STANDARD 6.

In developing and reporting a mass appraisal for ad valorem tax purposes, an appraiser must be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce and communicate credible appraisals within the context of the property tax laws.

Comment: Standard 6 is directed toward the substantive aspects of developing and communicating competent analyses, opinions, and conclusions for ad valorem tax purposes. Two types of appraisals are made for ad valorem tax purposes: individual property appraisals and mass appraisals. Individual property appraisals usually are made when a mass appraisal is being contested. Generally, individual property appraisals should conform to Standard 1 and/or 7. Mass appraisals, which often are developed by teams of people, some of whom may not be appraisers, are the subject of this Standard.

Although appraisal is an important aspect of ad valorem tax administration, other important aspects, including locating and describing property, identifying ownership, determining tenability, making assessments, maintaining cadastral record systems, and satisfying a variety of information needs, result in appraiser-client relationships that are distinctly different from the usual relationships between appraisers and clients.

Standards Rule 6-1.

In developing a mass appraisal for ad valorem tax purposes, an appraiser must:

1. (a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal;

   Comment: S.R. 6-1(a) is identical in scope and purpose of S.R. 1-1(a). Changes in regional economies, development patterns, and property tax legislation has a substantial impact on property assessment.

2. (b) not commit a substantial error of omission or commission that significantly affects an appraisal;

   Comment: S.R. 6-1(b) is identical in scope and purpose to S.R. 1-1(b) when making an individual property appraisal. S.R. 6-1(d) applies in mass appraisal.

3. (c) not render an appraisal in a careless or negligent manner;

   Comment: S.R. 6-1(c) is identical in scope and purpose to S.R. 1-1(c).

4. (d) employ those recognized mass appraisal procedures and techniques that are necessary to minimize errors in the data and analyses;

   Comment: This rule requires appraisers for ad valorem tax purposes engaged in mass appraisal to take reasonable steps to ensure that the quality of the factual data that are collected are sufficient to produce credible appraisals. The requirements for real and personal property differ.

   For real property, systems for routinely collecting and maintaining ownership, geographic, sales, income and expense, cost, and property characteristics data should be established. Geographic data should be contained in a complete set of cadastral maps compiled according to current standards of detail and accuracy. Sales data should be collected, confirmed, screened, adjusted, and filed according to current standards of practice. The sales file should be separate from the property record file and should contain, for each sale, property characteristics data that are contemporaneous with the date of sale. Property characteristics data should be appropriate to the mass appraisal models being used, the requirements of classification and property tax policy, the requirements of other government and private users, and the marginal benefits and costs of collecting and maintaining each particular property characteristic. The property characteristics data file should contain data contemporaneous with the date of appraisal as well as current data. It may contain historical data on sales. The property characteristics data collection system should provide for periodic reinspection of all properties and special inspections of properties for which building permits have been issued. Data collectors should be trained, and they should use data. The data collection program should incorporate checks and audits to ensure that data are recorded correctly and consistently. For personal property, systems for routinely collecting and maintaining situs and ownership data, market data (e.g., cost, price, sales and income and expense), and property characteristics data should be established. Personal property data collection systems usually rely heavily on reports of taxable property holdings filed by owners and agents, but appraisers should have systems for verifying and auditing those reports and for discovering unreported taxable property.

5. (e) employ those recognized techniques for formulating and calibrating mass appraisal models; and

   Comment: Appraisers for ad valorem tax purposes engaged in mass appraisal must develop mass appraisal models that with reasonable accuracy represent the mathematical relationship between property value and supply and demand factors, as represented by quantitative and qualitative property characteristics. Models should be calibrated using generally recognized mass appraisal techniques, including multiple regression analysis and the adaptive estimation procedure, for applying the sales comparison, income, and cost approaches to value. Whenever feasible or appropriate, more than one method should be used in appraising a group of properties.

   Since personal property items generally are more homogeneous than real property parcels, personal property valuation models generally are simpler than real property valuation models.

6. (f) employ those recognized mass appraisal testing procedures and techniques that are necessary to ensure that standards of accuracy are maintained.

   Comment: It is implicit in mass appraisal that, even when well-formulated and well-calibrated mass appraisal models are used, some individual value estimates will not meet standards of reasonableness, consistency, and accuracy. However, appraisers for ad valorem tax purposes engaged in mass appraisal have a professional responsibility to ensure that, on an overall basis, models produce value estimates that meet attainable standards of accuracy. This responsibility requires appraisers to evaluate the performance of models, using, as appropriate, goodness of fit statistics, hold-out samples, analysis of residuals, and assessment-ratio data. They also should review individual value estimates before the decision to use those estimates as the basis for assessment is made.

   Standards Rule 6-2.

   In developing a mass appraisal for ad valorem tax purposes, an appraiser must:

7. (a) adequately identify the real estate, identify the real property interest under consideration, define the purpose and intended use of the appraisal, consider the scope of the appraisal, describe any special limiting conditions, and identify the effective date of the appraisal;

   Comment: Analogous considerations to those set forth in S.R. 6-2(a) apply to personal property. S.R. 6-3 and S.R. 6-4(a), 6-4(f), and 6-4(h) do not apply to personal property.

   In mass appraisal, fee simple interests in property are assumed and appraisers need only identify the real property interest under consideration explicitly when that assumption is not met. Similarly, the purpose, intended use, and scope of appraisals are assumed to be for ad valorem taxation, which facts do not need to be explicitly defined unless there is an intent to use an appraisal for ad valorem tax purposes for another function. With respect to special limiting conditions, appraisers for ad valorem tax purposes generally operate under pronounced cost constraints. Politically accepted expenditure levels for assessment administration are a function of a number of factors, including the value of the property being taxed and the relative reliance of the client governmental bodies on the property tax. As a result, expenditure levels may be considerably lower than the suggested levels in many areas. Sacrifices in data completeness and accuracy, valuation methods, and valuation accuracy are an inevitable consequence of such fiscal constraints. Appraisers should not be held accountable for constraints that are beyond their control.

8. (b) Define the value being considered if the value to be estimated is market value, the appraiser must clearly indicate whether the estimate is the most probable price:

   1. (i) in terms of cash; or
   2. (ii) in terms of financial arrangements equivalent to cash; or

   3. (iii) in such other terms as may be precisely defined;

      Comment: The definition of value for ad valorem tax purposes usually is stated in legislation, regulations, or court decisions and may vary with property use. Appraisers for ad valorem tax purposes must determine whether a stated legal definition differs materially from the general requirements of this rule and govern themselves accordingly. However, in mass appraisal it is not necessary for appraisers to define the value being considered explicitly in writing.

9. (c) when applicable and when the information is available to the appraiser in the normal course of business, consider easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature;
10. (d) consider whether an appraised fractional interest, physical segment, or partial holding contributes pro rata to the value of the whole, if applicable;

11. (e) identify and consider any personal property, fixtures or intangible items that are not property but are included in the appraisal.

    Standard Rule 6-3.

    In developing a mass appraisal for ad valorem tax purposes, an appraiser must:

12. (a) consider the effect on use and value of the following factors: existing land use regulations, reasonably probable modifications of such land use regulations, economic demand, the physical adaptability of the property, neighborhood trends, and the highest and best use of the property;

    Comment: S.R. 6-3(a) is identical in scope and purpose to S.R. 1-3(a).

13. (b) recognize that land is appraised as though vacant and available for development to its highest and best use and that the appraisal of improvements is based on their actual contribution to the site.

    1. (a) value the site by an appropriate method or technique;

    2. (b) collect, verify, analyze and reconcile;

       1. (i) such comparable cost data as are available to estimate the cost new of the improvement (if any);
       2. (ii) such comparable data as are available to estimate the difference between cost new and the present worth of the improvements (accrued depreciation);
       3. (iii) such comparable sales data, adequately identified and described, as are available to indicate a value conclusion;
       4. (iv) such comparable rental data as are available to estimate the market rental of the property being appraised;
       5. (v) such comparable operating expense data as are available to estimate the operating expenses of the property being appraised;
       6. (vi) such comparable data as are available to estimate rates of capitalization and/or rates of discount. No pertinent information shall be withheld;
    3. (c) base projections of future rent and expenses on reasonably clear and appropriate evidence;
    4. (d) when estimating the value of a leased fee estate or a leasehold estate, consider and analyze the effect on value, if any, of the terms and conditions of the lease;

    5. (e) consider and analyze the effect on value, if any, of the assemblage of the various estates or component parts of a property and refrain from estimating the value of the whole solely by adding together the individual values of the various estates or components parts;

       Comment: This rule should not be construed to invalidate properly formulated mass appraisal models calibrated by use of the cost approach.

    6. (f) consider and analyze the effect on value, if any, of anticipated public or private improvements, located on or off the site, to the extent that market actions reflect such anticipated improvements as of the effective appraisal date;
    7. (g) identify and consider the appropriate procedures and market information to perform the appraisal, including all physical, functional, and external market factors as they may affect the appraisal;

    8. (h) appraise proposed improvements only after examining and having available for future examination:

       1. (i) plans, specifications, or other documentation sufficient to identify the scope and character of the proposed improvements;
       2. (ii) evidence indicating the probable time of completion of the proposed improvements; and

       3. (iii) reasonably clear and appropriate evidence supporting development costs, anticipated earnings, occupancy projections, and the anticipated competition at the time of completion.

          Comment: Ordinarily, proposed improvements are not formally appraised for ad valorem tax purposes. Appraisers, however, are sometimes asked To provide information estimates of assessed values of proposed improvements so that developers can estimate future property tax burdens. Sometimes condominiums and units in planned unit developments are sold with an interest in unbuilt community property, the pro rata value of which, if any, should be considered in the analysis of sales data.

          Standards Rule 6-5.

          In developing a mass appraisal for ad valorem tax purposes, an appraiser must:

    9. (a) Consider and analyze any current agreement of sale, option, or listing of the property being appraised, if such information is available to the appraiser in the normal course of business;
    10. (b) Consider and analyze any prior sales of the property being appraised;

    11. (c) consider and reconcile the quality and quantity of data available and analyzed within the approaches used, and the adaptability or suitability of the approaches used.

        Standards Rule 6-6

        Mass appraisals for ad valorem tax purposes must be supported by documentation that is reasonably accessible to the public and communicated in ways that are not misleading. Documentation may be in the form of (1) records and files in electromagnetic, micro-graphic, paper, or other storage media; (2) reports; (3) manuals; (4) regulations; (5) statutes or other acceptable forms. The documentation should substantially conform to the factual requirements of Standards Rule 2-2. Appraisals for ad valorem tax purposes should be certified in a manner consistent with law and with generally accepted assessment practices.

        Comment: For reasons of efficiency, the documentation supporting mass appraisals for ad valorem tax purposes virtually never would be found in a single report. Such matters as the purpose of an appraisal, the date of appraisal, the definition of value, the treatment of divided interests, and the like, generally are matters of law and are found in constitutions, statutes, ordinances, regulations, or opinions.

        The rationale for choosing a particular valuation model and calibration method rarely would be stated in writing, except when specified in regulations or contested in court. The mathematical form of the model should, however, be accessible to qualified interested parties. Property owners and their agents should have access to qualified interested parties. Property owners and their agents should have access to the property characteristics data on their properties upon request. Value conclusions on all properties should be made accessible to all interested parties.

    Standards Rule 6-4.

    In developing a mass appraisal for ad valorem tax purposes, an appraiser must: