Statistical testing of these standards is known as a Sales Ratio Analysis. Reports are run for each school district, city, class of property, land, and neighborhoods for example, to test the sales we have. Standards for median ratio, weighted median ratio, coefficient of dispersion (cod), and price related differential (prd) are following the requirements set by the Texas Comptroller, Property Tax Division, and the International Association of Assessing Officers.
The objective of a ratio study is to determine appraisal performance for the population of properties.
As long as sold and unsold properties are appraised in the same manner, statistics calculated in a sales ratio study can be used to infer appraisal performance for unsold properties. The sales ratio report is a sales-based study designed to evaluate appraisal performance.
The major responsibility of the appraisal districts is estimating the market value of properties based on legal requirements for property tax purposes. The accuracy of appraisals made for this purpose is a concern, not only to the appraisal district but also to taxing authorities, property owners, and elected representatives.
Sales prices provide the most objective estimates of market values and under normal circumstances should provide good indicators of market value.
One aspect of appraisal accuracy is the appraisal level which refers to the overall ratio of appraised values to market values. Dividing the appraised value by the sale price forms the ratio. Ratio study statistics are used to judge the level of appraisal of a number of accounts in the population.
Measures of Appraisal Level include the median ratio, mean ratio, and the weighted mean ratio. Measures of Appraisal Uniformity include the COD (Coefficient of Dispersion) and the PRD (Price Related Differential)
The median ratio is the middle ratio when ratios are arrayed in order of magnitude. The median is generally the preferred measure of central tendency. The acceptable range for the median ratio is .95 to 1.05.
The mean ratio is the average of the ratios. In a normal distribution the mean equals the median. In a distribution skewed to the right, the mean is greater than the median. The mean is affected more by extreme ratios than the median.
The weighted mean gives equal weight to each dollar of value in the sample, whereas the median and mean give equal weight to each parcel. The weighted mean is used in computing the PRD (Price Related Differential), a measure of uniformity between high- and low-value properties.
The COD measures the variability or uniformity. The COD measures the average percentage deviation of the ratios from the median ratio. The acceptable COD for single family residence is less than 15.
The PRD measures vertical equity. It is an indication of whether low-and high-value properties are valued at the same level. A PRD above 1.03 indicates high-value properties are relatively undervalued. If under .98 low-value properties are relatively undervalued. This statistic should be close to 1.00. The acceptable PRD for single family residence is between .98 and 1.03.