2015 Property Tax Sym - Ripans & McNaught PowerPoint 2015-11-02 2321

RULES OF EVIDENCE ON

OPINIONS OF MARKET VALUE

IN COURT OR

ADMINISTRATIVE HEARINGS

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Jon M. Ripans The Ripans Law Firm, LLC

Valuation Matters, LLC

Atlanta, Georgia

[email protected]

Jeffery J. McNaught The Law Offices of

Jeffery J. McNaught

Minneapolis, Minnesota

[email protected]

2015 IPT Property Tax Symposium

This session is a multi-jurisdictional survey of the rules governing the types of witnesses who are deemed competent to give opinion of value evidence in courts of record, tax tribunals, and administrative hearings.

Given the sheer volume of cases, it is impractical to provide detailed case information here. Case law annotations and citations can be found on the LinkedIn page for Jon Ripans:

http://www.linkedin.com/in/jonripans



Individuals in roles such as assessors,

appraisers, property owners, real estate

brokers, tax consultants, and others will

be discussed.

The goal is to learn more about the

requirements in place for multiple

jurisdictions and discuss how various

jurisdictions across the country have

treated opinion of value in other cases.



The goals of this session are to:

Identify witnesses who can give opinion of value

testimony;

Learn the various settings in which opinion of

value testimony is presented; and

Differentiate how courts in various jurisdictions

treat opinion of value testimony.



The Fundamental Assumptions Underlying This Presentation:

The rules of evidence are mostly exclusionary rules designed to prevent lay jurors from being misled, prejudiced, or tainted by “bad” evidence.

Court proceedings, with or without a jury, have the strictest rules of evidence in most jurisdictions.

The rules of evidence, if any, for administrative hearings, such as boards of equalization, tax tribunals, property tax hearing officers, etc., are almost always less strict than the rules of evidence in courts of record.



The Fundamental Assumptions Underlying This Presentation (cont’d):

Therefore, if evidentiary rules or court cases in a given jurisdiction say that certain persons may provide opinion of value testimony, then those categories of persons are likely to be competent witnesses for opinions of value in property tax appeals at all levels. Examples include, but are clearly not limited to the following:

Appraisers

Brokers

Individual Property Owners

Corporate Property Owners



The Key Distinction in Evidentiary Matters

is Admissibility vs. Weight and Credibility

The fundamental analysis in the use of evidence

is a two-step process:

Step One is the Admissibility of Evidence

What types of evidence are admissible?

Who is a competent witness for each type evidence?

What evidentiary foundation is needed to admit the

evidence?

Step Two is what Weight and Credibility should the

trier of fact give the evidence.



The Key Distinction in Evidentiary Matters

is Admissibility vs. Weight and Credibility

(cont’d). Weight and Credibility is an infinite topic that is beyond the scope

of this presentation because it involves how the trier of fact – a

jury or a judge sitting without a jury – perceives the credibility of

the evidence and what weight they choose to give to it.



The Key Distinction in Evidentiary Matters is Admissibility vs. Weight and Credibility (cont’d).

Similarly, it is far beyond the scope of a one-hour presentation to cover all types of evidence that could be used to argue value, but we will go over some of them.

Cost Approach: Land, Construction Costs, Depreciation, Deferred Maintenance, Functional Obsolescence, External Obsolescence

Income Approach: Market Rents, Other Income, Market Vacancy, Expenses, Cap Rate, Lease-Up/Stabilization

Sales Comparison Approach: Comparables, Adjusting the Comparables to Subject Property



There are two types of witnesses:

Fact Witnesses with first-hand knowledge of

particular facts

Opinion Witnesses who can give an opinion on

the ultimate issue in dispute and who are one of

three types:

Expert Opinion Witnesses

Skilled Witnesses

Lay Opinion Witnesses



It almost seems as if the following case

from Wyoming sums it up:

A witness who asserts an opinion of the

value of property not supported by facts is

not competent, and an expert opinion is

not substantial evidence unless he can

give a satisfactory explanation of how he

arrived at his opinion. Chicago & N. W. Ry.

Co. v. Hillard, 502 P.2d 189 (Wyo. 1972).



The following case from New Jersey also seems to sum up the overall concepts quite well:

Permitting witness to testify as expert on value of easement condemned for electric line was discretionary where he had made thousands of appraisals, notwithstanding his use of alleged hearsay as to comparable sales. N.J.S. 2A:83-1, N.J.S.A. Rockland Elec. Co. v. Bolo Corp., 66 N.J. Super. 171, 168 A.2d 817 (App. Div. 1961).



Generally, individual owners (as opposed

to corporate owners) of real property are

competent opinion of value witnesses in

all jurisdictions surveyed, except I do not

have a case citation for Michigan, New

Jersey, Rhode Island. [Corporate owners

are also competent in most jurisdictions].



Some jurisdictions have explicit statutes (Georgia and Alabama) or case law that state or strongly suggest that any person is competent to give an opinion of value so long as there is some sort of evidentiary foundation; methodology or knowledge superior to the trier of fact’s (judge or jury); or both.

See Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, West Virginia, Wisconsin, Wyoming.



Corporate Owners, like most witnesses, are

generally not qualified unless evidentiary

foundation and basis for opinion of value are

demonstrated.

See Colorado, Iowa, Maine, Massachusetts,

Nevada, North Carolina, Oregon, Texas.



Brokers and Real Estate Agents are generally competent to testify if an evidentiary foundation and a basis for their opinion of value is demonstrated, although weight and credibility are still in the eye of the trier of fact.

See Arizona, California, Connecticut, Louisiana, Massachusetts, Missouri, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Texas.



Again, given the sheer volume of cases, it

is impractical to provide detailed case

information here. Case law annotations

and citations can be found on the LinkedIn

page for Jon Ripans:

http://www.linkedin.com/in/jonripans



Some Observations on the Weight and

Credibility of Various Witnesses’ Fact or

Opinion Testimony Regarding Various

Aspects of the Cost Approach.

Land

Construction Costs

Depreciation

Deferred Maintenance

Functional Obsolescence

External Obsolescence






Aspects of the Income Approach.

Market Rents

Other Income

Market Vacancy

Expenses

Cap Rate

Lease-Up/Stabilization






Aspects of the Sales Comparison

Approach.

Comparables

Adjusting the Comparables to Subject Property



Expert and Witness Reports

The Report – Written Manifestation of the Witness’s Opinion

Witness can be cross examined on report

Witness underlying data/basis revealed

Witness credibility and weight of opinion evaluated by the finder

Report – Commonly referred to as an “Appraisal”



Definition of “Appraisal”

Appraisal Institute/USPAP – “an appraisal is ‘the act or process of developing an opinion of value’ of an asset.”

Minnesota Statutes – “Appraisal” or “real estate appraisal” means an analysis, opinion, or conclusion relating to the nature, quality, value, or utility of named interests in, or aspects of, identified real estate for purposes of preparing an appraisal report.



Minnesota Statutes - "Appraisal report"

means an oral or written communication

of an appraisal for compensation … given

or signed by a licensed real estate

appraiser.



Other reports can be evidence in a

valuation proceeding:

Letter of Intent

Purchase Agreement

Purchase Offer

Broker Price Opinion

But are such reports “appraisals”?




Definition – Appraisal Institute – “An opinion of property price rendered by a licensed real estate agent or broker.”

Definition – Minnesota Statutes – "broker price opinion" or "BPO" means an estimate prepared by a real estate broker, real estate salesperson, or licensed real estate appraiser that details the probable selling price of a particular parcel of real property and provides a varying level of detail about the property's condition, market, and neighborhood, and information on comparable sales, but does not include an automated valuation model.”

“Automated valuation model” – a computerized model used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured, or to be secured, by a consumer’s principal dwelling.



Definition - “Market analysis” or “broker price

opinion” means a price opinion prepared by a

licensed real estate salesperson, broker, or real

estate appraiser in accordance with [Minn. Stat.

§82.735.]



Requirements for Broker Price Opinion

Must be in Written form

Must contain:

Statement of purpose

Description of property

Basis for opinion on the price

Applicable market data

Assumptions and limiting conditions



Required language - “This opinion is not an appraisal of the market value of the property, and may not be used in lieu of an appraisal. If an appraisal is desired, the services of a licensed or certified appraiser must be obtained.” Minn. Stat. §82.735, subd. 3(a)(9).

Required disclosure – “An appraiser preparing a broker price opinion shall disclose that the appraiser is not acting as an appraiser in preparing the broker price opinion and that the broker price opinion is not an appraisal or appraisal assignment and, therefore, is not subject to USPAP.” Minn. Stat. §82B.035, subd. 1(b).



Broker Price Opinion v. Appraisal

Cost

Preparation Time

Degree of analysis (income analysis/evaluation of comparable sales)

Licensed Appraisers write Appraisals

Agents, brokers, appraisers can write BPOs

BPO not subject to USPAP requirements and certifications

Conclusion of Price (what asset should list for) not Value (willing buyer/willing seller, arms length transaction)



Case Study – 1501 Partnership v. Hennepin County (Minnesota)

Statute – BPO is not an appraisal

BPO – statutory mandated language

BPO is NOT an appraisal

BPO must include language that it is NOT an appraisal

Statute – Appraisal must be delivered 5 days before trial

Non-compliance – dismissal of case



Timing and Cost Effectiveness

Close in to hearing date

Property value did not justify trial appraisal

BPO prepared and delivered 3 days before

Trial – Motion to Dismiss

Exchange date had passed

Court – BPO is an Appraisal



Court’s Opinion

Applied a broad definition of “Appraisal”

Miriam Webster – “appraisal” is “something

that states an opinion about the value,

condition, or importance of something.”

Appraisal is not a technical term

Statutes defining and regulating BPO/Appraisal are

licensing rules; do not govern whether a document is

an appraisal for purposes of property tax appeals.

“We decline to characterize ‘appraisal’ as a technical

term for purposes of [appraisal exchange].”



Statutory definitions and technical treatment of the Appraisal and BPO do not apply to Tax Court

Implications of Broad Interpretation of the term “Appraisal”

Any statement that includes any substantive mention or position on worth can be considered an appraisal

Expanded use of other reports as additional or alternative evidence

Potential for motions to exclude materials if not timely exchanged or shared



What opinions constitute an appraisal and

who may be an appraiser?

Broker’s opinion is an appraisal

Agent’s opinion is an appraisal

Owner’s opinion is an appraisal

Property manager’s opinion is an appraisal

Tenant’s opinion is an appraisal

Banker’s opinion is an appraisal



What written materials may be appraisals


Letter of Intent

Purchase Agreement

Purchase Offer

Mortgage

Owner/accountant income proforma

Blog page/email/communication



Relaxed regard as to “Appraisal”

All qualified testimony regarding a property’s

value must be considered

Court must look to the substance of the report

to determine whether the document is an

appraisal

Issues of the weight to be given the evidence

become the key factor



Conclusion

Alternative valuation services and reports have

achieved regard in many areas where formal

appraisal analyses have traditionally been the

sole source of valuation authority.

BPO originally an advisory tool for property

pricing

BPOs have been used in the mortgage issuing

area, as a substitute for appraisal

Minnesota recognized the BPO as an appraisal

for purposes of property tax assessment review



Jon M. Ripans

The Ripans Law Firm, LLC

Valuation Matters, LLC

Atlanta, Georgia

[email protected]

Jeffery J. McNaught

The Law Offices of Jeffery J. McNaught

Minneapolis, Minnesota

[email protected]


2015 Property Tax Sym - Ripans & McNaught PowerPoint 2015-11-02 2321

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