Scope of Work:
The Residential Valuation Department is responsible for developing equal and uniform market values for all residential improved and vacant property for ad valorem purposes located inside the jurisdictional boundaries of the appraisal district. The district staff employees which will be involved in the valuation of residential properties include the Chief Appraiser, Assistant Chief Appraiser, Residential Department manager, residential appraisers, and any other staff member deeded appropriate by the Chief Appraiser.
Highest and Best Use Analysis:
The highest and best use must be physically possible, legal, financially feasible, and productive to its maximum potential. The residential appraisal staff will conduct a highest and best use analysis of residential property to ensure the current use of property supports the highest present value as of the date of the appraisal. The highest and best use of residential property is normally its current use. Residential Valuation undertakes reassessment of highest and best use in transition areas and areas of mixed residential and commercial use. Adjustments to the property value is made via changes in land classification or adjustments factors; improvement adjustment factors or classification code; or a combination of land and improvement adjustments are made in order to properly appraise the subject property at market value.
Data on regional economic forces affecting the valuation of real property values will be collected from various public, professional, and private sources by the Residential Department Manager and appraisal staff. This information is used in neighborhood analysis and calibration of economic factors.
Neighborhood and and Market Analysis:
Properties of common traits are grouped into geographic groupings called “GEOs” or neighborhoods which share similar and uniform physical, economic, governmental and social forces. The neighborhoods are smaller, manageable subsets of the universe of properties. Each residential neighborhood is assigned to a neighborhood group (NBF) based on observable aspects of homogeneity between neighborhoods. Neighborhood analysis will be performed to examine how these forces influence property values. Residential valuation and neighborhood analysis is conducted on each Independent School District (ISD) in the county. Factors of the neighborhood including location, sales price range, lot size, age of dwelling, quality of construction and condition of dwellings, square footage of living area, and story height will be examined to determine if any changes should be made to its defined boundaries in a process known as “delineation”. Delineation may result in changing the physical boundary lines of the neighborhood and or the statistical separation (stratification) of neighborhoods based on attribute analysis. The district’s residential valuation neighborhoods (GEOs) are inspected and delineated based on observable aspects of homogeneity.
Field Inspection Procedures:
Appraisers of the Midland Central Appraisal District shall inspect the exterior of each structure. Interior data shall be obtained through personal interviews when possible. Construction features, characteristics, appendages, accessory buildings or irregularities for each property shall be recorded on field worksheets or portable computers. Grade classification shall be distinctly considered and state appraisal classification guidelines followed for each building. Periodic inspections of work of all appraisal personnel shall be made by the residential department manager in the grading (or classifying) of dwellings to insure correct, uniform, and consistent grade classification use.
A perimeter sketch of each residential building will be drawn on the field worksheet or in portable computer and all necessary dimensions and identification symbols shall be placed on this sketch. Appendages such as attached garages, porches, etc. shall be carefully shown with dimensions and labeled accordingly. All other pertinent appraisal information will be gathered and recorded.
Residential Inspection Specifications:
Staff appraisers will be assigned to designated areas in Midland County for the purpose of residential inspection. Each appraiser will be given the responsibility to visually and/or physically inspect each commercial property within their assigned area.
The appraiser will conduct on-site slow-pass vehicular inspection of the residential property when passive inspections are inadequate. Inspections will include both passive and active inspection activities depending on the property requirements. Passive inspection is performed by on-site visual inspection and/or by utilizing oblique aerial images, (i.e. Eagleview Imagery). Active inspection includes either physical observational walk-through; on-site measurement; on-site counting; person-to-person interviews with owners, managers, or agents of the property; or a combination thereof.
Cost Schedule Development and Updates:
All residential parcels in the district are valued from identical cost schedules using a comparative unit method. The district will update and maintain the cost tables and schedules in the computerized mass appraisal analysis (CAMA) program. The district’s residential cost schedules are customized to fit Midland County’s local residential building and labor market. As part of the reappraisal process, the cost schedules will be reviewed to ensure accuracy and that they are within a range of plus or minus 10% from nationally recognized cost schedules. An extensive review and revision of the residential cost schedule will be performed in the reappraisal year. District staff will review newly constructed sold properties at various levels of quality of construction in Midland County. The property data characteristics of these properties will be verified and photographed as samples. From these samples, a representative subset will be selected for use in the MCAD cost system schedule update. MCAD dwelling costs will be compared against current cost estimates of Marshall Swift Valuation Service, a nationally recognized cost estimator. The district will correlate the quality of construction factors from MCAD and Marshall Swift.
The results of this comparison will be analyzed using statistical measures, including stratification by quality and review of estimated building costs plus land to sales prices. As a result of this analysis, a new regional multiplier will be developed and used in the district’s cost process. PC spreadsheet applications will be created to atypical and unique appraisal situations.
Sales Information Updates:
A sales file for the storage of sales data for improved properties is maintained for residential real property. Residential real property sales are collected from a variety of sources, including: district questionnaires letters sent to buyers and sellers, field discovery, protest hearings, Transunion data, various sale vendors, builders, and appraisers. A system of type, source, validity and verification codes has been established to ensure accuracy and determine relevant market sale price information. The effect of time influence on price may be considered via paired sales analysis or forecast trending.
Statistical analysis will be performed to evaluate whether values are equitable and consistent with values from the market. Ratio studies will be conducted on each of the residential neighborhoods in the district to judge the two primary aspects of mass appraisal accuracy–level and uniformity of value. Appraisal statistics of central tendency and dispersion generated from sales ratios will be examined and analyzed for each stratified neighborhood within an ISD. Summary statistics utilized will including, but not be limited to, the weighted mean, median, standard deviation, coefficient of variation, and coefficient of dispersion. These statistical analyses will be used to the weighted mean for individual properties within a neighborhood, and compare neighborhood weighted means to indicate the general level of appraised value between comparable neighborhoods. Uniformity within and between stratified neighborhoods will also be examined using the available analysis tools within the district’s CAMA system.
The district will also perform sales ratio analysis for each neighborhood. In the first phase: neighborhood ratio studies will be compared to the recent sales prices of neighborhood properties to the appraised values of the sold properties. In the second phase: the ratio studies will be used to judge the level of appraised value and uniformity of the sales. In the final phase: decisions to change the designated valuation parameters will be based on the statistical outcomes of the ratio analyses. Parameters will be adjusted as needed to ensure each overall neighborhood valuation is at an acceptable level.
Residential Cost Model:
The Midland Central Appraisal District’s primary residential valuation model is a hybrid cost-sales comparison approach technique. Neighborhood adjustment factors (NBF), functional obsolescence factors (FD), and economic obsolescence factors (ED) are used to modify base cost estimates and to ensure that estimated values are consistent with the market. This type of approach accounts for internal and external value influences not specified in a pure cost model.
The following equation denotes the hybrid model used:
MV = [( RCN – D ) ( 1 + FD) ( 1 + ED ) (NBF + 1)] + LV
Whereby; the market value (MV) equals the replacement cost new (RCN) less depreciation (D) multiplied by the functional (FD) and economic (ED) adjustment factors, the result of which is multiplied by the neighborhood adjustment factor (NBF) thus composing the final improvement value, where by the land value (LV) is added to complete the total property value.
Once all adjustments factors are input into the district’s CAMA system, recalculation of property valuation is performed either on individual accounts or on a mass basis in order generate final valuation.
- Model Specification: New specifications for modified cost valuation model will be made in the reappraisal year. Model specification will involve the input of new or updated base values, rates, tables, and adjustments factors as required by the CAMA software system and other MCAD residential valuation programs or systems. Details of which are described in previous sections of this report. System programming and software structure may be changed to more accurately reflect standardized appraisal valuation techniques or to comply with legal and professional specifications.
- Model Calibration: Residential Valuation Models will be calibrated by adjusting the mass appraisal formulas, tables and schedules to reflect current local market conditions as described above. Ratio studies will be used to compare recent sales prices of properties appropriately adjusted for the effects of time within delineated neighborhoods. Cost-to-sale ratios will be compared to the appraisal-to-sale ratios in order to determine the market adjustment factor for each neighborhood. Monthly market-trend factors will be developed and a second set of ratio studies will be generated to compare recent sale prices with the proposed appraised values for these sold properties. From this set of ratio studies, the district will update NBF factors of the delineated neighborhoods as deemed appropriate to reflect market value.
Application of Income Approach:
When available, residential lease information is collected from various sources including; individual property owners, tenants, managers, and other sources. This information is stored in the district’s CAMA software system.
The income approach to value is generally not considered the primary valuation technique for residential property in large part due to the limited availability of information. MCAD may utilize the income valuation techniques for specialized residential income producing property and as a verification check to support other appraisal valuation methods when deemed appropriate.