingof predetermined opinions and conclusions.
An appraiser must not misrepresent his or her role when providing valuation services that are outside of appraisal practice,must not engage in criminal conduct, and must not perform an appraisal assignment in a grossly negligent manner.
An appraiser is required to avoid any action that could be considered misleading or fraudulent. In particular, it is unethicalfor an appraiser to use or communicate a misleading or fraudulent report or to knowingly permit an employee or other personto communicate a misleading or fraudulent report.
An appraiser must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, nationalorigin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusionthat homogeneity of such characteristics is necessary to maximize value.
If known prior to accepting an assignment, and/or if discovered at any time during the assignment, an appraiser must discloseto the client, and in each subsequent report certification:
• any current or prospective interest in the subject property or parties involved; and
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• any services regarding the subject property performed by the appraiser within the three year period immediatelypreceding acceptance of the assignment, as an appraiser or in any other capacity.
The appraiser can agree with the client to keep the mere occurrence of a prior appraisal assignment confidential. If anappraiser has agreed with the client not to disclose that he or she has appraised a property, the appraiser must decline allsubsequent assignment that fall with the three year period. In assignments is which there is no report, only the initialdisclosure to the client is required.
Presumably all parties in ad valorem tax appraisal will be aware of the ongoing yearly nature of the appraisal assignmentsperformed by valuation consulting firms like Pritchard & Abbott, Inc.--i.e., it will not be confidential-- so that this particularconduct instruction is more or less a moot point (regarding the three year period discussed) if the prior service is in fact thead valorem tax appraisals performed in previous tax years.
MANAGEMENT
The payment of a fee, commission, or a thing of value by the appraiser in connection with the procurement of an assignmentmust be disclosed. This disclosure must appear in the certification and in any transmittal letter in which conclusions of valueare stated; however, the disclosure of the amount paid is not required. Intra-company payments to employees of groups ororganizations involved in appraisal practice for business development do not require disclosure.
It is unethical for an appraiser to accept compensation for performing an assignment when it is contingent upon the reportingof a predetermined result, a direction in assignment results that favors the cause of the client, the amount of a value opinion,the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the appraiser’s opinions andspecific to the assignment’s purpose.
Advertising for or soliciting assignments in a manner that is false, misleading, or exaggerated is unethical. Decisionsregarding finder or referral fees, contingent compensation, and advertising may not be the responsibility of an individualappraiser, but for a particular assignment it is the responsibility of the individual appraiser to ascertain that there has beenno breach of ethics, that the assignment consulting assignment has been prepared in accordance with USPAP Standards, andthat the report can be properly certified when required by USPAP Standards Rules 2-3, 3-3, 5-3, 6-9, 8-3, or 10-3.
An appraiser must affix, or authorize the use of, his or her signature to certify recognition and acceptance of his or her USPAPresponsibilities in an appraisal or appraisal review assignment. An appraiser may authorize the use of his or her signatureonly on an assignment-by-assignment basis.
In addition, an appraiser must not affix the signature of another appraiser without his or her consent. An appraiser mustexercise due care to prevent unauthorized use of his or her signature. However, an appraiser exercising such care is notresponsible for unauthorized use of his or her signature.
CONFIDENTIALITY
An appraiser must protect the confidential nature of the appraiser-property owner relationship.
An appraiser must act in good faith with regard to the legitimate interests of the client in the use of confidential informationand in the communication of assignment results.
An appraiser must be aware of, and comply with, all confidentiality and privacy laws and regulations applicable in anassignment.
An appraiser must not disclose confidential factual data obtained from a property owner to anyone other than:
1. The client;2. Parties specifically authorized by the client;3. State appraiser regulatory agencies;
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4. Third parties as may be authorized by due process of law; or5. A duly authorized professional peer review committee except when such disclosure to a committee would violate
applicable law or regulation.
An appraiser must take reasonable steps to safeguard access to confidential information and assignment results byunauthorized individuals, whether such information or results are in physical or electronic form. In addition, an appraisermust ensure that employees, co-workers, sub-contractors, or others who may have access to confidential information orassignments results, are aware of the prohibitions on disclosure of such information or results.
It is unethical for a member of a duly authorized professional peer review committee to disclose confidential informationpresented to the committee.
When all confidential elements of confidential information are removed through redaction or the process of aggregation,client authorization is not required for the disclosure of the remaining information, as modified.
CHANGES FROM 2014-2015 USPAP:
1. Physical characteristics of the subject property were removed from the itemsconsidered as assignment results so that these physical characteristics, to the extentthey were not identified by the client as confidential and the appraiser could haveobtained them from a non-confidential source, could be shared with all partiesinvolved with the appraisal assignment in order to facilitate higher qualityappraisals.
2. Additional clarification was added to ensure all parties be made aware of theimportance of maintaining confidentiality in all its forms.
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RECORD KEEPING RULE
An appraiser must prepare a workfile for each appraisal or appraisal review assignment. The workfile must include theidentity, by name and type, of any intended users; true copies (replica of the report, which can include photocopies orelectronic copies) of all written reports (emphasis added), summaries of any oral reports or testimony, and all other data,information, and documentation, or references to this data’s location, necessary to support the appraiser’s opinions andconclusions and to show compliance with this rule and all other applicable USPAP Standards.
A workfile preserves evidence of the appraiser’s consideration of all applicable data and statements required by USPAP andother information as may be required to support the findings and conclusions of the appraiser.
A photocopy or an electronic copy of the entire actual written appraisal, review, or consulting report sent or delivered to aproperty owner or review committee satisfies the requirements of a true copy. Care should be exercised in the selection ofthe form, style, and type of medium for written records, which may be handwritten and informal, to ensure they are retrievableby the appraiser throughout the applicable retention period.
A workfile must be in existence prior to and contemporaneous with the issuance of a written or oral report. A writtensummary of an oral report must be added to the workfile within a reasonable time after the issuance of the oral report.
A workfile must be made available by the appraiser when required by due process of law. An appraiser must have custodyof his or her workfile, or make appropriate workfile retention, access, and retrieval arrangements with the party havingcustody of the workfile. An appraiser having custody of a workfile must allow other appraisers with workfile obligationsrelated to an assignment appropriate access and retrieval for the purpose of:
• submission to state appraiser regulatory agencies;• compliance with due process of law;• submission to a duly authorized professional peer review committee; or• compliance with retrieval arrangements.
An appraiser who willfully or knowingly fails to comply with the obligations of this Record Keeping Rule is in violation ofthe Ethics Rule.
CHANGES FROM 2014-2015 USPAP:
1. The word “any” has been replaced with the word “all” to clarify that the appraisermust retain true copies of all written reports.
2. Language has been added to make it more clear that some data and information (inaddition to documentation) may be included in the workfiles by referring to itslocation elsewhere.
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SCOPE OF WORK RULE
For each appraisal or appraisal review assignment, an appraiser must:
1. Identify the problem to be solved;2. Determine and perform the scope of work necessary to develop credible assignment results; and3. Disclose the scope of work in the report.
An appraiser must properly identify the problem to be solved in order to determine the appropriate scope of work. Theappraiser must be prepared to demonstrate that the scope of work is sufficient to produce credible assignment results.
Scope of work includes, but is not limited to:
• the extent to which the property is identified;• the extent to which tangible property is inspected;• the type and extent of data researched; and• the type and extent of analyses applied to arrive at opinions or conclusions.
Appraisers have broad flexibility and significant responsibility in determining the appropriate scope of work for an appraisalor appraisal review assignment. Credible assignment results require support by relevant evidence and logic. The credibilityof assignment results is always measured in the context of the intended use.
PROBLEM IDENTIFICATION
An appraiser must gather and analyze information about those assignment elements that are necessary to properly identifythe appraisal, appraisal review or appraisal consulting problem to be solved. The assignment elements necessary for problemidentification are addressed in the Standards Rule 6-2:
• client and any other intended users;• intended use of the appraiser’s opinions and conclusions;• type and definition of value;• effective date of the appraiser’s opinions and conclusions;• subject of the assignment and its relevant characteristics; and• assignment conditions.
This information provides the appraiser with the basis for determining the type and extent of research and analyses to includein the development of an appraisal. Similar information is necessary for problem identification in appraisal review andappraisal consulting assignments. Assignment conditions include:
• assumptions;• extraordinary assumptions;• hypothetical conditions;• laws and regulations;• jurisdictional exceptions; and• other conditions that affect the scope of work.
SCOPE OF WORK ACCEPTABILITY
The scope of work must include the research and analyses that are necessary to develop credible assignment results. Thescope of work is acceptable when it meets or exceeds:
• the expectations of parties who are regularly intended users for similar assignments; and• what an appraiser’s peers’ actions would be in performing the same or a similar assignment.
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Determining the scope of work is an ongoing process in an assignment. Information or conditions discovered during thecourse of an assignment might cause the appraiser to reconsider the scope of work. An appraiser must be prepared to supportthe decision to exclude any investigation, information, method, or technique that would appear relevant to the client, anotherintended user, or the appraiser’s peers.
An appraiser must not allow assignment conditions to limit the scope of work to such a degree that the assignment resultsare not credible in the context of the intended use. In addition, the appraiser must not allow the intended use of an assignmentor a client’s objectives to cause the assignment results to be biased.
DISCLOSURE OBLIGATIONS
The report must contain sufficient information to allow intended users to understand the scope of work performed. Properdisclosure is required because clients and other intended users may rely on the assignment results. Sufficient informationincludes disclosure of research and analyses performed or not performed.
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JURISDICTIONAL EXCEPTION RULE
If any applicable law or regulation precludes compliance with any part of USPAP, only that part of USPAP becomes voidfor that assignment. When compliance with USPAP is required by federal law or regulation, no part of USPAP can be voidedby a law or regulation of a state or local jurisdiction. When an appraiser properly follows this Rule in disregarding a partof USPAP, there is no violation of USPAP.
In an assignment involving a jurisdictional exception, an appraiser must:
• identify the law or regulation that precludes compliance with USPAP;• comply with that law or regulation;• clearly and conspicuously disclose in the report the part of USPAP that is voided by that law or regulation; and• cite in the report the law or regulation requiring this exception to USPAP compliance.
The purpose of the Jurisdictional Exception Rule is strictly limited to providing a saving or severability clause intended topreserve the balance of USPAP if one or more of its parts are determined as contrary to law or public policy of a jurisdiction. By logical extension, there can be no violation of USPAP by an appraiser who disregards, with proper disclosure, only thepart or parts of USPAP that are void and of no force and effect in a particular assignment by operation of legal authority.
It is misleading for an appraiser to disregard a part or parts of USPAP as void and of no force and effect in a particularassignment without identifying the part or parts disregarded and the legal authority justifying this action in the appraiser’sreport.
“Law” includes constitutions, legislative and court-made law, and administrative rules (such as from the Office of the TexasComptroller of Public Accounts) and ordinances. “Regulations” include rules or orders having legal force, issued by anadministrative agency. Instructions from a client or attorney do not establish a jurisdictional exception.
A jurisdictional exception prevalent in Texas is that appraisers are seeking to establish “fair market value” as defined by theTexas Property Tax Code instead of “market value” as found in the USPAP definitions section.
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MASS APPRAISAL, DEVELOPMENT AND REPORTING(General Discussion)
In developing a mass appraisal, an appraiser must be aware of, understand, and correctly employ those recognized methodsand techniques necessary to produce and communicate credible mass appraisals.
Standard 6 applies to all mass appraisals of real and personal property regardless of the purpose or use of such appraisals. It is directed toward the substantive aspects of developing and communicating competent analyses, opinions, and conclusionsin the mass appraisal of properties, whether real property or personal property. Mass appraisals can be prepared with orwithout computer assistance. The Jurisdictional Exception Rule may apply to several sections of Standard 6 because advalorem tax administration is subject to various state, county, and municipal laws. The reporting and jurisdictional exceptionsapplicable to public mass appraisals prepared for purposes of ad valorem taxation do not apply to mass appraisals preparedfor other purposes.
A mass appraisal includes:
• identifying properties to be appraised;• defining market areas of consistent behavior that applies to properties;• identifying characteristics (supply and demand) that affect the creation of value in that market area;• developing a model structure that reflects the relationship among the characteristics affecting value in the market
area;• calibrating the model structure to determine the contribution of the individual characteristics affecting value;• applying the conclusions reflected in the model to the characteristics of the properties being appraised; and• reviewing the mass appraisal results.
The Jurisdictional Exception Rule may apply to several sections of Standard 6 because ad valorem tax administration issubject to various state, county, and municipal laws.
As previously stated in the P&A Policy Statement (page 2), it may not be possible or practicable for all the mass appraisalattributes listed above to be rigorously applied to the many types of complex and/or unique properties that P&A typicallyappraises. Often there are contractual limitations on the scope of work needed or required. More prevalently, these typesof properties do not normally provide a reliable database of market transactions (or details of transactions) necessary forstatistically supportable calibration of appraisal models and review of appraisal results. Generally these two functions areeffectively accomplished through annual extended review meetings with taxpayers (and clients) who provide data, sometimesconfidentially, that allows for appraisal models to be adjusted where necessary. Nevertheless, and not withstanding whetherP&A implicitly or explicitly employs or reports all attributes listed above, in all cases P&A at the minimum employs tenantsof “generally accepted appraisal methods” which are the genesis of USPAP Standards.
Per USPAP guidelines, P&A will make known all departures and jurisdictional exceptions when invoked (if an appraisalmethod or specific requirement is applicable but not necessary to attain credible results in a particular assignment).
The various sections of Standard 6 are briefly summarized below:
! Standard 6-1: Establishes the appraiser’s technical and ethical framework. Specifically, appraisers must recognizeand use established principles, methods and techniques of appraisal in a careful manner while not committing substantialerrors of fact or negligence that would materially affect the appraisal results and not give a credible estimate of fairmarket value. To this end appraisers must continuously improve his or her skills to maintain proficiency and keepabreast of any new developments in the real and personal property appraisal profession. This Standards Rule does notimply that competence requires perfection, as perfection is impossible to attain. Instead, it requires appraisers to employevery reasonable effort with regards to due diligence and due care.
! Standard 6-2: Defines the introductory framework requirements of developing a mass appraisal, focusing on theidentification and/or definition of: client(s), intended users, effective date, scope of work, extraordinary assumptions,
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hypothetical conditions, the type and definition of value being developed (typically “fair market value” for ad valoremtax purposes), characteristics of the property being appraised in relation to the type and definition of value and intendeduse, the characteristics of the property’s market, the property’s real or personal attributes, fractional interestapplicability, highest and best use analysis along with other land-related considerations, and any other economicconsiderations relevant to the property.
! Standard 6-3: Defines requirements for developing and specifying appropriate mass appraisal data and elementsapplicable for real and personal property. For real property, the data and elements include: existing land use regulations,reasonably probable modification of such regulations, economic supply and demand, the physical adaptability of thereal estate, neighborhood trends, and highest and best use analysis. For personal property, the relevant data andelements include: identification of industry trends, trade level, highest and best use, and recognition of the appropriatemarket consistent with the type and definition of value.
! Standard 6-4: Further defines requirements for developing mass appraisal models, focusing on development ofstandardized data collection forms, procedures, and training materials that are used uniformly on the universe ofproperties under consideration. This rule specifies that appraisers employ recognized techniques for specifying andcalibrating mass appraisal models. Model specification is the formal development of a model in a statement ormathematical equation, including all due considerations for physical, functional, and external market factors as theymay affect the appraisal. These models must accurately represent the relationship between property value and supplyand demand factors, as represented by quantitative and qualitative property characteristics. Models may be specifiedincorporating the income, market, and/or cost approaches to value and may be tabular, mathematical, linear, nonlinear,or any other structure suitable for representing the observable property characteristics. Model calibration refers to theprocess of analyzing sets of property and market data to determine the specific parameters of a model.
! Standard 6-5: Defines requirements for collection of sufficient factual data, in both qualitative and quantitative terms,necessary to produce credible appraisal results. The property characteristics collected must be contemporaneous withthe effective date of the appraisal. The data collection program should incorporate a quality control procedure,including checks and audits of the data to ensure current and consistent records. This rule also calls for calls for anappraiser, in developing income and expense statement sand cashflow projections, to weigh historical information andtrends, current market factors affecting such trends, and reasonably anticipated events, such as competition fromdevelopments either planned or under construction. Terms and conditions of any leases should be analyzed, as wellas the need for and extent of any physical inspection of the properties being appraised.
! Standard 6-6: Defines requirements for application of a calibrated model to the property being appraised. This rulecalls for: the appraiser to recognize methods or techniques based on the cost, market, and income approaches forimproved parcels; the appraiser the value sites by recognized methods or techniques such as allocation method,abstraction method, capitalization of ground rent, and land residual; the appraiser to develop value of leased fee or leasehold estates with consideration for terms and conditions of existing leases, and, when applicable by law, as if heldin fee simple whereas market rents are substituted for actual contract rents; the appraiser to analyze the effect on value,if any, of the assemblage of the various parcels, divided interests, or component parts of a property; the appraiser toanalyze anticipated public or private improvements located on or off the site, and analyze the effect on value, if any,of such anticipated improvements to the extent they are reflected in market actions.
! Standard 6-7: Defines the reconciliation process of a mass appraisal. Specifically, appraisers must analyze the resultsand/or applicability of the various approaches used while ensuring that, on an overall basis, standards of reasonablenessand accuracy are maintained with the appraisal model selected (underline added for emphasis). It is implicit in massappraisal that, even when properly specified and calibrated models are used, some individual value conclusions willnot meet standards of reasonableness, consistency, and accuracy.
! Standard 6-8: Defines requirements of a mass appraisal written report (elements of which are further detailed in thenext three sections of this report that discuss P&A appraisal procedures with regards to specific categories of property).
! Standard 6-9: Defines requirements for appraiser certification of the mass appraisal written report.
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The following sections of this report discuss in detail the various elements of the mass appraisal written report as requiredby USPAP Standard 6-8, with regards to P&A appraisal of Mineral Interests, Industrial-Utility-Personal Property, and RealEstate.
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Note: This section, in conjunction with any attached or separately provided P&A-generated appraisal reportsspecific to the subject property or properties, constitutes the “mass appraisal written report” as required byUSPAP Standards Rule 6-8. USPAP Standards Rule 6-9 (certification) can be found at the end of this report. USPAP Standards Rules 6-1 through 6-7 (instructions and explanations regarding the development, application,and reconciliation of mass appraisal values), as they apply to P&A mass appraisal procedures, are discussedbelow. USPAP DOES NOT DICTATE THE FORM, FORMAT, OR STYLE OF APPRAISAL REPORTS, WHICH AREFUNCTIONS OF THE NEEDS OF USERS AND PROVIDERS OF APPRAISAL SERVICES. USPAP ALSO DOES NOTMANDATE THAT EACH APPRAISAL REPORT BE LENGTHY AND FULL OF DISCLAIMERS. Readers should notethat all P&A reports, unless stated otherwise, are of a “restricted” nature whereas additional documentation anddetail may be available per certain Texas Property Tax Code provisions.
REAPPRAISAL OF MINERAL INTERESTS
INTRODUCTION
Definition of Appraisal Responsibility (Scope of Effort): The Mineral Valuation Department of Pritchard & Abbott, Inc.(“P&A” hereinafter), is responsible for developing credible values for mineral interests (full or fractional percentageownership of oil and gas leasehold interest, the amount and type of which are legally and/or contractually created andspecified through deeds and leases, etal.) associated with producing (or capable of producing) leases. Mineral interests aretypically considered real property because of their derivation from the bundle of rights associated with original fee simpleownership of land. Typically all the mineral interests that apply to a single producing lease are consolidated by type (workingvs. royalty) with each type then appraised for full value which is then distributed to the various fractional decimal interestowners prorata to their individual type and percentage amount.
P&A’s typical client is a governmental entity charged with appraisal responsibility for ad valorem tax purposes, althoughother types of clients (private businesses, individuals, etc.) occasionally contract for appraisal services which are strictly forvarious non-ad valorem tax purposes so that no conflicts of interest are created with P&A’s core ad valorem tax work.
P&A hereby makes the assumption that, in all appraisal assignments performed for governmental entities in satisfaction ofcontractual obligations related to ad valorem tax , the client does not wish to or cannot legally request the appraisal reportnot identify the client.
Intended users of our reports are typically the client(s) for which we are under direct contract and taxpayers or their agentswho own and/or represent the subject property being appraised. Potential other users include parties involved in adjudicationof valuation disputes (review board members, lawyers, judges, etc.), governmental agencies which periodically review ourappraisals for various statutory purposes (such as the Texas Comptroller’s Office) and private parties who may obtain copiesof our appraisals through Open Records Requests made to governmental agencies.
This section of P&A’s USPAP report is not applicable to any mineral or mineral interest property that an appraisal districtappraises outside of P&A’s appraisal services, in which case the appraisal district’s overall USPAP report should bereferenced.
P&A makes the Extraordinary Assumption that all properties appraised for ad valorem tax purposes are marketable whereasownership and title to property are free of encumbrances and other restrictions that would affect fair market value to an extentnot obvious to the general marketplace. If and/or when we are made aware of any encumbrances, etc., these would be takeninto account in our appraisal in which case the extraordinary assumption stated above would be revoked.
P&A is typically under contract to determine current market value or “fair market value” of said mineral interests. Fairmarket value is typically described as the price at which a property would sell for if:
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• exposed in the open market with a reasonable time for the seller to find a purchaser;• both the buyer and seller know of all the uses and purposes to which the property is, or can be, adapted and of the
enforceable restrictions on its use; and • both the buyer and seller seek to maximize their gains and neither is in a position to take advantage of the exigencies
of the other. [Exigencies are pressing or urgent conditions that leave one party at a disadvantage to the other.]
For ad valorem tax purposes the effective date is usually legislatively specified by the particular State in which we areworking - for example, in Texas the lien date is January 1 per the Texas Property Tax Code. For ad valorem tax purposes,the date of the appraisals and reports are typically several months past the effective date, thereby leaving open the possibilitythat a retrospective approach is appropriate under limited and prescribed circumstances (information after the effective datebeing applicable only if it confirms a trend or other appraisal condition that existed and was generally known as of theeffective date).
P&A believes this section of this report, in conjunction with any attached or separately provided P&A-generated report(s),meets the USPAP definition of “typical practice”; i.e., it satisfies a level of work that is consistent with:
• the expectations of participants in the market for the same or similar appraisal services; and• what P&A’s peers’ actions would be in performing the same or similar appraisal services in compliance with
USPAP.
Legal and Statutory Requirements: In Texas, the provisions of the Texas Property Tax Code and other relevant legislativemeasures involving appraisal administration and procedures control the work of P&A as an extension of the AppraisalDistrict. Other states in which P&A is employed will have similar controlling legislation, regulatory agencies, andgovernmental entities. P&A is responsible for appraising property on the basis of its fair market value as of the statedeffective date (January 1 in Texas) for ad valorem tax purposes for each taxing unit that imposes ad valorem taxes on propertyin the contracted Appraisal District. All mineral properties (interests) are reappraised annually. The definition of Fair MarketValue is provided and promulgated for use in ad valorem tax work in Texas by the Texas Property Tax Code, and thereforeas a Jurisdictional Exception supercedes the definition of “market value” as found in USPAP definitions.
NOTE: IN TEXAS, P&A BELIEVES THE PROPERTY BEING APPRAISED AND PLACED ON THE TAX ROLL IS THE INTERESTAND NOT THE OIL OR GAS MINERAL ITSELF, PER PROPERTY TAX CODE SECTION 1.04(2)(F). WHILE OIL AND GAS
RESERVES CERTAINLY HAVE VALUE, THE FACT IS THAT IT IS THE INTERESTS IN THESE MINERALS THAT ARE BOUGHT AND
SOLD, NOT THE MINERALS THEMSELVES. THE SALE OF MINERALS AS THEY ARE EXTRACTED FROM THE SUBSURFACE OF
THE LAND WHERE THEY RESIDE AS MINERALS IN PLACE “MONETIZES” THE INTEREST AND THUS GIVES THE INTEREST ITS
VALUE. WHENEVER P&A REFERS TO “MINERAL PROPERTIES” IN THIS REPORT OR IN ANY OTHER SETTING, IT IS THE
MINERAL INTEREST, AND NOT THE MINERAL ITSELF, THAT IS THE SUBJECT OF THE REFERENCE.
Administrative Requirements: P&A endorses the principals of the International Association of Assessing Officers (IAAO)regarding its appraisal practices and procedures. P&A also endorses, and follows when possible, the standards promulgatedby the Appraisal Foundation known as the Uniform Standards of Professional Appraisal Practice (USPAP). In all cases whereIAAO and/or USPAP requirements cannot be satisfied for reasons of practicality or irrelevancy, P&A subscribes to “generallyaccepted appraisal methods and techniques” so that its value conclusions are credible and defendable. P&A submits annualor biannual contract bids to the Appraisal District Board of Directors or the Office of the Chief Appraiser and is bound toproduce appraisal estimates on mineral properties within the cost constraints of said bid. Any appraisal practices andprocedures followed by P&A not explicitly defined or allowed through IAAO or USPAP requirements are specified by theTexas Property Tax Code or at the specific request or direction of the Office of the Chief Appraiser.
Appraisal Resources
Personnel: The Mineral Valuation Division staff consists of competent Petroleum Engineers, Geologists, and Appraisers. All personnel are Registered Professional Appraisers with the State of Texas, or are progressing towards this designation
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within the allowable time frames prescribed by the Texas Department of Licensing and Regulation (TDLR) and/or otherlicensing and regulatory agencies as applicable.
Data: For each mineral property a common set of data characteristics (i.e. historical production, price and expense data) iscollected from various sources and entered into P&A's mainframe computer system. Historical production data and pricedata is available through state agencies (Texas Railroad Commission, Texas Comptroller, et al.) or private firms who gather,format and repackage such data for sale commercially. Each property's characteristic data drives the computer-assisted massappraisal approach to valuation.
Information Systems: The mainframe systems are augmented by the databases that serve the various in-house and 3rd-partyapplications on desktop personal computers. In addition, communication and dissemination of appraisals and otherinformation is available to the taxpayer and client through electronic means including internet and other phone-lineconnectivity. The appraiser supervising any given contract fields many of the public’s questions or redirects them to theproper department personnel.
VALUATION APPROACH (MODEL SPECIFICATION)
Concepts of Value: The valuation of oil and gas properties is not an exact science, and exact accuracy is not attainable dueto many factors. Nevertheless, standards of reasonable performance do exist, and there are usually reliable means ofmeasuring and applying these standards.
Petroleum properties are subject to depletion, and capital investment must be returned before economic exhaustion of theresource (mineral reserves). The examination of petroleum properties involves understanding the geology of the resource(producing and non-producing), type of reservoir energy, the methods of secondary and enhanced recovery (if applicable),and the surface treatment and marketability of the produced petroleum product(s).
Evaluation of mineral properties is a continuous process; the value as of the lien date merely represents a “snapshot” in time. The potential value of mineral interests derived from sale of minerals to be extracted from the ground change with mineralprice fluctuation in the open market, changes in extraction technology, costs of extraction, and other variables such as thevalue of money.
Approaches to Value for Petroleum Property Cost Approach: The use of cost data in an appraisal for market value is based upon the economic principle of substitution. The cost approach typically derives value by a model that begins with replacement cost new (RCN) and then appliesdepreciation in all its forms (physical depreciation, functional and economic obsolescence). This method is difficult to applyto oil and gas properties since lease acquisition and development may bear no relation to present worth. Though very usefulin the appraisal of many other types of properties, the cost approach is not readily applicable to mineral properties. [Keepin mind that the property actually being appraised is the mineral interest and not the oil and gas reserves themselves. Tryingto apply the cost approach to evaluation of mineral interests is like trying to apply the cost approach to land; it is a moot pointbecause both are real properties that are inherently non-replaceable.] As a general rule, and for the reasons stated above,Pritchard & Abbott, Inc., does not employ the cost approach in the appraisal of mineral interests.
Market Approach: This approach may be defined as one which uses data available from actual transactions recorded in themarket place itself; i.e., sales of comparable properties from which a comparison to the subject property can be made. Ideally, this approach’s main advantage involves not only an opinion but an opinion supported by the actual spending ofmoney. Although at first glance this approach seems to more closely incorporate the aspects of fair market value per itsclassical definition, there are two factors that severely limit the usefulness of the market approach for appraising oil and gasproperties. First, oil and gas property sales data is seldom disclosed (in non-disclosure states such as Texas); consequentlythere is usually a severe lack of market data sufficient for meaningful statistical analysis. Second, all conditions of each salemust be known and carefully investigated to be sure one does have a comparative indicator of value per fair market valueperquisites.
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Many times when these properties do change hands, it is generally through company mergers and acquisitions where otherassets in addition to oil and gas reserves are involved; this further complicates the analysis whereby a total purchase pricemust be allocated to the individual components - a speculative and somewhat arbitrary task at best. In the case of oil and gasproperties, a scarcity of sales requires that every evidence of market data be investigated and analyzed. Factors relative tothe sale of oil and gas properties are:
• current production and estimated declines forecast by the buyer;• estimated probable and potential reserves;• general lease and legal information which defines privileges or limitation of the equity sold;• undeveloped potential such as secondary recovery prospects;• proximity to other production already operated by the purchaser;• contingencies and other cash equivalents; and• other factors such as size of property, gravity of oil, etc.
In the event that all these factors are available for analysis, the consensus effort would be tantamount to performing an incomeapproach to value (or trying to duplicate the buyer’s income approach to value), thereby making the market approachsomewhat moot in its applicability. As a general rule, and for the reasons stated above, Pritchard & Abbott, Inc., rarelyemploys a rigorous application of the market approach in the appraisal of mineral interests.
Income Approach: This approach to value most readily yields itself to the appraisal of mineral interests. Data is readilyavailable whereby a model can be created that reasonable estimates a future income stream to the property. This futureincome may then be converted (discounted) into an estimate of current value. Many refer to this as a capitalization method,because capitalization is the process of converting an income stream into a capital sum (value). As with any method, the finalvalue is no better than the reliability of the input data. The underlying assumption is that people purchase the property forthe future income the property will yield. If the land or improvements are of any residual value after the cessation of oil andgas production, that value should also be included (if those components are also being appraised).
The relevant income that should be used is the expected future net income. Assumptions of this method are:
• Past income and expenses are not a consideration, except insofar as they may be a guide to estimating future netincome.
• That the producing life as well as the reserves (quantity of the minerals) are estimated for the property.• Future income is less valuable than current income, and so future net income must be discounted to make it
equivalent to the present income. This discount factor reflects the premium of present money over future money,i.e., interest rate, liquidity, investment management, and risk.
As a general rule, and for the reasons stated above, Pritchard & Abbott, Inc., relies predominantly on the incomeapproach to value in the appraisal of mineral interests.
DATA COLLECTION/VALIDATION
Sources of Data: The main source of P&A’s property data is data from the Railroad Commission of Texas as reported byoperators. As a monthly activity, the data processing department receives data tapes or electronic files which have updatedand new well and production data. Other discovery tools are fieldwork by appraisers, financial data from operators, information from chief appraisers, tax assessors, trade publications and city and local newspapers. Other members of thepublic often provide P&A information regarding new wells and other useful facts related to property valuation.
Another crucial set of data to obtain is the ownership of these mineral interests. Typically a mineral lease is fractionated andexecuted with several if not many owners. This information is typically requested (under a promise of confidentialityconcerning owners’ personal information) from pipeline purchasers and/or other entities (such as operators) who have theresponsibility of disbursing the income to the mineral interest owners. Another source of ownership information is throughthe taxpayers themselves who file deeds of ownership transfer and/or correspond with P&A or the appraisal district directly.
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Data Collection Procedures: Electronic and field data collection requires organization, planning and supervision of theappraisal staff. Data collection procedures for mineral properties are generally accomplished globally by the company; i.e.,production and price data for the entire state is downloaded at one time into the computer system. Appraisers alsoindividually gather and record specific and particular information to the appraisal file records, which serves as the basis forthe valuation of mineral properties. P&A is divided into four district offices covering different geographic areas. Each officehas a district manager, appraisal and ownership maintenance staff, and clerical staff as appropriate. While overall standardsof performance are established and upheld for the various district offices, quality of data is emphasized as the goal andresponsibility of each appraiser.
VALUATION ANALYSIS (MODEL CALIBRATION)
Appropriate revisions and/or enhancements of schedules or discounted cash flow software are annually made and then testedprior to the appraisals being performed. Calibration typically involves performing multiple discounted cash flow tests forleases with varying parameter input to check the correlation and relationship of such indicators as: Dollars of Value PerBarrel of Reserves; Dollars of Value Per Daily Average Barrel Produced; Dollars of Expense Per Daily Average BarrelProduced; Years Payout of Purchase Price (Fair Market Value). In a more classical calibration procedure, the validity ofvalues by P&A's income approach to value is tested against actual market transactions, if and when these transactions andverifiable details of these transactions are disclosed to P&A. Of course these transactions must be analyzed for meeting allrequisites of fair market value definition. Any conclusions of this analysis are then compared to industry benchmarks forreasonableness before being incorporated into the calibration procedure.
INDIVIDUAL VALUE REVIEW PROCEDURES
Individual property values are reviewed several times in the appraisal process. P&A's discounted cashflow softwaredynamically generates various benchmark indicators that the appraiser reviews concurrent with the value being generated. These benchmarks often prompt the appraiser to reevaluate some or all of the parameters of data entry so as to arrive at avalue more indicative of industry standards. Examples of indicators are dollars of value per barrel of oil reserve, yearspayout, etc. In addition to appraiser review, taxpayers are afforded the opportunity to review the appraised values, eitherbefore or after Notices of Appraised Value are prepared. Operators routinely meet with P&A's appraisers to reviewparameters and to provide data not readily available to P&A through public or commercial sources, such as individual leaseoperating expense and reserve figures. And of course, all property values are subject to review through normal protest andAppraisal Review Board procedures, with P&A acting as an extension of the Office of the Chief Appraiser.
PERFORMANCE TESTS
An independent test of the appraisal performance of properties appraised by P&A is conducted by the State of TexasComptroller’s Office through the annual Property Value Study for school funding purposes. This study determines the degreeof uniformity and the median level of appraisal for mineral properties. School jurisdictions are given an opportunity toappeal any preliminary findings. After the appeal process is resolved, the Comptroller publishes a report of the findings ofthe study, including in the report the median level of appraisal, the coefficient of dispersion around the median level ofappraisal and any other standard statistical measures that the Comptroller considers appropriate.
CHANGES FROM 2014-2015 USPAP:
1. The ASB recognized that identifying the client in an appraisal report may violateconfidentiality provisions; therefore, USPAP now provides for an exception should theclient request anonymity (see assumption stated above whereby P&A does not believe an advalorem tax client will not or cannot ever request anonymity).
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Note: This section, in conjunction with any attached or separately provided P&A-generated appraisal reportsspecific to the subject property or properties, constitutes the “mass appraisal written report” as required byUSPAP Standards Rule 6-8. USPAP Standards Rule 6-9 (certification) can be found at the end of this report. USPAP Standards Rules 6-1 through 6-7 (instructions and explanations regarding the development, application,and reconciliation of mass appraisal values), as they apply to P&A mass appraisal procedures, are discussedbelow. USPAP DOES NOT DICTATE THE FORM, FORMAT, OR STYLE OF APPRAISAL REPORTS, WHICH AREFUNCTIONS OF THE NEEDS OF USERS AND PROVIDERS OF APPRAISAL SERVICES. USPAP ALSO DOES NOTMANDATE THAT EACH APPRAISAL REPORT BE LENGTHY AND FULL OF DISCLAIMERS. Readers should notethat all P&A reports, unless stated otherwise, are of a “restricted” nature whereas additional documentation anddetail may be available per certain Texas Property Tax Code provisions.
REAPPRAISAL OF INDUSTRIAL, UTILITY, AND RELATED PERSONAL PROPERTY
INTRODUCTION
Definition of Appraisal Responsibility: The Engineering Services Department of Pritchard & Abbott, Inc. (P&A) isresponsible for developing fair and uniform market values for industrial, utility and personal properties.
P&A’s typical client is a governmental entity charged with appraisal responsibility for ad valorem tax purposes, althoughother types of clients (private businesses, individuals, etc.) occasionally contract for appraisal services which are strictly forvarious non-ad valorem tax purposes so that no conflicts of interest are created with P&A’s core ad valorem tax work.
P&A hereby makes the assumption that, in all appraisal assignments performed for governmental entities in satisfaction ofcontractual obligations related to ad valorem tax , the client does not wish to or cannot legally request the appraisal reportnot identify the client.
Intended users of our reports are typically the client(s) for which we are under direct contract and taxpayers or their agentswho own and/or represent the subject property being appraised. Potential other users include parties involved in adjudicationof valuation disputes (review board members, lawyers, judges, etc.), governmental agencies which periodically review ourappraisals for various statutory purposes (such as the Texas Comptroller’s Office) and private parties who may obtain copiesof our appraisals through Open Records Requests made to governmental agencies.
P&A believes this section of this report, in conjunction with any attached or separately provided P&A-generated report(s),meets the USPAP definition of “typical practice”; i.e., it satisfies a level of work that is consistent with:
1. the expectations of participants in the market for the same or similar appraisal services; and2. what P&A’s peers’ actions would be in performing the same or similar appraisal services in compliance with
USPAP.
This section of P&A’s USPAP report is not applicable to any Industrial, Utility, or related Personal Property that anappraisal district appraises outside of P&A’s appraisal services, in which case the appraisal district’s overall USPAPreport should be referenced.
P&A makes the Extraordinary Assumption that all properties appraised for ad valorem tax purposes are marketable whereasownership and title to property are free of encumbrances and other restrictions that would affect fair market value to an extentnot obvious to the general marketplace. If and/or when we are made aware of any encumbrances, etc., these would be takeninto account in our appraisal in which case the extraordinary assumption stated above would be revoked.
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Legal and Statutory Requirements: The provisions of the Texas Property Tax Code and relevant legislative measuresinvolving appraisal administration and procedures control the work of P&A as a subcontractor to the Appraisal District. P&Ais responsible for appraising property on the basis of its market value as of January 1 for ad valorem tax purposes for eachtaxing unit that imposes ad valorem taxes on property in the contracted Appraisal District. All industrial, utility and personalproperties are reappraised annually. The definition of Fair Market Value is provided and promulgated for use in ad valoremtax work in Texas by the Texas Property Tax Code, and therefore as a Jurisdictional Exception supercedes the definitionof “market value” as found in USPAP definitions.
Administrative Requirements: P&A follows generally accepted and/or recognized appraisal practices and when applicable,the standards of the International Association of Assessing Officers (IAAO) regarding its appraisal practices and procedures. P&A, when applicable, also subscribes to the standards promulgated by the Appraisal Foundation known as the UniformStandards of Professional Appraisal Practice (USPAP). P&A submits annual or biannual contract bids to the Office of theChief Appraiser and is bound to produce appraisal estimates on industrial, utility and personal properties within the costconstraints of said bid. Any appraisal practices and procedures followed by P&A not explicitly defined through IAAO orUSPAP requirements are specified by the Texas Property Tax Code and/or at the specific request or direction of the Officeof the Chief Appraiser.
Appraisal Resources
Personnel: The Engineering Services Department and P&A’s appraisal staff consists of appraisers with degrees inengineering, business and accounting. All personnel are Registered Professional Appraisers with the State of Texas, or areprogressing towards this designation as prescribed by the Texas Department of Licensing and Regulation (TDLR).
Data: A set of data characteristics (i.e. original cost, year of acquisition, quantities, capacities, net operating income, propertydescription, etc.) for each industrial, utility and personal property is collected from various sources. This data is maintainedin either hard copy or computer files. Each property's characteristic data drives the appropriate computer-assisted appraisalapproach to valuation.
Information Systems: P&A’s mainframe computer system is composed of in-house custom software augmented by schedulesand databases that reside as various applications on personal computers (PC). P&A offers a variety of systems for providingproperty owners and public entities with information services.
VALUATION APPROACH (MODEL SPECIFICATION)
Concepts of Value: The valuation of industrial, utility and personal properties is not an exact science, and exact accuracyis not attainable due to many factors. These are considered complex properties and some are considered Special Purposeproperties. Nevertheless, standards of reasonable performance do exist, and there are reliable means of measuring andapplying these standards.
The evaluation and appraisal of industrial, utility and personal property relies heavily on the discovery of the propertyfollowed by the application of recognized appraisal techniques. The property is subject to inflation and depreciation in allforms. The appraisal of industrial and personal property involves understanding petroleum, chemical, steel, electrical power,lumber and paper industry processes along with a myriad of other industrial processes. Economic potential for this propertyusually follows either the specific industry or the general business economy. The appraisal of utility properties involvesunderstanding telecommunications, electrical transmission and distribution, petroleum pipelines and the railroad industry. Utility properties are subject to regulation and economic obsolescence. The examination of utility property involves theunderstanding of the present value of future income in a regulated environment.
The goal for valuation of industrial, utility and personal properties is to appraise all taxable property at "fair market value". The Texas Property Tax Code defines Fair Market value as the price at which a property would transfer for cash or itsequivalent under prevailing market conditions if:
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• exposed for sale in the open market with a reasonable time for the seller to find a purchaser; • both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it
is capable of being used and of the enforceable restrictions on its use; and• both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the
exigencies of the other.
Approaches to Value for Industrial, Utility, and Personal Property Cost Approach: The use of cost data in an appraisal for market value is based upon the economic principle of substitution. This method is most readily applicable to the appraisal of industrial and personal property and some utility property. Underthis method, the market value of property equals the value of the land plus the current cost of improvements less accrueddepreciation. An inventory of the plant improvements and machinery and equipment is maintained by personally inspectingeach facility every year. As a general rule, and for the reasons stated above, Pritchard & Abbott, Inc., reliespredominantly on the cost approach to value in the appraisal of industrial, utility, and personal property.
Market Approach: This approach is characterized as one that uses sales data available from actual transactions in the marketplace. There are two factors that severely limit the usefulness of the market approach for appraising industrial, utility andpersonal properties. First, the property sales data is seldom disclosed; consequently there is insufficient market data for theseproperties available for meaningful statistical analysis. Second, all conditions of sale must be known and carefullyinvestigated to be sure one does have a comparative indicator of value. Many times when these properties do change hands,it is generally through company mergers and acquisitions where other assets and intangibles in addition to the industrial,utility and personal property are involved. The complexity of these sales presents unique challenges and hindrances to theprocess of allocation of value to the individual components of the transaction.
In the case of industrial, utility and personal properties, a scarcity of sales requires that all evidence of market data beinvestigated and analyzed. Factors relative to the sale of these properties are:
• plant capacity and current production; terms of sale, cash or equivalent;• complexity of property;• age of property;• proximity to other industry already operated by the purchaser; and• other factors such as capital investment in the property.
As a general rule, and for the reasons stated above, Pritchard & Abbott, Inc., rarely employs a rigorous applicationof the market approach in the appraisal of industrial, utility, and personal property.
Income Approach: This approach to value most readily yields itself to all income generating assets, especially utilityproperties. Data for utility properties is available from annual reports submitted to regulatory agencies whereby futureincome may be estimated, and then this future income may be converted into an estimate of value. The valuation of an entirecompany by this method is sometimes referred to as a Unit Value. Many refer to this as a capitalization method, becausecapitalization is the process of converting an income stream into a capital sum (value). As with any method, the final valueestimate is no better than the reliability of the input data. The underlying assumption is that people purchase the propertyfor the future income the property will yield.
The relevant income that should be used in the valuation model is the expected future net operating income after depreciationbut before interest expense (adjustments for Federal Income Taxes may or may not be required). Assumptions of this methodare:
• Past income and expenses are a consideration, insofar as they may be a guide to future income, subject to regulationand competition.
• The economic life of the property can be estimated. • The future production, revenues and expenses can be accurately forecasted. Future income is less valuable than
current income, and so future net income must be discounted to make it equivalent to the present income. This
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discount factor reflects the premium of present money over future money, i.e., interest rate, liquidity, investmentmanagement, and risk.
As a general rule, and for the reasons stated above, Pritchard & Abbott, Inc., employs the income approach in theappraisal of industrial and utility property only when quantifiable levels of income are able to be reliably determinedand/or projected for the subject property. P&A does not employ the income approach in the appraisal of personalproperty.
DATA COLLECTION/VALIDATION
Sources of Data: The main source of P&A’s property data for industrial and personal property is through fieldwork by theappraisers and commercially/publicly available schedules developed on current costs. Data for performing utility appraisalsis typically provided by the taxpayer or is otherwise available at various regulatory agencies (Texas Railroad Commission,Public Utilities Commission, FERC, etal.). Other discovery tools are financial data from annual reports, information fromchief appraisers, renditions, tax assessors, trade publications and city and local newspapers. Other members of the publicoften provide P&A information regarding new industry and other useful facts related to property valuation.
Data Collection Procedures: Electronic and field data collection requires organization, planning and supervision of theappraisal staff. Data collection procedures have been established for industrial and personal properties. Appraisers gatherand record information in the mainframe system, where customized programs serve as the basis for the valuation of industrial,utility and personal properties. P&A is divided into multiple district offices covering different geographic zones. Each officehas a district manager and field staff. While overall standards of performance are established and upheld for the variousdistrict offices, quality of data is emphasized as the goal and responsibility of each appraiser. Additionally, P&A’sEngineering Services Department provides supervision and guidance to all district offices to assist in maintaining uniformand consistent appraisal practices throughout the company.
VALUATION ANALYSIS (MODEL CALIBRATION)
The validity of the values by P&A’s income and cost approaches to value is tested against actual market transactions, if andwhen these transactions and verifiable details of the transactions are disclosed to P&A. These transactions are checked formeeting all requisites of fair market value definition. Any conclusions from this analysis are also compared to industrybenchmarks before being incorporated in the calibration procedure. Appropriate revisions of cost schedules and appraisalsoftware are annually made and then tested for reasonableness prior to the appraisals being performed.
INDIVIDUAL VALUE REVIEW PROCEDURES
Individual property values are reviewed several times in the appraisal process. P&A's industrial, utility, personal propertyprograms and appraisal spreadsheets afford the appraiser the opportunity to review the value being generated. Often theappraiser is prompted to reevaluate some or all of the parameters of data entry so as to arrive at a value more indicative ofindustry standards. Examples of indicators are original cost, replacement cost, service life, age, net operating income,capitalization rate, etc. In addition to appraiser review, taxpayers are afforded the opportunity to review the appraised valueseither before or after Notices of Appraised Value are prepared. Taxpayers, agents and representatives routinely meet withP&A's appraisers to review parameters and to provide data not readily available to P&A through public or commercialsources, such as investment costs and capitalization rate studies. And of course, all property values are subject to reviewthrough normal protest and Appraisal Review Board procedures, with P&A acting as a representative of the Office of theChief Appraiser.
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PERFORMANCE TESTS
An independent test of the appraisal performance of properties appraised by P&A is conducted by the State of TexasComptroller’s Office through the annual Property Value Study for school funding purposes. This study determines the degreeof uniformity and the median level of appraisal for utility properties. School jurisdictions are given an opportunity to appealany preliminary findings. After the appeal process is resolved, the Comptroller publishes a report of the findings of the study,including in the report the median level of appraisal, the coefficient of dispersion around the median level of appraisal andany other standard statistical measures that the Comptroller considers appropriate.
CHANGES FROM 2014-2015 USPAP:
1. The ASB recognized that identifying the client in an appraisal report may violateconfidentiality provisions; therefore, USPAP now provides for an exception should theclient request anonymity (see assumption stated above whereby P&A does not believe an advalorem tax client will not or cannot ever request anonymity).
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